Item 1. Financial Statements.
CHINA BAK BATTERY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2013 AND 2012
F-1
China BAK Battery, Inc. and subsidiaries
|
Condensed consolidated balance sheets
|
As of September 30, 2012 and March 31, 2013
|
(In US$)
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
Note
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
9,271,633
|
|
$
|
7,203,680
|
|
Pledged deposits
|
|
2
|
|
|
5,510,198
|
|
|
8,980,474
|
|
Trade accounts receivable, net
|
|
3
|
|
|
77,449,591
|
|
|
57,971,915
|
|
Inventories, net
|
|
4
|
|
|
65,383,829
|
|
|
54,646,193
|
|
Prepayments and other receivables
|
|
5
|
|
|
7,707,546
|
|
|
8,090,656
|
|
Recoverable from loan guarantee
|
|
5
|
|
|
-
|
|
|
3,135,685
|
|
Deferred tax assets, net
|
|
12
|
|
|
4,000,043
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
169,322,840
|
|
|
140,028,603
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
6
|
|
|
238,757,895
|
|
|
246,703,702
|
|
Prepaid land use rights, net
|
|
6
|
|
|
32,503,861
|
|
|
32,752,536
|
|
Intangible assets, net
|
|
6
|
|
|
628,063
|
|
|
226,790
|
|
Deferred tax assets, net
|
|
12
|
|
|
1,736,981
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
442,949,640
|
|
$
|
419,711,631
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-2
China BAK Battery, Inc. and subsidiaries
|
Condensed consolidated balance sheets
|
As of September 30, 2012 and March 31, 2013
(continued)
|
(In US$)
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
Note
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
7
|
|
$
|
156,154,525
|
|
$
|
162,786,110
|
|
Accounts and bills payable
|
|
|
|
|
143,745,009
|
|
|
136,487,809
|
|
Accrued expenses and other payables
|
|
10
|
|
|
25,960,431
|
|
|
32,813,510
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
325,859,965
|
|
|
332,087,429
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans, less current
maturities
|
|
8
|
|
|
18,883,720
|
|
|
15,899,446
|
|
Other long-term loans
|
|
9
|
|
|
7,586,776
|
|
|
15,930,182
|
|
Deferred revenue
|
|
11
|
|
|
7,699,842
|
|
|
7,625,876
|
|
Other long-term payables
|
|
11
|
|
|
10,364,372
|
|
|
21,875,756
|
|
Deferred tax liabilities
|
|
12
|
|
|
759,394
|
|
|
768,948
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
371,154,069
|
|
|
394,187,637
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
Common stock US$ 0.001 par value;
20,000,000
authorized; 12,763,803 issued and outstanding as of
September 30, 2012
and March 31, 2013
|
|
|
|
|
12,763
|
|
|
12,763
|
|
Donated shares
|
|
|
|
|
14,101,689
|
|
|
14,101,689
|
|
Additional paid-in capital
|
|
|
|
|
126,990,611
|
|
|
127,208,995
|
|
Statutory reserves
|
|
|
|
|
7,786,157
|
|
|
7,786,157
|
|
Accumulated deficit
|
|
|
|
|
(110,358,489
|
)
|
|
(158,212,616
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
37,329,450
|
|
|
38,693,616
|
|
|
|
|
|
|
75,862,181
|
|
|
29,590,604
|
|
Less: Treasury shares
|
|
|
|
|
(4,066,610
|
)
|
|
(4,066,610
|
)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
|
71,795,571
|
|
|
25,523,994
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
|
$
|
442,949,640
|
|
$
|
419,711,631
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-3
China BAK Battery, Inc. and subsidiaries
|
Condensed consolidated statements of comprehensive
income
|
For the three and six months ended March 31, 2012 and
2013
|
(Unaudited)
|
(In US$ except for number of shares)
|
|
|
Three months ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
32,780,933
|
|
$
|
44,066,491
|
|
$
|
104,535,890
|
|
$
|
107,798,852
|
|
Cost of revenues
|
|
(36,651,065
|
)
|
|
(47,619,000
|
)
|
|
(94,374,822
|
)
|
|
(115,590,371
|
)
|
Gross profit/(loss)
|
|
(3,870,132
|
)
|
|
(3,552,509
|
)
|
|
10,161,068
|
|
|
(7,791,519
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
expenses
|
|
(709,956
|
)
|
|
(1,314,604
|
)
|
|
(1,196,230
|
)
|
|
(2,859,640
|
)
|
Sales and marketing expenses
|
|
(1,752,896
|
)
|
|
(1,914,579
|
)
|
|
(3,710,566
|
)
|
|
(4,102,594
|
)
|
General and administrative
expenses
|
|
(6,672,047
|
)
|
|
(6,750,289
|
)
|
|
(9,183,585
|
)
|
|
(10,531,536
|
)
|
(Provision for)/ recovery of bad debt
|
|
(421,446
|
)
|
|
8,342,151
|
|
|
(3,680,680
|
)
|
|
2,142,085
|
|
Impairment charge on property,
plant and equipment
|
|
-
|
|
|
(11,396,349
|
)
|
|
(2,707,686
|
)
|
|
(11,396,349
|
)
|
Total operating expenses
|
|
(9,556,345
|
)
|
|
(13,033,670
|
)
|
|
(20,478,747
|
)
|
|
(26,748,034
|
)
|
Operating loss
|
|
(13,426,477
|
)
|
|
(16,586,179
|
)
|
|
(10,317,679
|
)
|
|
(34,539,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs, net
|
|
(2,634,429
|
)
|
|
(1,705,189
|
)
|
|
(5,517,158
|
)
|
|
(4,439,308
|
)
|
(Loss)/reversal of loss arising from
|
|
-
|
|
|
4,549,667
|
|
|
-
|
|
|
(2,811,039
|
)
|
loan guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
Government grant income
|
|
28,607
|
|
|
35
|
|
|
76,912
|
|
|
18,277
|
|
Other income/(expenses)
|
|
412,097
|
|
|
47,555
|
|
|
431,979
|
|
|
(56,231
|
)
|
Loss before income taxes
|
|
(15,620,202
|
)
|
|
(13,694,111
|
)
|
|
(15,325,946
|
)
|
|
(41,827,854
|
)
|
Income tax expenses
|
|
(7,846
|
)
|
|
(5,994,266
|
)
|
|
(2,121,856
|
)
|
|
(6,026,273
|
)
|
Net loss
|
$
|
(15,628,048
|
)
|
$
|
(19,688,377
|
)
|
$
|
(17,447,802
|
)
|
$
|
(47,854,127
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
- Foreign currency translation adjustment
|
|
67,744
|
|
|
432,726
|
|
|
1,858,831
|
|
|
1,364,166
|
|
Comprehensive loss
|
$
|
(15,560,304
|
)
|
$
|
(19,255,651
|
)
|
$
|
(15,588,971
|
)
|
$
|
(46,489,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
$
|
(1.24
|
)
|
$
|
(1.56
|
)
|
$
|
(1.38
|
)
|
$
|
(3.79
|
)
|
- Diluted
|
$
|
(1.24
|
)
|
$
|
(1.56
|
)
|
$
|
(1.38
|
)
|
$
|
(3.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
12,619,049
|
|
|
12,619,597
|
|
|
12,619,049
|
|
|
12,619,597
|
|
- Diluted
|
|
12,619,049
|
|
|
12,619,597
|
|
|
12,619,049
|
|
|
12,619,597
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-4
China BAK Battery, Inc. and subsidiaries
|
Condensed consolidated statements of shareholders equity
|
For the six months ended March 31, 2012 and 2013
|
(Unaudited)
|
(In US$ except for number of shares)
|
|
Shares of common stock
|
|
Donated
shares
|
|
|
Additional
paid-in
capital
|
|
|
Statutory
reserves
|
|
|
Accumulated
deficit
|
|
|
Accumulated
other
comprehensive
income
|
|
Treasury shares
|
|
Total
shareholders’
equity
|
|
Number
of shares
|
|
Amount
|
|
Number
of shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 1, 2011
|
12,763,255
|
|
$
|
12,763
|
|
$
|
14,101,689
|
|
$
|
126,186,526
|
|
$
|
7,645,303
|
|
$
|
(44,410,240
|
)
|
$
|
35,804,409
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
135,273,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,447,802
|
)
|
|
-
|
|
-
|
|
|
-
|
|
|
(17,447,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation for
employee stock awards
|
-
|
|
|
-
|
|
|
-
|
|
|
474,731
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
474,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation to statutory
reserves
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
140,854
|
|
|
(140,854
|
)
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,858,831
|
|
-
|
|
|
-
|
|
|
1,858,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2012
|
12,763,255
|
|
$
|
12,763
|
|
$
|
14,101,689
|
|
$
|
126,661,257
|
|
$
|
7,786,157
|
|
$
|
(61,998,896
|
)
|
$
|
37,663,240
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
120,159,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 1, 2012
|
12,763,269
|
|
$
|
12,763
|
|
$
|
14,101,689
|
|
$
|
126,990,611
|
|
$
|
7,786,157
|
|
$
|
(110,358,489
|
)
|
$
|
37,329,450
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
71,795,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(47,854,127
|
)
|
|
-
|
|
-
|
|
|
-
|
|
|
(47,854,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation for
employee stock awards
|
-
|
|
|
-
|
|
|
-
|
|
|
218,384
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
218,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rounding difference on reverse
stock split
|
534
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,364,166
|
|
-
|
|
|
-
|
|
|
1,364,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2013
|
12,763,803
|
|
$
|
12,763
|
|
$
|
14,101,689
|
|
$
|
127,208,995
|
|
$
|
7,786,157
|
|
$
|
(158,212,616
|
)
|
$
|
38,693,616
|
|
(144,206
|
)
|
$
|
(4,066,610
|
)
|
$
|
25,523,994
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-5
China BAK Battery, Inc. and subsidiaries
|
Condensed consolidated statements of cash flows
|
For the six months ended March 31, 2012 and 2013
|
(Unaudited)
|
(In US$)
|
|
|
Six months ended March 31,
|
|
|
|
2012
|
|
|
2013
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
Net loss
|
$
|
(17,447,802
|
)
|
$
|
(47,854,127
|
)
|
Adjustments to reconcile net loss to net
cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
10,326,819
|
|
|
10,022,512
|
|
Provision for recovery of doubtful accounts
|
|
3,686,537
|
|
|
(2,142,085
|
)
|
Write-down of obsolete inventories
|
|
1,967,738
|
|
|
25,795,764
|
|
Impairment charge
|
|
2,707,686
|
|
|
11,396,349
|
|
Loss arising from loan guarantee
|
|
-
|
|
|
2,811,039
|
|
Share-based compensation
|
|
474,731
|
|
|
218,384
|
|
Deferred income taxes
|
|
2,110,627
|
|
|
5,792,575
|
|
Exchange difference
|
|
1,985
|
|
|
929,121
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Trade accounts receivable
|
|
(13,804,887
|
)
|
|
23,960,665
|
|
Inventories
|
|
7,207,565
|
|
|
(15,212,219
|
)
|
Prepayments and other
receivables
|
|
(6,886,989
|
)
|
|
(1,918,491
|
)
|
Recoverable on loan guarantee
|
|
-
|
|
|
(1,407,034
|
)
|
Accounts and bills payable
|
|
4,528,041
|
|
|
(6,722,829
|
)
|
Accrued expenses and other payables
|
|
20,036,300
|
|
|
14,374,314
|
|
Deferred revenue
|
|
(126,347
|
)
|
|
(170,027
|
)
|
Net cash provided by operating activities
|
|
14,782,004
|
|
|
19,873,911
|
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
Decrease/(increase) in pledged deposits
|
|
3,455,963
|
|
|
(3,393,661
|
)
|
Payment of guaranteed loans
|
|
-
|
|
|
(7,294,672
|
)
|
Repayment of guaranteed loans
|
|
-
|
|
|
1,524,657
|
|
Purchases of property, plant and equipment
|
|
(10,052,253
|
)
|
|
(20,800,251
|
)
|
Purchases of intangible assets
|
|
(463,779
|
)
|
|
(336,507
|
)
|
Net cash used in investing activities
|
|
(7,060,069
|
)
|
|
(30,300,434
|
)
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
95,395,611
|
|
|
100,957,520
|
|
Repayment of borrowings
|
|
(111,453,961
|
)
|
|
(99,514,848
|
)
|
Borrowings from related parties
|
|
-
|
|
|
862,854
|
|
Repayment to related parties
|
|
-
|
|
|
(2,180,599
|
)
|
Proceeds from other long-term loans
|
|
-
|
|
|
8,208,548
|
|
Net cash (used in) provided by financing activities
|
|
(16,058,350
|
)
|
|
8,333,475
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
156,857
|
|
|
25,095
|
|
Net decrease in cash and cash equivalents
|
|
(8,179,558
|
)
|
|
(2,067,953
|
)
|
Cash and cash equivalents at the beginning of period
|
|
24,858,239
|
|
|
9,271,633
|
|
Cash and cash equivalents at the end of
period
|
$
|
16,678,681
|
|
$
|
7,203,680
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash received during the period for:
|
|
|
|
|
|
|
Bills receivable discounted to banks
|
$
|
9,325,325
|
|
$
|
27,605,690
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
Interest, net of amounts capitalized
|
$
|
5,345,828
|
|
$
|
4,346,894
|
|
See accompanying notes to the condensed consolidated financial
statements.
F-6
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
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 March 31, 2013, 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 March 31, 2013, 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 remains at $99,990,000 while the registered
capital was reduced to $50,000,000. BAK Tianjin is principally engaged in the
manufacture of larger lithium ion batteries for use in cordless power tools and
various types of vehicles.
F-7
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ 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 1,152,458 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% was 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 $27,000,000. If the audited net income of the Company for the
fiscal years ended September 30, 2005 and 2006 reached the above-mentioned
targets, the 435,910 shares would be released to Mr. Xiangqian Li in the amount
of 50% upon reaching the 2005 target and the remaining 50% upon reaching the
2006 target.
Under accounting principles generally accepted in the United
States of America (US GAAP), escrow agreements such as the one established by
Mr. Xiangqian Li generally constitute compensation if, following attainment of a
performance threshold, shares are returned to a company officer. The Company
determined that without consideration of the compensation charge, the
performance thresholds for the year ended September 30, 2005 would be achieved.
However, after consideration of a related compensation charge, the Company
determined that such thresholds would not have been achieved. The Company also
determined that, even without consideration of a compensation charge, the
performance thresholds for the year ended September 30, 2006 would not be
achieved. No compensation charge was recorded by the Company for the years ended
September 30, 2005 and 2006.
F-8
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ 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 March 31, 2013 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
March 31, 2013, 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
March 31, 2013, 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 amounts, 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 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 consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
1. Principal Activities, Basis of Presentation and
Organization (continued)
Basis of Presentation and Organization (continued)
These condensed consolidated financial statements are
unaudited. In the opinion of management, all adjustments and disclosures
necessary for a fair presentation of these 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 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 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 March 31, 2013. 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 9.7% in the six months
ended March 31, 2012 to a gross loss of 7.2% in the same period of 2013. 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 the 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, from quarter 3 of FY2013, which will generate further positive
cash flows to the Companys operating activities.
The accompanying 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 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.
Reclassifications
Certain amounts included in the prior period financial
statements have been reclassified to conform to the current period financial
statement presentation as follows:
F-10
|
(1)
|
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.
|
|
|
|
|
(2)
|
The change in pledged deposits was classified into cash
flows from financing activities in the Companys condensed unaudited
consolidated statement of cash flows for the six months ended March 31,
2012, which was included in the quarterly report on Form 10-Q filed with
the SEC on May 10, 2012. The Company has reclassified these amounts as
components of cash flows from investing activities. As a result of such
reclassification, net cash used in investing activities for the six months
ended March 31, 2012 has changed from $10,516,032 to $7,060,069, and net
cash used in financing activities has changed from $12,602,387 to
$16,058,350.
|
|
|
|
|
(3)
|
In presenting the Companys condensed interim
consolidated statement of operations and comprehensive loss for the three
months ended and six months ended March 31, 2012, 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 $709,956, $6,672,047, $9,556,345 and $28,607, respectively for the three months ended March 31, 2012. Research and
development expenses, general and administrative expenses, total operating
expenses and government grant income decreased to $1,196,230,
$9,183,585, $20,478,747and $76,912, respectively for the six months ended
March 31, 2012.
|
F-11
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
1. Principal Activities, Basis of Presentation and
Organization (continued)
Recently Issued Accounting Standards
In February 2013, the FASB issued Accounting Standards Update
No. 2013-02 Comprehensive Income (Topic 220): The objective of this update is to
improve the reporting of reclassifications out of accumulated other
comprehensive income. The amendments in this update seek to attain that
objective by requiring an entity to report the effect of significant
reclassifications out of accumulated other comprehensive income on the
respective line items in net income if the amount being reclassified is required
under U.S. generally accepted accounting principles (GAAP) to be reclassified in
its entirety to net income. For other amounts that are not required under U.S.
GAAP to be reclassified in their entirety to net income in the same reporting
period, an entity is required to cross-reference other disclosures required
under U.S. GAAP that provide additional detail about those amounts. This would
be the case when a portion of the amount reclassified out of accumulated other
comprehensive income is reclassified to a balance sheet account (for example,
inventory) instead of directly to income or expense in the same reporting
period. For public entities, the amendments are effective prospectively for
reporting periods beginning after December 15, 2012. The adoption of the
provisions in this update did not have a significant impact on its consolidated
financial statements.
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.
2. Pledged Deposits
Pledged deposits as of September 30, 2012 and March 31, 2013
consisted of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
Pledged deposits with banks for:
|
|
|
|
|
|
|
Construction payable
|
$
|
129,768
|
|
$
|
1,658
|
|
Bills
payable
|
|
5,380,430
|
|
|
8,978,816
|
|
|
$
|
5,510,198
|
|
$
|
8,980,474
|
|
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 March
31, 2013 consisted of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
107,781,638
|
|
$
|
83,197,293
|
|
Less: Allowance for doubtful accounts
|
|
(33,244,428
|
)
|
|
(31,531,678
|
)
|
|
|
74,537,210
|
|
|
51,665,615
|
|
Bills receivable
|
|
2,912,381
|
|
|
6,306,300
|
|
|
$
|
77,449,591
|
|
$
|
57,971,915
|
|
An analysis of the allowance for doubtful accounts is as
follows:
|
|
Six months
|
|
|
|
ended
|
|
|
|
March 31,2013
|
|
|
|
|
|
Balance at October 1, 2012
|
$
|
33,244,428
|
|
Provision for the period
|
|
3,960,154
|
|
Reversal for the period
|
|
(6,097,786
|
)
|
Foreign exchange adjustment
|
|
424,882
|
|
|
|
|
|
Balance at March 31, 2013
|
$
|
31,531,678
|
|
F-12
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
4. Inventories
Inventories as of September 30, 2012 and March 31, 2013
consisted of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
19,999,192
|
|
$
|
15,819,566
|
|
Work-in-progress
|
|
13,912,685
|
|
|
11,342,605
|
|
Finished goods
|
|
31,471,952
|
|
|
27,484,022
|
|
|
|
|
|
|
|
|
|
$
|
65,383,829
|
|
$
|
54,646,193
|
|
During the three months ended March 31, 2012 and 2013,
inventories write-down of $1.97 million and $6.5 million respectively were
charged to cost of revenue.
During the six months ended March 31, 2012 and 2013,
inventories write-down of $1.97 million and $25.8 million respectively were
charged to cost of revenue.
F-13
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
5.
|
Prepayments and Other Receivables and Recoverable from
Loan Guarantee
|
|
|
(a) Prepayments and other receivables as of September 30,
2012 and March 31, 2013 consisted of the
following:
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Prepayments for raw materials and others
|
$
|
4,458,058
|
|
$
|
3,023,049
|
|
Staff advances
|
|
1,014,814
|
|
|
863,383
|
|
Obsolete asset disposal
|
|
1,005,409
|
|
|
1,018,059
|
|
Prepaid operating expenses
|
|
1,176,592
|
|
|
1,095,565
|
|
Advances to third parties
|
|
-
|
|
|
1,729,471
|
|
Advances to related parties
|
|
-
|
|
|
238,078
|
|
Value added taxes recoverable
|
|
1,263,544
|
|
|
1,093,391
|
|
Others
|
|
94,458
|
|
|
346,938
|
|
|
|
9,012,875
|
|
|
9,407,934
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts
|
|
(1,305,329
|
)
|
|
(1,317,278
|
)
|
|
|
|
|
|
|
|
|
$
|
7,707,546
|
|
$
|
8,090,656
|
|
Advances to unrelated third parties were interest-free,
unsecured and repayable on demand.
As of March 31, 2013 and September 30, 2012, the Company
advances to three related companies with common shareholder of MrXianqian Li,
the Companys CEO. These loans to related companies were interest-free,
unsecured and repayable on demand.
An analysis of the allowance for staff advances and obsolete
asset disposal is as follows:
Balance at October 1, 2012
|
$
|
1,305,329
|
|
Recoveries for the period
|
|
(4,453
|
)
|
Foreign exchange adjustment
|
|
16,402
|
|
|
|
|
|
Balance at March 31, 2013
|
$
|
1,317,278
|
|
(b) Recoverable from loan guarantee
As further mentioned in Note 16 (iii), the Company has paid a
defaulted payment in respect of the guarantee to Shenzhen Langjin Technology
Co., Ltd (Shenzhen Langjin). As of March 31, 2013, the Company expected to
recover at least $4.6 million from Shenzhen Langjin, of which $1,529,029 had
been received. On April 28, 2013, the Company received a further indemnification
amount of $3,135,685.
6. Property, Plant and Equipment, net, Prepaid Land Use
Rights, net and Intangible Assets, net
(a) Property, plant and equipment as of September 30, 2012 and
March 31, 2013 consisted of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
Buildings
|
$
|
115,034,342
|
|
$
|
111,718,629
|
|
Machinery and equipment
|
|
168,947,314
|
|
|
168,796,297
|
|
Office equipment
|
|
2,624,137
|
|
|
2,668,477
|
|
Motor vehicles
|
|
1,486,337
|
|
|
1,558,017
|
|
|
|
288,092,130
|
|
|
284,741,420
|
|
Accumulated depreciation
|
|
(102,766,292
|
)
|
|
(113,590,590
|
)
|
Construction in progress
|
|
51,714,066
|
|
|
71,104,788
|
|
Prepayment for acquisition of property, plant and equipment
|
|
1,717,991
|
|
|
4,448,084
|
|
|
|
|
|
|
|
|
Carrying amount
|
$
|
238,757,895
|
|
$
|
246,703,702
|
|
F-14
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
6. Property, Plant and Equipment, net, Prepaid Land Use
Rights, net and Intangible Assets, net (continued)
(i) Depreciation expense for the six months ended March 31,
2012 and 2013 is included in the condensed consolidated statements of operations
and comprehensive loss as follows:
|
|
Three months ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cost of revenues
|
$
|
3,703,196
|
|
$
|
3,452,718
|
|
$
|
7,411,674
|
|
$
|
7,394,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
149,438
|
|
|
143,699
|
|
|
289,785
|
|
|
280,416
|
|
Sales and marketing expenses
|
|
43,096
|
|
|
34,271
|
|
|
86,861
|
|
|
66,853
|
|
General and administrative expenses
|
|
817,095
|
|
|
809,784
|
|
|
1,639,477
|
|
|
1,616,449
|
|
|
$
|
4,712,825
|
|
$
|
4,440,472
|
|
$
|
9,427,797
|
|
$
|
9,358,241
|
|
(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 March 31, 2012 and 2013, the Company
capitalized interest of $645,499 and $659,803 respectively to the cost of
construction in progress.
For the six months ended March 31, 2012 and 2013, the Company
capitalized interest of $770,353 and $1,369,663 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
$11.4million and $11.4million for the three and six months ended March 31, 2013,
respectively, and of nil and $2.7 million for the three and six months ended
March 31, 2012, 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.
(b) Prepaid land use rights
Prepaid land use rights as of September 30, 2012 and March 31,
2013 consisted of the followings:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Prepaid land use rights
|
$
|
36,977,372
|
|
$
|
37,442,597
|
|
Accumulated amortization
|
|
(4,473,511
|
)
|
|
(4,690,061
|
)
|
|
$
|
32,503,861
|
|
$
|
32,752,536
|
|
Amortization expenses of the prepaid land use rights were
$285,246 and $391,519 for the three months ended March 31, 2012 and 2013 and
$538,783 and $577,454 for the six months March 31, 2012 and 2013 respectively.
The Company has committed to pledge its construction in progrss
and land use rights certificate relating to the Companys Research and
Development Test Centre (Note 7) to China Development Bank with the net carrying
amount of $40,723,035 as of March 31, 2013. 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 12, 2012, the Company borrowed a non-interest bearing
loan in the amount of approximately $13,402,926 from a third-party Tianjin
Zhantuo International Trading Co., Ltd. The Company has pledged one portion of
its land use right located in Tianjin Industrial Park Zone with net book value of $9,577,458
to Tianjin Zhantuo International Trading Co., Ltd.
(c) Intangible Assets, net
Intangible assets as of March 31, 2013 and September 30, 2012
consist of the following:
F-15
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Trademarks, computer software and
technology
|
$
|
1,073,138
|
|
$
|
1,422,468
|
|
Less: Accumulated amortization
|
|
(445,075
|
)
|
|
(1,195,678
|
)
|
|
$
|
628,063
|
|
$
|
226,790
|
|
Intangible assets represent the trademarks, computer software
and technology used for battery production and research.
Amortization expenses were $332,257 and $54,149 for the three
months ended March 31, 2012 and 2013 and $360,239 and $86,817 for six months
ended March 31, 2012 and 2013 respectively.
7. Short-term Bank Loans
As of September 30, 2012 and March 31, 2013, the Company had
several short-term bank loans and current maturities of long term loans with
aggregate outstanding balances of $156,154,525 and $162,786,110, respectively.
The loans were primarily obtained for general working capital, carried at
interest rates ranging from 4.4% to 6.9% 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 a guarantor. These facilities
were also secured by the Companys assets with the following carrying values:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
For short- term bank loans
|
|
|
|
|
|
|
Inventories
|
$
|
23,863,691
|
|
$
|
24,163,958
|
|
Machinery and equipment, net
|
|
47,255,604
|
|
|
44,076,028
|
|
Land use rights, buildings and construction in progress of
BAK Industrial Park
|
|
107,140,980
|
|
|
105,336,168
|
|
Land use rights #1 of Tianjin Industrial
Park Zone
|
|
23,970,502
|
|
|
23,907,306
|
|
|
|
202,230,777
|
|
|
197,483,460
|
|
For long- term bank loans (Note 8)
|
|
|
|
|
|
|
Land use right and construction in progress of Research and
Development Test Centre
|
|
34,796,887
|
|
|
40,723,035
|
|
For other long- term loans
|
|
|
|
|
|
|
Land use rights #2 of Tianjin Industrial Park Zone
|
|
9,566,555
|
|
|
9,577,458
|
|
|
$
|
246,594,219
|
|
$
|
247,783,953
|
|
F-16
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
8. Long-term Bank Loans
Long-term bank loans as of September 30, 2012 and March 31,
2013 as follow:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Long-term bank loan
|
$
|
23,656,458
|
|
$
|
22,343,160
|
|
Current portion included in short-term bank loans (Note 7)
|
|
(4,772,738
|
)
|
|
(6,443,714
|
)
|
|
$
|
18,883,720
|
|
$
|
15,899,446
|
|
The entire loan amount was borrowed under a six-year long-term
loan credit facility from China Development Bank, bearing interest at the
benchmark rate of the Peoples Bank of China (PBOC) for two-year to three-year
long-term loans, which is currently 6.878% 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 a
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 carrying amount of the secured buildings and
prepaid land use rights were $39,473,807 and $1,249,228, respectively, as of
March 31, 2013 and were $33,563,180 and $1,233,707, respectively, as of
September 30, 2012. (Note 7)
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 March
31, 2013 are as follows:
Payable within fiscal year ending September 30,
|
|
|
|
- 2013
|
$
|
-
|
|
- 2014
|
|
3,221,857
|
|
- 2015
|
|
8,054,643
|
|
- 2016
|
|
4,622,946
|
|
|
$
|
15,899,446
|
|
9. Other Long-term Loans
As of September 30, 2012 and March 31, 2013, the Company had
interest-free and unsecured advances of $2,495,855 and $2,527,256 respectively
from Tianjin Aifuyi Auto Parts. Co., Ltd, an unrelated party to the Company.
This loan is repayable by September 30, 2014.
As of September 30, 2012 and March 31, 2013, the Company had
advances of $5,090,921 and $13,402,926 from Tianjin Zhantuo International
Trading Co., Ltd, an unrelated party of the Company. The loans are non interest
bearing and amounted to $5,154,972 and $8,247,954 repayable by September 30,
2014 and December 31, 2014 respectively. These loans were secured by the
Companys land use rights with a carrying amount of $9,577,458 and $9,566,555 as
of March 31, 2013 and September 30, 2012 respectively (Note 7).
The aggregate maturities of other long-term loans as of March
31, 2013 are as follows:
Payable within fiscal year ending September 30,
|
|
|
|
- 2013
|
$
|
-
|
|
- 2014
|
|
7,682,228
|
|
- 2015 and thereafter
|
|
8,247,954
|
|
|
$
|
15,930,182
|
|
F-17
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
10. Accrued Expenses and Other Payables
Accrued expenses and other payables as of September 30, 2012
and March 31, 2013 consisted of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
(As restated)
|
|
Construction costs payable
|
|
1,688,862
|
|
|
8,485,566
|
|
Equipment purchase payable
|
|
5,465,281
|
|
|
3,216,699
|
|
Customer deposits
|
|
4,097,251
|
|
|
3,812,108
|
|
Advance from an unrelated third party
|
|
5,727,286
|
|
|
7,861,331
|
|
Advance from related parties (note)
|
|
1,224,287
|
|
|
-
|
|
Other payables and accruals
|
|
7,183,311
|
|
|
8,877,117
|
|
Staff and workers welfare and bonus
|
|
574,153
|
|
|
560,689
|
|
|
|
|
|
|
|
|
|
|
25,960,431
|
|
|
32,813,510
|
|
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.
11. Deferred Revenue and Other Long-term Payables
(a) Deferred Revenue
Deferred revenue mainly represents a government grant subsidy
for additional cost of land use rights relating to BAK Industrial Park, which is
amortized on a straight-line basis over the estimated useful lives of the
depreciable facilities constructed thereon of 35 years.
(b) Other Long-term Payables
Other long-term payables as of September 30, 2012 and March 31,
2013 consist of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
Government subsidies received for:-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Automated high-power lithium battery
project from the National Development and Reform Commission and Ministry
of Industry and Information Technology
|
$
|
7,913,200
|
|
$
|
8,012,759
|
|
- New energy innovation project from the Ministry of
Finance
|
|
-
|
|
|
9,665,571
|
|
- Various lithium battery related projects
from various government authorities
|
|
2,384,126
|
|
|
4,197,426
|
|
Others
|
|
67,046
|
|
|
-
|
|
|
|
|
|
|
|
|
|
$
|
10,364,372
|
|
$
|
21,875,756
|
|
The Company will recognize these grant as income or offset with
related expenditure when there were no present and future obligation for the
subsidized projects.
F-18
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
12. Income Taxes, Deferred Tax Assets and Deferred Tax
Liabilities
(a)
Income taxes in the consolidated statements of
comprehensive loss
The Companys provision for income taxes consisted of:
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
ended March 31,
|
|
|
ended March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
PRC income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
-
|
|
$
|
213,424
|
|
$
|
-
|
|
$
|
244,822
|
|
Deferred
|
|
7,846
|
|
|
5,780,842
|
|
|
2,121,856
|
|
|
5,781,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,846
|
|
$
|
5,994,266
|
|
$
|
2,121,856
|
|
$
|
6,026,272
|
|
United States Tax
China BAK is subject to statutory tax rate of 35% under United
States of America tax law. No provision for income taxes in the United States or
elsewhere has been made as China BAK had no taxable income for the three months
and six months ended March 31, 2012 and 2013.
Canada States Tax
BAK Canada is subject to statutory tax rate of 38% under Canada
tax law. No provision for income taxes in Canada has been made as BAK Canada had
no taxable income for the three months and six months ended March 31, 2012 and
2013.
German States Tax
BAK Europe is subject to 25% statutory tax rate under Germany
tax law.
India Tax
BAK India is subject to 30% statutory tax rate under India tax
law. No provision for income taxes in India has been made as BAK India had no
taxable income for the three months and six months ended March 31, 2012 and
2013.
Hong Kong Tax
BAK International is subject to Hong Kong profits tax rate of
16.5% . Management of BAK International has determined that all income and
expenses are offshore and not subject to Hong Kong profits tax. As a result, BAK
International did not incur any Hong Kong profits tax during the periods
presented.
PRC Tax
Shenzhen BAK is entitled to a preferential enterprise income
tax rate of 15% for the three months and six months ended March 31, 2012 and
2013.
BAK Electronics and BAK Tianjin are subject to an income tax
rate of 25%. BAK Electronics and BAK Tianjin did not incur any enterprise income
tax for the current year due to cumulative tax losses.
F-19
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
12. Income Taxes, Deferred Tax Assets and Deferred Tax
Liabilities (continued)
A reconciliation of the provision for income taxes determined
at the statutory income tax to the Company's income tax expenses as follows:
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
ended March 31,
|
|
|
ended March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
|
Loss before income taxes
|
$
|
(15,620,202
|
)
|
$
|
(13,694,111
|
)
|
$
|
(15,325,946
|
)
|
$
|
(41,827,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal corporate income tax
rate
|
|
35%
|
|
|
35%
|
|
|
35%
|
|
|
35%
|
|
Income tax computed at United States statutory corporate
|
|
5,467,071
|
|
|
4,792,939
|
|
|
5,364,081
|
|
|
14,639,749
|
|
income tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate differential for PRC earnings
|
|
(2,542,096
|
)
|
|
(2,726,524
|
)
|
|
(1,624,531
|
)
|
|
(8,061,891
|
)
|
Loss not recognized as deferred tax assets
|
|
(2,912,297
|
)
|
|
(2,245,771
|
)
|
|
(3,385,665
|
)
|
|
(6,533,102
|
)
|
Valuation allowance on deferred tax assets
|
|
(7,846
|
)
|
|
(5,780,842
|
)
|
|
(2,121,866
|
)
|
|
(5,781,450
|
)
|
Share based payment
|
|
(12,678
|
)
|
|
(34,068
|
)
|
|
(76,739
|
)
|
|
(76,434
|
)
|
Under-provision in prior year
|
|
-
|
|
|
-
|
|
|
(277,136
|
)
|
|
(213,144
|
)
|
Income tax expenses
|
$
|
(7,846
|
)
|
$
|
( 5,994,266
|
)
|
$
|
(2,121,856
|
)
|
$
|
(6,026,272
|
)
|
As of September 30, 2012 and March 31, 2013, the Companys U.S.
entity, had net operating loss carry forwards of $2,206,951 and $2,690,063,
respectively, available to reduce future taxable income which will expire in
various years through 2030 and the Companys PRC subsidiaries had net operating
loss carry forwards of $56,467,856 and $104,764,412 which will expires in
various years through 2018. Management believes it is more likely than not that
the Company will not realize these potential tax benefits as the Companys U.S.
operations will not generate any operating profits in the foreseeable future. As
a result, the full amount of the valuation allowance was provided against the
potential tax benefits.
(b) Deferred tax assets and deferred tax liabilities
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities as of September
30, 2012 and March 31, 2013 are presented below:
|
|
Sep 30, 2012
|
|
|
Mar 31, 2013
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
8,651,151
|
|
$
|
12,447,987
|
|
Inventories
|
|
3,104,830
|
|
|
5,291,639
|
|
Accrued expenses and other payables
|
|
597,130
|
|
|
713,875
|
|
Valuation allowance
|
|
(8,353,068
|
)
|
|
(18,453,501
|
)
|
Short-term deferred tax assets
|
|
4,000,043
|
|
|
-
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
Property, plant and equipment
|
|
4,877,766
|
|
|
6,580,441
|
|
Net operating loss carried forward
|
|
12,271,943
|
|
|
19,924,429
|
|
Valuation allowance
|
|
(15,412,728
|
)
|
|
(26,504,870
|
)
|
|
|
|
|
|
|
|
Long-term deferred tax assets
|
|
1,736,981
|
|
|
-
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
$
|
5,737,024
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
Property, plant and equipment
|
$
|
(759,394
|
)
|
$
|
(768,948
|
)
|
|
|
|
|
|
|
|
Net deferred tax assets
|
$
|
(759,394
|
)
|
$
|
(768,948
|
)
|
F-20
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
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%
|
|
|
|
|
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 $19.68 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 six months ended March 31, 2013 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
exercise
|
|
|
remaining
|
|
|
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 March 31, 2013
|
|
121,000
|
|
$
|
16.45
|
|
|
0.57 years
|
|
$
|
-
|
|
Exercisable as of March 31, 2013
|
|
121,000
|
|
$
|
16.45
|
|
|
0.57
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2013 ($1.18) 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 $10.75 per share. Non-cash share-based compensation expense has
been fully recorded as of September 30, 2011. No non-cash share-based
compensation expense was recorded for the three and six months ended March 31,
2013 and 2012.
The fair value of the above option awards granted on June 25,
2007 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions:
Expected volatility
|
69.44%
|
Expected dividends
|
Nil
|
Expected life
|
4 - 10 years
|
Risk-free interest rate
|
5.09%
|
F-21
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
13. Share-based Compensation (continued)
As of March 31, 2013, there were no unrecognized compensation
costs related to non-vested share options.
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 six months ended March 31, 2013 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
exercise
|
|
|
remaining
|
|
|
intrinsic
|
|
|
|
shares
|
|
|
price per share
|
|
|
contractual term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2012
|
|
72,000
|
|
$
|
21.50
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited/ expired
|
|
(72,000
|
)
|
|
(21.50
|
)
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2013
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2013
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2013 ($1.18) 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 $17.95 per share. The Company had fully recorded
non-cash share-based compensation expense. No non-cash share-based compensation
expense was recorded for the three months and six months ended March 31, 2012
and 2013 respectively.
The fair value of the above option awards granted on January
28, 2008 was estimated on the date of grant using the Black-Scholes Option
Valuation Model that uses the following assumptions.
Expected volatility
|
120.23%
|
Expected dividends
|
Nil
|
Expected life
|
5 years
|
Risk-free interest rate
|
3.59%
|
As of March 31, 2013, there were no unrecognized compensation
costs related to non-vested share options.
F-22
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ 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 six months ended March 31, 2013 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, 2012
|
|
250,000
|
|
$
|
20.90
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2013
|
|
250,000
|
|
$
|
20.90
|
|
|
0.16 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2013
|
|
250,000
|
|
$
|
20.90
|
|
|
0.16 years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2013 ($1.18) 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 $12,548 and nil for the six months ended March 31, 2012
and 2013, and $136,912 and $70,241 for the three months ended March 31, 2012 and
2013, respectively, in respect of share options granted on May 29, 2008, which
was allocated to general and administrative expenses and research and
development expenses respectively.
The fair value of the above option awards granted on May 29,
2008 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected volatility
|
59.48%
|
Expected dividends
|
Nil
|
Expected life
|
5 years
|
Risk-free interest rate
|
4.01%
|
As of March 31, 2013, there were no unrecognized compensation
costs related to non-vested share options.
F-23
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ 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 six months ended March 31, 2013 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, 2012
|
|
328,671
|
|
$
|
14.05
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2013
|
|
328,671
|
|
$
|
14.05
|
|
|
3.25 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2013
|
|
246,503
|
|
$
|
14.05
|
|
|
3.25 years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2013 ($1.18) 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 $295,926 and of $156,823 for the six months ended March
31, 2012 and 2013 and $136,912 and $70,241 for the three months ended March 31,
2012 and 2013 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 March 31, 2013, there were unrecognized compensation
costs of $167,532 related to the above non-vested share options. These costs are
expected to be recognized over a weighted average period of 1.5 years.
F-24
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ 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 six months ended March 31, 2013 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
exercise
|
|
|
remaining
|
|
|
intrinsic
|
|
|
|
shares
|
|
|
price per share
|
|
|
contractual term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2012
|
|
15,000
|
|
$
|
16.20
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
(15,000
|
)
|
|
16.20
|
|
|
4.74 years
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2013
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2013
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2013 ($1.18) 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 $15,136 and nil for the six months ended March 31, 2012
and 2013 and $6,427 and nil for the three months ended March 31, 2012 and 2013,
respectively in respect of share options granted on June 26, 2009 which was
allocated to research and development expense.
The fair value of the above option awards granted on June 26,
2009 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected volatility
|
113.58 %
|
Expected dividends
|
Nil
|
Expected life
|
7 years
|
Risk-free interest rate
|
3.51 %
|
As of March 31, 2013, there were no unrecognized compensation
costs related to the above non-vested share options.
F-25
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ 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 six months ended March 31, 2013 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
exercise
|
|
|
remaining
|
|
|
intrinsic
|
|
|
|
shares
|
|
|
price per share
|
|
|
contractual term
|
|
|
value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 1, 2012
|
|
20,000
|
|
$
|
12.15
|
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2013
|
|
20,000
|
|
$
|
12.15
|
|
|
4.50
years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2013
|
|
12,500
|
|
$
|
12.15
|
|
|
4.50
years
|
|
$
|
-
|
|
(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2013 ($1.18) 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 $20,941 and $7,330 for the six months ended March 31,
2012 and 2013, respectively, and $10,425 and $2,820 for the three months ended
March 31, 2012 and 2013, respectively, in respect of 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 March 31, 2013, there were unrecognized compensation
costs of $1,373 related to the above non-vested share options. These costs are
expected to be recognized in the third quarter of 2013.
(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 the 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 $46,224 and $24,278 for the three months ended March 31, 2012 and 2013,
respectively, in respect of the restricted shares granted on June 22, 2009,
which was allocated to general and administrative expenses.
The Company recorded non-cash share-based compensation expense
of $100,298 and $54,232 for the six months ended March 31, 2012 and 2013,
respectively, in respect of the restricted shares granted on June 22, 2009,
which was allocated to general and administrative expenses.
As of March 31, 2013, there was unrecognized stock-based
compensation costs of $60,464 associated with these restricted shares granted to
Mr. Xiangqian Li. These costs are expected to be recognized over a
weighted-average period of 1.5 years.
As the Company itself is an investment holding company which is
not expected to generate operating profits to realize the tax benefits arising
from its net operating loss carried forward, no income tax benefits were
recognized for such stock-based compensation cost under stock option plan for the three and six months ended
March 31, 2012 and 2013.
F-26
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
14. Net Loss Per Share
The following is the calculation of net loss per share:
|
|
Three months ended
March 31,
|
|
|
Six months ended
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
|
Net loss
|
$
|
(15,628,048
|
)
|
$
|
(19,688,377
|
)
|
$
|
(17,447,802
|
)
|
$
|
(47,854,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic and
diluted computation
|
|
12,619,049
|
|
|
12,619,597
|
|
|
12,619,049
|
|
|
12,619,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share Basic and diluted
|
$
|
(1.24
|
)
|
$
|
(1.56
|
)
|
$
|
(1.38
|
)
|
$
|
(3.79
|
)
|
For the three months ended March 31, 2013, the outstanding
791,671 stock options and outstanding 30,000 restricted stock were anti-dilutive
and excluded from diluted net loss per share. For the three months ended March
31, 2012, the outstanding 828,631 stock options and outstanding 60,000
restricted stock were anti-dilutive and excluded from diluted net loss per
share.
For the six months ended March 31, 2013, the outstanding
791,671 stock options and outstanding 30,000 restricted stock were anti-dilutive
and excluded from diluted net loss per share. For the six months ended March 31,
2012, the outstanding 838,831 stock options, outstanding 60,000 restricted stock
was anti-dilutive and excluded from 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.
|
Measured on recurring basis
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 the rate of interest of these instruments approximate the market rate of
interest.
Measured on non-recurring basis
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, the Company is required to record assets and
liabilities 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 month ended March 31, 2012 and 2013,
impairment changes of nil and $11.4 million, respectively, were incurred on the
Companys long-lived assets. For the six months ended March 31, 2012 and 2013,
impairment charges of $2.7 million and $11.4 million, respectively, were
incurred on the Companys long-lived assets.
F-27
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
16. Commitments and Contingencies
(i) Capital Commitments
As of September 30, 2012 and March 31, 2013, the Company had
the following contracted capital commitments:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
For construction of buildings
|
$
|
10,820,593
|
|
$
|
317,186
|
|
For purchases of equipment
|
|
3,630,112
|
|
|
2,379,826
|
|
|
|
|
|
|
|
|
|
$
|
14,450,705
|
|
$
|
2,697,012
|
|
(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 complete 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
March 31, 2013, 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 of the 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 has 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 new insurance policy
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 $106.9
million) for the period from March 27, 2012 to July 26, 2013.
On July 2, 2012, upon the expiry of the existing insurance
policy, 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 $41.9
million) for the period from July 2, 2012 to July 2, 2013.
The Company is not able to insure its new Research and
Development Test Centre to be constructed in Shenzhen, China, until it receives
the required property ownership and land use rights certificates. Upon receipt
of such certificates, the Company intends to procure such insurance. As
discussed above, the Company has obtained the land use rights certificate to the
land relating to these facilities. The application for a property ownership
certificate is in process with respect to the Companys facilities in Shenzhen.
F-28
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
16. Commitments and Contingencies (continued)
(iii) Guarantees
In order to secure the supplies of certain raw materials and
upon the request of their existing or prospective suppliers, the Company has
given guarantees of bank borrowings with maximum obligation period of from one
to three years to certain parties to the maximum extent as follows:
|
|
September
|
|
|
March 31,
|
|
|
Guarantee
|
|
|
|
30,
|
|
|
|
|
|
|
|
Guarantee for
|
|
2012
|
|
|
2013
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
Shenzhen Tongli Hi-tech Co. Ltd. - a
non-related party
|
$
|
2,386,369
|
|
$
|
-
|
|
|
4/1/2012-3/31/2013
|
|
Tianjin Huaxiahongyuan Ltd. - a non-related party
|
|
2,386,369
|
|
|
2,416,393
|
|
|
4/25/2012-4/25/2015
|
|
Shenzhen Yasu Technology Co. Ltd. - a
non-related party
|
|
9,545,476
|
|
|
9,665,571
|
|
|
5/25/2012-6/25/2015
|
|
Shenzhen Langjin - a non-related party (Note5(b))
|
|
9,545,476
|
|
|
9,665,571
|
|
|
8/15/2011-8/14/2014
|
|
Tianjin BAK New Energy Research Institute
Co., Ltd.- a related party
|
|
11,247,753
|
|
|
6,443,714
|
|
|
7/2/2012-10/15/2013
|
|
|
$
|
35,111,443
|
|
$
|
28,191,249
|
|
|
|
|
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. The Company did not
renew the guarantee contract after expiration on March 31, 2013.
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. On May 17, 2013, the Company
executed a new guarantee contract with Bank of Dalian to replace the existing
guarantee contract with the same terms and conditions from May 22, 2013 to May
21, 2016. 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 $9.7million 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 24, 2015. Under these guarantee contracts, the
Company shall perform all obligations of Shenzhen Yasu under the loan contracts
if Shenzhen Yasu fails to perform its obligations as set forth in the loan
contracts.
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 $9.7 million by Shenzhen Langjin
Technology Development Co. Ltd. (Shenzhen Langjin), one of the Companys
prospective suppliers of chemical raw materials such as battery separator paper,
for the period from August 15, 2011 to August 14, 2014. Under this guarantee
contract, the Company shall perform all obligations of Shenzhen Langjin under
the loan contract if Shenzhen Langjin fails to perform its obligations as set
forth in the loan contract.
On April 3, 2013, the Company entered into a guarantee
agreement with Jilin Province Trust & Investment Co., Ltd, under which the
Company agrees to guarantee loans to its chemical raw material supplier, Hubei
Yanguang Energy Technology Co. Ltd., a non-related party, to the extent of RMB
30,000,000 (approximately US$ 4.83 million) that it owes to other parties. The
guarantee period is from April 3, 2013 to April 2, 2014. The Company believes
that Hubei Yanguang Energy Technology Co. Ltd owns assets including land use
rights covering an area of approximately 1,330,000 square meters and buildings
thereon in Hubei, the PRC, and should be financially capable to repay the above
mentioned loans upon maturity in April 2014.
The Company has also guaranteed the loans of a related party
under the common control of Mr. Xianqian Li in the amount of approximately $11.2
milion and $6.44 million as of September 30, 2012 and March 31, 2013,
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
$6.44 million as of March 31, 2013 extending to various periods up to October 15,
2013.
F-29
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.
On January 5, 2013, the Company received a notice that the
Shenzhen Langjin Technology Development Co. Ltd. had defaulted on their loan
guaranteed by the Company and two other companies and demanded immediate payment
of the full guaranteed amount RMB60,000,000 (US$9,665,571) from the Company and
two other co-guarantors. As the two other co-guarantors had the ability to pay
RMB14,000,000 (US$2,255,300) only, the Company was demanded to pay the remaining
balance. As of March 31, 2013, the Company has paid China Agricultural Bank an
amount of RMB46 million (US$7.4 million), and received an amount of RMB9 million
(US$1.5 million) that it claimed back from Shenzhen Langjin. On April 28, 2013,
the Company received a further indemnification amount of RMB19 million
(US$3.1million) .
During the six months ended March 31, 2012 and 2013, the
Company recorded a net loss arising from loan guarantees of nil and $2.8
million, respectively. During the three months ended March 31, 2012 and 2013,
the Company recorded a reversal of the net loss arising from loan guarantees of
nil and $4.6 million, respectively.
As of March 31, 2013 and as of filing date of this form 10-Q,
the Company has assessed the performance risk of these guarantees and the fair
value of the obligation arising from them and considered it is immaterial to the
condensed consolidated financial statements except for the obligations relating
to Shenzhen Langjin.
F-30
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
16. Commitments and Contingencies (continued)
(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's outstanding discounted and transferred bills as
of September 30, 2012 and March 31, 2013 are summarized as follows:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Bank acceptance bills
|
$
|
21,962,849
|
|
$
|
41,002,935
|
|
17. Significant Concentrations
(a) Customers and Credit Concentrations
During the three months ended March 31, 2012, two customers
accounted for 12% and 9% of the Companys net revenue, respectively. During the
three months ended March 31, 2013, two customers accounted for 10% and 8% of the
Companys net revenue, respectively.
During the six months ended March 31, 2013, one customer
accounted for 12% of the Companys net revenue. During the six months ended
March 31, 2012, one customer accounted for 10% of the Companys net revenue.
During the three and six months ended March 31, 2012 and 2013,
there were no other customers that individually comprised 10% or more of the
Companys net revenue.
(b) Credit Risk
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and cash
equivalents and pledged deposits. As of September 30, 2012 and March 31, 2013,
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-31
China BAK Battery, Inc. and subsidiaries
|
Notes to the condensed consolidated financial
statements
|
For the three and six months ended March 31, 2012 and
2013 (continued)
|
(In US$ except for number of shares)
|
(Unaudited)
|
18. Segment Information
The Company currently engages 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 and six months ended March 31, 2013, 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. 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 six and three months ended March 31, 2012 and 2013 were as
follows:
Net revenues by product:
|
|
Three months ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum-case cell
|
$
|
11,689,808
|
|
|
35.6
|
|
$
|
8,986,832
|
|
|
20.4
|
|
$
|
45,940,596
|
|
|
44.0
|
|
$
|
18,303,369
|
|
|
17.0
|
|
Battery pack
|
|
8,787,317
|
|
|
26.8
|
|
|
17,384,183
|
|
|
39.5
|
|
|
29,626,238
|
|
|
28.3
|
|
|
39,820,973
|
|
|
36.9
|
|
Cylindrical cells
|
|
7,621,166
|
|
|
23.2
|
|
|
10,692,127
|
|
|
24.2
|
|
|
20,594,056
|
|
|
19.7
|
|
|
30,291,672
|
|
|
28.1
|
|
Lithium polymer cells
|
|
2,343,344
|
|
|
7.2
|
|
|
2,916,123
|
|
|
6.6
|
|
|
4,977,013
|
|
|
4.8
|
|
|
9,851,606
|
|
|
9.1
|
|
High-power lithium battery
cells
|
|
2,339,298
|
|
|
7.2
|
|
|
4,087,226
|
|
|
9.3
|
|
|
3,397,987
|
|
|
3.2
|
|
|
9,531,232
|
|
|
8.9
|
|
|
$
|
32,780,933
|
|
|
100
|
|
$
|
44,066,491
|
|
|
100
|
|
|
104,535,890
|
|
|
100
|
|
$
|
107,798,852
|
|
|
100
|
|
Net revenues by geographic area:
|
|
Three months ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC Mainland
|
$
|
18,935,222
|
|
|
57.8
|
|
$
|
35,508,879
|
|
|
80.5
|
|
$
|
77,708,989
|
|
|
74.3
|
|
$
|
84,503,460
|
|
|
78.4
|
|
PRC Taiwan
|
|
5,664,793
|
|
|
17.2
|
|
|
1,384,986
|
|
|
3.2
|
|
|
12,186,467
|
|
|
11.7
|
|
|
7,193,954
|
|
|
6.6
|
|
India
|
|
2,249,325
|
|
|
6.9
|
|
|
2,010,943
|
|
|
4.6
|
|
|
4,783,960
|
|
|
4.6
|
|
|
5,066,831
|
|
|
4.7
|
|
Hong Kong, China
|
|
3,072,734
|
|
|
9.4
|
|
|
2,333,305
|
|
|
5.3
|
|
|
5,483,517
|
|
|
5.2
|
|
|
6,330,677
|
|
|
5.9
|
|
Others
|
|
2,858,859
|
|
|
8.7
|
|
|
2,828,378
|
|
|
6.4
|
|
|
4,372,957
|
|
|
4.2
|
|
|
4,703,930
|
|
|
4.4
|
|
|
$
|
32,780,933
|
|
|
100
|
|
$
|
44,066,491
|
|
|
100
|
|
|
104,535,890
|
|
|
100
|
|
$
|
107,798,852
|
|
|
100
|
|
Substantially all of the Companys long-lived assets are
located in the PRC.
19. Subsequent Events
Pursuant to board resolution on April 2, 2013, the Company
determined to close BAK Canada. On April 2, 2013, the Company appointed an
official receiver for the related bankruptcy process.
On April 3, 2013, the Company entered into a guarantee
agreement to provide a guarantee to Hubei Yanguang Energy Technology Co. Ltd, an
unrelated third party to the extent of RMB30,000,000 (approximately $4.83
million).
On April 13, 2013, the Company terminated the employment
agreement with the Company's Chief Financial Officer, Danny Pan, effective
immediately. While the Company is seeking a new Chief Financial Officer, the
Board of Directors of the Company has appointed Mr. Xiangqian Li, the Company's
Chief Executive Officer, to serve as the Company's Interim Chief Financial
Officer, Treasurer and Secretary.
F-32
ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following managements 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. Our financial
statements are prepared in U.S. dollars and in accordance with United States
generally accepted accounting principles, or U.S. GAAP.
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A Risk Factors in our Annual Report on Form 10-K for
the fiscal year ended September 30, 2012, as well as assumptions, which, if they
were to ever materialize or prove incorrect, could cause the results of the
Company to differ materially from those expressed or implied by such
forward-looking statements.
Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation, except as required by law, to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context and for the
purposes of this report only, references in this report to:
-
Company, we, us and our are to the combined business of China BAK
Battery, Inc., a Nevada corporation, and its consolidated subsidiaries;
-
BAK International are to our Hong Kong subsidiary, BAK International
Limited;
-
BAK Europe are to our German subsidiary, BAK Europe GmbH;
-
BAK Canada are to our Canadian subsidiary, BAK Battery Canada Ltd.;
-
BAK India are to our Indian subsidiary, BAK Telecom India Private
Limited;
-
Shenzhen BAK are to our PRC subsidiary, Shenzhen BAK Battery Co., Ltd.;
-
BAK Tianjin are to our PRC subsidiary, BAK International (Tianjin) Ltd.;
-
BAK Electronics are to our PRC subsidiary, BAK Electronics (Shenzhen)
Co., Ltd.;
-
Tianjin Meicai are to our PRC subsidiary, Tianjin Meicai New Material
Technology Co., Ltd.;
-
China and PRC are to Peoples Republic of China;
-
RMB are to Renminbi, the legal currency of China;
-
U.S. dollar, $ and US$ are to the legal currency of the United
States;
-
SEC are to the United States Securities and Exchange Commission;
-
Securities Act are to the Securities Act of 1933, as amended; and
-
Exchange Act are to the Securities Exchange Act of 1934, as amended.
We completed a reverse stock split on October 26, 2012,
pursuant to which every five shares of our common stock were combined into one
share of common stock. All references in this report to share and per share data
have been adjusted, including historical data which have been retroactively
adjusted, to give effect to the reverse stock split unless specified otherwise.
3
Overview of Our Business
We are a leading global manufacturer of lithium-based battery
cells. We produce battery cells for original equipment manufacturer, or OEM,
customers and replacement battery manufacturers that are the principal component
of rechargeable batteries commonly used to power the following applications:
-
cellular phones and smartphones;
-
notebook computers, tablet computers and e-book readers;
-
portable consumer electronics, such as digital cameras, portable media
players, portable gaming devices, personal digital assistants, or PDAs,
camcorders, digital cameras and Bluetooth headsets; and
-
electric bicycles and other light electric vehicles, hybrid electric
vehicles and other electric vehicles; cordless power tools; and
uninterruptible power supplies, or UPS.
We conduct all of our manufacturing operations in China, in
close proximity to Chinas electronics manufacturing base and its rapidly
growing market. Historically, we have primarily manufactured prismatic
lithium-ion cells for the cellular phone replacement battery market and the OEM
market. Our products are packed into batteries by third-party battery pack
manufacturers in accordance with the specifications of manufacturers of portable
electronic applications. At the request of our customers that order prismatic
battery packs, we assemble our prismatic cells into battery packs at our
Shenzhen facility or engage battery pack manufacturers to assemble our cells
into batteries for a fee, and then sell battery packs to these customers both
for the replacement and OEM markets.
During the second quarter of fiscal 2013, we continued the
implementation of our business plan to expand our lithium-ion polymer and
high-power lithium battery production capacity in response to evolving market
demands. In particular, we developed and supplied cylindrical cell packs for use
in high-capacity public-use electric vehicles as part of a strategic cooperation
program for electric vehicle development with a major Taiwan-based automobile
manufacturer. We are also expanding our prismatic cell production capacity
through improving automatic production line for the smartphone market. During
the transition period, we gradually reduced our supply to the replacement
market. As a result, we have derived and expect to continue to derive an
increasing portion of our revenues from other products.
We have experienced net losses during the past two fiscal years
and for the current quarter ended March 31, 2013. We generated revenues of $44.1
million and $32.8 million for the three months ended March 31, 2013 and 2012,
respectively, and net losses of $19.7 million and $15.6 million during the same
periods, respectively. However, we believe that our accomplishments to date, as
well as our business plan, will yield long-term growth of revenues and positive
net income.
To help us finance and expand our operations, we had access to $217.2 million in short-term credit facilities, $24.1 million in long-term credit facilities and $38 million in other line of credit as of March 31, 2013. As of March 31, 2013, the principal outstanding amounts included short-term bank loans and current maturities of long-term bank loans of $162.8 million under credit facilities and long-term bank loans of $15.9 million maturing in over one year, and bills payable of $68.8 million under credit facilities, leaving $31.9 million 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 periods as of March 31,
2013 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. Under this
plan, we will continue to increase our presence in the OEM market both
domestically and internationally with more aggressive marketing strategies to
expand and secure our market base. We will also continue to implement measures
to reduce both manufacturing costs and operating expenses, improve profit
margins as well as reduce receivable turnover days through stronger credit
controls.
Second Quarter Financial Performance Highlights
The following are some financial highlights for the second
quarter of our fiscal year ended March 31, 2013:
-
Net revenues
: Net revenues increased by $11.3 million, or
34.4%, to $44.1 million for the three months ended March 31, 2013, from $32.8
million for the same period in 2012.
4
-
Gross loss
: Gross loss was $3.6 million for the three months
ended March 31, 2013, a decrease of $0.3 million from $3.9 million for the
same period in 2012.
-
Operating loss
: Operating loss was $16.6 million for the
three months ended March 31, 2013, an increase of $3.1 million from of $13.4
million for the same period in 2012.
-
Net loss
: Net loss was $19.7 million for the three months
ended March 31, 2013, an increase of $4.1 million, or 20.8%, from $15.6
million for the same period in 2012.
-
Fully diluted net loss per share
: Fully diluted net loss per
share was $1.56 for the three months ended March 31, 2013, as compared to
$1.24 for the same period in 2012.
Financial Statement Presentation
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 return 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, engaging in cooperative advertising programs,
participating 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 mainly consisted of government subsidies received by us with non-operating nature and with no further conditions to be met. The amounts are recorded as a non-operating income when received.
Finance costs, net
. Finance costs consist
primarily of interest income, interest on bank loans, net of capitalized
interest, and bank charges.
Income taxes
. 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 2013 due to the current tax losses carried forward from calendar
years 2011 and 2012. BAK Tianjin is currently paying no enterprise income tax
due to cumulative tax losses. Our Canadian, German, Indian, and Hong Kong
subsidiariesBAK Canada, BAK Europe, BAK India and BAK Internationalare subject
to profits tax in their respective countries at rates of 38%, 25%, 30%, and 16.5%, respectively. However, because they do not have
any assessable income derived from or arising in those countries, they have not
paid any such tax.
5
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 exported products and are
deposited in bonded warehouses are exempt from import VAT.
Results of Operations
Comparison of Three Months Ended March 31, 2013 and 2012
The following table sets forth key components of our results of
operations for the periods indicated.
(All amounts, other than percentages, in thousands of U.S.
dollars)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
%
|
|
Net revenues
|
$
|
44,066
|
|
$
|
32,781
|
|
$
|
11,285
|
|
|
34.4
|
|
Cost of revenues
|
|
47,619
|
|
|
36,651
|
|
|
10,968
|
|
|
29.9
|
|
Gross loss
|
|
(3,553
|
)
|
|
(3,870
|
)
|
|
317
|
|
|
(8.2
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development expenses
|
|
1,315
|
|
|
710
|
|
|
605
|
|
|
(85.2
|
)
|
Sales and marketing expenses
|
|
1,915
|
|
|
1,753
|
|
|
162
|
|
|
9.2
|
|
General and
administrative expenses
|
|
6,750
|
|
|
6,672
|
|
|
(98
|
)
|
|
(1.5
|
)
|
Provision for / (recovery) of
bad debt
|
|
(8,342
|
)
|
|
421
|
|
|
(8,763
|
)
|
|
(2,081.5
|
)
|
Impairment
charge on property, plant and equipment
|
|
11,396
|
|
|
-
|
|
|
11,396
|
|
|
100.0
|
|
Total operating expenses
|
|
13,034
|
|
|
9,556
|
|
|
3,478
|
|
|
36.4
|
|
Operating loss
|
|
(16,587
|
)
|
|
(13,426
|
)
|
|
(3,161
|
)
|
|
235
|
|
Finance costs, net
|
|
(1,705
|
)
|
|
(2,634
|
)
|
|
929
|
|
|
(35.3
|
)
|
Recovery of loss from loan
guarantees
|
|
4,550
|
|
|
-
|
|
|
4,550
|
|
|
-
|
|
Government grant income
|
|
-
|
|
|
29
|
|
|
(29
|
)
|
|
(100
|
)
|
Other income
|
|
48
|
|
|
412
|
|
|
(364
|
)
|
|
(88.3
|
)
|
Income tax expenses
|
|
(5,994
|
)
|
|
(8
|
)
|
|
(5,986
|
)
|
|
748.3
|
|
Net loss
|
$
|
(19,688
|
)
|
$
|
(15,627
|
)
|
$
|
(4,061
|
)
|
|
26.0
|
|
Net revenues
. Net revenues were $44.1 million for
the three months ended March 31, 2013, as compared to $32.8 million for the same
period in 2012, an increase of $11.3 million, or 34.4% .
The following table sets forth the breakdown of our net
revenues by battery cell type.
(All amounts in thousands of U.S. dollars)
|
|
Three Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Prismatic cells
|
|
|
|
|
|
|
Aluminum-case cells
|
$
|
8,987
|
|
$
|
11,690
|
|
Battery packs
|
|
17,384
|
|
|
8,787
|
|
Cylindrical cells
|
|
10,692
|
|
|
7,621
|
|
Lithium polymer cells
|
|
2,916
|
|
|
2,343
|
|
High-power lithium battery cells
|
|
4,087
|
|
|
2,340
|
|
Total
|
$
|
44,066
|
|
$
|
32,781
|
|
The following table sets forth the breakdown of our net revenues
from reconditioned and normal products.
(All amounts in thousands of U.S. dollars)
|
|
Three Months Ended March 31, 2013
|
|
|
|
Reconditioned
|
|
|
Normal
|
|
|
Total revenue
|
|
|
|
|
|
|
|
|
|
|
|
Prismatic cells
|
|
|
|
|
|
|
|
|
|
Aluminum-case cells
|
$
|
7,270
|
|
$
|
1,717
|
|
$
|
8,987
|
|
Battery
packs
|
|
7,287
|
|
|
10,097
|
|
|
17,384
|
|
Cylindrical cells
|
|
-
|
|
|
10,692
|
|
|
10,692
|
|
Lithium polymer cells
|
|
316
|
|
|
2,600
|
|
|
2,916
|
|
High-power lithium battery cells
|
|
-
|
|
|
4,087
|
|
|
4,087
|
|
Total
|
$
|
14,873
|
|
$
|
29,193
|
|
$
|
44,066
|
|
6
Net revenues from sales of aluminum-case cells decreased to $9.0 million in the three months ended March 31, 2013, from $11.7 million in the same period in 2012, a decrease of $2.7 million, or 23.1%, resulting from a decrease in sales volume of 4% accompanied by a decrease in our average selling price of 20%. This was mainly due to the adjustments in our marketing strategy to focus on high end markets and high-value customers thereby increasing sales of prismatic smartphone batteries and lithium-ion polymer smartphone batteries instead of the prismatic cells sold to the replacement market. The polymer batteries have a higher capacity and are safer than prismatic batteries and therefore more suitable for use in smartphones. This also led to a sharp drop in the price of prismatic cells. Thus, we gradually stopped producing
prismatic cells for the replacement market and we are in a transition period to
develop the high-end products and, during this transition period, we were disposing of
reconditioned prismatic cells at a very low price. These cells were primarily
prior returns from customers and we reconditioned them for sale to other customers, generally at a low price. During the three
months ended March 31, 2013, sales of $14.6 million were generated from these
reconditioned prismatic cells.
Net revenues from sales of battery packs increased to $17.4
million in the three months ended March 31, 2013, from $8.8 million in the same
period in 2012, an increase of $8.6 million, or 97.8%. This resulted from an
increase in sales volume of 58% as well as an increase in the average price of
25.2%. There was a strong market demand for our battery packs derived from the
increased market demand for smartphones.
Net revenues from sales of cylindrical cells increased to $10.7
million in the three months ended March 31, 2013, from $7.6 million in the same
period in 2012, an increase of $3.1 million, or 40.3% . This resulted from an
increase in sales volume of 37% as well as an increase in our average selling
price of 2%. The increase in sales volume was mainly attributable to the strong
market demand and our effort to expand our market share.
We sold $2.9 million in lithium polymer cells for the three months ended March 31, 2013, compared to $2.3 million in lithium polymer cells in the same period in 2012, an increase of $0.6 million, or 24.5%, resulting from an increase in sales volume of 50.5%, offset by a decrease in the average selling price of 16.94%. The increase in sales volume
was mainly due to the increased demand for our lithium polymer cells from the
booming smartphone market. The selling price decreased this year due to clearance
of reconditioned products during this period. During the three months ended March
31, 2013, sales of $0.3 million were generated from these reconditioned lithium
polymer cells.
We also sold approximately $4.1 million in high-power lithium
battery cells for the three months ended March 31, 2013, as compared to $2.3
million in high-power lithium battery cells in the same period in 2012,
resulting from an increase in sales volume of 74.7%, offset by a decrease in the
average selling price of 2.4%. The increase in sales was mainly due to the
increased demand from the electric vehicle market, especially electric bicycles
and electric car manufacturers. We reduced the selling price to attract new
customers.
Cost of revenues.
Cost of revenues increased to
$47.6 million for the three months ended March 31, 2013, as compared to $36.7
million for the same period in 2012, an increase of $11.0 million, or 29.9%. The
increase in cost of revenues was due to the increase in total sales volume,
which increased by 28.8% to $41.6 million for the three month ended March
31, 2013 from $32.3 million in the same period in 2012. Included
in cost of revenues was impairment of reconditioned inventories of $0.5 million
for the three months ended March 31, 2013 and $5.8 million in the six months
ended March 31, 2013. The Company had previously written down these products in
prior periods whenever there was an indication and expectation that they were impaired. However,
as the market conditions continued to deteriorate, further write downs were
necessary.
Gross loss.
Gross loss for the three months ended
March 31, 2013 was $3.6 million, or 8.1% of net revenues, as compared to $3.9
million, or 11.8% of net revenues, for the same period in 2012. Such decrease
was mainly due to the fact that we implemented a strategic plan to reduce our
supply of low or negative gross margin products including the prismatic cells to
the replacement market and instead focusing on high-end products. In addition,
we are expanding sales of our lithium-ion polymer and high-power lithium
batteries production which generate higher gross profit. However, we are still
selling a significant amount of low priced and reconditioned products with low
or even negative gross margin as a result of the impairment of inventory due to the
severe market competition.
Research and development expenses
. Research and development expenses increased to $1.3 million for the three months ended March 31, 2013, as compared to $0.7 million for the same period in 2012, representing an increase of $0.6 million, or 85.2%. We continued our cost reduction policy included in our turnaround plan, but since we received lesser amount of R&D government subsidies this year, which were accounted for as credit against our expenses, conversely a higher net research and development expenses were recorded in the three months ended March 31, 2013 as compared to the same period last year.
Sales and marketing expenses
. Sales and marketing
expenses increased to $1.9 million for the three months ended March 31, 2013, as
compared to $1.8 million for the same period in 2012, representing an increase
of $0.1 million, or 9.2%, primarily due to the increase in transportation and
packing expenses of $0.4 million. As a percentage of revenues, sales and
marketing expenses decreased to 4.4% for the three months ended March 31, 2013,
from 5.4% for the same period in 2012, primarily due to the increase in net
revenues.
7
General and administrative expenses
. General and administrative expenses increased to $6.8 million, or 15.3% of revenues, for the three months ended March 31, 2013, as compared to $6.7 million, or 20.3% of revenues, for the same period in 2012, representing an increase of $0.1 million, or 1.2% .
Provision for (reversal of) bad debt
. We recorded
a reversal of bad debt of $8.3 million for the three months ended March 31, 2013
owing to our efforts to collect long outstanding receivables. We recorded a
provision for bad debt of $0.4 million in the three months ended March 31, 2012.
Impairment charge
. We recognized a property,
plant and equipment impairment charge totaling $11.4 million for the three
months ended March 31, 2013, as compared to no such impairment charge for the
same period in 2012. During the course of our strategic review of our operations
for the three months ended March 31, 2013, we assessed the recoverability of the
carrying value of certain property, plant and equipment which resulted in
impairment losses of $11.4 million, from an assessment that the total net book
value of property, plant and equipment was lower than their discounted cash
flows expected to be generated from our production facilities in Shenzhen
primarily for the production of aluminum-case cells.
Operating loss
. As a result of the above, our
operating loss totaled $16.6 million for the three months ended March 31, 2013,
as compared to $13.4 million for the same period in 2012. As a percentage of net
revenues, our operating loss was 37.7% of revenues for the three months ended March 31,
2013, as compared to 41.0% for the same period in 2012.
Finance costs, net
. Finance costs, net, decreased
to $1.7 million for the three months ended March 31, 2013, as compared to $2.6
million for the same period in 2012, a decrease of $0.9 million, or 35.3% . The
decrease in net finance costs is mainly attributable to the decrease in interest
rates and a higher proportion of capitalized interest on the higher level of
construction in progress in the quarter ended March 31, 2013 as compared to the
same period last year.
Reversal of loss arising from loan guarantees.
Shenzhen Langjin
Technology Development Co. Ltd., or Shenzhen Langjin, has defaulted on bank loans guaranteed by us and we paid an aggregate amount of $7.4 million to the bank. As of March 31, 2013, we expected to recover at least $4.6 million from Shenzhen Langjin. A reversal of loss arising from loan guarantees of $4.6 million was recognized in three months ended March 31, 2013.
Government grant income / Other
(expenses)/income
. Government grant income was approximately $35 and other income was approximately $47,000 for the three months ended March 31, 2013, as compared to government grant income of $29,000 and other income of $0.4 million for the same period in 2012.
Income tax expense
. Income tax expense was
approximately $6.0 million for the three months ended March 31, 2013, as
compared to approximately $8,000 for the same period in 2012. This was mainly due to the
valuation allowance of approximately $5.8 million on deferred income tax assets arisng on tax losses primarily before the fiscal year 2012. Since we continued
to experience significant losses for the current quarter ended March 31, 2013,
we are uncertain that we can generate sufficient profit to claim these deferred
income tax benefit in the future.
Net loss
. As a cumulative result of the
foregoing, we had a net loss of $19.7 million for the three months ended March
31, 2013, compared to $15.6 million for the three months ended March 31,
2012.
8
Comparison of Six Months Ended March 31, 2013 and 2012
The following table sets forth key components of our results of
operations for the periods indicated.
(All amounts, other than percentages, in thousands of U.S.
dollars)
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
%
|
|
Net revenues
|
$
|
107,799
|
|
$
|
104,536
|
|
$
|
3,263
|
|
|
3.1
|
|
Cost of revenues
|
|
115,590
|
|
|
94,375
|
|
|
21,215
|
|
|
22.5
|
|
Gross (loss) / profit
|
|
(7,791
|
)
|
|
10,161
|
|
|
(17,952
|
)
|
|
(176.7
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development expenses
|
|
2,860
|
|
|
1,196
|
|
|
1,664
|
|
|
139.1
|
|
Sales and marketing expenses
|
|
4,103
|
|
|
3,710
|
|
|
393
|
|
|
10.6
|
|
General and
administrative expenses
|
|
10,532
|
|
|
9,184
|
|
|
1,348
|
|
|
(14.7
|
)
|
(Reversal of) provision for bad
debt
|
|
(2,142
|
)
|
|
3,681
|
|
|
5,823
|
|
|
(158.2
|
)
|
Impairment charge on property, plant and equipment
|
|
11,396
|
|
|
2,708
|
|
|
8,688
|
|
|
320.8
|
|
Total operating expenses
|
|
26,749
|
|
|
20,479
|
|
|
6,269
|
|
|
30.6
|
|
Operating loss
|
|
(34,540
|
)
|
|
(10,318
|
)
|
|
(24,221
|
)
|
|
234.7
|
|
Finance costs, net
|
|
(4,439
|
)
|
|
(5,517
|
)
|
|
1,078
|
|
|
(19.5
|
)
|
Loss arising from loan guarantees
|
|
(2,811
|
)
|
|
-
|
|
|
(2,811
|
)
|
|
-
|
|
Government grant income
|
|
18
|
|
|
77
|
|
|
(59
|
)
|
|
(76.6
|
)
|
Other (expense)/income
|
|
(56
|
)
|
|
432
|
|
|
(488
|
)
|
|
(113.0
|
)
|
Income tax expenses
|
|
(6,026
|
)
|
|
(2,122
|
)
|
|
(3,904
|
)
|
|
184.0
|
|
Net loss
|
$
|
(47,854
|
)
|
$
|
(17,448
|
)
|
$
|
(30,406
|
)
|
|
174.3
|
|
Net revenues
. Net revenues were $107.8 million
for the six months ended March 31, 2013, as compared to $104.5 million for the
same period in 2012, an increase of $3.3 million, or 3.1% .
The following table sets forth the breakdown of our net
revenues by battery cell type.
(All amounts in thousands of U.S. dollars)
|
|
Six Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Prismatic cells
|
|
|
|
|
|
|
Aluminum-case cells
|
$
|
18,303
|
|
$
|
45,941
|
|
Battery packs
|
|
39,821
|
|
|
29,626
|
|
Cylindrical cells
|
|
30,292
|
|
|
20,594
|
|
Lithium polymer cells
|
|
9,852
|
|
|
4,977
|
|
High-power lithium battery cells
|
|
9,531
|
|
|
3,398
|
|
Total
|
$
|
107,799
|
|
$
|
104,536
|
|
The following table sets forth the breakdown of our net revenues
from reconditioned and normal products.
(All amounts in thousands of U.S. dollars)
|
|
Six Months Ended March 31, 2013
|
|
|
|
Reconditioned
|
|
|
Normal
|
|
|
Total
|
|
|
|
sales
|
|
|
sales
|
|
|
sales
|
|
|
|
|
|
|
|
|
|
|
|
Prismatic cells
|
|
|
|
|
|
|
|
|
|
Aluminum-case cells
|
$
|
12,995
|
|
|
5,308
|
|
|
18,303
|
|
Battery
packs
|
|
10,193
|
|
|
29,628
|
|
|
39,821
|
|
Cylindrical cells
|
|
-
|
|
|
30,292
|
|
|
30,292
|
|
Lithium polymer cells
|
|
5,912
|
|
|
3,940
|
|
|
9,852
|
|
High-power lithium battery cells
|
|
-
|
|
|
9,531
|
|
|
9,531
|
|
Total
|
$
|
29,100
|
|
|
78,699
|
|
|
107,799
|
|
Net revenues from sales of aluminum-case cells decreased to $18.3 million in the six months ended March 31, 2013, from $45.9 million in the same period in 2012, a decrease of $27.6 million, or 60.2%, resulting from a decrease in sales volume of 24% accompanied by a decrease in our average selling price of 48.0%. This was mainly due to the adjustments in our marketing strategy to focus on high end products thereby increasing sales of lithium-ion polymer smartphone
batteries and reducing sales of aluminum-case cells. We
gradually reduced the production of prismatic cells for replacement market and we are in
a transition period to develop the high-end products. During this transition
period, we were disposing reconditioned prismatic cells at a very low price.
These cells were primarily prior returns from customers and we reconditioned
them for sale to other customers, generally at a low
price. During the six months ended March 31, 2013, sales of $23.2 million were
generated from these reconditioned prismatic cells.
Net revenues from sales of battery packs increased to $39.8 million in the six months ended March 31, 2013, from $29.6 million in the same period in 2012, an increase of $10.2 million, or 34.4%. This resulted from an increase in sales volume of 49%, offset partially by a decrease in the average selling price of 10% due to
the clearance of
reconditioned products with a sales amount of $10.2 million during this period.
9
Net revenues from sales of cylindrical cells increased to $30.3
million in the six months ended March 31, 2013, from $20.6 million in the same
period in 2012, an increase of $9.7 million, or 47.1% . This resulted from an
increase in sales volume of 44% and an increase in our average selling price of
2%. The increase in both price and sales volume was mainly attributable to the strong
market demand and our efforts to expand our market share.
We sold $9.9 million in lithium polymer cells for the six
months ended March 31, 2013, compared to $5.0 million in lithium polymer cells
in the same period in 2012, an increase of $4.9 million, or 98.0%, resulting
from an increase in sales volume of 105% offset by a decrease in the average
selling price 4%, The increase in sales volume and the drop in selling price was
mainly due to the clearance of reconditioned products with a sales amount of $5.9
million during this period.
We also sold approximately $9.5 million in high-power lithium
battery cells for the six months ended March 31, 2013, as compared to $3.4
million in high-power lithium battery cells in the same period in 2012, an
increase of $6.1 million, or 180.5%, resulting from an increase in sales volume
of 170% accompanied with an increase in the average selling price of 4%. This
was mainly due to the increased demand from the electric vehicle market,
especially electric car manufacturers.
Cost of revenues.
Cost of revenues increased to $115.6 million for the six months ended March 31, 2013, as compared to $94.4 million for the same period in 2012, an increase of $21.2 million, or 22.5%. The increase in cost of revenues was due to
the increased sales volume and increasesd unit cost.
The sales volume increased by $11.9 million or 14.6% to $93.4 million for the
six month ended March 31, 2013 from $81.5 million for the same period in 2012.
Included in cost of revenues was write downs of reconditioned inventories of
$10.2 million for the six month ended March 31, 2013. The Company already had
written down these products in prior periods whenever there was
an indication and expectation that they were impaired. However, as the market condition
continued to deteriorate, further write downs of $25.8 million were recorded in
the six months ended March 31, 2013.
Gross loss.
Gross loss for the six months ended March 31, 2013 was $7.8 million, or 7.2% of net revenues, as compared to gross profit of $10.2 million, or 9.7% of net revenues, for the same period in 2012. Such increase of gross loss was largely due to the significant decrease in sales of aluminum-
case cells and the sale of low priced reconditioned products with low or even
negative gross margin as a result of the severe market competition.
Research and development expenses.
Research and development expenses increased to $2.9 million for the six months ended March 31, 2013, as compared to $1.2 million for the same period in 2012, an increase of $1.7 million, or 139.1%. We continued our cost reduction policy included in our turnaround plan, but since we received lesser amount of R&D government subsidies this year, which were accounted for as credit against our expenses, conversely a higher net research and development expenses were recorded in the six months ended March 31, 2013 as compared to the same period last year.
Sales and marketing expenses
. Sales and marketing
expenses increased to $4.1 million for the six months ended March 31, 2013, as
compared to $3.7 million for the same period in 2012, representing an increase
of $0.4 million, or 10.6%, primarily due to the increase in transportation and
packing expenses of $0.7 million. As a percentage of revenues, sales and
marketing expenses increased to 3.8% for the six months ended March 31, 2013,
from 3.6% for the same period in 2012.
General and administrative expenses
. General and administrative expenses increased to $10.5 million, or 9.8% of revenues, for the six months ended March 31, 2013, as compared to $9.2 million, or 8.8% of revenues, for the same period in 2012, representing an increase of $1.3 million, or 14.7%.
Provision for (reversal of) bad debt
. We recorded
a reversal of bad debt of $2.1 million for the six months ended March 31, 2013
owing to our efforts to collect long outstanding receivables. We recorded a
provision for bad debt of $3.7 million in the six months ended March 31, 2012.
Impairment charge
. We recognized a property,
plant and equipment impairment charge totaling $11.4 million for the six months
ended March 31, 2013, as compared to a $2.7 million impairment charge for the
same period in 2012. During the course of our strategic review of our operations
for the six months ended March 31, 2013 and 2012, we assessed the recoverability
of the carrying value of certain property, plant and equipment which resulted in
impairment losses of $11.4 million and $2.7 million, respectively, from an
assessment that the total net book value of assets was lower than their
discounted cash flows expected to be generated from our production facilities
in Shenzhen primarily for the production of aluminum-case cells.
Operating loss
. As a result of the above, our operating loss totaled $34.5 million for the six months ended March 31, 2013, as compared to $10.3 million for the same period in 2012. As a percentage of net revenues, our operating loss was 32.0% for the six months ended March 31, 2013, as compared to 9.9% for the same period in 2012.
Finance costs, net
. Finance costs, net, decreased
to $4.4 million for the six months ended March 31, 2013, as compared to $5.5
million for the same period in 2012, a decrease of $1.1 million, or 19.5% . The
decrease is mainly because interest rates dropped and we capitalized
approximately $1.4 million of our loan interest for the six months ended March
31, 2013 while we capitalized approximately $0.7 million in the same period of
2012, mainly in relation to our increased investment in construction in
progress.
10
Loss arising from loan guarantees / Government grant
income / Other (expenses)/income
. Government grant income was approximately $18,000 and other expenses were approximately $56,000 for the six months ended March 31, 2013, as compared to government grant income of $77,000 and other income of $0.4 million for the same period in 2012. Shenzhen Langjin had defaulted on bank loans guaranteed by us and we paid an aggregate amount of RMB 46.0million (approximately $7.4 million) to the bank. As of March 31, 2013, we expected to recover at least $ 4.6 million from Shenzhen Langjin. A loss of $2.8 million was recognized in the six months ended March 31, 2013.
Income tax expense
. Income tax expense was approximately $6.0 million for the six months ended March 31, 2013, as compared to $2.1 million for the same period in 2012. This was mainly due to the valuation allowance totaling 5.8 million on deferred income tax assets arising on tax losses primarily before the fiscal year 2012. Since we continued to experience significant losses for the current quarter ended March 31, 2013, we are uncertain that we can generate sufficient profit to claim these deferred tax income benefit in the future.
Net loss
. As a cumulative result of the
foregoing, we had a net loss of $47.8 million for the six months ended March 31,
2013, compared to $17.4 million for the six months ended March 31, 2012.
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, factoring of bills receivable to banks and issuance of capital stock. We have long-term business relationships with our banks and over the term of these relationships we have been able to renew our loans upon maturity and we expect that we should be able to continue to do so. As of March 31, 2013, we had cash and cash equivalents of $7.2 million. In addition, we had pledged deposits amounting to $9.0 million. Typically, banks will require borrowers to maintain deposits of approximately 30% to 75% of the outstanding 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 March 31, 2013, we had access to $217.3 million in short-term credit facilities and $24.1 million in long-term credit facilities. The principal outstanding loan amounts included short-term bank loans of $162.8 million under credit facilities and long-term bank loans of $15.9 million maturing in over one year, and bills payable of $41.3 million under credit facilities, leaving $30.1 million of short-term and $1.8 million of long-term funds available under our credit facilities for additional cash needs. We will continue to implement our turnaround plans to improve our operations. We expect that our sources of liquidity will be sufficient for the next 12 months.
The following table sets forth a summary of our cash flows for
the periods indicated:
Cash Flows
(All amounts in thousands of U.S. dollars)
|
|
Six Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Net cash provided by operating activities
|
$
|
19,874
|
|
$
|
14,782
|
|
Net cash (used in) investing activities
|
|
(30,300
|
)
|
|
(7,060
|
)
|
Net cash provided by (used in) financing
activities
|
|
8,333
|
|
|
(16,058
|
)
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
25
|
|
|
157
|
|
Net decrease in cash and cash equivalents
|
|
(2,068
|
)
|
|
(8,179
|
)
|
Cash and cash equivalents at beginning of the period
|
|
9,272
|
|
|
24,858
|
|
Cash and cash equivalents at end of the
period
|
$
|
7,204
|
|
$
|
16,679
|
|
Operating Activities
Net cash provided by operating activities was $19.8 million in the six months ended March 31, 2013, as compared with $14.8 million in the same period in 2012. The increase of $5.0 million in net cash provided by operating activities was mainly attributable to the stricter sales collection policy we implemented this year resulting more collection on trade receivables.
11
Investing Activities
Net cash used in investing activities increased to $30.3
million in the six months ended March 31, 2013, from $7.1 million in the same
period in 2012. The net cash used in investing activities for the six months
ended March 31, 2013 was mainly used for the R&D centre construction and the
expansion of our polymer production lines and automatic prismatic production
lines. In addition, there was a net payment of $5.8 million in relation to a loan guarantee.
Financing Activities
Net cash provided by financing activities was $8.3 million in the six months ended March 31, 2013, compared with net cash used in financing activities of $16.1 million in the same period in 2012. The increase in bank borrowings of $101 million in the six months ended March 31, 2013 was offset by repayment of bank borrowing of $99.5 million and repayment of loans of $2.2 million from related parties. In the same period of 2012, there was a net increase in bank borrowings of $95.3 million, offset by a decrease in repayment of bank loans of $111.4 million. In addition, we obtained long term loan payable approximately $8.2 million for the six months ended March 31, 2013.
12
As of March 31, 2013, the principal amounts outstanding under
our credit facilities and lines of credit were as follows:
(All amounts in thousands of U.S. dollars)
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Borrowed
|
|
|
|
Maximum
|
|
|
(includes bank
|
|
|
|
Amount
|
|
|
loans and bills
|
|
|
|
Available
|
|
|
payable)
|
|
Short-term credit
facilities:
|
|
|
|
|
|
|
Agricultural Bank of China
|
$
|
67,659
|
|
$
|
67,659
|
|
Shenzhen Development Bank
|
|
28,997
|
|
|
20,137
|
|
China CITIC Bank
|
|
12,082
|
|
|
8,055
|
|
Bank of China
|
|
64,437
|
|
|
59,924
|
|
China Bohai Bank
|
|
12,887
|
|
|
6,444
|
|
Tianjin Branch, Bank of
Dalian
|
|
31,188
|
|
|
24,925
|
|
SubtotalShort-term credit facilities
|
$
|
217,250
|
|
$
|
187,144
|
|
Long-term credit
facilities:
|
|
|
|
|
|
|
China Development Bank
|
|
24,164
|
|
|
22,343
|
|
SubtotalLong-term credit
facilities
|
$
|
24,164
|
|
$
|
22,343
|
|
Other Lines of Credit:
|
|
|
|
|
|
|
Shenzhen Branch, Bank of
China
|
|
35,441
|
|
|
35,441
|
|
Agricultural Bank of China
|
|
1,787
|
|
|
1,787
|
|
Tianjin Branch, China Bohai
Bank
|
|
808
|
|
|
808
|
|
SubtotalOther lines of credit
|
$
|
38,036
|
|
$
|
38,036
|
|
Total
|
$
|
279,450
|
|
$
|
247,523
|
|
The above principal outstanding amounts under credit facilities and lines of credit included short-term bank loans of $162.8 million, long term bank loans of $15.9 million and bills payable of $68.8 million. For the purpose of presentation, the effect of increases in the bills payable balance is included in operating activities in the statements of cash flows.
During the six months ended March 31, 2013, we repaid borrowings under loans totaling approximately $99.5 million and borrowed amounts totaling approximately $101.0 million. The material financing terms of these borrowings are described below.
On November 27, 2012, we renewed a comprehensive credit facility agreement with Agricultural Bank of China, Shenzhen Eastern Branch to provide a one-year term credit facilities amount of RMB 420 million (approximately $67.7 million). New loans may be drawn under this credit facility from November 27, 2012 through November 25, 2013, with the term of the loan established at the time each new loan is drawn. Pursuant to the comprehensive credit facility, Shenzhen BAK must obtain prior approval from the bank to renew long-term loans that are subject to this credit facility. In addition, Shenzhen BAK undertook to ensure that the percentage of certain business conducted with the bank relative to such business it conducts with all financial institutions combined be at least equal to the percentage of its indebtedness to the bank relative to its indebtedness to all financial institutions combined. The “business” referred to in the preceding sentence refers to the volume of transactional payments that are drawn from Shenzhen BAK’s accounts with the bank or applicable financial institutions and the amount of foreign currencies deposited with the bank or applicable financial institutions. Shenzhen BAK also undertook not to issue any dividends without the written consent of the bank prior to the expiration of all loans under this credit facility. The obligations of Shenzhen BAK under this comprehensive credit facility are guaranteed by Mr. Xiangqian Li, BAK International and BAK Tianjin. Shenzhen BAK’s obligations under this credit facility agreement are also guaranteed by Shenzhen BAK’s pledge of the property ownership and land use rights certificates relating to its manufacturing and other facilities in Shenzhen, PRC, known as BAK Industrial Park, as well as certain machinery. As of March 31, 2013, we had twelve outstanding short-term loans under the comprehensive credit facility totaling approximately $64.5 million, that carried annual interest at 110% of the benchmark rate of the People’s Bank of China, or PBOC, adjusted quarterly. Each of the loan agreements specifically provided for acceleration of repayment of the loan under certain conditions, as well as other penalties and remedies. We had also borrowed $3.2 million of notes payable under this credit facility agreement as of March 31, 2013.
13
We have a comprehensive credit facility agreement with PingAn Bank (fka, Shenzhen Development Bank), Longgang Branch to provide a maximum loan amount of RMB 180 million (approximately $29.0 million). Loans may be drawn at any time from June 5, 2012 to May 31, 2013 and will be due based on each loan agreement. This credit facility agreement was guaranteed by BAK International, BAK Tianjin and Mr. Xiangqian Li, and also was secured by $24.2 million of inventory and $22.2 million of equipment. As of March 31, 2013, we had two outstanding loans of approximately $20.1 million in total. The first loan, dated July 10, 2012, of approximately $3.2 million, carries annual interest at 105% of the benchmark rate of the PBOC on the date of the loan agreement and is adjusted quarterly, and is repayable on July 10, 2013. The second loan, also dated July 10, 2012, of approximately $17.7 million, carries annual interest at the benchmark rate of the PBOC on the date of the loan agreement and is adjusted quarterly, and is repayable on July 9, 2013. We
repaid RMB 5,000,000 (approximately $0.8 million) of the first loan on January 31, 2013.
We have a comprehensive credit facility agreement with Shenzhen Branch, China CITIC Bank to provide a maximum loan amount of RMB 75 million (approximately $12.1 million). Loans may be drawn at any time from June 13, 2012 to June 13, 2013 and will be due based on each loan agreement. This credit facility was guaranteed by BAK International and Mr. Xiangqian Li. As of March 31, 2013, we had borrowed $8.1 million under two loan agreements. The first loan, of approximately $6.5 million, is under a loan agreement dated June 20, 2012, that bears fixed annual interest at 110% of the benchmark rate of the PBOC on the date of the loan agreement, and is due June 20, 2013. The second loan, of approximately $1.6 million, is under a loan agreement dated June 29, 2012, that bears fixed annual interest at 110% of the benchmark rate of the PBOC on the date of the loan agreement, and is due June 29, 2013.
On July 3, 2012, we renewed a comprehensive credit facility agreement with Shenzhen Longgang Branch, Bank of China to provide a maximum loan amount of RMB 400 million (approximately $64.4 million). Loans may be drawn at any time from July 3, 2012 to July 3, 2013 and will be due based on each loan agreement. This credit facility was guaranteed by BAK International and Mr. Xiangqian Li. As of March 31, 2013, we had borrowed approximately $32.2 million under a loan agreement, dated August 3, 2012. This loan bears an annual interest rate at 110% of the benchmark rate of PBOC on the date of the loan agreement, which is subject to an adjustment every 12 months, and is due August 3, 2013. We also had borrowed $27.7 million of notes payable under this credit facility agreement. In addition, we borrowed approximately $10.4 million under a number of loan certificates separate from the credit facility, at the interest rate of 5.88%, and repayable on certain dates from April 10, 2013 to July 5, 2013. We also had $25.0 million of notes payable separated from the credit facility.
As of March 31, 2013, we had also borrowed $0.8 million of
notes payable outside any credit facility from China Bohai Bank , Tianjin
Branch.
On May 29, 2012, we entered into a comprehensive credit facility agreement with Tianjin Branch, China Bohai Bank to provide a maximum amount of RMB80 million (approximately $12.9 million). Loans may be drawn at any time over the period from May 29, 2012 to May 28, 2013 and will be due based on each loan agreement. This credit facility agreement was guaranteed by Shenzhen BAK. As of March 31, 2013, we had borrowed approximately $6.4 million under a loan agreement, dated May 29, 2012. The loan bears an annual interest rate at 110% of the benchmark rate of PBOC on the date of the loan agreement, which is adjusted in line with the adjustment of the benchmark rate, and due May 28, 2013.
On November 16, 2012, we renewed a comprehensive credit facility agreement with Tianjin Branch, Bank of Dalian, to provide a maximum loan amount of RMB 73.6 million (approximately $11.9 million). Loans may be drawn at any time over the period from November 21, 2012 to November 20, 2013 and will be due based on each loan agreement. This credit facility agreement was guaranteed by Shenzhen BAK, Tianjin BAK New Energy Research Institute Co., Ltd., or Tianjin New Energy, Mr. Xiangqian Li and his wife Ms. Xiaoqiu Yu. As of March 31, 2013, we had a loan of approximately $8.0 million under a loan agreement dated November 22, 2012, bearing annual interest at 115% of the benchmark rate of the PBOC
on the date of the loan agreement and will be adjusted in line with any
adjustment of the benchmark rate, repayable on November 20, 2013. In addition,
we borrowed approximately $0.15 million under two loan agreements under this
credit facility agreement. The first loan, dated October 29, 2012, is in the amount of RMB 0.51million (approximately $0.08 million) and bears annual interest of 5.28%, and was due January 28, 2013. We
repaid the loan on January 28, 2013. The second loan, dated December 10, 2012, is in the amount of RMB 0.4 million (approximately $0.07 million) and bears monthly interest of 4.4 %, and is due March 11, 2013. We
repaid the loan on March 11, 2013. Tianjin New Energy is a company established in China and mainly engages in the business of researching, developing and selling new energy related materials. Approximately 59% of the equity interest in Tianjin New Energy is currently owned by Mr. Li.
14
On February 1, 2013, we entered into a comprehensive credit
facility with Tianjin Branch, Bank of Dalian, to provide a maximum loan amount
of RMB 120.0 million (approximately $19.3 million). Loans may be drawn at any
time over the period from January 28, 2013 to January 27, 2014 and will be due
based on each loan agreement. This credit facility agreement was guaranteed by
Mr. Xiangqian Li and his wife Ms. Xiaoqiu Yu. As of March 31, 2013, we had a
loan of approximately $6.5 million under two loan agreements. The first loan,
dated February 1, 2013, is in amount of RMB 40,000,000 (approximately 6.4
million), bearing annual interest at 115% of the benchmark rate of the PBOC on
the date of the loan agreement and will be adjusted in line with any adjustment
of the benchmark rate, repayable on January 27, 2014. The second loan, dated
February 25, 2013, is in the amount of RMB 424,636 (approximately $0.07 million)
and bears monthly interest of 4.4% and is due May 23, 2013. We had also borrowed
$10.3 million of notes payable under this credit facility agreement.
We have a six-year long-term loan agreement expiring on February 9, 2016 of RMB 150 million (approximately $24.1 million) with Shenzhen Branch, China Development Bank. The loan proceeds must be used for the construction of our Research & Development Test Centre in Shenzhen. The long-term loan is secured by Shenzhen BAK’s pledge of its land use rights certificates, property ownership and equipment built-up by use of this long-term loan pursuant to the loan agreement. The obligations of Shenzhen BAK under this loan agreement are guaranteed by Mr. Xiangqian Li. As of March 31, 2013, we had borrowed approximately RMB138.7 million (or approximately $22.3 million) in ten loans under this agreement, and bearing annual interest of 6.878%, adjusted monthly. The repayment plans based on the long-term bank loan agreement is repayable RMB 10 million (or approximately $1.6 million) on November 21, 2012 (has been paid timely), RMB 20 million (or approximately $3.2 million) on May 21, 2013, RMB 20 million (or approximately $3.2 million) on November 21, 2013, RMB 20 million (or approximately $3.2 million) on May 21, 2014, RMB 25 million (or approximately $4.0 million) on November 21, 2014, RMB 25 million (or approximately $4.0 million) on May 21, 2015 and the rest of the loan amount on February 9, 2016. The bank has not charged any interest or penalties relating to the portion of the loan that we have not drawn in accordance with the loan agreement’s borrowing schedule and has advised us that we are not required to repay the loans in accordance with the loan agreement’s repayment schedule, and we may instead follow the repayment schedule indicated by each loan’s loan certificate reflected in this paragraph.
On December 28, 2011, Shenzhen BAK entered into a loan
agreement with Shenzhen BAK Haoze Investment Co., Ltd., or Shenzhen Haoze, under
which Shenzhen Haoze extended a loan in an amount of RMB1,750,000 (approximately
$278,410) to Shenzhen BAK as working capital, which loan is non-interest bearing
and unsecured. The loan matures on December 27, 2013. Shenzhen Haoze is a
company established in China and mainly engages in the business of industry
investment and investment consultation. Approximately 96% of the equity interest
in Shenzhen Haoze is currently owned by Mr. Xiangqian Li. As of March 31, 2013,
Shenzhen BAK had paid off the above loan.
On July 12, 2012, Shenzhen BAK entered into a loan agreement
with Tianjin New Energy, under which Tianjin New Energy extended a loan in an
amount of RMB 10,000,000 (approximately $1,590,913) to Shenzhen BAK as working
capital, which loan is non-interest bearing and unsecured. The loan matures on
July 11, 2014. Shenzhen BAK repaid RMB 4,054,500 (approximately $645,036 ) of
the loan on July 17, 2012, reducing the balance of the loan to RMB 5,945,500
(approximately $ 945,877). On November 14, 2012, Shenzhen BAK repaid another RMB
2,706,706 (approximately $430,613) of the above loan. As of March 31, 2013,
Shenzhen BAK had paid off the rest of the above loans.
15
On October 16, 2012, Shenzhen BAK entered into a loan agreement
with Tianjin New Energy, under which Tianjin New Energy extended a loan in an
amount of RMB8,600,000 (approximately $1,368,185) to Shenzhen BAK as working
capital, which loan is non-interest bearing, unsecured and repayable on demand.
As of October 16, 2012, the total amount of non-interest loans between Shenzhen
BAK and Tianjin New Energy was RMB 11,838,794 (approximately $1,899,891). As of
March 31, 2013, the total amount of non-interest loans between Shenzhen BAK and
Tianjin New Energy was RMB 552,509 (approximately $89,005).
We believe that our current cash and cash equivalents and anticipated cash flows from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures for at least the next 12 months. We believe that due to our long history of business relationships with our banks, which have historically allowed us to renew our loans on maturity, we should be able to continue to do so. As of March 31, 2013, we had $31.9 million of funds available under our credit facilities for additional cash needs. We will continue to implement our turnaround plans to improve our operations. We will also expect to continue to obtain government grant income with respect to the R&D project “Key Materials, Battery and Battery Pack for use in Electric Vehicles”. In addition, we expect to receive rental income from the R&D centre building starting from the third quarter of fiscal year 2013, which will generate a positive cash flow. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash and amount available under existing credit facilities is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending institutions. And we also will continue to reinforce our efforts to improve the collection of receivables and consider strategic asset dispositions. We can make no assurances that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute the interests of our current shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.
Capital Expenditures
We incurred capital expenditures of $20.0 million and $10.5
million in the six months ended March 31, 2013 and 2012 respectively. Our
capital expenditures were used primarily to purchase plant and equipment to
expand our production capacity and construct our Research and Development Test
Centre in Shenzhen, China. The table below sets forth the breakdown of our
capital expenditures by use for the periods indicated.
(All amounts in thousands of U.S. dollars)
|
|
Six Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Construction costs
|
$
|
19,244
|
|
$
|
2,492
|
|
Purchase of equipment and intangible assets
|
|
765
|
|
|
8,024
|
|
Total capital expenditure
|
$
|
20,009
|
|
$
|
10,516
|
|
We estimate that our total capital expenditures in fiscal year
2013 will reach approximately $22.7 million. Such funds will be used to purchase
manufacturing equipment for the expansion of our polymer production lines and
automatic prismatic production lines and for the construction of our Research
and Development Test Centre at our Shenzhen facility.
As of March 31, 2013, we had substantially completed
construction of manufacturing facilities, warehousing and packaging facilities,
dormitory space, dining halls, and administrative offices comprising 284,160
square meters at the following locations: Shenzhen (218,178 square meters) and
Tianjin (65,982 square meters). Land use rights certificates have been obtained
on these properties and applications for property ownership certificates are in
process with the relevant governmental authorities in China.
16
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and
commercial commitments as of March 31, 2013:
(All amounts in thousands of U.S. dollars)
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
than
|
|
Contractual Obligations
|
|
Total
|
|
|
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
5
years
|
|
Short-term bank loans
|
$
|
162,786
|
|
$
|
162,786
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Bills payable
|
|
68,838
|
|
|
68,838
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Long-term bank loans, less current maturities
|
|
15,899
|
|
|
-
|
|
|
15,899
|
|
|
-
|
|
|
-
|
|
Other long-term loans
|
|
15,930
|
|
|
-
|
|
|
15,930
|
|
|
-
|
|
|
-
|
|
Capital commitments
|
|
2,697
|
|
|
2,697
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Future interest payment on
short-term bank loans
|
|
6,294
|
|
|
6,294
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Future interest payment on long-term bank
loans
|
|
3,433
|
|
|
-
|
|
|
3,433
|
|
|
-
|
|
|
-
|
|
Total
|
$
|
275,877
|
|
$
|
240,615
|
|
$
|
35,262
|
|
$
|
-
|
|
$
|
-
|
|
Other than the contractual obligations and commercial
commitments set forth above, we did not have any other long-term debt
obligations, operating lease obligations, capital commitments, purchase
obligations or other long-term liabilities as of March 31, 2013.
Off-Balance Sheet Transactions
In the ordinary course of business practices in China, we enter
into transactions with banks or other lenders where we guarantee the debt of
other parties. These parties may be related or unrelated to us. Conversely, our
debt with lenders may also be guaranteed by other parties which may be related
or unrelated to us.
Under U.S. GAAP, these transactions may not be recorded on our
balance sheet or may be recorded in amounts different than the full contract or
notional amount of the transaction. Our primary off-balance sheet arrangements
would result from our loan guaranties in which Shenzhen BAK, BAK International,
BAK Tianjin, and/or Mr. Xiangqian Li, our director, Chairman, President, and
Chief Executive Officer, would provide contractual assurance of the debt, or
guarantee the timely re-payment of principal and interest of the guaranteed
party. Neither Shenzhen BAK, BAK International, BAK Tianjin, Tianjin New Energy
nor Mr. Xiangqian Li received, nor is entitled to receive, any consideration for
the above-referenced guarantees, and we are not independently obligated to
indemnify any of those guarantors for any amounts paid by them pursuant to any
guarantee.
Typically, no fees are received for this service. Thus, in
those transactions, Shenzhen BAK would have a contingent obligation related to
the guarantee of payment in the event the underlying loan is in default.
Transactions described above require accounting treatment under
ASC Topic 460 Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others. Under that
standard, we would be required to recognize the fair value of guarantees issued
or modified after December 31, 2002, for non-contingent guarantee obligations,
and also a liability for contingent guarantee obligations based on the
probability that the guaranteed party will not perform under the contractual
terms of the guaranty agreement.
As of March 31, 2013, we provided guarantees for the following non-related parties: Tianjin Huaxiahongyuan Co. Ltd, Shenzhen Yasu Technology Co. Ltd, Shenzhen Langjin Technology Co., Ltd. The maximum amount of our exposure for these guarantees was $23.4 million at March 31, 2013. 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 a payment of the full guaranteed amount of RMB 60,000,000 (approximately $9,665,571) from China BAK and two other co-guarantors. As the two other co-guarantors only had the ability to pay RMB 14,000,000 (approximately $2,255,300), China BAK was demanded to pay the remaining guaranteed amount. As of March 31, 2013, China BAK had paid the remaining guaranteed amount as well as the accrued interest in an aggregate amount of RMB 46 million (approximately $7.4 million). As of March 31, 2013, China BAK had received RMB
9.4 million (approximately $1.5 million) from Shenzhen Langjin.
In April, 2013, China BAK successively received a further indemnification of RMB 19 million (approximately $3.1 million).
17
In addition, on March 24, 2011, Shenzhen BAK entered into a
guarantee agreement with Jilin Province Trust & Investment Co., Ltd., or
Jilin Trust & Investment, under which Shenzhen BAK agreed to guarantee a
loan of Tianjin New Energy in a total amount of RMB50,700,000 (approximately
$8.1 million) that it borrowed from Jilin Trust & Investment. Mr. Li and his
wife also entered into a guarantee agreement with Jilin Trust & Investment
under which they pledged all of their personal assets to Jilin Trust &
Investment to provide unlimited liability guarantees for the loan. Shenzhen BAK
has terminated its guarantee obligations as Tianjin New Energy repaid the loan
on the maturity date of March 23, 2013. Tianjin New Energy is a related party of
the company under the control of Mr. Li. However, Tianjin New Energy is not
engaged in the business that competes with the Company and did not have any
transactions with the Company except for the guarantee relationship between
them.
On July 2, 2012, Shenzhen BAK also entered into a guarantee
agreement with Bank of Dalian, under which Shenzhen BAK agreed to guarantee a
loan of Tianjin New Energy in a total amount of RMB20,000,000 (approximately
$3.2 million) that it borrowed from Bank of Dalian. In addition, Mr. Li entered
into a guarantee agreement with Bank of Dalian and assumed joint and several
liabilities to guarantee the loan. Shenzhen BAK expects to terminate its
guarantee obligations when Tianjin New Energy repays the loan on the maturity
date of July 2, 2013.
On October 15, 2012, Shenzhen BAK also entered into a guarantee
agreement with Bank of Dalian, under which Shenzhen BAK agreed to guarantee a
loan of Tianjin New Energy in a total amount of RMB 10,000,000 (approximately
$1.6 million) that it borrowed from Bank of Dalian. In addition, Mr. Li entered
into a guarantee agreement with Bank of Dalian and assumes joint and several
liability to guarantee the loan. Shenzhen BAK expects to terminate its guarantee
obligations when Tianjin New Energy repays the loan on the maturity date of
October 15, 2013.
Shenzhen BAK believes that Tianjin New Energy owns sufficient
assets, including buildings measuring 24,000 square meters and land use rights
over a parcel of land of 233,450 square meters, to repay the above loans that
totaled RMB30,000,000(approximately $4.8 million) without incurring Shenzhen BAKs guarantor
liability.
Critical Accounting Policies
Our condensed consolidated financial information has been
prepared in accordance with U.S. GAAP, which requires us to make judgments,
estimates and assumptions that affect (1) the reported amounts of our assets and
liabilities, (2) the disclosure of our contingent assets and liabilities at the
end of each fiscal period and (3) the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these estimates based on our
own historical experience, knowledge and assessment of current business and
other conditions, our expectations regarding the future based on available
information and reasonable assumptions, which together form our basis for making
judgments about matters that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, our actual results could differ from those estimates. Some of our
accounting policies require a higher degree of judgment than others in their
application. There have been no material changes to the critical accounting
policies previously disclosed in our Annual Report on Form 10-K for the fiscal
year ended September 30, 2012.
Changes in Accounting Standards
Please refer to Note 1 to our consolidated financial
statements, Principal Activities, Basis of Presentation and Organization
Recently Issued Accounting Standards, for a discussion of relevant
pronouncements.