SHENZHEN, May 13 /Xinhua-PRNewswire/ -- China BAK Battery, Inc. ("China BAK", or "BAK") (Nasdaq: CBAK), one of the largest lithium-ion battery cell manufacturers in the world, as measured by production output, today announced its financial results for the second quarter of fiscal year 2008 ("FY08").

Recent Achievements and Highlights

-- Achieved near-record revenue in a quarter that included the long

holiday of the Chinese Lunar New Year, as aluminum case cells and

battery packs sales to Chinese customers for our OEM products continued

to increase;

-- Revenue from cylindrical cells, used in laptop computers, more than

doubled from last quarter's levels and now accounts for 13% of our

total revenues;

-- Continued to gain major customers for our cylindrical cell products,

including one of the world largest notebook computer battery pack

manufacturer Simplo Technology Co., Ltd (Taiwan: 6121);

-- Entered into settlements and mutual releases of all claims with

certain investors relating to the private placement completed on

January 20, 2005, putting a potentially distracting matter behind us.

Second Quarter FY08 Financial Results

Net revenues for the second quarter of FY08 were $51.3 million, down 2.8% from $52.8 million last quarter, but up 73.8% from $29.5 million in the same quarter of fiscal year 2007 ("FY07").

Revenues from aluminum-case cells were $30.3 million, up 0.7% from $30.1 million last quarter and up 155.3% from $11.9 million in the second quarter of FY07. Revenues from steel case cells were $5.9 million, down 39.8% from $9.8 million last quarter, and down 22.6% from $7.6 million in the second quarter of FY07.

Revenues from cylindrical cells, used in notebook computers, were $6.7 million, up 161.2% from last quarter and up 1,467.0% from the second quarter of FY07.

Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $1.9 million in the second quarter of FY08, down 64.9% from last quarter, but up 301.4% from the second quarter of FY07.

Revenues from battery packs were $6.6 million in the second quarter of FY08, up 31.4% from $5.0 million last quarter and up 404.9% from $1.3 million in the second quarter of FY07.

Gross profit for the second quarter of FY08 was $3.9 million, down 44.9% from $7.1 million last quarter and down 36.3% from $6.1 million in the second quarter of FY07. Gross margin was 7.6%, compared to 13.5% last quarter and 20.8% in the second quarter of FY07. The reduction in gross profit was mostly due to a significant increase in the purchase cost of raw materials, especially lithium cobalt dioxide, the main raw material in China BAK's products, and higher overhead related to the expansion of China BAK's manufacturing capabilities in FY07 and FY08.

Operating expenses totaled $7.6 million or 14.8% of revenues in the second quarter of FY08, as compared to $6.9 million or 13.1% of revenues last quarter and $4.1 million or 14.0% of revenues in the same quarter of last year. Research and development expenses were $1.4 million or 2.7% of revenues, as compared to $1.3 million or 2.5% of revenues last quarter and $0.9 million or 3.2% of revenues in the same quarter of last year. Sales and marketing expenses were $1.4 million or 2.7% of revenues, as compared to $1.3 million, or 2.6% of revenues last quarter and $1.1 million or 3.6% of revenues in the same quarter of last year. General and administrative expenses were $4.8 million or 9.4% of revenues, as compared to $4.2 million or 8.0% of revenues last quarter and $2.2 million or 7.3% of revenues in the same quarter of last year.

Operating loss for the second quarter of FY08 was $3.7 million, as compared to operating income of $0.2 million last quarter and $2.0 million in the same quarter of last year.

Net loss was $6.2 million in the second quarter of FY08, as compared to net loss of $0.9 million last quarter and net income of $0.4 million in the same quarter of last year. Diluted earnings per share were negative $0.12 compared with negative $0.02 per diluted share last quarter and $0.01 per diluted share in the same quarter of last year.

Financial Condition

At March 31, 2008, China BAK had $36.9 million in cash and a negative working capital of $10.0 million, reflecting a current ratio of 0.95:1. Total liabilities at quarter end, including short-term bank loans, bills payable and long-term debt, was $238.7 million and stockholders' equity totaled $145.4 million. China BAK had $95.2 million available for borrowing under its credit facilities.

Business Outlook

"During the second quarter of fiscal 2008, we continued to generate net revenues well in excess of prior year periods, reflecting strong growth in revenues from cylindrical cells and a sustained increase in revenues from aluminum case cells and battery packs. Our primary goal is to become profitable again in the coming quarters. To support this goal, we have made significant progress in the research and development of alternative raw materials for purposes of reducing our use of lithium cobalt dioxide, the price of which has continued to reach record highs. We also expect that the unit cost of cylindrical cells will be reduced accordingly in the coming quarters with more efficient use of our automated cylindrical production line. In addition, since April, we have raised the selling prices of some of our products. We therefore remain confident that we will achieve our FY08 revenue target of $210 million," commented Mr. Xiangqian Li, CEO of China BAK.

Conference Call

China BAK will host a conference call at 9:00 p.m. ET on Monday, May 12, 2008 to discuss results for the second quarter of FY08 ended March 31, 2008. Joining Xiangqian Li, China BAK's President and Chief Executive Officer on the call will be Tony Shen, Chief Financial Officer and Dr. Huanyu Mao, Chief Operating Officer and Chief Technology Officer. To participate in the conference call, please dial the following number approximately fifteen minutes prior to the scheduled conference call time: (888) 482-0024. International callers should dial (617) 801-9702. The pass code for the call is 64595429. If you are unable to participate in the call at this time, a replay will be available from 11:00 p.m. ET on Monday, May 12, 2008 through 11:00 p.m. ET Tuesday, May 27, 2008. To access the replay, please dial

(888) 286-8010. International callers should dial (617) 801-6888. The conference ID number for the replay is 31152369. The conference call will be broadcast live over the Internet and can be accessed by all interested parties on the China BAK website at http://www.bak.com.cn . To listen to the live webcast, please go to the China BAK 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, shortly after the call a replay will be made available on China BAK'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 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 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.

Safe Harbor Statement

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 Reports on Form 10-K for the fiscal years ended September 30, 2006 and 2007, as well as China BAK's Quarterly Reports on Form 10-Q for FY08, 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.



China BAK Battery Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

For the Three and Six Months Ended March 31, 2007 and 2008

(Unaudited)

(Amounts in thousands, except per share data)

Three Months Ended Six Months Ended

March 31, March 31,

2007 2008 2007 2008

Net Revenues $29,529 $51,336 $72,611 $104,123

Cost of revenues (23,383) (47,421) (58,268) (93,102)

Gross profit 6,146 3,915 14,343 11,021

Operating expenses:

Research and

development costs (928) (1,390) (1,565) (2,709)

Sales and marketing

expenses (1,064) (1,403) (2,107) (2,751)

General and

administrative

expenses (2,152) (4,823) (5,113) (9,061)

Total operating

expenses (4,144) (7,616) (8,785) (14,521)

Operating income / (loss) 2,002 (3,701) 5,558 (3,500)

Finance costs, net (1,164) (2,419) (2,065) (4,642)

Government grant income 137 762 1,038

Other income / (expense) (240) (81) (70) (40)

Income / (loss) before

income taxes 598 (6,064) 4,185 (7,144)

Income taxes (expenses) /

benefit (158) (119) (163) 20

Net income / (loss) $440 $(6,183) $4,022 $(7,124)

Other comprehensive income

- Foreign currency

translation adjustment 1,149 6,364 2,694 10,134

Comprehensive income $1,589 $181 $6,716 $3,010

Net income / (loss) per

share:

Basic $0.01 $(0.12) $(0.08) $(0.14)

Diluted $0.01 $(0.12) $(0.08) $(0.14)

Weighted average shares

outstanding:

Basic 48,889 52,133 48,888 51,229

Diluted 49,419 52,133 49,074 51,229



China BAK Battery Inc. and Subsidiaries

Consolidated Balance Sheets

As of September 30, 2007 and March 31, 2008

(Amounts in thousands)

September 30, March 31,

2007 2008

(Unaudited)

Assets

Current assets

Cash and cash equivalents $14,197 $36,883

Pledged deposits 4,595 4,357

Trade accounts receivable, net 63,151 78,934

Inventories 59,827 68,162

Prepayments and other receivables 1,656 7,993

Deferred tax assets 503 796

Total current assets 143,929 197,125



Property, plant and equipment, net 145,123 167,906

Lease prepayments, net 17,884 18,959

Intangible assets, net 121 143

Deferred tax assets 172 --

Total assets $307,229 $384,133



Liabilities

Current liabilities

Short-term bank loans $89,871 $116,826

Current maturities of long-term bank loans -- 8,548

Accounts and bills payable 45,589 63,236

Accrued expenses and other payables 15,466 18,483

Total current liabilities 150,926 207,093

Long-term bank loans, less current maturities 29,291 31,343

Deferred tax liabilities 280 292

Total liabilities 180,497 238,728

Commitments and contingencies



Shareholders' equity:

Ordinary shares US$ 0.001 par value;

100,000,000 authorized; 49,250,853 and

53,223,633 issued and outstanding as of

September 30, 2007 and March 31, 2008,

respectively 48 52

Donation Shares 1 1

Additional paid-in-capital 74,311 89,970

Statutory reserves 6,427 6,518

Retained earnings 36,060 28,845

Accumulated other comprehensive income 9,885 20,019

Total shareholders' equity 126,732 145,405

Total liabilities and shareholders' equity $307,229 $384,133



China BAK Battery Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the six months ended March 31, 2007 and 2008

(Unaudited)

(Amounts in thousands)

Six months ended March 31,

2007 2008

Cash flow from operating activities

Net income / (loss) $4,022 $(7,124)

Adjustments to reconcile net income / (loss)

to net cash provided by / (used in)

operating activities:

Depreciation and amortization 4,257 6,018

Bad debt expense (365) 1,368

Provision for obsolete inventories -- 95

Share-based compensation 868 1,657

Deferred income taxes (11) (77)

Exchange loss -- 770

Loss on disposal of PPE -- 190

Changes in operating assets and liabilities:

Trade accounts receivable 9,607 (12,032)

Inventories (5,990) (4,032)

Prepayments and other receivables 146 (5,990)

Accounts and bills payable (6,802) 12,151

Accrued expenses and other payables (383) 794

Net cash provided by / (used in) operating

activities $5,349 $(6,212)



Cash flow from investing activities

Purchases property, plant and equipment (22,886) (16,545)

Payment of lease prepayment (13,665) (21)

Purchases of intangible assets (5) (75)

Proceeds from disposal of PPE -- 321

Net cash used in investing activities $(36,556) $(16,320)



Cash flow from financing activities

Proceeds from borrowings 65,750 55,493

Repayment of borrowings (45,392) (27,404)

Increase in pledged deposits 4,150 33

Proceeds from issuance of capital stock -- 14,006

Net cash provided by financing activities $24,508 $42,128



Effect of exchange rate changes on cash and

cash equivalents 439 3,091



Net (decrease) / increase in cash and cash

equivalents (6,260) 22,687



Cash and cash equivalents

at the beginning of year 21,100 14,196



Cash and cash equivalents at the end of year $14,840 $36,883

SOURCE China BAK Battery, Inc.