Share-based Compensation

12 Months Ended

Sep. 30, 2011

Share-based Compensation [Text Block]

21	Share-based Compensation
	(i) Options
	The Company grants share options to officers and employees and restricted ordinary shares 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 authorizes the issuance of up to 4,000,000 shares of the Company’s common stock. The exercise price of the options granted, pursuant to the Plan, must at least equal to the fair market value of the Company’s common stock at the date of the grant. The Plan will terminate on May 16, 2055. On July 28, 2008, the Company’s stockholders approved certain amendments to the Plan, including increasing the total number of shares available for issuance under the Plan to 8,000,000.
	Pursuant to the Plan, the Company issued 2,000,000 options with an exercise price of US$6.25 per share 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
Numbers of Share	Options Issued	Vesting Date
800,000	40%	July 1, 2007
600,000	30%	January 1, 2008
600,000	30%	July 1, 2008
2,000,000	100%

Subsequent to the grant date, options to purchase 200,000 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 1,400,000 shares of common stock were cancelled pursuant to the Termination and Release Agreements signed on that day.

A summary of share option plan activity for these options during the year ended September 30, 2011 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, 2010	200,000	$	6.25
Exercised	-		-
Forfeited	-		-
Cancelled	200,000		6.25
Outstanding as of September 30, 2011	-	$	-	-	$	-
Exercisable as of September 30, 2011	-	$	-	-	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 2005 was US$3.67 per share. No non-cash share-based compensation expense was recognized in respect of these share options for the years ended September 30, 2009, 2010 and 2011.
The fair value of the above option awards was estimated on the date of grant using the Black-Scholes Option Valuation Model together with the following assumptions.

Expected volatility	59.85%
Expected dividends	Nil
Expected life	6 years
Risk-free interest rate	4.13%

As of September 30, 2011, there were no unrecognized compensation costs related to non-vested share options.

Pursuant to the Plan, the Company also issued 1,501,500 options with a weighted average exercise price of US$3.28 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 June 30, 2007 to February 9, 2012 according to each employee’s respective agreement.

A summary of share option plan activity for these options during the year ended September 30, 2011 is presented below:

			Weighted	Weighted average
	Number of		average exercise	remaining		Aggregate intrinsic
	Shares		price per share	contractual term		value (1)
Outstanding as of October 1, 2010	923,500	$	3.29
Exercised	-		-
Forfeited	-		-
Cancelled	318,500		3.29
Outstanding as of September 30, 2011	605,000	$	3.29	1.8 years	$	-
Exercisable as of September 30, 2011	605,000	$	3.29	1.3 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 US$2.15 per share. The Company recorded non-cash share-based compensation expense of US$660,821, US$196,995 and US$73,833, for the years ended September 30, 2009, 2010 and 2011 in respect of share options granted in June 2007, which was allocated to cost of revenues, sales and marketing expenses, general and administrative expenses and research and development expenses respectively.
The fair value of the above option awards granted on June 25, 2007 was estimated on the date of grant using the Black-Scholes Option Valuation Model that uses the following assumptions.

Expected volatility	69.44%
Expected dividends	Nil
Expected life	4 - 10 years
Risk-free interest rate	5.09%

As of September 30, 2011, there were no unrecognized compensation costs related to non-vested share options.

Pursuant to the Plan, the Company also issued 360,000 options with an exercise price of US$4.30 per share 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 employee’s respective agreement.

A summary of share option plan activity for these options during the year ended September 30, 2011 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, 2010	360,000	$	4.30
Exercised	-		-
Forfeited	-		-
Cancelled	-		-
Outstanding as of September 30, 2011	360,000	$	4.30	1.3 years	$	-
Exercisable as of September 30, 2011	360,000	$	4.30	1.3 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 US$3.59 per share. The Company recorded non-cash share-based compensation expense of US$436,965, US$160,692 and US$14,812 for the years ended September 30, 2009, 2010 and 2011 respectively in respect of share options granted on January 28, 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 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 September 30, 2011, there were no unrecognized compensation costs related to non-vested share options.

On May 29, 2008, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 1,080,000 shares of the Company’s common stock to Mr. Xiangqian Li and options to purchase 170,000 shares to five other employees, with an exercise price of US$4.18 per share. 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 employee’s respective agreement.

A summary of share option plan activity for these options during the year ended September 30, 2011 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, 2010	1,250,000	$	4.18
Exercised	-		-
Forfeited	-		-
Cancelled	-		-
Outstanding as of September 30, 2011	1,250,000	$	4.18	1.6 years	$	-
Exercisable as of September 30, 2011	980,000	$	4.18	0.5 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 US$2.36 per share. The Company recorded non-cash share-based compensation expense of US$1,358,988, US$573,881 and US$156,166 for the years ended September 30, 2009, 2010 and 2011 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 September 30, 2011, there were unrecognized compensation costs of US$101,234 related to the above non-vested share options. These costs are expected to be recognized over a weighted average period of 0.6 years.

On June 22, 2009, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 1,928,200 shares of the Company’s common stock to certain key employees, officers and consultants with an exercise price of US$2.81 per share. 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 year ended September 30, 2011 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, 2010	1,694,355	$	2.81
Exercised	-		-
Forfeited	51,000		2.81
Cancelled	-		-
Outstanding as of September 30, 2011	1,643,355	$	2.81	4.7 years	$	-
Exercisable as of September 30, 2011	589,120	$	2.81	4.7 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 US$2.46 per share. The Company recorded non-cash share-based compensation expense of US$892,295, US$2,095,300 and US$907,221 for the years ended September 30, 2009, 2010 and 2011 respectively in respect of share options granted on June 22, 2009, which was allocated to cost of revenues, sales and marketing expenses, general and administrative expenses and research and development expenses 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 September 30, 2011, there were unrecognized compensation costs of US$841,212 related to the above non-vested share options. These costs are expected to be recognized over a weighted average period of 1.5 years.

On June 26, 2009, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 75,000 shares of the Company’s common stock to certain key management with an exercise price of US$3.24 per share. 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 year ended September 30, 2011 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, 2010	75,000	$	3.24
Exercised	-		-
Forfeited	-		-
Cancelled	-		-
Outstanding as of September 30, 2011	75,000	$	3.24	4.7 years	$	-
Exercisable as of September 30, 2011	22,500	$	3.24	4.7 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 US$2.86 per share. The Company recorded non-cash share-based compensation expense of US$38,976, US$83,152 and US$44,492 for the years ended September 30, 2009, 2010 and 2011 respectively in respect of share options granted on June 26, 2009, which was allocated to research and development expenses.
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 September 30, 2011, there were unrecognized compensation costs of US$47,556 related to the above non-vested share options. These costs are expected to be recognized over a weighted average period of 1.3 years.

On March 11, 2010, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 50,000 shares of the Company’s common stock to certain key management with an exercise price of US$2.58 per share. In accordance with the vesting provisions of the grants, the options will become vested and exercisable over two years in two equal installments beginning on each anniversary of the grant day on March 11, 2010.

A summary of share option plan activity for these options during the year ended September 30, 2011 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, 2010	50,000	$	2.58
Exercised	-		-
Forfeited	50,000		2.58
Cancelled	-		-
Outstanding as of September 30, 2011	-	$	-	-	$	-
Exercisable as of September 30, 2011	-	$	-	-	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 March 11, 2010 was US$1.51 per share. The Company recorded non-cash share-based compensation expense of US$31,459 for the year ended September 30, 2010 in respect of share options granted on March 11, 2010, which was allocated to general and administrative expenses. No non-cash share-based compensation expense was recognized in respect of these share options for the years ended September 30, 2011.
The fair value of the above option awards granted on March 11, 2010 was estimated on the date of grant using the Black-Scholes Option Valuation Model that uses the following assumptions.

Expected volatility	76.32%
Expected dividends	Nil
Expected life	4 years
Risk-free interest rate	3.72%

As of September 30, 2011, there were no unrecognized compensation costs related to non-vested share options.

On April 8, 2010, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 100,000 shares of the Company’s common stock to certain key management with an exercise price of US$2.43 per share. 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 year ended September 30, 2011 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, 2010	100,000	$	2.43
Exercised	-		-
Forfeited	-		-
Cancelled	-		-
Outstanding as of September 30, 2011	100,000	$	2.43	6.0 years	$	-
Exercisable as of September 30, 2011	25,000	$	2.43	6.0 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 US$1.41 per share. The Company recorded non-cash share-based compensation expense of US$49,170 and US$47,842 for the years ended September 30, 2010 and 2011, 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 September 30, 2011, there were unrecognized compensation costs of US$44,148 related to the above non-vested share options. These costs are expected to be recognized over a weighted average period of 1.8 years.

On July 23, 2010, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 80,000 shares of the Company’s common stock to certain key management with an exercise price of US$1.58 per share. 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 year ended September 30, 2011 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, 2010	80,000	$	1.58
Exercised	-		-
Forfeited	80,000		1.58
Cancelled	-		-
Outstanding as of September 30, 2011	-	$	-	-	$	-
Exercisable as of September 30, 2011	-	$	-	-	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 July 23, 2010 was US$1.58 per share. The Company recorded non-cash share-based compensation expense of US$12,296 for the year ended September 30, 2010 in respect of share options granted on July 23, 2010 which was allocated to general and administrative expenses. No non-cash share-based compensation expense was recognized in respect of these share options for the years ended September 30, 2011.
The fair value of the above option awards granted on July 23, 2010 was estimated on the date of grant using the Black-Scholes Option Valuation Model that uses the following assumptions.

Expected volatility	58.50%
Expected dividends	Nil
Expected life	5.0 years
Risk-free interest rate	2.99%

As of September 30, 2011, there were no unrecognized compensation costs related to non-vested share options.

On May 26, 2011, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 160,800 shares of the Company’s common stock to certain key management with an exercise price of US$1.28 per share. In accordance with the vesting provisions of the grants, the options will become vested and exercisable in twelve equal installments beginning on each quarter after September 30, 2011.

A summary of share option plan activity for these options during the year ended September 30, 2011 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, 2010	-	$	-
Granted on May 26, 2011	160,800		1.28
Exercised	-		-
Forfeited	-		-
Cancelled	-		-
Outstanding as of September 30, 2011	160,800	$	1.28	5.6 years	$	-
Exercisable as of September 30, 2011	13,400	$	1.28	5.6 years	$	-

(1)	Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2011 (US$0.82) 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 26, 2011 was US$0.65 per share. The Company recorded non-cash share-based compensation expense of US$32,044 for the year ended September 30, 2011 in respect of share options granted on May 26, 2011, which was allocated to general and administrative expenses.
The fair value of the above option awards granted on May 26, 2011 was estimated on the date of grant using the Black-Scholes Option Valuation Model that uses the following assumptions.

Expected volatility	50.90%
Expected dividends	Nil
Expected life	6.0 years
Risk-free interest rate	3.06%

As of September 30, 2011, there were unrecognized compensation costs of US$73,268 related to the above non-vested share options. These costs are expected to be recognized over a weighted average period of 2.7 years.

(ii) Restricted Shares
Pursuant to the Plan and in accordance with the China BAK Battery, Inc. Compensation Plan for Non-Employee Directors, the Company granted 5,000 restricted shares to each of the existing elected independent directors with a fair value of US$1.68 per share on July 1, 2010. The eligible directors shall vest in their rights under the restricted shares according to the following schedule:
(i)	25% of the restricted shares granted will immediately vest on the grant date; and
(ii)	The remaining 75% of the restricted shares will vest in three equal quarterly installments on the last day of each subsequent quarter or in three equal quarterly installments on the last day of each calendar quarter beginning on the last day of the first full calendar quarter after the grant date.
The Company recorded non-cash share-based compensation expense of US$6,854 for the year ended September 30, 2011, in respect of the restricted shares granted in July 1, 2010, which was allocated to general and administrative expenses.
The first and second 25% of the restricted shares were already issued as fully paid shares of common stock to the Company’s three independent directors on August 4, 2010 and October 6, 2010. According to the resolution of Compensation Committee on December 28, 2010, the third and fourth 25% of the restricted shares were cancelled. As of September 30, 2011, there were no unrecognized compensation costs associated with these restricted shares granted to non-employee directors.
Pursuant to the Plan, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of 500,000 restricted shares to Chief Executive Officer, Mr. Xiangqian Li with a fair value of US$2.81 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 US$264,200, US$549,690 and US$300,890 for the years ended September 30, 2009, 2010 and 2011 respectively in respect of the restricted shares granted on June 22, 2009, which was allocated to general and administrative expenses.
As of September 30, 2011, there were unrecognized stock-based compensation costs of US$290,220 associated with these restricted shares granted to Mr. Xiangqian Li. These costs are expected to be recognized over a weighted-average period of 2.3 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 years ended September 30, 2010 and 2011.