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Deferred Government Grants

6 Months Ended

Jun. 30, 2022

17. Deferred Government Grants

Deferred government grants as of December 31, 2021 and June 30, 2022 consist of the following:

	December 31,			June 30,
	2021			2022
Total government grants	$	10,023,677		$	8,434,016
Less: Current portion		(3,834,481	)		(2,149,033	)
Non-current portion	$	6,189,196		$	6,284,983

On October 17, 2014, the Company received a subsidy of RMB46,150,000 (approximately $6.9 million) pursuant to an agreement with the Management Committee dated July 2, 2013 for costs of land use rights and to be used to construct the new manufacturing site in Dalian. Part of the facilities had been completed and was operated in July 2015 and the Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon.

On June 23, 2020, BAK Asia, the Company wholly-owned Hong Kong subsidiary, entered into a framework investment agreement with Jiangsu Gaochun Economic Development Zone Development Group Company (“Gaochun EDZ”), pursuant to which the Company intended to develop certain lithium battery projects that aim to have a production capacity of 8Gwh. Gaochun EDZ agreed to provide various support to facilitate the development and operation of the projects. From 2020 to the report date, the Company received RMB10 million (approximately $1.6 million) to finance the costs incurred for moving; RMB20 million (approximately $3.2 million) to finance the costs incurred in construction works; and RMB17.1 million (approximately $2.7 million) to finance equipment purchases from Gaochun EDZ in Nanjing. The Company will recognize the government subsidies as income or offsets them against the related expenditures when there are no present or future obligations for the subsidized projects.

For the year ended December 31, 2021, the Company recognized RMB10 million ($1.6 million) as other income after moving of the Company facilities to Nanjing. Remaining subsidy of RMB37.1 million (approximately $5.9 million) was granted to facilities the construction works and equipment in Nanjing. The construction works have been completed in November 2021 and the production line was fully operated in January 2022. The Company has initiated amortization on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon.

The Company offset government grants of $38,266 and $544,646 for the three months ended June 30, 2021 and 2022, respectively, against depreciation expenses of the Dalian and Nanjing facilities.

The Company offset government grants of $76,399 and $1,111,618 for the six months ended June 30, 2021 and 2022, respectively, against depreciation expenses of the Dalian and Nanjing facilities.