China BAK Battery, Inc. (CBAK)

CBAK 
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China BAK Battery Inc.
First Quarter 2006 Earnings & 2005 Fiscal Year Update
February 10, 2006

Operator:

Good morning ladies and gentlemen, my name is Melissa and I will be your conference facilitator today. At this time I would like to welcome everyone to the China BAK Battery Inc. first quarter financials and corporate update conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question and answer period. If you would like to ask a question during this time please press star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you.

It is now my pleasure to turn the floor over to your host Matt Hayden from Hayden Communication. Sir, you may begin your conference.

Matt Hayden:

Thank you Melissa and thank you to everyone who’s joining us on the call today. As we recently passed the one year anniversary of China BAK Battery becoming a publicly traded company we wanted to take this opportunity to provide shareholders and investors with a summary of the first quarter and fiscal 2005 year-end results as well as an update regarding the Company’s progress and growth strategy for this year.

2005 witnessed several material events as the Company significantly grew its business, raised capital to expand its manufacturing capacity and grew its customer base while controlling manufacturing costs, improving yields and began the tradition to a broader product portfolio, all which positively impacted margins. Our call today with be hosted by Mr. Jim Groh, the Company’s U.S. based Executive, who will provide a business overview, summary of last year’s accomplishments, a perspective of the market opportunity as well as a discussion of the growth initiatives for 2006. In addition Michael Drennan, the Company’s Financial Advisor, will discuss the Company’s first quarter and fiscal 2005 results, while Dr. Henry Mao, the Company’s Chief Operating and Chief Technical Officer, will be available to answer technical questions during the Q&A session.

Before we get started I’m going to review the Safe Harbor statement. Statements in this conference call that are not descriptions of historical facts are forward-looking statements related to the future events and as such all future forward-looking statements are made pursuant to the Securities and Litigation Reform Act of 1995. All forward-looking statements related to the business of China BAK Battery and its subsidiary companies which can be defined by the use of forward-looking terminology such as believes, expects or similar expressions, involve known and unknown risks and uncertainties. China BAK Battery is under no obligation and expressly disclaims any such obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise. The company is subject to the consideration and risks of operating in the PRC. These include risks associated with the political and economic (inaudible), foreign currency exchange and the legal system in the PRC.

With that out of the way, I will now turn the call over to Jim Groh. Jim congratulations on a solid year and a great start to 2006. The floor is yours.

Jim Groh:

Thank you Matt and thank – good morning and thank you to everybody joining us. We welcome those of you who are new and learning about BAK and we also welcome our old friends who’ve been involved with us from the beginning here.

Fiscal 2005 indeed was a successful year for our company as we topped $100 million in revenues for the first time, expanded our margins, and we completed two financings which raised approximately $60 million. This capital set the stage for continued growth by enabling us to expand our production capacity while leveraging a larger base of working capital. We utilized this capital infusion to expand our manufacturing capacities which came online and has enabled us to operate at a production rate of 22 million cells per month when we exited the first quarter in December, up from 15 million cells per month previously. It’s important to note that since this increased capacity just recently came online and provides incremental growth capability during quarters two to four of this fiscal year, we also announced yesterday new manufacturing agreements with original equipment manufacturers including Lenovo and A123 Systems.

These announcements represent significant growth opportunities and are key to our future strategies. I’m going to expand on this later. We also installed the capability and began producing lithium polymer batteries, which address a large number of growing applications for various electronic devices. As we brought new production online we began to build inventory in anticipation of new business both being won and pursued which positions us well for fiscal 2006 and beyond.

Since this is our first conference call and since we have many people joining us who are new to the BAK story, I’m going to start by providing an overview of the Company, discussing our core market verticals and our growth opportunities. I’ll also spend some time discussing our operational initiatives and how the business is involving to plan. After Mike Drennan discusses the first quarter and fiscal 2005 financial results, I’ll then discuss the Company’s macro drivers and our 2006 goals and objectives and open the floor for questions.

Shenzhen BAK Battery Company Limited was founded on August 3, 2001 and has grown in that short time to become one of the largest manufacturers of replacement lithium-ion or LI-ION battery cells in the world. On January 20, 2005 China BAK Battery Inc. completed a reverse merger and began to trade publicly in the U.S. with a formal name change happening in February. We currently maintain a 1.9 million square foot manufacturing facility located on a 90 acre manufacturing campus in Shenzhen, China. We employ approximately 8,250 people. For those of you who are new to our industry Lithium-ion is the de facto standard for rechargeable battery technology used in portable applications. If you’ve got a cell phone it’s a 99.9% chance that that cell phone utilizes Lithium-ion technology. Lithium-ion technology offers significantly higher power in a given footprint, are light-weight and the batteries have much longer cycle life and have no memory effect. Our technology has essentially replaced NiCad and nickel-metal hydride technology in portable applications.

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