China BAK Battery Net Announces Second Quarter Results for 2006

May 10, 2006 by Jeff Shepard

China BAK Battery, Inc. (OTC Bulletin Board: CBBT - News), announced financial results for the second fiscal quarter of the Company's 2006 fiscal year, the quarter ended March 31, 2006. For the second fiscal quarter which ended March 31, 2006, the Company reported record revenue of $38.2 million, representing an increase of 47.7 percent compared to the $25.9 million reported in the same period of fiscal year 2005 and a 46.4 percent sequential increase from the first quarter of fiscal year 2006. Gross profits for the second quarter of the fiscal year 2006 were $12.2 million, or 31.9 percent of sales, an increase of 119.2 percent compared to gross profit of $5.6 million, or 21.5 percent of sales, for the same quarter of the prior fiscal year. The company's gross profit margin increased sequentially compared to the 27.1 percent gross profit margin from the first quarter of fiscal year 2006.

Among the highlights of the report, BAK leveraged its increased manufacturing capacity for battery cells (which is currently at 22 million pieces monthly) to generate record quarterly revenue of $38.2 million. At the end of April, the company commenced trial production of cylindrical laptop computer battery cells and expects to begin ramping production by June/July. Product samples have been sent to a major OEM for testing, and the company has received purchase commitments for such cells from customers located in Taiwan. The company is working to complete the product qualification process, which it expects to result in purchase orders. BAK began mass production of lithium phosphate battery cells for its customer A123 Systems. The company operated its Lithium Polymer line at full capacity, or approximately 1 million cells per month. Lithium polymer batteries are small-format batteries which can be customized in size to a particular application. Typical applications for Lithium Polymer batteries include MP3 players and Bluetooth headsets. During the quarter, 44% of the company's revenues were derived from OEM customers and 56% was generated by sales to replacement manufacturers. Increasing sales to OEMs is one of BAK's main objectives for 2006.

Xiangqian Li, the company's Chief Executive Officer, commented, ''We made further progress in our ongoing effort to increase our manufacturing efficiency, as evidenced by noticeable improvement in our gross margin. Our management team is aggressively pursuing material cost reductions through strategic sourcing initiatives, as well as the influence of our purchasing power to gain the lowest material cost. The success of these initiatives during the first six months of 2006 was especially apparent in our gross margin contribution, as our cost of sales grew at 28.1 percent compared to revenue growth of 47.7 percent compared to the second quarter of fiscal year 2005, resulting in an improvement in our gross margin of more than 10 percent. These improved efficiencies also enabled us to generate record quarterly earnings. The improved absorption of our capacity, driven by a significant increase in our new OEM relationships announced last quarter, contributed to our improved profitability and validates our position as a leading low-cost, high-quality lithium-ion manufacturer."