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Share-based Compensation

3 Months Ended

Dec. 31, 2016

16.

Share-based Compensation

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 ended March 31, 2018). The Company recognizes the share-based compensation expenses on a graded-vesting method.

The Company recorded non-cash share-based compensation expense of $373,464 for the three months ended December 31, 2015, in respect of the restricted shares granted on June 30, 2015, of which $305,807, $43,300 and $24,357 were allocated to general and administrative expenses, research and development expenses and sales and marketing expenses, respectively.

The Company recorded non-cash share-based compensation expense of $131,680 for three months ended December 31, 2016, in respect of the restricted shares granted on June 30, 2015, of which $107,825, $15,267 and $8,588 were allocated to general and administrative expenses, research and development expenses and sales and marketing expenses, respectively.

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

Non-vested shares as of October 1, 2016	330,000
Granted	-
Vested	(55,000	)
Forfeited	-
Non-vested shares as of December 31, 2016	275,000

As of December 31, 2016, there was unrecognized stock-based compensation of $281,266 associated with the above restricted shares. As of December 31, 2016, 55,000 vested shares were to be issued. On February 2017, the remaining 55,000 vested shares were issued.

Restricted shares granted on April 19, 2016

On April 19, 2016, pursuant to the Company’s 2015 Equity Incentive Plan, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) granted an aggregate of 500,000 restricted shares of the Company’s common stock, par value $0.001 (the “Restricted Shares”), to certain employees, officers and directors of the Company, of which 220,000 restricted shares were granted to the Company’s executive officers and directors. There are three types of vesting schedules. First, if the number of restricted shares granted is below 3,000, the shares will vest annually in 2 equal installments over a two year period with the first vesting on June 30, 2017. Second, if the number of restricted shares granted is larger than or equal to 3,000 and is below 10,000, the shares will vest annually in 3 equal installments over a three year period with the first vesting on June 30, 2017. Third, if the number of restricted shares granted is above or equal to 10,000, the shares will vest semi-annually in 6 equal installments over a three year period with the first vesting on December 31, 2016. The fair value of these restricted shares was $2.68 per share on April 19, 2016. The Company recognizes the share-based compensation expenses over the vesting period (or the requisite service period) on a graded-vesting method.

The Company recorded non-cash share-based compensation expense of $213,399 for the three months ended December 31, 2016, in respect of the restricted shares granted on April 19, 2016 of which $161,756, $27,742, $13,231 and $10,670 were allocated to general and administrative expenses, research and development expenses, sales and marketing expenses and cost of revenues, respectively.

As of September 30, 2016, non-vested restricted shares granted on April 19, 2016 are as follows:

Non-vested shares as of October 1, 2016	492,000
Granted	-
Vested	(56,500	)
Forfeited ^Note	(2,000	)
Non-vested shares as of September 30, 2016	433,500

Note: During the three months ended December 31, 2016, 2,000 restricted shares were forfeited following the resignation of one employee in October 2016. Unrecognized compensation cost of $2,935 was recognized as non-cash share-based compensation expenses to sales and marketing expenses for the three months ended December 31, 2016.

As of December 31, 2016, there was unrecognized stock-based compensation of $736,890 associated with the above restricted shares. As of December 31, 2016, 56,500 vested shares were to be issued. On February 2017, the remaining 56,500 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 months ended December 31, 2015 and 2016.