Commitments and Contingencies

6 Months Ended

Mar. 31, 2013

Commitments and Contingencies [Text Block]

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 Company’s 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 Company's 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 Company’s facilities in Shenzhen.

(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 Company’s 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 Company’s 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 $9.7 milliony by Shenzhen Yasu Technology Co. Ltd. (“Shenzhen Yasu”), one of the Company’s 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 Company’s 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 RMB30,000,000 (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 Company’s 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.

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.

(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