China BAK Battery, Inc. (Parent Company)

12 Months Ended

Sep. 30, 2014

China BAK Battery, Inc. (Parent Company) [Text Block]

23. China BAK Battery, Inc (Parent Company)

Under PRC regulations, subsidiaries in PRC (“the PRC subsidiaries”) may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC GAAP. In addition, the PRC subsidiaries are required to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory general reserve until the balance of the reserves reaches 50% of their registered capital. The statutory general reserves are not distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, or by increasing the par value of the shares currently held by them, provided that the reserve balance after such issue is not less than 25% of the registered capital. As of September 30, 2013, additional transfers of $86,789,695 were required for Shenzhen BAK, BAK Battery, BAK Tianjin and Dalian BAK Trading before the statutory general reserve reached 50% of the registered capital of the PRC subsidiaries. As of September 30, 2014, additional transfers of $15,250,000 were required for Dalian BAK Power and Dalian BAK Trading before the statutory general reserve reached 50% of the registered capital of the PRC subsidiaries. As of September 30, 2013 and 2014, $7,786,157 and nil had been appropriated from retained earnings and set aside for statutory general reserves by the PRC subsidiaries. Dalian BAK Power and BAK Dalian did not have after-tax net profits since its incorporation and therefore no appropriation was made to fund its statutory general reserve as of September 30, 2013 and 2014.

Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of the registrant (Parent Company) to be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.).

The condensed parent company financial statements have not been prepared in accordance with Rule 12 - 04, Schedule I of Regulation S-X as the PRC subsidiaries recorded net liabilities as of September 30, 2013 and 2014.