During the year ended March 31, 2012, the Company was advised by the local authority of Changxing County that the current production technique, external battery formation, in one of the Company’s plant in Changxing County can no longer be used after October 31, 2012. The plant is the only facility of the Company for repairing the return batteries which were produced under external battery formation. After analyzed the future return rate of the batteries and the Company’s current inventory level, management considered that the production capacity at Jing’er Road plant was not enough to repair all future returned batteries and existing inventories. Management decided to dispose of the obsolete inventories as scrap.

As a result, the Company recorded a loss on disposal of scrap inventories amounting to US$13,896,000 for the year ended March 31, 2012.