George L. Diamond
(214) 953-6119
gdiamond@jw.com
VIA FACSIMILE AND FEDERAL EXPRESS
June 22, 2005
Mr. Edward M. Kelly
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Mail Stop 0510 Rm. 5215
Re: China BAK Battery, Inc.
f/k/a Medina Coffee, Inc.
Amendment No. 1 to Form SB-2 filed January 21, 2005 (the "Amended SB-2")
File No. 333-122209
Dear Mr. Kelly:
On behalf of China BAK Battery, Inc. (the "Company"), this letter is in response
to the comments contained in the Staff's letter (the "Comment Letter") dated
February 11, 2005, regarding the Amended SB-2.
The following responses indicate, where applicable, the additions or revisions
that have been included in the Amended SB-2 and other Company filings in
response to the Staff's comments. The responses are numbered to correspond to
the numbers assigned in the Comment Letter. Capitalized terms used in this
response letter but not defined herein have the meanings assigned to such terms
in the Amended SB-2, and page references below are to pages in the Amended SB-2.
Three marked copies of the Amended SB-2 (reflecting changes from the filing made
on January 21, 2005) are enclosed herewith.
SB-2
----
1. The Staff is supplementally advised that the Company acknowledges that
the comments contained in the Comment Letter are comments that are
applicable to its Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2003 and subsequent Exchange Act filings.
Edward M. Kelly
June 22, 2005
Page 2
Registration Statement's Cover Page
2. The Staff is supplementally advised that a box has been added to the
cover page of the Amended SB-2 to evidence that the Company is relying
on Rule 415 of Regulation C under the Securities Act.
Special Note Regarding Forward-Looking Statements, page 2
3. The Staff is supplementally advised that the "Special Note Regarding
Forward-Looking Statements" disclosure has been moved to p. 12 of the
Amended SB-2 following the "Risk Factors" section.
Risk Factors, page 7
4. The Staff is supplementally advised that each of the identified risk
factors has been updated to include information necessary to assess the
risk, including its magnitude.
5. The Staff is supplementally advised that the risk factors have been
updated to avoid generic conclusions in the risk factors' headings and
in the risk factors' discussions.
6. The Staff is supplementally advised that the risk factors including
language like "We cannot assure," "There can be no assurance," "We
cannot guarantee," and "There is no assurance" have been revised to
reflect the fact that the risk is the situation described and not the
Company's inability to assure or guarantee.
7. The Staff is supplementally advised that the subject risk factor has
been updated to reflect the fact that there is no established trading
market for the Company's common stock and that the Company's common
stock may never be included for trading on any stock exchange or
through any other quotation system (including, without limitation, the
NASDAQ Stock Market).
8. The Company has considered the Staff's comment and hereby
supplementally advises the Staff that, after a review of its Amended
and Restated Bylaws, additional risk factor disclosure has been added
beginning on p. 11 of the Amended SB-2.
Market for Common Equity, Related Stockholder Matters and Dividend Policy, page
16
9. The Staff is supplementally advised that the section entitled "Market
for Common Equity, Related Stockholder Matters and Dividend Policy", as
found on p. 12 of the Amended SB-2, has been revised to clarify that
the range of closing high and low bid prices of the Company's common
stock reflects interdealer prices without retail markup, markdown, or
commission and may not represent actual transactions.
10. The Staff is supplementally advised that the columns under the tables
set forth under the heading "Market for Common Equity, Related
Stockholder Matters and Dividend Policy" on p. 12 of the Amended SB-2
have been revised to properly reflect the referenced high and low bid
prices of the Company's common stock for the noted periods.
Edward M. Kelly
June 22, 2005
Page 3
Management's Discussion and Analysis of Plan of Operations, page 17
11. The Staff is supplementally advised that p. 24 of the Amended SB-2 has
been revised to disclose the financial ratio test that is now a part of
the Comprehensive Credit Facility with Agricultural Bank of China.
Other than that credit facility, none of the Company's credit
facilities or other financial instruments require it or its operating
subsidiaries to satisfy specified financial ratios and tests.
Liquidity and Capital Resources, page 23
12. The Staff is supplementally advised that the "Management's Discussion
and Analysis of Plan of Operation - Liquidity and Capital Resources"
section of the Amended SB-2 has been revised on pp. 23 and 24 to make
the requested distinction.
13. The Staff is supplementally advised that disclosure has been added to
the "Management's Discussion and Analysis of Plan of Operation -
Liquidity and Capital Resources" section on p. 23 of the Amended SB-2
discussing the potential impact of rising raw material prices on the
Company's operations and liquidity.
14. The Staff is supplementally advised that additional disclosure
regarding the Company's new production facility can be found on p. 23
of the Amended SB-2 under the section entitled "Management's Discussion
and Analysis of Plan of Operation - Liquidity and Capital Resources."
15. The Staff is supplementally advised that additional disclosure
regarding the time frame within which the Company expects to receive
feedback from its potential OEM partners and the potential impact such
OEM relationships will have on its operations has been included on p.
25 of the Amended SB-2 under the section entitled "Management's
Discussion and Analysis of Plan of Operation - Liquidity and Capital
Resources."
16. The Staff is supplementally advised that disclosure has been added on
p. 25 of the Amended SB-2 under "Management's Discussion and Analysis"
discussing the Company's critical accounting policies and management's
methodology in making the estimates and the trends that could have an
impact on those estimates.
17. The Staff is supplementally advised that the loan from Changzhou Lihai
Investment Consulting Co., Ltd. was made to Shenzhen BAK Battery Co.,
Ltd. ("BAK Battery") for the purpose of satisfying a debt obligation to
an unaffiliated party. Management believes that even though the
referenced loan was not in compliance with applicable PRC law, the risk
to the Company is nominal as the US $1,812,316 loan has been paid in
full.
Business
Our Business Strategy, page 26
18. The Staff is supplementally advised that disclosure regarding the
preparations the Company has made and what additional preparations are
required in connection with its OEM certification has been added on p.
28 of the Amended SB-2 under the heading "Business - Our Business
Strategy." In addition, the Staff is supplementally advised that
disclosure regarding when the Company believes it will earn income from
its OEM business can also be found on p. 28 of the Amended SB-2.
Edward M. Kelly
June 22, 2005
Page 4
19. The Staff is supplementally advised that the Amended SB-2 has been
revised on p. 28 and elsewhere to clarify that, although not yet in
production, a prototype for a lithium polymer battery cell is in
existence. The Company is still coordinating manufacturing and
distribution capability for the prototype and as such is unable to
state with certainty when this product will be offered to the
marketplace. The Company is currently producing for sale high power
lithium ion batteries.
Directors and Executive Officers, page 32
20. The Staff is supplementally advised that Dr. Mao's biographical data on
p. 33 of the Amended SB-2 has been revised to identify that Dr. Mao
received his doctorate from Memorial University of Newfoundland,
Canada.
21. The Staff is supplementally advised that disclosure regarding when the
Company intends to expand its board of directors has been added on p.
33 of the Amended SB-2.
Principal Stockholders, page 34
22. The Staff is supplementally advised that the requested clarification
has been added in footnote (4) to the Principal Stockholders table on
p. 36 of the Amended SB-2.
Certain Relationships and Related Party Transactions, page 35
23. The Staff is supplementally advised that all references to an
independent appraisal firm have been deleted in the Amended SB-2.
24. The Staff is supplementally advised that disclosure has been added on
p. 37 of the Amended SB-2 to indicate the Company's belief that its
agreement with HFG International, Ltd. was on terms at least as
favorable as those that BAK Battery would have expected to negotiate
with an unaffiliated party providing similar services. A copy of the
agreement with HFG International, Ltd. has been filed as Exhibit 10.20
to the Amended SB-2.
Selling Stockholders, page 36
25. The Staff is supplementally advised that the requested disclosure is
set forth in the initial paragraph under the section entitled "Selling
Stockholders" commencing on p. 38 of the Amended SB-2 and the footnotes
to the selling stockholders table found therein.
26. The Staff is supplementally advised that the requested disclosure is
set forth in the footnotes to the selling stockholders table found
under the section entitled "Selling Stockholders" commencing on p. 38
of the Amended SB-2.
Edward M. Kelly
June 22, 2005
Page 5
27. The Staff is supplementally advised that, to the extent the requested
information is applicable, disclosure is set forth in the footnotes to
the selling stockholders table found under the section entitled
"Selling Stockholders" commencing on p. 38 of the Amended SB-2.
28. The Staff is supplementally advised that, to the extent the requested
information is applicable, disclosure is set forth in the footnotes to
the selling stockholders table found under the section entitled
"Selling Stockholders" commencing on p. 38 of the Amended SB-2.
29. The Staff is supplementally advised that none of the selling
stockholders are broker/dealers. However, certain of the footnoted
selling stockholders are affiliates of broker/dealers, and those
selling stockholders have been identified as such in the notes to the
selling stockholders table commencing on p. 38.
30. The Staff is supplementally advised that as none of the selling
stockholders are broker/ dealers the requested disclosure is not
applicable.
31. The Staff is supplementally advised that for those broker/dealer
affiliates identified in the Amended SB-2, disclosure has been added in
the notes to the selling stockholders table commencing on p. 38 to
reflect that said parties purchased the securities listed in the
selling stockholders table in the ordinary course of business and that
they had no arrangements or understandings, directly or indirectly,
with any person to distribute the securities at the time of their
purchase.
32. The Staff is supplementally advised that the requested disclosure has
been made on p. 38 of the Amended SB-2.
Legal Matters, page 40
33. The Staff is supplementally advised that the address for Jackson Walker
L.L.P. has been provided under "Legal Matters" on p. 44 of the Amended
SB-2 as requested.
Report of Independent Registered Public Accounting Firm, page F-1
34. The Staff is supplementally advised that the issues raised in this
comment were addressed through direct correspondence between the Staff
and the Company's independent audit firm. Please advise if the Staff
requires additional information regarding the issues set forth in the
comment.
Financial Statements
35. The Staff is supplementally advised that the shareholders of BAK
International, Ltd. ("BAK International") just before the transaction
with BAK Battery were: Xiangqian Li (21,233,437 / $7,820,000), Jinghui
Wang (3,600,035 / $1,322,500), Fenghua Li (2,498,051 / $908,500),
Yunfei Li (1,405,154 / $517,500), Xuechun Zhang (379,673 / $138,000),
Edward M. Kelly
June 22, 2005
Page 6
Jimin Li (343,482 / $126,500), Yongbin Han (312,256 / $115,000), Shumin
Li (312,256 / $115,000), Huanyu Mao (249,805 / $80,500), Xiaohui Wang
(224,825 / $80,500), Shuquan Zhang (132,709 / $46,000), Yanlong Zou
(124,903 / $46,000), Jianjun Huang (124,903 / $46,000), Baicheng Zhou
(124,903 / $46,000), Yuxin Zhang (74,942 / $34,500), Feng Li (67,135 /
$23,000), Ge Shao (9,368 / $3,450) and Yunqing Lin (7,806 / $2,300).
Each of the forgoing were shareholders of BAK Battery, with Xiangqian
Li, Yongbin Han and Huanyu Mao serving as executive officers of BAK
Battery. Following each listed person are the number of shares of BAK
International they held immediately prior to the transaction with BAK
Battery and the approximate consideration paid for such shares. BAK
International was created as a holding company and as such the minimum
capitalization required by Hong Kong law was in place immediately prior
to the transaction. The shareholders of BAK Battery received an
aggregate of 31,225,642 shares of BAK International by investing U.S.
$11.5 million based on their pro rata ownership of BAK Battery. The
Staff is supplementally advised that attached hereto as Appendix "A"
the Company has provided the summarized balance sheet of BAK
International just before the transaction with BAK Battery. Each of the
original BAK International shareholders contributed cash for their
ownership interest in said company, which cash was then used to acquire
the share capital of BAK Battery in accordance with applicable PRC law.
The Staff is supplementally advised that the $11.5 million payment was
made in connection with the recapitalization of the entity, and
accordingly the payment has been reflected as part of the accounting
for the recapitalization as if it had occurred during the period ended
September 30, 2004. The Company does not believe a footnote is needed
in connection with the Staff's query regarding the issuance of 3.2% of
the post-transaction shares to the shareholders of BAK International as
those shares were issued as of the close of the transaction. The 96.8%
number relates to the shares held by the original BAK Battery
shareholders in BAK International. Certain of the BAK Battery
shareholders transferred an aggregate of 3.2% of their holdings in BAK
International prior to the November 2004 combination transaction and as
such the transferees participated in the January 2005 exchange
transaction.
36. The Staff is supplementally advised that attached hereto as Appendix
"B" the Company has provided a summarized balance sheet of Medina
Coffee, Inc. as it appeared prior to the transaction with BAK
International. Immediately prior to the transaction there were
1,152,450 issued and outstanding shares of Medina Coffee, Inc.'s common
stock. Immediately after the transaction there were 40,978,533 shares
of Medina Coffee, Inc.'s common stock issued and outstanding. The Staff
is supplementally advised that the Company does not believe that the
requested footnote disclosure is required given that the Company issued
all shares contemplated by the exchange transaction with BAK
International at the time of closing on January 20, 2005. The 1,152,458
shares of common stock of Medina Coffee, Inc. outstanding at the time
of closing represents the 2.8% of Medina Coffee, Inc.'s common stock
retained by the original Medina Coffee, Inc. stockholders. Medina
Coffee, Inc. then issued in the exchange 39,826,075 shares to the
shareholders or BAK International, which shares represent 97.2% of
Medina Coffee, Inc.'s outstanding common stock immediately after the
closing of the transaction. The sum of the shares outstanding prior to
closing (1,152,458) and the shares issued in the exchange (39,826,075)
Edward M. Kelly
June 22, 2005
Page 7
represents 100% or the total currently outstanding shares of the
Company's common stock, or 40,978,533 shares. Based on the forgoing,
the Company believes no additional revisions are required to be made to
the financial statements.
37. The Staff is supplementally advised that the financial statements of
Medina Coffee, Inc. at September 30, 2004 and 2003 included in the
Amended SB-2 include both the accounts of BAK International (the shell)
and BAK Battery (the operating company). The recapitalization of BAK
International with BAK Battery has been reflected in the financial
statements retroactively as of September 30, 2002, the earliest period
presented in the financial statements.
The Staff is supplementally advised that the financial statements
included in the Amended SB-2 include only the accounts of BAK
International and BAK Battery at September 30, 2004 retroactively
restated for the combination transaction that took place on November 6,
2004.
The Staff is supplementally advised that the financial statements for
the period after September 30, 2004 will include all of the accounts of
each of the companies including: Medina Coffee, Inc., BAK International
and BAK Battery.
38. The Staff is supplementally advised that attached hereto as Exhibit "C"
the Company has provided a statement of stockholders' equity as of
January 31, 2005.
39. The Staff is supplementally advised that disclosure has been added to
Note 12 "Related Party Transactions" on p. F-22 of the Amended SB-2 to
discuss the terms and accounting treatment of the financial advisory
agreement.
Notes to Consolidated Financial Statements
40. The Staff is supplementally advised that the Company has included
financial statements for the quarters ended March 31, 2005 and 2004.
41. The Staff is supplementally advised that disclosure has been added to
Note 4V of the Amended SB-2 discussing the types of expenses that are
included in "Cost of Goods Sold," "Selling Expenses," and "General and
Administrative Expenses."
The Staff is further supplementally advised that disclosure has also
been added to "Management's Discussion and Analysis of Plans or
Operations" under the subheading "Gross Profit" on page 16 stating that
the components of costs of goods sold may vary from company to company
and hence gross profit may not be comparable.
42. The Staff is supplementally advised that Note 4T has been revised to
add disclosure regarding the accounting policy concerning shipping and
handling costs and to state that the costs are identified in "Selling
Expenses".
43. The Staff is supplementally advised that disclosure has been added to
Note 4S to describe the components of advertising costs, where they are
Edward M. Kelly
June 22, 2005
Page 8
located in the financial statements and that the Company does not
engage in any cooperative programs or like arrangements. Similar
discussion has been added to the paragraph under "Selling Expenses"
under "Results of Operations" in "Management's Discussion and Analysis
of Plans of Operations" on p. 19 of the Amended SB-2.
44. The Staff is supplementally advised that disclosure has been added to
the financial statements under Note 14 to disclose the facts and
circumstances resulting in the capital contribution of $10,875,918 and
the accounting treatment thereof.
45. The Staff is supplementally advised that disclosure has been added to
the footnotes under Note 15 to discuss the Company's reportable
segments in accordance with SFAS 131.
Note 4. Summary of Principal Accounting Policies
D. Property, Plant and Equipment, page F-8
46. The Staff is supplementally advised that the Company has historically
been able to recover costs from the sale of its depreciated assets at
the end of their economic lives. The Company estimates, at the
inception of the life of the assets, that approximately 5% will be
realized from the residual value. The Company monitors this policy, as
well as measures periodically for impairment and adjusts for any new
information that becomes available. The demand for used equipment in
the People's Republic of China is extremely high due to the rapid
expansion of the country's economy. Salvage Value was determined based
on the above factors with consideration to the guidance given in ARB
43.
H. Income Taxes, page F-9
47. The Staff is supplementally advised that disclosure has been added to
Note 16 to discuss income tax components under SFAS 109.
I. Government Subsidies, page F-10
48. The Staff is supplementally advised that disclosure has been added to
Note 4I to include the nature, terms and amount of the government
subsidies and the accounting treatment thereof.
L. Foreign Currency Translation, page F-11
49. The Staff is supplementally advised that disclosure has been added to
Note 4L to state the amount of transaction losses included in net
income for the noted periods. The Statement of Cash Flows has been
revised to disclose the effect of exchange rates on the cash balances
for the periods.
Edward M. Kelly
June 22, 2005
Page 9
N. Revenue Recognition, Returns and Warranties, page F-11
50. The Staff is supplementally advised that disclosure has been added to
Note 4N under "Revenue Recognition, Returns and Warranties" to discuss
management's methodology in providing for warranty claims. Disclosure
has also been added under Note 17 to include a tabular reconciliation
of the activity of the reserve as required by paragraph 14 of FIN 45.
Note 7. Property, Plant and Equipment, page F-17
51. The Staff is supplementally advised that disclosure has been added to
Note 7 to include the anticipated date of approval of the land use
rights.
52. The Staff is supplementally advised that disclosure has been added to
Note 7 to disclose the nature and amounts of the components of
Construction in Progress, the amount of interest expense capitalized,
and the anticipated completion and service date.
Note 10. Reserves, page F-19
53. The Staff is supplementally advised that disclosure has been added to
Note 10 to disclose that no other restrictions on the payment of
dividends exists other than those which have already been disclosed.
Note 12. Related Party Transactions, page F-19
54. The Staff is supplementally advised that disclosure has been added to
discuss the nature of the transaction with the related parties.
Note 13. Contingencies and Commitments, page F-20
55. The Staff is supplementally advised that disclosure has been added to
Note 13 to disclose in more detail the Company's accounting for
transfers made with recourse. While the Company's policy may not meet
all of the criteria in paragraph 9 of SFAS 140, the Company believes
the amounts to be immaterial at September 30, 2004. In addition, the
contingencies have all expired as of March 31, 2005. The Company will
fully comply with paragraphs 112 and 113 of SFAS in all future filings.
56. The Staff is supplementally advised that references to the subject
experts have been removed.
Information not Required in the Prospectus, page II-1
57. The Staff is supplementally advised that the Company does not maintain
such insurance on its own behalf or on behalf of any person when the
Company has the power to indemnify.
Edward M. Kelly
June 22, 2005
Page 10
Recent Sales of Unregistered Securities, page II-1
58. The Staff is supplementally advised that the 39,826,075 shares issued
to the shareholders of BAK International were issued pursuant to an
exchange transaction between the Company and BAK International. The
value of the shares issued in the exchange was approximately $11.5
million in the aggregate or $1.98 per share and was based upon the
approximate book value of the assets received and the liabilities
assumed from BAK International which includes the accounts of BAK
Battery.
Exhibit 5.1
59. The Company will provide the Staff with sufficient time to review the
legality opinion prior to requesting effectiveness of the registration
statement.
Exhibits 10.1, 10.3, and 10.4
60. The Staff is supplementally advised that the schedules to Exhibit 10.1
have been filed as attachments to the referenced exhibit. However,
there are no applicable attachments to Exhibits 10.3 and 10.4.
Exhibits 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.15,
10.16, 10.17, 10.18, and 10.19
61. The Staff is supplementally advised that the Company respectfully
believes it provided adequate English summaries of the noted exhibits
in reliance upon Rule 403 (c)(3). The Company believes that the
summaries satisfy the requirements of Rule 403(c)(3)(ii) in that they
fairly and accurately summarize all the terms of each document.
62. The Staff is respectfully requested to review the Company's response to
Comment 61 above.
Exhibit 21.1
63. The Staff is supplementally advised that the requested exhibit was
filed as Exhibit 21.1 to the Company's Annual Report on Form 10-KSB
filed on March 31, 2005.
Undertakings, page II-4
64. The Staff is supplementally advised that the requested undertakings
have been provided on p. II-6 of the Amended SB-2.
Signatures, page II-5
65. The Staff is supplementally advised that Yongbin Han is signing the
Amended SB-2 in his capacity as Principal Accounting Officer and the
signature page now reflects each capacity in which each of the
signatories is signing the Amended SB-2.
Edward M. Kelly
June 22, 2005
Page 11
10-KSB
------
Exhibits 99a and 99b
66. The Staff is supplementally advised that the certifications have been
amended to remove both the introductory language in paragraph 4 that
refers to the certifying officers' responsibility for establishing and
maintaining internal controls over financial reporting for the Company
and paragraph 4(b). Such amendments have been made to all subsequent
10-QSB's, except for the quarter ended September 30, 2004, filed during
the year ended December 31, 2004.
Signatures
67. The Staff is supplementally advised that the Company acknowledges the
Staff's comment and all amended filings have been signed by the
Company's principal accounting officer.
March 31, 2004 10-QSB
---------------------
"Safe Harbor" Statement under the Private Litigation Reform Act of 1995, page 12
68. The Staff is supplementally advised that the report has been amended as
required by the Staff.
June 30, 2004 10-QSB
--------------------
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities
69. The Staff is supplementally advised that the report has been amended as
required by the Staff.
8-K dated January 20, 2005 and filed January 21, 2005
-----------------------------------------------------
Item 4.01. Changes in Registrant's Certifying Accountant
70. The Staff is supplementally advised that the report has been amended as
required by the Staff.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
71. The Staff is supplementally advised that the Current Report on Form 8-K
has been amended to delete reference to the fact that the Company will
be filing a report to cover the referenced transaction period. After
consultation with the Staff, the next annual report to be filed will be
for the period ended September 30, 2005.
Edward M. Kelly
June 22, 2005
Page 12
Closing
We would appreciate the Staff's prompt attention to this response. Please direct
questions or requests to George L. Diamond of Jackson Walker L.L.P. at (214)
953-6119.
Very truly yours,
/s/ George L. Diamond
George L. Diamond
Appendix "A"
BAK International Limited
and it's Wholly Owned Subsidiary
Shenzhen BAK Battery Co., Ltd.
Pro Forma Balance Sheets
As at September 30, 2004
BAK Int'l Shenzhen Pro Forma Pro Forma
Ltd BAK Adjustments Consolidated
------------------------------------------------------------
Assets 2004 2004 2004
Current Assets
Cash 258 3,211,918 3,212,176
Cash - Restricted 7,120,069 7,120,069
Accounts Receivable, Net 20,999,561 20,999,561
Inventories 29,535,985 29,535,985
Prepaid Expenses 1,330,645 1,330,645
Notes Receivable 18,122 18,122
Accounts Receivable - Related Party 911,093 911,093
------------------------------------------------------------
Total Current 258 63,127,393 -- 63,127,651
------------------------------------------------------------
Long-Term Assets
Property, Plant, & Equipment 19,875,583 19,875,583
Construction in Progress 23,656,190 23,656,190
Land Use Rights 4,029,038 4,029,038
Less Accumulated Depreciation (2,370,774) (2,370,774)
------------------------------------------------------------
Long- Term Assets, Net -- 45,190,037 -- 45,190,037
------------------------------------------------------------
Other Assets
Investment in Shenzhen BAK 2,000,000 -- (2,000,000) --
Other Receivables 225,972 225,972
Intangible Assets 58,362 8,362
------------------------------------------------------------
Total other -- 284,334 -- 284,334
------------------------------------------------------------
Total Assets 2,000,258 108,601,764 (2,000,000) 108,602,022
------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable 23,570,087 23,570,087
Bank Loans, Short Term 27,304,162 27,304,162
Short Term Loans 1,812,316 1,812,316
Notes Payable, Other 20,772,559 20,772,559
Land Use Rights Payable 3,750,756 3,750,756
Construction Costs Payable 6,347,846 6,347,846
Customer Deposits 369,390 369,390
Accrued Expenses 5,247,656 5,247,656
Other Liabilities 181,223 181,223
------------------------------------------------------------
Total -- 89,355,995 -- 89,355,995
------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 1)
Shareholders' Equity
Capital Stock - $.001 Par
Value, Authorized 1,000,000 Shares;
20,000 Shares Issued 200 -- 200
Additional Paid In Capital 2,002,345 12,081,526 (2,000,000) 12,083,871
Accumulated Comprehensive Income (144) (144)
Reserves 1,724,246 1,724,246
Retained Earnings (2,287) 5,440,141 5,437,854
------------------------------------------------------------
2,000,258 19,245,769 (2,000,000) 19,246,027
------------------------------------------------------------
Total Liabilities and Equity 2,000,258 108,601,764 (2,000,000) 108,602,022
------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES AND RECAPITALIZATION TRANSACTIONS
BAK International Limited was incorporated in Hong Kong on December 29,
2003 under the Companies Ordinance as BATCO International Limited and
subsequently changed its' name to BAK International Limited on November 3,
2004. BAK International Limited acquired 100% of the outstanding shares of
Shenzhen BAK Battery Co., Ltd ("BAK") for a total consideration of USD$11.5
million on November 6, 2004. The shareholders of BAK International Limited
are substantially the same shareholders as Shenzhen BAK Battery Co., Ltd,
therefore the transaction has been accounted for as a recapitalization of
BAK with no adjustment to the historical basis of the assets and
liabilities of BAK and the operations consolidated as though the
transaction occurred as of the beginning of the first accounting period
presented in these financial statements.
Shenzhen BAK Battery Co., Ltd. ("BAK") was founded on August 3, 2001 as a
China-based company specializing in lithium ion (known as "Li-ion" or
"Li-ion cell") battery cell production, for use in the replacement battery
market, primarily for cell phones in the Peoples Republic of China (PRC).
Appendix "B"
China BAK Battery, Inc.
and it's Wholly Owned Subsidiary
Shenzhen BAK Battery Co., Ltd.
(Formerly Medina Coffee, Inc.)
Pro Forma Balance Sheets
As at September 30, 2004
Medina BAK Int'l Pro Forma Pro Forma
Coffee Ltd Adjustments Consolidated
------------------------------------------------------------
Assets 2004 2004 2004
Current Assets
Cash 18,328 3,212,176 3,230,504
Cash - Restricted 7,120,069 7,120,069
Accounts Receivable, Net 20,999,561 20,999,561
Inventories 29,535,985 29,535,985
Prepaid Expenses 1,330,645 1,330,645
Notes Receivable 18,122 18,122
Accounts Receivable - Related Party 911,093 911,093
------------------------------------------------------------
Total Current 18,328 63,127,651 -- 63,145,979
------------------------------------------------------------
Long-Term Assets
Property, Plant, & Equipment 19,875,583 19,875,583
Construction in Progress 23,656,190 23,656,190
Land Use Rights 4,029,038 4,029,038
Less Accumulated Depreciation (2,370,774) (2,370,774)
------------------------------------------------------------
Long-Term Assets, Net -- 45,190,037 -- 45,190,037
------------------------------------------------------------
Other Assets
Other Receivables 225,972 225,972
Intangible Assets 58,362 58,362
------------------------------------------------------------
Total other -- 284,334 -- 284,334
------------------------------------------------------------
Total Assets 18,328 108,602,022 -- 108,620,350
------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable 23,570,087 23,570,087
Bank Loans, Short Term 27,304,162 27,304,162
Short Term Loans 1,812,316 1,812,316
Notes Payable, Other 20,772,559 20,772,559
Land Use Rights Payable 3,750,756 3,750,756
Construction Costs Payable 6,347,846 6,347,846
Customer Deposits 369,390 369,390
Accrued Expenses 5,247,656 5,247,656
Other Liabilities 20,000 181,223 201,223
------------------------------------------------------------
Total 20,000 89,355,995 -- 89,375,995
------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 1)
Shareholders' Equity
Common Stock - $.001 Par
Value, Authorized 100,000,000 Shares;
1,152,458 Shares Issued; 32,378,100 Shares
Issued on a Pro Forma Basis 1,150 200 31,028 32,378
Additional Paid In Capital 65,829 12,083,871 (99,679) 12,050,021
Accumulated Comprehensive Income (144) (144)
Reserves 1,724,246 1,724,246
Retained Earnings (68,651) 5,437,854 68,651 5,437,854
------------------------------------------------------------
(1,672) 19,246,027 -- 19,244,355
------------------------------------------------------------
Total Liabilities and Equity 18,328 108,602,022 -- 108,620,350
------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES AND RECAPITALIZATION TRANSACTIONS
BAK International Limited was incorporated in Hong Kong on December 29,
2003 under the Companies Ordinance as BATCO International Limited and
subsequently changed its' name to BAK International Limited on November 3,
2004. BAK International Limited acquired 100% of the outstanding shares of
Shenzhen BAK Battery Co., Ltd ("BAK") for a total consideration of USD$11.5
million on November 6, 2004. The shareholders of BAK International Limited
are substantially the same shareholders as Shenzhen BAK Battery Co., Ltd,
therefore the transaction has been accounted for as a recapitalization of
BAK with no adjustment to the historical basis of the assets and
liabilities of BAK and the operations consolidated as though the
transaction occurred as of the beginning of the first accounting period
presented in these financial statements.
Shenzhen BAK Battery Co., Ltd. ("BAK") was founded on August 3, 2001 as a
China-based company specializing in lithium ion (known as "Li-ion" or
"Li-ion cell") battery cell production, for use in the replacement battery
market, primarily for cell phones in the Peoples Republic of China (PRC).
On January 10, 2005, BAK International Limited acquired the controlling
interest in Medina Coffee, Inc. through a share exchange agreement, a
reverse merger transaction. Medina Coffee, Inc. (a Nevada public company)
issued 31,225,642 shares of its common stock for all of the outstanding
shares of BAK International Limited. The transaction has been accounted for
as a recapitalization of BAK International Limited whereby the historical
operations of BAK become the historical operations of the Company with no
adjustments to the historical basis of the assets and liabilities.
Appendix "C"
Medina Coffee, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
For The Three Months Ended December 31, 2004
And The Month Ended January 31, 2005
Par Value Additional
Number of Common Paid-In Retained
Shares Stock Capital Earnings
------------------------------------------------------------------
Beginning Balance
September 30, 2004 31,225,642 31,226 12,052,845 5,437,854
Net Income 1,802,120
Transfer to Reserves (192,841)
Deemed Distribution to Shareholder-
Intangible Assets
Foreign Currency Translation
- --------------------------------------------------------------------------------------------------------
Ending Balance
December 31, 2004 31,225,642 31,226 12,052,845 7,047,133
========================================================================================================
Beginning Balance
December 31, 2004 31,225,642 31,226 12,052,845 7,047,133
Net Income 875,815
Issuance of Common Stock 8,600,433 8,600 15,291,400
Transfer to Reserves (131,372)
Foreign Currency Translation
- --------------------------------------------------------------------------------------------------------
Ending Balance
January 31, 2005 39,826,075 39,826 27,344,245 7,791,576
========================================================================================================
All Other
Comprehensive Shareholders'
Reserves Income (Loss) Equity
------------------------------------------------
Beginning Balance
September 30, 2004 1,724,246 (144) 19,246,027
Net Income 1,802,120
Transfer to Reserves 192,841 0
Deemed Distribution to Shareholder-
Intangible Assets 0
Foreign Currency Translation (1,525) (1,525)
- --------------------------------------------------------------------------------------
Ending Balance
December 31, 2004 1,917,087 (1,669) 21,046,622
======================================================================================
Beginning Balance
December 31, 2004 1,917,087 (1,669) 21,046,622
Net Income 875,815
Issuance of Common Stock 15,300,000
Transfer to Reserves 131,372 0
Foreign Currency Translation
- --------------------------------------------------------------------------------------
Ending Balance
January 31, 2005 2,048,459 (1,669) 37,222,437
======================================================================================