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Prepaid Land Use Rights, net and Disposal of Tianjin Meicai New Material Technology Co., Ltd. (Tianjin Meicai)

12 Months Ended

Sep. 30, 2013

Prepaid Land Use Rights, net and Disposal of Tianjin Meicai New Material Technology Co., Ltd. (Tianjin Meicai) [Text Block]

8. Prepaid Land Use Rights, net and Disposal of Tianjin Meicai New Material Technology Co., Ltd (“Tianjin Meicai”)

(a)

Prepaid land use rights as of September 30, 2012 and 2013 consisted of the followings:

		2012			2013

Prepaid land use rights	$	36,977,372		$	26,531,009
Accumulated amortization		(4,473,511	)		(3,861,916	)
	$	32,503,861		$	22,669,093
Less: Classified as current assets		(740,276	)		(736,334	)
	$	31,763,585		$	21,932,759

Amortization expenses of the prepaid land use rights were approximately $734,000 and $728,000 for years ended September 30, 2012 and 2013, respectively.

On March 12, 2012, the Company borrowed a non-interest bearing loan in the amount of $12,741,967 from a third-party Tianjin Zhantuo International Trading Co., Ltd. (“Tianjin Zhantuo”). The Company has pledged one portion of its land use right located in Tianjin Industrial Park Zone with a net book value of $9,566,555 to Tianjin Zhantuo. On July 12, 2013 the Company entered into an equity transfer agreement with Tianjin Zhantuo to sell its subsidiary, Tianjin Meicai, to Tianjin Zhantuo. Pursuant to the agreement, the above mentioned land use right was sold to Tinajin Zhantuo.

(b)

Disposal of Tianjin Meicai

In May 2013, the management of the Company decided to sell the land use rights and the related construction in progress of the new energy base in Tianjin owned by Tianjin Meicai. On July 12, 2013, BAK Tianjin entered into an equity transfer agreement with Tianjin Zhantuo to transfer all the equity interest of Tianjin Meicai to Tianjin Zhantuo at a consideration of RMB180 million (approximately $29.3 million). The equity transfer was completed on August 27, 2013 and a gain on disposal of approximately $1.3 million was recognized and classified in other income for the year ended September 30, 2013.

The consideration of RMB180 million (approximately $29.3 million) was to be repaid as follows:-

	-	Offset against other long-term loans of RMB15,688,200 (approximately $2.6 million) owed to Tianjin Aifuyi Auto Parts Co., Ltd. and RMB30,000,000 (approximately $4.9 million) owed by BAK Tianjin to Tianjin Zhantuo;
	-	Offset against an amount owed by BAK Tianjin to Tianjin Meicai in the amount of RMB91,635,000 (approximately $15.0 million); and
	-	Remaining balance of RMB42,676,800 (approximately $7.0 million) should be payable in cash within 30 days upon completion. As of September 30, 2013, an amount of RMB3 million (approximately $0.5 million) had been paid. The remaining balance of RMB39.7 million (approximately $6.5 million) remained outstanding as of September 30, 2013 (Note 6).