CBAK Battery Reports First Quarter Fiscal 2007 Financial Results

- Revenue rises 65.1% year-over-year to $43.1 million

- Net income increases 12.2% year-over-year to $3.6 million

SHENZHEN, China, Feb. 10 /Xinhua-PRNewswire/ -- China BAK Battery, Inc.

("China BAK", or "BAK") (Nasdaq: CBAK) today announced financial results for

the first quarter of fiscal 2007 ("FY07") ended December 31, 2006.

Recent Achievements and Highlights

* Arranged for $38.4 million in new long-term credit facilities to fund

anticipated capital expenditures and working capital requirements

* Announced plans to build a new research and development ("R&D") center

in Shenzhen, China

First Quarter FY07 Financial Results

Revenues for the first quarter of FY07 were $43.1 million, up 65.1% from

$26.1 million in the first quarter of fiscal 2006 (FY06). Revenues for steel-

case cells increased to $15.0 million in the first quarter of FY07 from $14.2

million in the same period last year. Revenues from aluminum-case cells

increased 94.3% despite a decline in average selling prices. Revenues from

cylindrical cells and polymer cells in this quarter were 63 and 20 times the

same period of last year, respectively.

Gross profit for the first quarter of FY07 was $8.2 million, up 15.8% from

$7.1 million in the first quarter of FY06. Gross margin was 19.0% in the first

quarter of FY07, compared to 27.1% in the year ago period. The decline in

gross margin was mainly attributable to the decline in average selling prices

for prismatic cells combined with an increase in raw material costs, and

higher fixed costs as a result of newly installed production lines.

Commenting on the quarter, Xiangqian Li, China BAK's Chief Executive

Officer, said, "While we were pleased with the sales performance of our

polymer cells, as well as the continued development of our laptop cylindrical

business, this was a challenging quarter for BAK. In the past, we have been

able to mitigate the effect of lower selling prices to an extent with

reductions in product cost. Unfortunately, the effect of increases in the

cost of raw materials and higher overhead related to expanding our

manufacturing capabilities into Tier-1 OEM capabilities put significant

pressure on our margins this quarter."

Operating expenses totaled $4.6 million during the first quarter of FY07,

up 20.1% from $3.9 million in the first quarter of FY06. Operating expenses

include $0.2 million in share-based compensation expenses related to the

adoption of SFAS 123(R). Research and development expenses also increased

from $0.4 million to $0.6 million, primarily due to increased headcount in

support of BAK's business development programs for Tier-1 OEMs. General and

administrative expenses increased as a result of additional staff as well as

higher depreciation expenses related to BAK's investment in automating its

production lines.

Operating income for the first quarter of FY07 was $3.6 million, an

increase of 10.7% over operating income of $3.2 million reported a year ago.

Operating margin for the first quarter of FY07 was 8.3%, as compared to 12.3%

in the same quarter of FY06.

Net income was $3.6 million in the first quarter of FY07, up 12.2% over

$3.2 million in the first quarter of FY06. Diluted earnings per share for the

first quarter FY07 was $0.07, unchanged from the same period of FY06.

Financial Condition

At December 31, 2006, China BAK had $25.4 million in cash, and working

capital of $19.2 million, reflecting a current ratio of 1.15:1. Days sales

outstanding (DSO) were 142 for the first quarter of FY07. Total debt,

including short-term bank loans, bills payable and long-term debt stood at

$100.0 million and stockholders' equity totaled $122.6 million. During the

quarter, BAK entered into new long-term credit facilities totaling $38.4

million. At quarter end, the company had $117.2 million available under its

credit facilities.

Business Outlook

"In the near-term, we anticipate continued pressure on our margins," Mr.

Li stated. "However, we believe that we are among the low-cost manufacturers

in the industry. We expect to improve gross margins through our continuing

efforts to reduce the purchase costs of raw materials and other unit costs of

production while pursuing opportunities to raise selling prices where it would

benefit the company's financial results. In addition, we will seek to

identify alternative raw material suppliers to the extent there are viable

alternatives. From a long-term perspective, we continue to believe that our

investment in building out our Tier-1 OEM capabilities will be advantageous

and that, once we receive significant business in this area, the increased

volume will absorb the higher fixed overhead costs and our margins will

improve," Mr. Li concluded.

Conference Call

The company will host a conference call at 9:00 a.m. ET on Monday,

February 12, 2007, to discuss results for the first quarter of fiscal 2007

ended December 31, 2006. Joining Yongbin Han, China BAK's Chief Financial

Officer, on the call will be Dr. Huanyu Mao, China BAK's Chief Operating

Officer and Chief Technology Officer. Also participating on the call will be

Jim Groh, the Company's U.S. based representative. To participate in the

conference call, please dial the following number five to ten minutes prior to

the scheduled conference call time: (866) 800-8648. International callers

should dial (617) 614-2702. The pass code for the call is 51392390. If you are

unable to participate in the call at this time, a replay will be available on

Monday, February 12 at 11:00 a.m. ET, through Monday, February 19, at 12:00

a.m. ET. To access the replay dial (888) 286-8010 and enter the conference ID

number 51392390. This conference call will be broadcast live over the

Internet and can be accessed by all interested parties on the CBAK website at

http://www.bak.com.cn/. To listen to the live webcast, please go to the CBAK

website at least fifteen minutes prior to the start of the call to register,

download, and install any necessary audio software. For those unable to

participate during the live broadcast, a replay will be available shortly

after the call on CBAK's website for 90 days.

About China BAK Battery Inc.

China BAK Battery, Inc. is one of the largest manufacturers of lithium-

based battery cells in China and in the world, as measured by production

output. It produces battery cells that are the principal component of

rechargeable batteries commonly used in cellular phones, notebook computers,

cordless power tools and portable consumer electronics, such as digital media

devices, portable media players, portable audio players, portable gaming

devices and PDAs (Personal Digital Assistants). China BAK Battery, Inc.'s 1.9

million square foot facilities are located in Shenzhen, PRC, and have been

recently expanded to produce new products. China BAK Battery, Inc. is the

largest manufacturer of lithium-ion battery cells for China's cellular phone

replacement battery market.

This press release contains forward-looking statements, which are subject

to change. The forward-looking statements are made pursuant to the safe harbor

provisions of the Private Securities Litigation Reform Act of 1995. All

"forward-looking statements" relating to the business of China BAK Battery,

Inc. and its subsidiary companies, which can be identified by the use of

forward-looking terminology such as "believes," "expects" or similar

expressions, involve known and unknown risks and uncertainties which could

cause actual results to differ. These factors include but are not limited to:

risks related to China BAK's business and risks related to operating in China.

Please refer to China BAK's Annual Report on Form 10-K for the fiscal year

ended September 30, 2006, for specific details on risk factors. Given these

risks and uncertainties, you are cautioned not to place undue reliance on

forward-looking statements. China BAK's actual results could differ materially

from those contained in the forward-looking statements. China BAK undertakes

no obligation to revise or update its forward-looking statements in order to

reflect events or circumstances that may arise after the date of this release.

For more information, please contact:

Company Contact:

Jim Groh

Tel: +1-843-342-7809

Email: jim@BAKbattery.com

Or

Investor Relations Contact:

Crocker Coulson

Tel: +1- 646-213-1915

Email: crocker.coulson@ccgir.com

Or

Elaine KetchmereTel:

+1-310-477-9800, ext. 119

Email: elaine.ketchmere@ccgir.com

-Financial Tables Follow-

China BAK Battery Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended December 31, 2006 and 2005

(Amounts in thousands U.S. dollars, except per share data; unaudited)

Three months ended December 31,

2005 2006

Net revenues $26,104 $43,082

Cost of revenues (19,028) (34,886)

Gross profit 7,076 8,196

Operating expenses:

Research and development costs (495) (637)

Sales and marketing expenses (1,205) (1,042)

General and administrative expenses (2,163) (2,961)

Total operating expenses (3,863) (4,640)

Operating income 3,213 3,556

Finance costs, net (181) (901)

Gain on trading securities 279 -

Other (expenses)/income (4) 932

Income before income taxes 3,307 3,587

Income taxes (116) (5)

Net income $3,192 $3,582

Other comprehensive income

- Foreign currency translation adjustment 222 1,545

Comprehensive income $3,414 $5,127

Net income per share:

-Basic $0.07 $0.07

-Diluted $0.07 $0.07

Weighted average number of ordinary shares:

-Basic 48,878 48,886

-Diluted 48,894 48,911

China BAK Battery Inc. and Subsidiaries

Consolidated interim consolidated balance sheets

As of September 30, 2006 and December 31, 2006

(Amounts in thousands U.S. dollars, except share data)

September 30, December 31,

2006 2006

Assets (unaudited)

Current assets

Cash and cash equivalents $21,100 $ 25,364

Pledged deposits 12,972 9,393

Trade accounts receivable, net 64,332 67,018

Inventories 47,389 43,635

Prepayments and other receivables 1,135 2,613

Total current assets 146,927 148,023

Property, plant and equipment, net 109,406 113,165

Lease prepayments, net 3,161 3,185

Intangible assets, net 75 74

Deferred tax assets 86 162

Total assets $ 259,655 $264,609

Liabilities

Current liabilities

Short-term bank loans $67,900 $ 71,075

Accounts and bills payable 48,316 35,227

Accrued expenses and other payables 25,881 22,544

Share-based payment liabilities 3,625 -

Total current liabilities 145,722 128,846

Long-term bank loan - 12,806

Deferred tax liabilities 305 314

Total liabilities 146,027 141,966

Shareholders' equity

Ordinary shares US$0.001 par value;

100,000,000 authorized; 48,878,396 and

48,885,896 issued and outstanding as of

September 30, 2005 and 2006

respectively 49 49

Additional paid-in-capital 68,127 72,014

Statutory reserves 5,792 6,245

Retained earnings 36,212 39,342

Accumulated other comprehensive income 3,448 4,993

Total shareholders' equity 113,628 122,643

Total liabilities and shareholders' equity $ 259,655 $264,609

China BAK Battery Inc. and Subsidiaries

Consolidated interim consolidated statements of cash flows

For the Three Months Ended December 31, 2006 and 2005

(Amounts in thousands U.S. dollars, except per share data; unaudited)

Three Months Ended December 31,

2005 2006

Cash flow from operating activities

Net income $3,192 $3,583

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation and amortization 1,247 2,046

Bad debt expense 255 485

Share-based compensation 712 262

Deferred income tax 6 (70)

Changes in operating assets and liabilities:

Trade accounts receivable (6,408) (3,198)

Inventories (15,190) 3,754

Prepayments and other receivables (244) 253

Accounts and bills payable 11,664 (11,762)

Accrued expenses and other payables 1,024 2,492

Net cash used in operating activities $(3,742) $(2,155)

Cash flow from investing activities

Purchases property, plant and equipment (12,166) (13,193)

Purchases of intangible assets - (5)

Net cash used in investing activities $(12,166) $ (13,198)

Cash flow from financing activities

Proceeds from borrowings 7,559 28,403

Repayment of borrowings (8,071) (12,422)

Increase in pledged deposits (5,499) 3,579

Amounts received from related parties 250 -

Net cash provided by financing activities $(5,762) $19,560

Effect of exchange rate changes on cash

and cash equivalents (17) 57

Net (decrease)/increase in cash and cash

equivalents (21,687) 4,264

Cash and cash equivalents at the

beginning of period 33,056 21,100

Cash and cash equivalents at the end of period 11,369 25,364

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