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.

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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. On June 17, 2015, the Company’s stockholders approved an amendment to Section 1.7 of the Plan that if an option terminates without being wholly exercised, new options or restricted stock may be granted hereunder covering the number of shares to which such option termination relates. Section 1.7 of the Plan currently provides that only new options may be granted in this case.

On June 22, 2009, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 385,640 shares of the Company’s 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 as of September 30, 2014 and 2015 is presented below:

				Weighted	Weighted
				average	average		Aggregate
	Number of			exercise price	remaining		intrinsic
	shares			per share	contractual term		value ⁽¹⁾
Outstanding as of October 1, 2013	136,560		$	14.05	2.7 years
Exercised	-
Cancelled	-
Forfeited	(132,360	)

Outstanding as of September 30, 2014	4,200		$	14.05	1.7 years
Exercised	-
Cancelled	-
Forfeited	-

Outstanding as of September 30, 2015	4,200		$	14.05	0.7 years	$	-

Exercisable as of September 30, 2015	4,200		$	14.05	0.7 years	$	-

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 $65,147 and nil for the years ended September 30, 2014 and 2015, 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.

On April 8, 2010, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 20,000 shares of the Company’s 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 years ended September 30, 2014 and 2015 is presented below:

				Weighted	Weighted
				average	average		Aggregate
	Number of			exercise	remaining		intrinsic
	shares			price per share	contractual term		value
Outstanding as of October 1, 2013	20,000		$	12.15	4 years
Exercised	-			-
Cancelled	-			-
Forfeited	(20,000	)		12.15	3.45 years
Outstanding as of September 30, 2014 and 2015	-			-	-	$	-
Exercisable as of September 30, 2014 and 2015	-			-	-	$	-

No non-cash share-based compensation expense was recognized for the year ended September 30, 2014.

Pursuant to the Plan and in accordance with the China BAK Battery, Inc. Compensation Plan for Non-Employee Directors, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of 100,000 restricted shares to the Chief Executive Officer, Mr. 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. As of September 30, 2014 and 2015, 100,000 shares were vested and 40,000 and 100,000 shares, respectively, were issued to Mr. Li.

The Company recorded non-cash share-based compensation expense of $23,598 and nil for the years ended September 30, 2014 and 2015, respectively, in respect of the restricted shares granted on June 22, 2009, which was allocated to general and administrative expenses.

On June 12, 2015, the shareholds of the Company approved the China BAK Battery, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) for Employees, Directors and Consultants of the Company and its Affiliates. The maximum aggregate number of Shares that may be issued under the Plan is ten million (10,000,000) Shares.

On June 30, 2015, pursuant to the 2015 Plan, the Compensation Committee of the Company’s Board of Directors granted an aggregate of 690,000 restricted shares of the Company’s common stock, par value $0.001, to certain employees, officers and directors of the Company with a fair value of $3.24 per share on June 30, 2015. In accordance with the vesting schedule of the grant, the restricted shares will vest in twelve equal quarterly installments on the last day of each fiscal quarter beginning on June 30, 2015 (i.e. last vesting period: quarter ended March 31, 2018).

The Company recorded non-cash share-based compensation expense of $750,167 for the year ended September 30, 2015, in respect of the restricted shares granted on June 30, 2015, of which $614,267, $86,976 and $48,924 were allocated to general and administrative expenses, research and development expenses and sales and marketing expenses, respectively. As of September 30, 2015, 115,000 shares were vested, and there was unrecognized stock-based compensation of $1,485,433 associated to the above restricted shares. As of September 30, 2015, 32,498 vested shares were issued. Up to the approval date of these financial statements, a further 56,667 vested shares were issued.

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 the stock option plan for the years ended September 30, 2014 and 2015.