The following management's discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See "Special Note Regarding Forward Looking Statements" above for certain information concerning those forward looking statements. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

Although the business climate in China is recovering, the global economic environment remains weak. During the fiscal year ended September 30, 2012, we generated $205.7 million in net revenues, which is 6.1% lower than the $218.9 million in net revenues generated in the fiscal year ended September 30, 2011.

During fiscal year 2012, we continued to explore and capitalize on opportunities to generate additional sources of revenue through new product offerings. We have been primarily seeking to increase the market share of our cylindrical cells and high-power lithium battery cells for electric bicycles and other electric vehicles in China, while battery cell production for cell phones is expected to decrease proportionally while remaining the Company's core business. During the past fiscal year, we developed specially-designed cylindrical cells that we subsequently shipped to power a set of pure electric vehicles built by Dongfeng-Yulon, a joint venture between Yulon Group, Taiwan's largest automaker, and major Chinese automaker Dongfeng Group, and delivered to the public transportation authority of the city of Hangzhou, China. We also entered into a strategic cooperation program for electric vehicle development with HAITEC, a subsidiary of Yulon Group. In October 2011, we initiated shipments of cylindrical cells to HAITEC to power its pure electric vehicles under this program. We also launched our first single battery and first battery module in late September 2011. Both products have a capacity of 100Ah and are for use in electric vehicles. The single battery consists of one large battery cell and the battery module consists of a number of 18650-type cells. We signed high-power lithium battery supply contracts with XDS Shenzhen,Geoby, and Suzhou Noah for use in electric bicycles, whose market demand has been increasing. We also supplied high-power lithium battery cells and battery modules to domestic automakers such as Chery and Faw for use in their electric vehicles. We focused more on our polymer cells as well, as the market demand for this product has been increasing because of the increasing popularity of ultra-thin smartphones and tablet computers.

In addition, we continued to pursue opportunities to generate new sources of revenue and reduce costs of revenue. We continued to develop new products for use in high-end markets to increase our sales prices, and reduced manufacturing costs and purchase costs of raw materials.

In the near-term, we anticipate continuing operating challenges due to a number of trends facing our business, including in particular declining demand for replacement battery cells and increasing competition from foreign and domestic battery cell manufacturers in China. These challenges may impede our primary strategy to increase our revenues and gross margin through product diversification and manufacturing efficiencies. In response, we will continue to take cost-cutting actions, including employee reductions.

To help us finance and expand our operations, we had access to $217.3 million in short-term credit facilities and $23.9 million in long-term credit facilities as of September 30, 2012. As of September 30, 2012, the principal outstanding amounts included short-term bank loans of $151.4 million under credit facilities, no long-term bank loans maturing within one year and long-term bank loans of $23.7 million maturing in over one year, and bills payable of $75.4 million under credit facilities, leaving $27.4 million of short-term funds and $0.2 million of long -term funds available under our credit facilities for additional cash needs.

We had a working capital deficiency, accumulated deficit from recurring net losses incurred for the current and prior year as of September 30, 2012 and significant short-term debt obligations maturing in less than one year. These factors raise substantial doubts about our ability to continue as a going concern. Accordingly, we have continued to develop a strategic plan to continue to generate a positive cash flow from operating activities for the fiscal year ending September 30, 2013. Under this plan, we will continue to increase our presence in the OEM market both domestically and internationally with more aggressive marketing strategies expand and secure our market base. We will also continue to implement reductions of both manufacturing costs and operating expenses to improve profit margins as well as reduce receivable turnover days through stronger credit controls.

Recent Developments

Effective October 26, 2012, we effected a one-for-five reverse split of our issued and outstanding common stock by filing a Certificate of Change pursuant to Section 78.209 of the Nevada Revised Statutes with the Secretary of State of Nevada. Each five shares of then issued and outstanding common stock were reverse split into one share of common stock. No fractional shares of the Company's common stock would be issued in connection with the reverse split. Stockholders who are entitled to a fractional post-split share will receive in lieu thereof one (1) whole post-split share.

The reverse split was duly approved by the Board of Directors of the Company without shareholder approval, in accordance with the authority conferred by
Section 78.207 of the Nevada Revised Statutes. Concurrently with the reverse split, the Company's Articles of Incorporation was also amended and the authorized number of shares of the Company's common stock was accordingly decreased from one hundred million (100,000,000) shares to twenty million (20,000,000) shares.

Net Revenues. Our net revenues represent the invoiced value of our products sold, net of value added taxes, or VAT, sales returns, trade discounts and allowances. We are subject to VAT, which is levied on most of our products at the rate of 17% on the invoiced value of our products. Provision for sales returns are recorded as a reduction of revenue in the same period that revenue is recognized. The provision for sales returns represents our best estimate of the amount of goods that will be returned from our customers based on historical sales returns data.

Cost of Revenues. Cost of revenues consists primarily of material costs, employee remuneration for staff engaged in production activity, share-based compensation, depreciation and related expenses that are directly attributable to the production of products. Cost of revenues also includes write-downs of inventory to lower of cost or market. Cost of revenues from the sales of battery packs includes the fees we pay to pack manufacturers for assembling our prismatic cells into battery packs.

Research and Development Expenses. Research and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses relating to R&D equipment, and R&D material costs.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of remuneration for staff involved in selling and marketing efforts, including staff engaged in the packaging of goods for shipment, advertising cost, depreciation, share-based compensation and travel and entertainment expenses. We do not pay slotting fees to retail companies for displaying our products, engage in cooperative advertising programs, participate in buy-down programs or similar arrangements. No material estimates are required by management to determine our actual marketing or advertising costs for any period.

General and Administrative Expenses. General and administrative expenses consist primarily of employee remuneration, share-based compensation, professional fees, insurance, benefits, general office expenses, depreciation, liquidated damage charge and bad debt expenses.

Property, Plant and Equipment Impairment Charges. Impairment charges consist primarily of impairment losses for long-lived assets. These losses reflect the amounts by which the carrying values of these assets exceed their estimated fair value as determined by their estimated future discounted cash flows.

Government Grant Income. Government grant income for the year ended September 30, 2012 mainly consisted of receipt of grants to fund certain lithium battery research projects and to subsidize the payment for land use rights of BAK Industrial Park. No present or future obligation arises from the receipt of such amount.

Finance Costs, Net. Finance costs consist primarily of interest income, interest on bank loans, net of capitalized interest, and bank charges.

Income Taxes. On March 16, 2007, the National People's Congress of China passed the EIT Law, and on November 28, 2007, the State Council of China passed its implementing rules, both of which took effect on January 1, 2008. The EIT Law unifies the application scope, tax rate, tax deduction and preferential policy for both domestic enterprises and FIEs. The EIT Law gives existing FIEs a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments.

Since Shenzhen BAK was acknowledged as a "New and High technology enterprise", it is entitled to a preferential tax rate of 15% for each of the calendar years 2011, 2012 and 2013. BAK Electronics' income tax rates were 11% and 24% for calendar years 2010 and 2011, respectively, and starting in calendar year 2012, it was subject to an income tax rate of 25%. BAK Electronics did not incur any enterprise income tax for the calendar year 2012 due to the current tax losses carried forward from calendar year 2010 and 2011. BAK Tianjin is currently paying no enterprise income tax due to cumulative tax losses.

Our Canadian, German, Indian, and Hong Kong subsidiaries-BAK Canada, BAK Europe, BAK India, and BAK International-are subject to profits taxed in their respective countries at rates of 38%, 25%, 30%, and 16.5%, respectively.

Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter is entitled to some or all of the refund of VAT that it has already paid or borne. Our imported raw materials that are used for manufacturing export products and are deposited in bonded warehouses are exempt from import VAT.

Results of Operations

The following table sets forth key components of our results of operations for the years indicated, both in dollars and as a percentage of our revenue.

                                            Fiscal Year Ended September 30,
                                          2012                              2011
                                                 % of Net                         % of Net
                                Amount           Revenues           Amount        Revenues
                                   (in thousands of U.S. dollars, except percentages)
Net revenues                $     205,671            100.0%    $      218,953       100.0%
Cost of revenues                  204,198             99.3%           192,649        88.0%
Gross profit                        1,473              0.7%            26,304        12.0%
Operating expenses:
Research and development            5,759              2.8%             7,287         3.3%
expenses
Sales and marketing                 8,489              4.1%             8,542         3.9%
expenses
General and administrative         40,009             19.5%            18,130         8.3%
expenses
Impairment charge                   3,919              1.9%             6,517         3.0%
Total operating expenses           58,176             28.3%            40,476        18.5%
Operating loss                    (56,703 )          (27.6% )         (14,172 )      (6.5% )
Finance costs, net                 11,266              5.5%            10,829         4.9%
Government grant income             5,353              2.6%             1,454         0.7%
Other expense/(income)                799              0.4%              (312 )      (0.1% )
Income tax expense                  2,394              1.2%             1,302         0.6%
Net loss                    $     (65,807 )          (32.0% )  $      (24,537 )     (11.2% )

Net revenues. Net revenues were $205.7 million for the fiscal year ended September 30, 2012, as compared to $218.9 million for the prior year, a decrease of $13.2 million, or 6.1% . The following table sets forth the breakdown of our net revenues by battery cell type.

                                            Fiscal Year Ended September 30,
                                          2012                              2011
                                                 % of Net                         % of Net
                                Amount           Revenues           Amount        Revenues
                                   (in thousands of U.S. dollars, except percentages)
Prismatic cells
             Aluminum-case  $      76,217             37.1%    $       94,380        43.1%
cells
             Battery packs         55,320             26.9%            55,131        25.2%
Cylindrical cells                  45,336             22.0%            53,162        24.3%
High-power lithium battery         10,472              5.1%             6,113         2.8%
cells
Lithium polymer cells              18,326              8.9%            10,167         4.6%
   Total                    $     205,671            100.0%    $      218,953       100.0%

Net revenues from sales of battery packs increased to $55.3 million in the year ended September 30, 2012, from $55.1 million in fiscal year 2011, an increase of $0.2 million, or 0.3%. This resulted from an increase in sales volume of 5.9% due to increased sales in the domestic (PRC) market as a result of the expansion of our customer basis, offset by a 5.4% decrease in average selling price due to the decreased sales price of our competitors.

Net revenues from sales of cylindrical cells decreased to $45.3 million in the year ended September 30, 2012, from $53.2 million in fiscal year 2011, representing a decrease of $7.9 million, or 14.7%. Our sales volume of cylindrical cells decreased by 15.7% due to a decrease in export sales and a 0.8% decrease in average selling price.

We sold $18.3 million in lithium polymer cells for the year ended September 30, 2012, compared to $10.2 million in fiscal year 2011, an increase of $8.1 million, or 80.2%, resulting from an increase of 43.6% in sales volume, accompanied by an increase of 24.6% in our average selling price due to the increased demand for polymer batteries used in smartphone.

We also sold approximately $10.5 million in high-power lithium battery cells for the year ended September 30, 2012, as compared to $6.1 million in fiscal year 2011, representing an increase of $4.4million, or 72.1%.This resulted from an increase in sales volume of 52.2% due to a strong demand from electric bicycles, power tools, uninterruptible power supplies and other applications, which products are mainly produced in our Tianjin facility, and an accompanied increase of 46.8% in average selling price.

Cost of revenues. Cost of revenues increased to $204.2 million for the year ended September 30, 2012, as compared to $192.6 million for fiscal year 2011, an increase of $11.6 million, or 6.0% . The increase in cost of revenues was due to increases in raw materials and salaries cost and significant write down of obsolete inventory over the year ended September 30, 2012.

Gross profit. Gross profit for the year ended September 30, 2012 was $1.5 million, or 0.7% of net revenues, as compared to gross profit of $26.3 million, or 12.0% of net revenues, for fiscal year 2011. The decrease in gross profit as a percentage of net revenues was primarily due to: a) a decrease in gross profit from prismatic products, compared with fiscal year 2011, primarily due to the continued increase in cost of revenues as result of increases in raw materials costs and salaries; b) a decrease in cylindrical cell products sales volume during fiscal year 2012 compared to fiscal year 2011 as the sales returned to normal in 2012 after the unusual and significant increase in market demand for cylindrical cell products as a result of the temporary operation disruption of Japanese manufacturers due to the March 2011 earthquake and tsunami; c) a disposal of defective products; and d) a significant write-down of obsolete inventory over the year ended September 30, 2012.

Research and development expenses. Research and development expenses decreased to $5.8 million for the year ended September 30, 2012, as compared to $7.3 million for fiscal year 2011, a decrease of $1.5 million, or 21.0%. This decrease was mainly due to a decrease in desirable R&D projects and increased investment in other areas.

Sales and marketing expenses. Sales and marketing expenses decreased to $8.49 million for the year ended September 30, 2012, as compared to $8.54 million for fiscal year 2011, a decrease of $0.05 million, or 0.7%, primarily due to decreased maintenance expenses of $84,990, resulting from improved cost control under our strategic plan. As a percentage of revenues, sales and marketing expenses have increased to 4.1% for the year ended September 30, 2012, from 3.9% for fiscal year 2011, mainly due to the decrease in sales revenue, which outpaced the decrease in sales and marketing expenses.

General and administrative expenses. General and administrative expenses increased to $40.0 million, or 19.5% of revenues, for the year ended September 30, 2012, as compared to $18.1 million, or 8.3% of revenues, for fiscal year 2011, an increase of $21.9 million, or 121.0% . The primary reason for the increase was that provision for bad debt expenses increased by $20.5million during the year ended September 30, 2012, due to the provision charged following an assessment of account collectability in the second quarter of 2012.

Operating loss. As a result of the above, operating loss totaled $56.7 million for the year ended September 30, 2012, as compared to $14.2 million for the prior fiscal year, an increase of $42.5 million, or 299.3% .

Finance costs, net. Finance costs, net, increased to $11.3 million for the year ended September 30, 2012, as compared to $10.8 million for the prior year, an increase of $0.5 million, or 4.1% . The increase in net finance costs is mainly attributable to an increase in the average bank loan interest rates on both our short-term and long-term bank loans and in discounts charged for bills receivable recognized during the year ended September 30, 2012.

Government grant income. Government grant income was $5.4 million for the year ended September 30, 2012, as compared to $1.4 million for fiscal year 2011. Government grant income for the year ended September 30, 2012 mainly consisted $1.9million to fund certain lithium battery research projects and $1.7 million representing amortization of government subsidies received in relation to the additional cost of the land use rights of BAK Industrial Park. Government grant income for the year ended September 30, 2011 mainly consisted of $1.2 million to fund certain lithium battery research projects and $0.23 million representing amortization of government subsidies received in relation to the additional cost of the land use rights of BAK Industrial Park. No present or future obligation arises from the receipt of such government subsidies.

Income tax expense. Income tax expense was $2.4 million for the year ended September 30, 2012, as compared to $1.3 million for fiscal year 2011. The change was the result of an increase in the allowance for deferred tax assets that may not be realized during the year ended September 30, 2012.

Net loss. As a result of the foregoing, we had a net loss of $65.8 million for the year ended September 30, 2012, compared to $24.5 million for the year ended September 30, 2011.

Liquidity and Capital Resources

We have historically financed our liquidity requirements from a variety of sources, including short-term bank loans, long-term bank loans and bills payable under bank credit agreements, sale of bills receivable and issuance of capital stock. As of September 30, 2012, we had cash and cash equivalents of $9.3 million. In addition, we had pledged deposits amounting to $5.5 million. Typically, banks will require borrowers to maintain deposits of approximately 10% to 100% of the outstanding loan balances and bills payable. The individual bank loans have maturities ranging from six to twelve months which coincide with the periods the cash remains pledged to the banks. As of September 30, 2012, we had access to $151.4 million in short-term credit facilities and $23.7 million in long-term credit facilities.

As of September 30, 2012, the principal outstanding amounts included short-term bank loans of $151.4 million under credit facilities and long-term bank loans of $23.7 million maturing in over one year, and bills payable of $75.4 million under credit facilities, leaving $27.4 million of short-term and $0.2 million of long-term funds available under our credit facilities for additional cash needs.

The following table sets forth a summary of our cash flows for the periods indicated:

                                                       Year Ended September 30,
                                                       2012                 2011
                                                    (In thousands of U.S. dollars)
Net cash provided by operating activities        $         5,086     $        35,318
Net cash used in investing activities                    (20,368 )           (31,045 )
Net cash used in financing activities                       (455 )            (2,800 )
Effect of exchange rate changes on cash and cash             151                 797
equivalents
Net decrease in cash and cash equivalents                (15,587 )             2,270
Cash and cash equivalents at the beginning of             24,858              22,588
period
Cash and cash equivalents at the end of period   $         9,272     $        24,858

Net cash provided by operating activities was $5.1 million in the year ended September 30, 2012, as compared with $35.3 million in fiscal year 2011. The decrease of $ 30.2 million in net cash provided by operating activities was mainly attributable to the settlement of overdue accounts payables to our suppliers.

Investing Activities

Net cash used in investing activities decreased to $20.4 million in the year ended September 30, 2012, from $31.0 million in fiscal year 2011. The net cash used in investing activities for the year ended September 30, 2012, was mainly used for the procurement of machinery and equipment for our polymer cell line and construction of our Research and Development Test Centre in Shenzhen.

Financing Activities

Net cash used in financing activities decreased to $0.5 million in the year ended September 30, 2012, from $2.8 million in fiscal year 2011. This was mainly attributable to a decrease in pledged deposits of $3.8 million, an increase in the repayment of bank loans in an amount of $22.8 million, offset by the increased borrowings in an amount of 29.0 million in the year ended September 30, 2012.

As of September 30, 2012, the principal amounts outstanding under our credit facilities and lines of credit were as follows:

                                                                Amount
                                                               Borrowed
                                                               (includes
                                           Maximum            bank loans
                                           Amount              and bills
                                          Available            payable)
                                          (In thousands of U.S. dollars)
Short-term credit facilities:
Agricultural Bank of China            $        66,818    $           66,818
Shenzhen Development Bank                      28,636                20,682
China CITIC Bank                               11,932                10,944
Bank of China                                  63,637                63,286
China Everbright Bank                          12,727                 9,110
China Construction Bank                         8,058                 7,477
China Bohai Bank                               12,727                 3,182
Tianjin Branch, Bank of Dalian                 12,728                 8,346
Subtotal-Short-term credit facilities $       217,262    $          189,845
Long-term credit facilities:
China Development Bank                         23,864                23,656
Subtotal-Long-term credit facilities  $        23,864    $           23,656
Lines of Credit:
Shenzhen Branch, Bank of China                 33,852                33,852
Bank of Dalian                                    266                   266
China CITIC Bank                                1,591                 1,591
Tianjin Branch, Bank of China                   1,237                 1,237
Subtotal-Lines of credit              $        36,946    $           36,946
Total                                 $       278,072    $          250,447

The above principal outstanding amounts under credit facilities and lines of credit included short-term bank loans of $151.4 million and long-term bank loans of $23.7 million maturing in over one year, and bills payable of $75.4 million. . . .