See accompanying notes to the condensed interim consolidated
financial statements.
See accompanying notes to the condensed interim consolidated
financial statements.
See accompanying notes to the condensed interim consolidated
financial statements.
See accompanying notes to the condensed interim consolidated
financial statements.
See accompanying notes to the condensed interim consolidated
financial statements.
See accompanying notes to the condensed interim consolidated
financial statements.
1 Principal Activities, Basis of Presentation and
Organization
Principal Activities
China BAK Battery, Inc. (China BAK) is a corporation formed
in the State of Nevada on October 4, 1999 as Medina Copy, Inc. The Company
changed its name to Medina Coffee, Inc. on October 6, 1999 and subsequently
changed its name to China BAK Battery, Inc. on February 14, 2005. China BAK and
its subsidiaries (hereinafter, collectively referred to as the Company) are
principally engaged in the manufacture, commercialization and distribution of a
wide variety of standard and customized lithium ion (known as "Li-ion" or
"Li-ion cell") rechargeable batteries for use in cellular telephones, as well as
various other portable electronic applications, including high-power handset
telephones, laptop computers, power tools, digital cameras, video camcorders,
MP3 players, electric bicycles, hybrid/electric motors, and general industrial
applications.
The shares of the Company traded in the over-the-counter market
through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006, when
the Company obtained approval to list its common stock on The NASDAQ Global
Market, and trading commenced that same date under the symbol "CBAK".
Basis of Presentation and Organization
As of December 31, 2012, the Companys subsidiaries consisted
of: i) BAK International Limited (BAK International), a wholly owned limited
liability company incorporated in Hong Kong on December 29, 2003 as BATCO
International Limited, which changed its name to BAK International Limited on
November 3, 2004; ii) Shenzhen BAK Battery Co., Ltd. (Shenzhen BAK), a wholly
owned limited liability company established on August 3, 2001 in the Peoples
Republic of China (PRC); iii) BAK Electronics (Shenzhen) Co., Ltd. (BAK
Electronics), a wholly owned limited liability company established on August
15, 2005 in the PRC; iv) BAK International (Tianjin) Ltd. (BAK Tianjin), a
wholly owned limited liability company established on December 12, 2006 in the
PRC; v) BAK Battery Canada Ltd. (BAK Canada), a wholly owned limited liability
company established on December 20, 2006 in Canada as BAK Canada Battery Ltd.,
which changed its name to BAK Battery Canada Ltd. on December 22, 2006; vi) BAK
Europe GmbH (BAK Europe), a wholly owned limited liability company established
in Germany on November 28, 2007; vii) BAK Telecom India Private Limited (BAK
India), a wholly owned limited liability company established in India on August
14, 2008; and viii) Tianjin Meicai New Materials Technology Co., Ltd. (Tianjin
Meicai), a wholly owned limited liability company established on February 22,
2011 in the PRC. As of December 31, 2012, BAK International beneficially owns
100% of BAK India partly through a nominee agreement with one of its employees.
BAK Tianjin was established in Tianjin Technology Industrial
District on December 12, 2006 as a wholly owned subsidiary of BAK International
with registered capital of $99,990,000. Pursuant to BAK Tianjins articles of
association and relevant PRC regulations, BAK International was required to
contribute $20,000,000 to BAK Tianjin as capital (representing 20% of BAK
Tianjins registered capital) before March 11, 2007. An extension from the
Business Administration Bureau of Beichen District, Tianjin, was obtained to
make this contribution no later than December 11, 2007. On November 16, 2007,
BAK International contributed approximately $20,000,000 capital to BAK Tianjin.
The remaining $79,990,000 was originally required to be fully contributed no
later than December 11, 2008 and an extension from the Business Administration
Bureau of Beichen District, Tianjin, was obtained to make this contribution no
later than December 11, 2009. On November 16, 2009, BAK International
contributed approximately $9,000,000 capital to BAK Tianjin and as of November
16, 2009, the total contribution from BAK International was $29,000,000. The
remaining $70,990,000 was originally required to be fully contributed no later
than December 11, 2009 and an extension from the Business Administration Bureau
of Beichen District, Tianjin, was obtained to make this contribution no later
than December 2012. In August 2011, BAK International contributed approximately
$21,000,000 capital to BAK Tianjin and as of September 30, 2011 and September
30, 2012, the total contribution from BAK International was $50,000,000. On
September 17, 2012, BAK Tianjin issued an application with respect to the
decrease of capital from $99,990,000 to $50,000,000. On November 27, 2012 the
Business Administration Bureau of Beichen District, Tianjin, approved the
request of BAK Tianjins capital reduction. According to the approval, the BAK
Tianjins aggregate investment still keeps at $99,990,000 while the registered
capital was reduced to $50,000,000. BAK Tianjin is principally engaged in the
manufacture of larger lithium ion batteries for use in cordless power tools and
various types of vehicles.
F-7
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
1 Principal Activities, Basis of Presentation and Organization
(continued)
Basis of Presentation and Organization (continued)
On November 6, 2004, BAK International, a non-operating holding
company that had substantially the same shareholders as Shenzhen BAK, entered
into a share swap transaction with the shareholders of Shenzhen BAK for the
purpose of the subsequent reverse acquisition of the Company as described below.
Pursuant to the terms of the share swap transaction, BAK International acquired
all of the outstanding shares of Shenzhen BAK for $11.5 million in cash, while
the shareholders of Shenzhen BAK acquired substantially all of the outstanding
shares of BAK International for $11.5 million in cash. As a result, Shenzhen BAK
became a wholly-owned subsidiary of BAK International. After the share swap
transaction was completed, there were 31,225,642 shares of BAK International
stock outstanding, exactly the same as the number of shares of capital stock of
Shenzhen BAK that had been outstanding immediately prior to the share swap, and
the shareholders of BAK International were substantially the same as the
shareholders of Shenzhen BAK prior to the share swap. Consequently, the share
swap transaction between BAK International and the shareholders of Shenzhen BAK
was accounted for as a reverse acquisition of Shenzhen BAK with no adjustment to
the historical basis of the assets and liabilities of Shenzhen BAK.
On January 20, 2005, the Company completed a share swap
transaction with the shareholders of BAK International. The share swap
transaction, also referred to as the reverse acquisition of the Company, was
consummated under Nevada law pursuant to the terms of a Securities Exchange
Agreement entered by and among China BAK, BAK International and the shareholders
of BAK International on January 20, 2005. Pursuant to the Securities Exchange
Agreement, the Company issued 7,965,215 shares of common stock, par value $0.001
per share, to the shareholders of BAK International (including 6,245,128 shares
to the original shareholders and 1,720,087 shares to new investors who had
purchased shares in the private placement described below), representing
approximately 97.2% of the Companys post-exchange issued and outstanding common
stock, in exchange for 100% of the outstanding capital stock of BAK
International.
The share swap transaction has been accounted for as a
capital-raising transaction of the Company whereby the historical financial
statements and operations of Shenzhen BAK are consolidated using historical
carrying amounts. The 230,492 shares of China BAK outstanding prior to the stock
exchange transaction were accounted for at the net book value at the time of the
transaction, which was a deficit of $1,672.
Also on January 20, 2005, immediately prior to consummating the
share swap transaction, BAK International executed a private placement of its
common stock with unrelated investors whereby it issued an aggregate of
1,720,087 shares of common stock for gross proceeds of $17,000,000. In
conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief
Executive Officer of the Company, agreed to place 435,910 shares of the
Company's common stock owned by him into an escrow account pursuant to an Escrow
Agreement dated January 20, 2005 (the Escrow Agreement). Pursuant to the
Escrow Agreement, 50% of the escrowed shares were to be released to the
investors in the private placement if audited net income of the Company for the
fiscal year ended September 30, 2005 was not at least $12,000,000, and the
remaining 50% were to be released to investors in the private placement if
audited net income of the Company for the fiscal year ended September 30, 2006
was not at least $27,000,000. If the audited net income of the Company for the
fiscal years ended September 30, 2005 and 2006 reached the above-mentioned
targets, the 435,910 shares would be released to Mr. Xiangqian Li in the amount
of 50% upon reaching the 2005 target and the remaining 50% upon reaching the
2006 target.
Under accounting principles generally accepted in the United
States of America (US GAAP), escrow agreements such as the one established by
Mr. Xiangqian Li generally constitute compensation if, following attainment of a
performance threshold, shares are returned to a company officer. The Company
determined that without consideration of the compensation charge, the
performance thresholds for the year ended September 30, 2005 would be achieved.
However, after consideration of a related compensation charge, the Company
determined that such thresholds would not have been achieved. The Company also
determined that, even without consideration of a compensation charge, the
performance thresholds for the year ended September 30, 2006 would not be
achieved. Therefore, no compensation charge was recorded by the Company for the
years ended September 30, 2005 and 2006.
F-8
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
1 Principal Activities, Basis of Presentation and Organization
(continued)
Basis of Presentation and Organization (continued)
While the 217,955 escrow shares relating to the 2005
performance threshold were previously released to Mr. Xiangqian Li, Mr.
Xiangqian Li executed a further undertaking on August 21, 2006 to return those
shares to the escrow agent for the distribution to the relevant investors.
However, such shares were not returned to the escrow agent, but, pursuant to a
Delivery of Make Good Shares, Settlement and Release Agreement between the
Company, BAK International and Mr. Li entered into on October 22, 2007 (the Li
Settlement Agreement), such shares were ultimately delivered to the Company as
described below. Because the Company failed to satisfy the performance threshold
for the fiscal year ended September 30, 2006, the remaining 217,955 escrow
shares relating to the fiscal year 2006 performance threshold were released to
the relevant investors. As Mr. Li has not retained any of the shares placed into
escrow, and as the investors party to the Escrow Agreement are only shareholders
of the Company and do not have and are not expected to have any other
relationship to the Company, the Company has not recorded a compensation charge
for the years ended September 30, 2005 and 2006.
At the time the escrow shares relating to the 2006 performance
threshold were transferred to the investors in fiscal year 2007, the Company
should have recognized a credit to donated shares and a debit to additional
paid-in capital, both of which are elements of shareholders equity. This entry
is not material because total ordinary shares issued and outstanding, total
shareholders equity and total assets do not change; nor is there any impact on
income or earnings per share. Therefore, previously filed consolidated financial
statements for the fiscal year ended September 30, 2007 will not be restated.
This share transfer has been reflected in these financial statements by
reclassifying the balances of certain items as of October 1, 2007. The balances
of donated shares and additional paid-in capital as of October 1, 2007 were
credited and debited by $7,955,358 respectively, as set out in the consolidated
statements of shareholders equity.
In November 2007, Mr. Xiangqian Li delivered the 217,955 shares
related to the 2005 performance threshold to BAK International pursuant to the
Li Settlement Agreement; BAK International in turn delivered the shares to the
Company. Such shares (other than those issued to investors pursuant to the 2008
Settlement Agreements, as described below) are now held by the Company. Upon
receipt of these shares, the Company and BAK International released all claims
and causes of action against Mr. Xiangqian Li regarding the shares, and Mr.
Xiangqian Li released all claims and causes of action against the Company and
BAK International regarding the shares. Under the terms of the Li Settlement
Agreement, the Company commenced negotiations with the investors who
participated in the Companys January 2005 private placement in order to achieve
a complete settlement of BAK Internationals obligations (and the Companys
obligations to the extent it has any) under the applicable agreements with such
investors.
Beginning on March 13, 2008, the Company has entered into
settlement agreements (the 2008 Settlement Agreements) with certain investors
in the January 2005 private placement. Since the other investors have never
submitted any claims regarding this matter, the Company did not reach any
settlement with them.
Pursuant to the 2008 Settlement Agreements, the Company and the
settling investors have agreed, without any admission of liability, to a
settlement and mutual release from all claims relating to the January 2005
private placement, including all claims relating to the escrow shares related to
the 2005 performance threshold that had been placed into escrow by Mr. Xiangqian
Li, as well as all claims, including claims for liquidated damages relating
to registration rights granted in connection with the January 2005 private
placement. Under the 2008 Settlement Agreement, the Company has made
settlement payments to each of the settling investors of the number of
shares of the Companys common stock equivalent to 50% of the number of the
escrow shares related to the 2005 performance threshold these investors had
claimed; aggregate settlement payments as of December 31, 2012 amounted to
73,749 shares. Share payments to date have been made in reliance upon the
exemptions from registration provided by Section 4(2) and/or other
applicable provisions of the Securities Act of 1933, as amended. In
accordance with the 2008 Settlement Agreements, the Company filed a
registration statement covering the resale of such shares which was declared
effective by the SEC on June 26, 2008. As of December 31, 2012, we have not
received any claim from the other investors who have not been covered by the
"2008 Settlement Agreements" in the January 2005 private placement.
Pursuant to the Li Settlement Agreement, the 2008 Settlement
Agreements and upon the release of the 217,955 escrow shares relating to the
fiscal year 2006 performance threshold to the relevant investors, neither Mr. Li
or the Company have any obligations to the investors who participated in the
Companys January 2005 private placement relating to the escrow shares. As of
December 31, 2012, we have not received any claim from the other investors who have
not been covered by the 2008 Settlement Agreements in the January 2005 private
placement.
As we have transferred the 217,955 shares related to the 2006
performance threshold to the relevant investors in fiscal year 2007 and we also
have transferred 73,749 shares relating to the 2005 performance threshold to the
investors who had entered the 2008 Settlement Agreements with us in fiscal
year 2008, pursuant to Li Settlement Agreement and 2008 Settlement
Agreements, neither Mr. Li nor the Company has not had any remaining
obligations to those related investors who participated in the Companys January
2005 private placement relating to the escrow shares.
On October 26, 2012, the Company effected a 1-for-5 reverse
stock split of its issued and outstanding shares of common stock and a
proportional reduction of its authorized shares of common stock. All common
share and per share amount, and exercise prices of common stock options
disclosed herein and in the accompanying consolidated unaudited financial
statements have been retroactively restated to reflect the reverse stock split.
The Companys condensed interim consolidated financial
statements have been prepared under accounting principles generally accepted in
the United States of America (US GAAP).
F-9
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
1 Principal Activities, Basis of Presentation and Organization
(continued)
Basis of Presentation and Organization (continued)
These interim condensed consolidated financial statements are
unaudited. In the opinion of management, all adjustments and disclosures
necessary for a fair presentation of these interim condensed consolidated
financial statements, which are of a normal and recurring nature, have been
included. The results reported in the condensed consolidated financial
statements for any interim periods are not necessarily indicative of the results
that may be reported for the entire year. The following (a) condensed
consolidated balance sheet as of September 30, 2012, which was derived from the
Companys audited financial statements, and (b) the unaudited interim condensed
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to those rules and regulations, though
the Company believes that the disclosures made are adequate to make the
information not misleading. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and accompanying footnotes of the Company for the year ended
September 30, 2012.
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. This basis of accounting differs in certain
material respects from that used for the preparation of the books of account of
the Companys principal subsidiaries, which are prepared in accordance with the
accounting principles and the relevant financial regulations applicable to
enterprises with limited liabilities established in the PRC, Hong Kong, India,
Canada or Germany, the accounting standards used in the places of their
domicile. The accompanying condensed interim consolidated financial statements
reflect necessary adjustments not recorded in the books of account of the
Company's subsidiaries to present them in conformity with US GAAP.
The Company has a working capital deficiency, accumulated
deficit from recurring net losses incurred for the current period and prior
years and significant short-term debt obligations maturing in less than one year
as of September 30, 2012 and for the three months ended December 31, 2012. These
factors raise substantial doubts about the Companys ability to continue as a
going concern.
The Company accordingly has continued to develop a strategic
plan (the Turnaround Plan). Under the Turnaround Plan, the Company will expand
OEM market with new marketing strategies to increase revenue. At the same time,
the Company will continue implementing cost reductions on both manufacturing
costs and operating expenses to improve profit margins as well as reducing
receivables outstanding through stronger credit controls. Due to adverse market
conditions, the Companys gross profit decreased from 20% in the first quarter
ended December 31, 2011 to a gross loss of 6.7% in the same period of 2012. The
Company intends to improve gross margin through the following measures:-
-
Give production priority to orders for higher margin products
-
Expand our customer base in the electric vehicle and polymer market who
often procure higher margin cylindrical and polymer products from the Company
-
Improve productivity to mitigate the negative impact of increasing
production costs
Under the Turnaround Plan, the Company expects to obtain
government grant income with respect to the R&D project key materials,
Battery and Battery Pack for use in Electric Vehicles which was selected into
the National Support List for the New-Energy Vehicle Industry Innovation
Program. Also, the Company expects to complete the construction of the new
corporate campus (Note 6) in third quarter of 2013 and receive rental income
from leasing of premises of the new corporate campus not occupied by the Company
for its own use, beginning in third quarter for the fiscal year of 2013, which
will generate further positive cash flows to the Companys operating activities.
The accompanying interim condensed consolidated financial
statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization
of assets and the settlement of liabilities in the normal course of business.
The interim condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty related to the Companys ability
to continue as a going concern.
The reporting currency of the Company is the United States
dollar (US dollar). The financial records of the Companys PRC operating
subsidiaries are maintained in their local currency, the Renminbi (RMB), which
is the functional currency. The financial records of the Companys subsidiaries
established in other countries are maintained in their local currencies. Assets
and liabilities are translated from each subsidiarys to the reporting currency
at the exchange rates at the balance sheet date, equity accounts are translated
at historical exchange rates, and income and expenses items are translated using
the average rate for the period. The translation adjustments are recorded in
accumulated other comprehensive income under shareholders equity. Monetary
assets and liabilities denominated in currencies other than the applicable
functional currencies are translated into the functional currencies at the
prevailing rates of exchange at the balance sheet date. Nonmonetary assets and
liabilities are remeasured into the applicable functional currencies at
historical exchange rates. Transactions in currencies other than the applicable
functional currencies during the period are converted into the functional
currencies at the applicable rates of exchange prevailing at the transaction
dates. Transaction gains and losses are recognized in the consolidated
statements of operations and comprehensive loss.
F-10
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
1 Principal Activities, Basis of Presentation and Organization
(continued)
Reclassifications
Certain amounts included in the prior period financial
statements have been reclassified to conform to the current period financial
statement presentation as follows:
(1)
|
In presenting the Companys condensed interim
consolidated statement of cash flows for the three months ended December
31, 2011, the Company presented $807,608 of cash flows from pledged
deposits as financing cash flows. In presenting the Companys condensed
interim consolidated statement of cash flows for the three months ended
December 31, 2012, the Company has reclassified cash flows from pledged
deposits as investing cash flows.
|
|
|
(2)
|
The current portion of long-term bank borrowings with
maturity within one year of $4,772,738 was erroneously classified in
long-term bank loans in the Companys consolidated balance sheet as of
September 30, 2012, which was included in the 2012 annual report on Form
10-K filed with the SEC on December 31, 2012. The Company has reclassified
these current maturities as a component of short-term bank loans. As a
result of such reclassification, the current liabilities as of September
30, 2012 has changed from $321,087,227 to $325,859,965.
|
|
|
(3)
|
The amounts of provision for obsolete inventories and
change in inventories have been restated in the presentation of the
condensed interim consolidated statement of cash flows for the three
months ended December 31, 2011.
|
|
|
(4)
|
In presenting the Companys condensed interim
consolidated statements of operations and comprehensive loss for the three
months ended December 31, 2011, government grant income was presented
separately after operating loss. For those grants which are directly
related to the Companys operations, the Company has reclassified and
included them in the computation of operating income. Subsidies related
for research and development activities and lease prepayments were
credited against the related expenses when received. After such
reclassification, research and development expenses, general and
administrative expenses, total operating expenses and government grant
income decreased to $486,274, $5,770,772, $10,922,402 and $48,305, for the
three months ended December 31, 2011, respectively,
.
|
Recently Issued Accounting Standards
In July 2012, the FASB issued ASU 2012-02 on impairment testing
for indefinite-lived intangible assets. This ASU amends FASB Codification Topic
350, Intangibles-Goodwill and Other, to allow, but not require, an entity, when
performing its annual or more frequent indefinite-lived intangible asset
impairment test, to first assess qualitative factors to determine whether the
existence of events and circumstances indicates that it is more likely than not
that the indefinite-lived intangible asset is impaired. If, after assessing the
totality of events and circumstances, an entity concludes that it is not more
likely than not that the indefinite-lived intangible asset is impaired then, the
entity is not required to take further action. However, if an entity concludes
otherwise, then it is required to determine the fair value of the
indefinite-lived intangible asset and perform the quantitative impairment test
by comparing the fair value with the carrying amount. ASU 2012-02 is effective
for annual and interim impairment tests performed for fiscal years beginning
after September 15, 2012. Early adoption is permitted. The adoption of this ASU
update has no material impact on the Companys condensed interim consolidated
financial statements.
In February, 2013, the FASB issued ASU 2013-02 that addresses
the reporting of reclassifications out of accumulated other comprehensive
income. This ASU clarifies FASB Codification Topic 220, Comprehensive Income,
and requires an entity to report the effect of significant reclassifications out
of accumulated other comprehensive income on the net income line items affected
if the amount is required under US GAAP to be reclassified in its entirety to
net income in the same reporting period. Amounts not required to be reclassified
in their entirety to net income must be cross-referenced to other disclosures
that provide additional detail about those amounts. These amendments are
effective for reporting periods beginning after December 15, 2013. Because the
only significant amounts in the Companys accumulated other comprehensive income
relate to foreign exchange translations, the Company does not expect to be
affected materially by this standard in the foreseeable future.
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Companys
consolidated financial statements upon adoption.
F-11
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
2 Pledged Deposits
Pledged deposits as of September 30, 2012 and December 31, 2012
consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
Pledged deposits with banks for:
|
|
|
|
|
|
|
Construction payable
|
$
|
129,768
|
|
$
|
-
|
|
Bills payable
|
|
5,380,430
|
|
|
4,938,696
|
|
|
$
|
5,510,198
|
|
$
|
4,938,696
|
|
Deposits pledged for construction payable are generally
released when the relevant construction projects are completed.
3 Trade Accounts Receivable, net
Trade accounts receivable as of September 30, 2012 and December
31, 2012 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
(As restated)
|
|
Trade accounts receivable
|
$
|
107,781,638
|
|
$
|
100,648,068
|
|
Less: Allowance for doubtful accounts
|
|
(33,244,428
|
)
|
|
(39,892,100
|
)
|
|
|
74,537,210
|
|
|
60,755,968
|
|
Bills receivable
|
|
2,912,381
|
|
|
1,389,901
|
|
|
$
|
77,449,591
|
|
$
|
62,145,869
|
|
An analysis of the allowance for doubtful accounts for the
three months ended December 31, 2011 and 2012 is as follows:
|
|
Three months ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
(As restated)
|
|
Balance at beginning of period
|
$
|
26,494,550
|
|
$
|
33,244,428
|
|
Allowance for the period
|
|
498,325
|
|
|
6,339,031
|
|
Foreign exchange adjustment
|
|
334,613
|
|
|
308,641
|
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
27,327,488
|
|
$
|
39,892,100
|
|
F-12
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
4 Inventories
Inventories as of September 30, 2012 and December 31, 2012
consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
19,999,192
|
|
$
|
17,906,622
|
|
Work-in-progress
|
|
13,912,685
|
|
|
15,227,558
|
|
Finished goods
|
|
31,471,952
|
|
|
27,433,164
|
|
|
|
|
|
|
|
|
|
$
|
65,383,829
|
|
$
|
60,567,344
|
|
During the three months ended December 2011 and 2012,
inventories write-down of nil and $19,275,145 respectively were charged to cost
of revenue.
Part of the Companys inventories with a carrying value of
$23,863,691 and $24,072,024 as of September 30, 2012 and December 31, 2012,
respectively, was pledged as collateral under certain loan agreements (see Note
7).
F-13
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
5 Prepayments and Other Receivables, net
Prepayments and other receivables as of September 30, 2012 and
December 31, 2012 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Prepayments for raw materials and others
|
$
|
4,458,058
|
|
$
|
4,803,446
|
|
Staff advance and prepayment for operating purpose
|
|
4,554,817
|
|
|
4,864,847
|
|
|
|
9,012,875
|
|
|
9,668,293
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts
|
|
(1,305,329
|
)
|
|
(1,257,595
|
)
|
|
|
|
|
|
|
|
|
$
|
7,707,546
|
|
$
|
8,410,698
|
|
An analysis of the allowance for doubtful accounts for the
three months ended December 31, 2011 and 2012 is as follows:
|
|
Three months ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
694,587
|
|
$
|
1,305,329
|
|
Allowance (Reversal) for the period
|
|
555,615
|
|
|
(58,958
|
)
|
Foreign exchange adjustment
|
|
13,057
|
|
|
11,224
|
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
1,263,259
|
|
$
|
1,257,595
|
|
6 Property, Plant and Equipment, net
Property, plant and equipment as of September 30, 2012 and
December 31, 2012 consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Buildings
|
$
|
115,034,342
|
|
$
|
127,865,523
|
|
Machinery and equipment
|
|
168,947,314
|
|
|
159,389,445
|
|
Office equipment
|
|
2,624,137
|
|
|
2,652,676
|
|
Motor vehicles
|
|
1,486,337
|
|
|
1,486,007
|
|
|
|
288,092,130
|
|
|
291,393,651
|
|
Accumulated depreciation
|
|
(102,766,292
|
)
|
|
(108,354,523
|
)
|
Construction in progress
|
|
51,714,066
|
|
|
70,328,335
|
|
Prepayment for acquisition of property, plant and equipment
|
|
1,717,991
|
|
|
2,718,771
|
|
|
|
|
|
|
|
|
Carrying amount
|
$
|
238,757,895
|
|
$
|
256,086,234
|
|
F-14
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
6 Property, Plant and Equipment, net (continued)
(i) Depreciation expense for the three months ended December
31, 2011 and 2012 is included in the condensed interim consolidated statements
of operations and comprehensive loss as follows:
|
|
Three months ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
Cost of revenues
|
$
|
3,708,478
|
|
$
|
3,941,806
|
|
Research and development expenses
|
|
140,347
|
|
|
136,717
|
|
Sales and marketing expenses
|
|
43,765
|
|
|
32,582
|
|
General and administrative expenses
|
|
822,382
|
|
|
806,665
|
|
|
$
|
4,714,972
|
|
$
|
4,917,770
|
|
(ii) Construction in Progress
Construction in progress mainly comprises capital expenditures
for construction of the Companys new corporate campus, including offices,
factories and a Research and Development Test Centre.
For the three months ended December 31, 2011 and 2012, the
Company capitalized interest of $124,854 and $709,860 respectively to the cost
of construction in progress.
(iii) Impairment charge
During the course of the Companys strategic review of its
operations, the Company assessed the recoverability of the carrying value of
certain property, plant and equipment which resulted in impairment losses of nil
and $2,707,686 for the three months ended December 31, 2012 and 2011,
respectively. The impairment charge represented the excess of carrying amounts
of the Companys property, plant and equipment over the estimated discounted
cash flows expected to be generated by the Companys production facilities in
Shenzhen primarily for the production of aluminum-case cells.
F-15
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
7 Short-term Bank Loans
As of September 30, 2012 and December 31, 2012, the Company had
several short-term bank loans and current maturities of long-term bank loans
with aggregate outstanding balances of $156,154,525 and $160,622,458,
respectively. The loans were primarily obtained for general working capital,
carried interest rates ranging from 6% to 7.216% per annum, and had maturity
dates ranging from 6 to 12 months. The loans are guaranteed by Mr. Xiangqian Li,
who did not receive any compensation for acting as guarantor. These facilities
were also secured by the Companys assets with the following carrying values:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
For short- term bank loans
|
|
|
|
|
|
|
Inventories
|
$
|
23,863,691
|
|
$
|
24,072,024
|
|
Machinery and equipment, net
|
|
47,255,604
|
|
|
45,722,332
|
|
Land use rights, buildings and construction in progress of
BAK Industrial Park
|
|
107,140,980
|
|
|
107,340,987
|
|
Land use rights #1 and buildings of Tianjin
Industrial Park Zone
|
|
23,970,502
|
|
|
23,844,413
|
|
|
|
202,230,777
|
|
|
200,979,756
|
|
For long- term bank loans (Note 8)
|
|
|
|
|
|
|
Land use right and construction in progress of Research and
Development Test Centre
|
|
34,796,887
|
|
|
39,369,580
|
|
|
|
|
|
|
|
|
For other long- term loans
|
|
|
|
|
|
|
Land use rights #2 of Tianjin Industrial
Park Zone
|
|
9,566,555
|
|
|
9,595,552
|
|
|
$
|
246,594,219
|
|
$
|
249,944,888
|
|
8 Long-term Bank Loans
As of September 30, 2012 and December 31, 2012, the Company had
long-term bank loans of $18,883,720 and $19,048,578, respectively. As of
December 31, 2012, the entire loan amount was borrowed under a four-year
long-term loan credit facility from China Development Bank, bearing interest at
the benchmark rate of the Peoples Bank of China (PBOC) for three-year to
five-year long-term loans, which is currently 7.403% per annum.
The long-term bank loan with China Development Bank is: (i)
guaranteed by Mr. Xiangqian Li; (ii) secured by certain shares of the Company
owned by Mr. Xiangqian Li; and (iii) secured by the property ownership and land
use rights certificate relating to the land on which the Companys Research and
Development Test Centre is to be constructed and the facilities to be
constructed thereon. The net book value of the secured construction in progress
and prepaid land use rights were $38,125,102 and $1,244,478, respectively, as of
December 31, 2012 and were $33,563,180 and $1,233,707, respectively, as of
September 30, 2012 (note 7).
F-16
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
8 Long-term Bank Loans (continued)
Mr. Xiangqian Li did not receive any compensation for pledging
his shares in the Company or acting as guarantor for the above long-term bank
loans.
The aggregate maturities of long-term bank loans as of December
31, 2012 are as follows:
Payable within fiscal year ending September 30,
|
|
(As restated)
|
|
- 2013
|
$
|
-
|
|
- 2014
|
|
6,419,207
|
|
- 2015
|
|
4,109,223
|
|
- 2016
|
|
8,520,148
|
|
|
$
|
19,048,578
|
|
9 Other Long-term loans
As of December 31, 2012, the Company had interest-free advances
of $2,517,644 from Tianjin Aifuyi Auto Parts. Co., Ltd and $5,135,366 from
Tianjin Zhantuo International Trading Co., Ltd. Both companies are unrelated
parties of the Company. The loans are non interest bearing, repayable by 2014
and unsecured except for the loan from Tianjin Zhantuo International Trading
Co., Ltd. which was secured by the Companys land use rights with a carrying
amount of $9,595,552 as of December 31, 2012.
The aggregate maturities of other long-term loans as of
December 31, 2012 are as follows:
Payable within fiscal year ending September
30,
|
|
|
|
- 2013
|
$
|
-
|
|
- 2014
|
|
7,653,010
|
|
- 2015 and thereafter
|
|
-
|
|
|
$
|
7,653,010
|
|
10 Accrued expenses and other payable and Obligations
arising from loan guarantees
(a) Accrued expenses and other payables
In 2012, the Company obtained interest-free loans from related
parties which are under the common control of Mr. Xiangqian Li. These loans are
payable upon demand. As of September 30, 2012 and December 31, 2012, outstanding
loans amounted to approximately $1,224,000 and $2,181,000 respectively.
(b) Obligations arising from loan guarantees
As of December 31, 2012, the Company provided guarantees for
the bank loans of unrelated parties (Note 16(iii)). On January 5, 2013,
Agricultural Bank of China informed the Company that Shenzhen Langjin Technology
Co., Ltd. had defaulted on the loan guaranteed by China BAK and two other
companies, and demanded full payment from China BAK. The Company has made a
partial payment of RMB16,000,000 ($2,567,683) on January 30, 2013 and is in the
process of negotiating a one-month payment extension for the remaining amount of
RMB30,000,000 ($4,814,404). The Company expects to pay the remaining amount in
March 2013. A loss of RMB46,000,000 ($7,360,706) was recognized in the three
months ended December 31, 2012. No default was noted on the other loans
guaranteed by the Company.
11 Deferred Revenue
Deferred revenue represents a government grant of subsidy for
the additional cost of land use rights relating to BAK Industrial Park, which is
amortized on a straight-line basis over the estimated useful life of the
depreciable facilities constructed thereon of 35 years.
F-16
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
12 Other Long-term Payables
Other long-term payables as of September 30, 2012 and December
31, 2012 include a government subsidy of approximately $7,500,000 received for
the Companys automated high-power lithium battery project from the National
Development and Reform Commission and the Ministry of Industry and Information
Technology. During this quarter, the company also obtained interest-free loans
approximately $8 million from Tianjin Zhantuo International Trading Co., Ltd.,
an unrelated third party. The loans will be matured in December 2014.
13 Share-based Compensation
(i) Options
The Company grants share options to officers and employees and
restricted shares of common stock to its non-employee directors as rewards for
their services.
Stock Option Plan
In May 2005, the Board of Directors adopted the China BAK
Battery, Inc. 2005 Stock Option Plan (the Plan). The Plan originally
authorized the issuance of up to 800,000 shares of the Companys common stock,
pursuant to stock options granted under the Plan, or as grants of restricted
stock. The exercise price of options granted pursuant to the Plan must be at
least equal to the fair market value of the Companys common stock at the date
of the grant. Fair market value is determined at the discretion of the
designated committee on the basis of reported sales prices for the Companys
common stock over a ten-business-day period ending on the grant date. The Plan
will terminate on May 16, 2055. On July 28, 2008, the Companys stockholders
approved certain amendments to the Plan, including an amendment increasing the
total number of shares available for issuance under the Plan to 1,600,000.
Pursuant to the Plan, the Company granted options to purchase
400,000 shares of common stock with an exercise price of $31.25 per share and a
contractual life of 6 years on May 16, 2005. In accordance with the vesting
provisions of the grants, the options became vested and exercisable under the
following schedule:
|
Percentage of
|
Initial
|
Number of Shares
|
Options Issued
|
Vesting Date
|
160,000
|
40%
|
July 1, 2007
|
120,000
|
30%
|
January 1, 2008
|
120,000
|
30%
|
July 1, 2008
|
400,000
|
100%
|
|
F-17
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to the
condensed interim consolidated financial statements
For the three months
ended December 31, 2011 and 2012
(In US$ except for number of shares)
(Unaudited)
13 Share-based Compensation (continued)
Subsequent to the grant date, options to purchase 40,000 shares
of common stock were forfeited because the optionees terminated their employment
with the Company. In addition, on September 28, 2006, options to purchase a
total of 280,000 shares of common stock were cancelled pursuant to the
Termination and Release Agreements signed on that day.
Pursuant to the Plan, the Company also granted options to
purchase 300,300 shares of the Companys common stock with a weighted-average
exercise price of $16.45 per share on June 25, 2007. In accordance with the
vesting provisions of the grants, the options will become vested and exercisable
during the period from March 31, 2007 to February 9, 2012 according to each
employees respective agreement.
A summary of share option plan activity for these options
during the three months ended December 31, 2012 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted average
|
|
|
|
|
|
|
Number of
|
|
|
average exercise
|
|
|
remaining
|
|
|
Aggregate intrinsic
|
|
|
|
shares
|
|
|
price per share
|
|
|
contractual term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2012
|
|
121,000
|
|
$
|
16.45
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
121,000
|
|
$
|
16.45
|
|
|
0.82years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
|
121,000
|
|
$
|
16.45
|
|
|
0.82
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on December 31, 2012 ($1.59) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.
The weighted-average grant-date fair value of options granted
during 2007 was $10.75 per share. Non-cash share-based compensation expense has
been fully recorded at end of September 30, 2011. No non-cash share-based
compensation expense was recorded for the three months ended December 31, 2011
and 2012 respectively.
The fair value of the above option awards granted on June 25,
2007 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions:
Expected volatility
|
69.44%
|
Expected dividends
|
Nil
|
Expected life
|
4 - 10 years
|
Risk-free interest rate
|
5.09%
|
As of December 31, 2012, there were no unrecognized
compensation costs related to non-vested share options.
F-18
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to the
condensed interim consolidated financial statements
For the three months
ended December 31, 2011 and 2012
(In US$ except for number of shares)
(Unaudited)
13 Share-based Compensation (continued)
Pursuant to the Plan, the Company also granted options to
purchase 72,000 shares of common stock with an exercise price of $21.5 per share
with a contractual life of 5 years on January 28, 2008. In accordance with the
vesting provisions of the grants, the options will become vested and exercisable
during the period from April 28, 2008 to January 28, 2011 according to each
employees respective agreement.
A summary of share option plan activity for these options
during the three months ended December 31, 2012 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted average
|
|
|
|
|
|
|
Number of
|
|
|
average exercise
|
|
|
remaining
|
|
|
Aggregate intrinsic
|
|
|
|
shares
|
|
|
price per share
|
|
|
contractual term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2012
|
|
72,000
|
|
$
|
21.50
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
72,000
|
|
$
|
21.50
|
|
|
0.08
years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
|
72,000
|
|
$
|
21.50
|
|
|
0.08
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on December 31, 2012 ($1.59) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.
The weighted average grant-date fair value of options granted
on January 28, 2008 was $17.95 per share. The Company has fully recorded the
non-cash share-based compensation expense. No non-cash share-based compensation
expense was recorded for the three months ended December 31, 2011 and 2012.
The fair value of the above option awards granted on January
28, 2008 was estimated on the date of grant using the Black-Scholes Option
Valuation Model that uses the following assumptions.
Expected volatility
|
120.23%
|
Expected dividends
|
Nil
|
Expected life
|
5 years
|
Risk-free interest rate
|
3.59%
|
As of December 31, 2012, there were no unrecognized
compensation costs related to non-vested share options.
F-19
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to the
condensed interim consolidated financial statements
For the three months
ended December 31, 2011 and 2012
(In US$ except for number of shares)
(Unaudited)
13 Share-based Compensation (continued)
On May 29, 2008, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
216,000 shares of the Companys common stock to Mr. Xiangqian Li and options to
purchase 34,000 shares to five other employees, with an exercise price of $20.9
per share and a contractual life of 5 years. In accordance with the vesting
provisions of the grants, the options will become vested and exercisable during
the period from September 30, 2008 to May 29, 2012 according to each employees
respective agreement.
A summary of share option plan activity for these options
during the three months ended December 31, 2012 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted average
|
|
|
|
|
|
|
Number of
|
|
|
average exercise
|
|
|
remaining
|
|
|
Aggregate intrinsic
|
|
|
|
shares
|
|
|
price per share
|
|
|
contractual term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2012
|
|
250,000
|
|
$
|
20.90
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
250,000
|
|
$
|
20.90
|
|
|
0.41
years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
|
250,000
|
|
$
|
20.90
|
|
|
0.41
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on December 31, 2012 ($1.59) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.
The weighted average grant-date fair value of options granted
on May 29, 2008 was $11.80 per share. The Company recorded non-cash share-based
compensation expense of $6,308 and nil for the three months ended December 31,
2011 and 2012 respectively, in respect of share options granted on May 29, 2008,
which was allocated to general and administrative expenses and research and
development expenses respectively.
The fair value of the above option awards granted on May 29,
2008 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected volatility
|
59.48%
|
Expected dividends
|
Nil
|
Expected life
|
5 years
|
Risk-free interest rate
|
4.01%
|
As of December 31, 2012, there were no unrecognized
compensation costs related to non-vested share options.
F-20
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to the
condensed interim consolidated financial statements
For the three months
ended December 31, 2011 and 2012
(In US$ except for number of shares)
(Unaudited)
13 Share-based Compensation (continued)
On June 22, 2009, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
385,640 shares of the Companys common stock to certain key employees, officers
and consultants with an exercise price of $14.05 per share and a contractual
life of 7 years. In accordance with the vesting provisions of the grants, the
options will become vested and exercisable over five years in twenty equal
quarterly installments on the first day of each fiscal quarter beginning on
October 1, 2009.
A summary of share option plan activity for these options
during the three months ended December 31, 2012 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
exercise price
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
shares
|
|
|
per
share
|
|
|
term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2011
|
|
328,671
|
|
$
|
14.05
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
328,671
|
|
$
|
14.05
|
|
|
3.50
years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
|
230,070
|
|
$
|
14.05
|
|
|
3.50
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on December 31, 2012 ($1.59) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.
The weighted average grant-date fair value of options granted
on June 22, 2009 was $12.30 per share. The Company recorded non-cash share-based
compensation expense of $159,014 and of $86,582 for the three months ended
December 31, 2011 and 2012, respectively.
The fair value of the above option awards granted on June 22,
2009 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected volatility
|
111.03%
|
Expected dividends
|
Nil
|
Expected life
|
7 years
|
Risk-free interest rate
|
3.69%
|
As of December 31, 2012, there were unrecognized compensation
costs of $237,773 related to the above non-vested share options. These costs are
expected to be recognized over a weighted average period of 1.75 years.
F-21
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
13 Share-based Compensation (continued)
On June 26, 2009, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
15,000 shares of the Companys common stock to certain key management with an
exercise price of $16.20 per share and a contractual life of 7 years. In
accordance with the vesting provisions of the grants, the options will become
vested and exercisable over five years in twenty equal quarterly installments
beginning on the first day of each fiscal quarter beginning on October 1, 2009.
A summary of share option plan activity for these options
during the three months ended December 31, 2012 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
|
|
|
|
exercise
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
price
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
shares
|
|
|
per
share
|
|
|
term
|
|
|
value
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2011
|
|
15,000
|
|
$
|
16.20
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
15,000
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on December 31, 2012 ($1.59) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.
The weighted average grant-date fair value of options granted
on June 26, 2009 was $14.30 per share. The Company recorded non-cash share-based
compensation expense of $8,709 and $nil for the three months ended December 31,
2011 and 2012 in respect of share options granted on June 26, 2009 which was
allocated to research and development expense.
The fair value of the above option awards granted on June 26,
2009 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected volatility
|
113.58 %
|
Expected dividends
|
Nil
|
Expected life
|
7 years
|
Risk-free interest rate
|
3.51 %
|
As of December 31, 2012, there were no unrecognized
compensation costs related to the above non-vested share options.
F-21
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
13 Share-based Compensation (continued)
On April 8, 2010, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
20,000 shares of the Companys common stock to certain key management with an
exercise price of $12.15 per share and a contractual life of 7.5 years. In
accordance with the vesting provisions of the grants, the options will become
vested and exercisable in eight equal installments beginning on each quarter
after September 30, 2010.
A summary of share option plan activity for these options
during the three months ended December 31, 2012 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
average exercise
|
|
|
Remaining
|
|
|
intrinsic
|
|
|
|
Shares
|
|
|
price per share
|
|
|
contractual Term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2011
|
|
20,000
|
|
$
|
12.15
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
|
20,000
|
|
$
|
12.15
|
|
|
4.75 years
|
|
$
|
-
|
|
Exercisable as of December 31, 2012
|
|
12,500
|
|
$
|
12.15
|
|
|
4.75
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on December 31, 2012 ($1.59) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.
The weighted average grant-date fair value of options granted
on April 8, 2010 was $7.05 per share. The Company recorded non-cash share-based
compensation expense of $10,516 and $4,510 for the three months ended December
31, 2011 and 2012, respectively, for the share options granted on April 8, 2010
which was allocated to research and development expense.
The fair value of the above option awards granted on April 8,
2010 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected volatility
|
51.79%
|
Expected dividends
|
Nil
|
Expected life
|
7.5 years
|
Risk-free interest rate
|
3.90%
|
As of December 31, 2012, there were unrecognized compensation
costs of $4,193 related to the above non-vested share options. These costs are
expected to be recognized over a weighted average period of 0.5 years.
F-22
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
13 Share-based Compensation (continued)
(ii) Restricted Shares
Pursuant to the Plan and in accordance with the China BAK
Battery, Inc. Compensation Plan for Non-Employee Directors, the Compensation
Committee of the Companys Board of Directors recommended and approved the grant
of 100,000 restricted shares to Chief Executive Officer, Mr. Xiangqian Li with a
fair value of $14.05 per share on June 22, 2009. In accordance with the vesting
schedule of the grant, the restricted shares will vest in twenty equal quarterly
installments on the first day of each fiscal quarter beginning on October 1,
2009.
The Company recorded non-cash share-based compensation expense
of $54,074 and $29,954 for the three months ended December 31, 2011 and 2012
respectively, for the restricted shares granted on June 22, 2009, which was
allocated to general and administrative expenses.
As of December 31, 2012, there were unrecognized stock-based
compensation costs of $84,742 associated with these restricted shares granted to
Mr. Xiangqian Li. These costs are expected to be recognized over a
weighted-average period of 1.75 years.
As the Company itself is an investment holding company which is
not expected to generate operating profits to realize the tax benefits arising
from its net operating loss carried forward, no income tax benefits were
recognized for such stock-based compensation cost under stock option plan for
the three months ended December 31, 2011 and 2012.
F-23
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
14 Net Loss per Share
Basic net loss per share is based on the net loss for the three
months ended December 31, 2012 attributable to equity shareholders of
$28,165,749 (2011: $1,819,754) and the weighted average number of shares of
common stock of 12,619,597 during the three months ended December 31, 2012
(2011: 12,619,049).
For the three months ended December 31, 2012, the outstanding
791,671 stock options and outstanding 35,000 restricted stock were anti-dilutive
and excluded from the calculation of diluted net loss per share.
For the three months ended December 31, 2011, the outstanding
828,631 stock options and outstanding 60,000 restricted stock were anti-dilutive
and excluded from the calculation of diluted net loss per share.
15 Fair Value of Financial Instruments
ASC Topic 820,
Fair Value Measurement and Disclosures
,
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. This topic also establishes a fair
value hierarchy, which requires classification based on observable and
unobservable inputs when measuring fair value. Certain current assets and
current liabilities are financial instruments. Management believes their
carrying amounts are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and, if applicable, their current interest rates are equivalent to
interest rates currently available. The three levels of valuation hierarchy are
defined as follows:
-
|
Level 1 inputs to the valuation methodology are quoted
prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
-
|
Level 2 inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the assets or liability, either directly or
indirectly, for substantially the full term of the financial instruments.
|
|
|
-
|
Level 3 inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
The carrying amounts of financial assets and liabilities, such
as cash and cash equivalents, pledged deposits, trade accounts receivable, other
receivables, short-term bank loans, long-term bank loans, other loan-term loan,
other long-term payable, accounts and bills payable and other payables,
approximate their fair values because of the short maturity of these instruments
and market rates of interest.
Measured on non-recurring basis
The Company is required to record assets at fair value on a
non-recurring basis in certain circumstances. Generally, assets are recorded at
fair value on a non-recurring basis as a result of impairment charges. For the
three months ended December 31, 2012 and 2011, impairment charges of Nil and
$2,707,686, respectively, were incurred on the Companys long-lived assets.
16 Commitments and Contingencies
(i) Capital Commitments
As of September 30, 2012 and December 31, 2012, the Company had
the following contracted capital commitments:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
For construction of buildings
|
$
|
10,820,593
|
|
$
|
162,887
|
|
For purchases of equipment
|
|
3,630,112
|
|
|
4,341,086
|
|
|
|
|
|
|
|
|
|
$
|
14,450,705
|
|
$
|
4,503,973
|
|
F-24
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
16 Commitments and Contingencies (continued)
(ii) Land Use Rights and Property Ownership Certificate
Pursuant to the land use rights certificate relating to the
Companys Tianjin facility, the Tianjin government had requested that the
Company completed the construction of the Tianjin facility before September 30,
2008. In February 5, 2010, the Company completed one part of the industrial
campus construction and received the property and land use right certificate,
however, the construction in the rest of the land was still not completed. As of
December 31, 2012, the Company was in the process of negotiating with the
relevant government bureau for the extension of the completion date. If the
Company fails to obtain the approval for the extension of the completion date
from the relevant government bureau regarding the rest land, there is a risk
that the land use rights certificate will become invalid. However, management
believes that this possibility, while present, is remote.
Pursuant to the land use rights certificate that the Company
obtained relating to the Research and Development Test Centre being constructed
in Shenzhen, the Company must complete at least 25% of the construction of the
Research and Development Test Centre by September 30, 2008. On November 11, 2008
and May 27, 2009, the Company signed two supplemental agreements with Shenzhen
government to increase the dimensions of the Research and Development Test
Centre. According to the supplemental agreements, the Company is required to
complete the construction by May 6, 2011. According to the property ownership
and land use rights certificate, such rights may not be pledged without the
approval of the relevant government office. The Company is required to pledge
its property ownership and land use rights certificate in relation to the
Research and Development Test Centre to China Development Bank according to the
loan agreement entered into with it. On April 7, 2010, the pledge of the land
use rights certificate to China Development Bank was approved by the relevant
government bureau. On April 20, 2010, the relevant land use rights certificate
was pledged to China Development Bank.
On March 26, 2012, the Company purchased insurance for its
manufacturing facilities at BAK Industrial Park in Shenzhen, China. Under the
new insurance policy entered into with Ping An Property & Casualty Insurance
Company of China, Ltd, the insured amount for our manufacturing facilities at
BAK Industrial Park is RMB663,612,000 (approximately $105.4 million) for the
period from March 27, 2012 to July 26, 2013.
On July 2, 2012, upon the expiry of the existing insurance
policy for its manufacturing facilities, the Company acquired a new insurance
policy from Ping An Property & Casualty Insurance Company of China, Ltd. The
insured amount for Companys manufacturing facilities in Tianjin is
RMB260,142,199 (approximately $40.9 million) for the period from July 2, 2012 to
July 2, 2013.
The Company is not able to insure its new Research and
Development Test Centre to be constructed in Shenzhen, China, until it receives
the required property ownership and land use rights certificates. Upon receipt
of such certificates, the Company intends to procure such insurance. As
discussed above, the Company has obtained the land use rights certificate to the
land relating to these facilities. The application for a property ownership
certificate is in process with respect to the Companys facilities in Shenzhen.
F-25
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to
the condensed interim consolidated financial statements
For the three
months ended December 31, 2011 and 2012
(In US$ except for number of
shares)
(Unaudited)
16 Commitments and Contingencies (continued)
(iii) Guarantees
In order to secure the supplies of certain raw materials and
equipment and upon the request of their existing or prospective suppliers, the
Company has given guarantees to certain suppliers which are summarized as
follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Guaranteed for Shenzhen Tongli Hi-tech Co.
Ltd. - a non-related party
|
$
|
2,386,369
|
|
$
|
2,407,202
|
|
Guaranteed for Tianjin Huaxiahongyuan Ltd. - a non-related
party
|
|
2,386,369
|
|
|
2,407,202
|
|
Guaranteed for Shenzhen Yasu Technology Co.
Ltd. - a non-related party
|
|
9,545,476
|
|
|
10,752,170
|
|
Guaranteed for Shenzhen Langjin Technology Development Co.
Ltd. - a non-related party
|
|
9,545,476
|
|
|
9,628,809
|
|
|
$
|
23,863,690
|
|
$
|
25,195,383
|
|
On April 1, 2012, the Company entered into a guarantee contract
to serve as the guarantor for the bank loan borrowed from Shenzhen Development
Bank (currently known as Pingan Bank) Longhua Branch in the amount of $2.4
million by Shenzhen Tongli Hi-Tech Co., Ltd. (Shenzhen Tongli), one of the
Companys cases and caps suppliers, for the period from April 1, 2012 to March
31, 2013. Under this guarantee contract, the Company shall perform all
obligations of Shenzhen Tongli under the loan contract if Shenzhen Tongli fails
to perform its obligations as set forth in the loan contract.
On April 25, 2012, the Company entered into a guarantee
contract to serve as the guarantor for the bank loan borrowed from China
Minsheng Banking Corp., Ltd, in the amount of $2.4 million by Tianjin
Huaxiahongyuan Ltd. (Tianjin Huaxiahongyuan), one of the Companys prospective
suppliers of chemical raw materials such as lithium cobalt oxides, for the
period from April 25, 2012 to April 25, 2015. Under this guarantee contract, the
Company shall perform all obligations of Tianjin Huaxiahongyuan under the loan
contract if Tianjin Huaxiahongyuan fails to perform its obligations as set forth
in the loan contract.
On May 25, 2012 and June 25, 2012, the Company entered into
two guarantee contracts to serve as the guarantor for the bank loan borrowed from
Bank of China Shenzhen Branch in the amount of $10.8 million by Shenzhen Yasu
Technology Co. Ltd. (Shenzhen Yasu), one of the Companys prospective
suppliers of chemical raw materials such as lithium cobalt oxides, for the
period from May 25, 2012 to June 25, 2015. Under this guarantee contract, the
Company shall perform all obligations of Shenzhen Yasu under the loan contract
if Shenzhen Yasu fails to perform its obligations as set forth in the loan
contract.
On August 15, 2011, the Company entered into a guarantee
contract to serve as the guarantor for the bank loan borrowed from Agricultural
Bank of China Shenzhen Branch in the amount of $9.6 million by Shenzhen Langjin
Technology Development Co. Ltd. (Shenzhen Langjin), one of the Companys
prospective suppliers of chemical raw materials such as battery separator paper,
for the period from August 15, 2011 to August 14, 2014. Under this guarantee
contract, the Company shall perform all obligations of Shenzhen Langjin under
the loan contract if Shenzhen Langjin fails to perform its obligations as set
forth in the loan contract.
The Company has also guaranteed the loans of a related party
under the common control of Mr. Xiangqian Li in the amount of approximately
$11.2 million and $13.0 million as of September 30, 2012 and December 31, 2012,
respectively.
Tianjin BAK New Energy Research Institute Co., Ltd (Tianjin
BAK) is a company under common control of Mr. Xianqian Li, the Companys CEO.
The Company entered into various guarantee contracts to serve as the guarantor
for the bank loans borrowed from Bank of Dailian by Tianjin BAK in the amount of
$13.0 million as of December 31, 2012 extending to various periods up to October
15, 2013.
In China, it is a common practice among companies in the region
where the Company is located to provide guarantees for bank debts of existing or
prospective business partners with no consideration given. It is considered a
favor for favor business practice and is commonly required by the lending
banks in these cases.
No assets were held either as collateral or by third parties
that, upon the occurrence of any triggering events or condition under the
guarantees, the Company could obtain or liquidate to recover all or a portion of
the amounts paid under the guarantees.
As of December 31, 2012 and as of the filing date of this form
10-Q, the Company has assessed the performance risk of these guarantees and the
fair value of the obligation arising therefrom and has considered it is
immaterial to the consolidated financial statements. Therefore, except for an
obligation of $7,382,087 recognized as of December 31, 2012 (Note 10 (b)), no
obligations in respect of the above guarantees were recognized as of December
31, 2012.
(iv) Outstanding Discounted Bills and Transferred Bills
From time to time, the Company factors bills receivable to
banks and endorses the bank acceptance bills received to its suppliers, vendors
or other parties for settlement of its liabilities to these creditors. At the
time of the factoring and transfer, all rights and privileges of holding the
receivables are transferred to the banks and the creditors. The Company removes
the assets from its books and records a corresponding expense for the amount of
the discount. The Company remains contingently liable on the amount outstanding
in the event the bill issuer defaults.
The Company's outstanding discounted and transferred bills as
of September 30, 2012 and December 31, 2012 are summarized as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
Bank acceptance bills
|
$
|
21,962,849
|
|
$
|
35,818,355
|
|
F-26
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to the
condensed interim consolidated financial statements
For the three months
ended December 31, 2011 and 2012
(In US$ except for number of shares)
(Unaudited)
17 Significant Concentrations
(a) Customers and Credit Concentrations
For the three months ended December 31, 2011 and 2012, the
company had only one customer accounted for more than 10% of the Companys total
trade accounts receivable.
|
|
Three months ended December 31
|
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiangsu Huatiantong Technology Limited.
|
$
|
12,159,409
|
|
|
10.60%
|
|
$
|
16,745,642
|
|
|
16.81%
|
|
The Company had only one customer that individually comprised
10% or more of net revenue for the three months ended December 31, 2011 and 2012
respectively, as follows:
|
|
Three months ended December 31
|
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dongguan Yulong Telecom Technology Co.,
Ltd.
|
$
|
371,401
|
|
|
0.52% $
|
|
|
7,600,002
|
|
|
11.92%
|
|
(b) Credit Risk
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and cash
equivalents, pledged deposits and trade account receivables. As of September 30,
2012 and December 31, 2012, substantially all of the Companys cash and cash
equivalents and pledged deposits were held by major financial institutions
located in the PRC, which management believes are of high credit quality.
F-27
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
Notes to the
condensed interim consolidated financial statements
For the three months
ended December 31, 2011 and 2012
(In US$ except for number of shares)
(Unaudited)
18 Segment Information
The Company currently operates in one business segment, the
manufacture, commercialization and distribution of a wide variety of standard
and customized lithium ion rechargeable batteries for use in a wide array of
applications. During the three months ended December 31, 2012, the Company
manufactured five types of Li-ion rechargeable batteries: aluminum-case cell,
battery pack, cylindrical cell, lithium polymer cell and high-power lithium
battery cell as one line of business. The Company's products are sold to packing
plants operated by third parties primarily for use in mobile phones and other
electronic devices. Net revenues for the three months ended December 31, 2011
and 2012 were as follows:
Net revenues by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum-case cell
|
$
|
34,250,788
|
|
|
47.73
|
|
$
|
9,316,537
|
|
|
14.62
|
|
Battery pack
|
|
20,838,921
|
|
|
29.04
|
|
|
22,436,790
|
|
|
35.21
|
|
Cylindrical cells
|
|
12,972,890
|
|
|
18.08
|
|
|
19,599,545
|
|
|
30.75
|
|
Lithium polymer cells
|
|
2,633,669
|
|
|
3.67
|
|
|
6,935,483
|
|
|
10.88
|
|
High-power lithium battery cells
|
|
1,058,689
|
|
|
1.48
|
|
|
5,444,006
|
|
|
8.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,754,957
|
|
|
100.00
|
|
$
|
63,732,361
|
|
|
100.00
|
|
Net revenues by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC Mainland
|
$
|
58,773,767
|
|
|
81.91
|
|
$
|
48,994,581
|
|
|
76.88
|
|
PRC Taiwan
|
|
6,521,674
|
|
|
9.09
|
|
|
5,808,968
|
|
|
9.12
|
|
India
|
|
2,534,635
|
|
|
3.53
|
|
|
3,055,888
|
|
|
4.79
|
|
Hong Kong, China
|
|
2,410,783
|
|
|
3.36
|
|
|
3,997,372
|
|
|
6.27
|
|
Others
|
|
1,514,098
|
|
|
2.11
|
|
|
1,875,552
|
|
|
2.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,754,957
|
|
|
100.00
|
|
$
|
63,732,361
|
|
|
100.00
|
|
Substantially all of the Companys long-lived assets are
located in the PRC.
F-28