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Share-based Compensation

6 Months Ended

Mar. 31, 2016

16.	Share-based Compensation

	(i) Options

	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.

	Stock Option Plan

	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 originally provided 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, 2015 and March 31, 2016 is presented below:

			Weighted
			average	Weighted average		Aggregate
	Number of		exercise price	remaining		intrinsic
	shares		per share	contractual term		value ⁽¹⁾
Outstanding as of October 1, 2015	4,200	$	14.05	0.7 years
Exercised	-
Cancelled	-
Forfeited	-

Outstanding as of March 31, 2016	4,200	$	14.05	0.2 years	$	-

Exercisable as of March 31, 2016	4,200	$	14.05	0.2 years	$	-

⁽¹⁾

The intrinsic values of option at March 31, 2016 was zero since the share market value of common stock of $2.34 was lower than the exercise price of the option of $14.05 per share.

As of September 30, 2015 and March 31, 2016, there were no unrecognized compensation costs related to the above non-vested share options.

	(ii) Restricted Shares

	Restricted shares granted on June 30, 2015

	On June 12, 2015, the Board of Director 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 ending March 31, 2018). The Company recognizes the share-based compensation expenses on graded-vesting method.

	The Company recorded non-cash share-based compensation expense of $321,355 for the three months ended March 31, 2016, in respect of the restricted shares granted on June 30, 2015, of which $263,139, $37,259 and $20,957 were allocated to general and administrative expenses, research and development expenses and sales and marketing expenses and $694,819 for the six months ended March 31, 2016, in respect of the restricted shares granted on June 30, 2015, of which $568,946, $80,559 and $45,314 were allocated to general and administrative expenses, research and development expenses and sales and marketing expenses, respectively.

	As of March 31, 2016, non-vested restricted shares granted on June 30, 2015 is as follows:

Non-vested shares as of September 30, 2015	575,000
Granted	-
Vested	(112,500	)
Forfeited ^Note	(22,500	)
Non-vested shares as of March 31, 2016	440,000

Note:

During the three and six month period March 31, 2016, 22,500 restricted shares were forfeited following the resignation of Mr. Chunzhi Zhang, an independent director on January 14, 2016. Unrecognized compensation cost of $48,172 was recognized as to general and administrative expenses.

As of March 31, 2016, there was unrecognized stock-based compensation of $790,614 associated with the above restricted shares as of March 31, 2016. As of March 31, 2016, 136,666 vested shares were issued and 90,834 vested shares were to be issued. On April 13, 2016, the remaining 90,834 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 three and six months ended March 31, 2015 and 2016.