UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal period ended December 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______ to _______
Commission File Number: 000-49712
CHINA BAK BATTERY, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0442833
(State of other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
BAK Industrial Park, No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, People's Republic of China 518119
(Address of principal executive offices) (Zip Code)
Ph: (86-755) 8977-0093
(Issuer's telephone number, Including Area Code)
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days |_| Yes |_| No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State Registrant's revenues for its most recent fiscal year: December 31,
2004 - $0.00
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days:
19,183,035 common shares @ $6.50 (1) = $124,689,728
(1) Based upon a closing bid price on March 29, 2005 of $6.50 per share of
common stock on the OTC Bulletin Board.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
Check whether the Registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No [ ] Not Applicable
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
On March 29, 2005 there were 40,978,533 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check one): [ ] Yes [ ] No
TABLE OF CONTENTS
PAGE
FORWARD LOOKING INFORMATION
PART I
Item 1. Description of Business 1
Item 2. Description of Property 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for Common Equity, Related Stockholders Matters and
Small Business Issuer Purchases of Equity Securities 4
Item 6. Management Discussion and Analysis or Plan of Operation 4
Item 7. Financial Statements 6
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 6
Item 8A. Controls and Procedures 6
PART III
Item 9. Directors and Executive Officers of the Registrant 7
Item 10. Executive Compensation 9
Item 11. Security Ownership of Certain Beneficial Owners and Management 9
Item 12. Certain Relationships and Related Transactions 11
Item 13. Exhibits, Lists and Reports on Form 8-K 11
Item 14. Principal Accountant Fees and Services 13
FINANCIAL STATEMENTS F-1
SIGNATURES
FORWARD LOOKING INFORMATION
Certain statements made in this report are "forward-looking statements"
regarding the plans and objectives of management for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of China BAK Battery,
Inc., a Nevada corporation (the "Company") to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements the forward-looking statements made in this Report
are based on current expectations that involve numerous risks and uncertainties.
The Company's plans and objectives are based, in part, on assumptions involving
the growth and expansion of business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes that its assumptions
underlying the forward-looking statements are reasonable, and of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements made in this Report will prove to be accurate. In
light of the significant uncertainties inherent in the forward- looking
statements made in this Report, inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. These statements are based
on management's beliefs and assumptions, and on information currently available
to management. Forward-looking statements include statements in which words such
as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider,"
or similar expressions are used. In summary, forward-looking statements are not
guarantees of future performance. They involve risks, uncertainties and
assumptions. The Company's future results and stockholder values may differ
materially from those expressed in these forward-looking statements. Many of the
factors that will determine these results and values are beyond the Company's
ability to control or predict.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Formation and Development
We were originally incorporated in the State of Nevada on October 4, 1999, under
the name Medina Copy, Inc. and immediately changed our name to Medina Coffee,
Inc. on October 6, 1999. On February 14, 2005, we changed our name to China BAK
Battery, Inc. Our principal address is BAK Industrial Park, No. 1 BAK Street,
Kuichong Town, Longgang District, Shenzhen, People's Republic of China.
Our Business
This Annual Report on Form 10-KSB only discusses our operations and management
as of December 31, 2004. Other than the discussion contained below in this
section, this Annual Report contains no disclosure or discussion of our current
operations and management. For detailed information regarding our current
operations and management please review our Current Report on Form 8-K filed
with the United States Securities and Exchange Commission (the "SEC") on January
21, 2005.
We commenced operations on December 1, 2002, and were originally considered a
development stage company. Our original purpose was to build a retail specialty
coffee business that sold specialty coffee and espresso drinks through Company
owned and operated espresso carts. We incurred operating losses since our
inception and therefore commencing in early 2004, began looking to combine with
a privately-held company that was profitable or that management considered to
have growth potential.
On June 14, 2004, Mr. Harry Miller, our principal stockholder at the time, sold
586,224 restricted shares of our common stock to Halter Financial Group, Inc., a
Texas corporation, for $115,000. Halter Financial Group also paid Mr. Miller
1
$1,050 to compensate Mr. Miller for expenses related to the sale. The
consideration for the shares was determined as a result of an arms-length
negotiation between the parties. At the time, the 586,224 shares of common stock
sold by Mr. Miller to Halter Financial Group represented approximately 51% of
our issued and outstanding shares of common stock. Concurrently with the
foregoing transaction, Mr. Miller resigned from the Board of Directors and Mr.
Timothy Halter was appointed in his place.
On January 20, 2005, we completed a stock exchange transaction with the
stockholders of BAK International, Ltd., a company incorporated under the laws
of Hong Kong ("BAK International"). The exchange was consummated under Nevada
law and pursuant to the terms of a Securities Exchange Agreement dated as of
January 20, 2005 (the "Exchange Agreement").
Pursuant to the Exchange Agreement, we issued 39,826,075 shares of common stock
to the stockholders of BAK International, representing approximately 97.2% of
our post-exchange issued and outstanding common stock, in exchange for 100% of
the outstanding capital stock of BAK International. Immediately after giving
effect to the exchange, we had 40,978,533 shares of common stock outstanding.
Pursuant to the exchange, BAK International became our wholly-owned subsidiary.
We presently carry on the business of Shenzhen BAK Battery Co., Ltd., a Chinese
corporation and BAK International's wholly-owned subsidiary ("BAK Battery").
Our current operations were originally a business division of our affiliate, BAK
Battery, which was originally formed as a Chinese limited liability company in
August 2001. As of January 17, 2005, all legal procedures of BAK International's
acquisition of 100% of the equity shares in BAK Battery were completed.
Thereafter, we entered into a stock exchange transaction on January 20, 2005,
with the stockholders of BAK International, pursuant to which we acquired from
them all of the issued and outstanding common capital stock of BAK International
in exchange for 39,826,075 shares of our common stock. As a result of this
exchange transaction, we succeeded to the operations of BAK International and
BAK Battery.
We presently serve as a holding company for our China-based subsidiaries, BAK
International and BAK Battery. Our subsidiaries are focused on the manufacture,
commercialization and distribution of a wide variety of standard and customized
lithium ion rechargeable batteries for use in a wide array of applications. We
also have internal research and development facilities engaged primarily in
furthering lithium ion related technologies. We have focused on manufacturing a
family of replacement lithium batteries for mobile phones. We also supply
rechargeable lithium ion and lithium polymer batteries for use in various other
portable electronic applications, including high-power handset telephones,
laptop computers, digital cameras and video camcorders, MP3's, electric bicycles
and general industrial applications.
We manufacture three types of batteries: steel cell, aluminum cell and
cylindrical cell. We deliver our products to packing plants operated by third
parties where the bare cells are packed in accordance with specifications
established by certain manufacturers of mobile phones and other electronic
products. We operate sales and service branches in six principal coastal cities
and Beijing in the PRC. The majority of our income is generated from the sale of
steel cells.
Government Regulation
In August 2002, President George W. Bush signed the Sarbanes-Oxley Act of 2002
into law, and several new rules and regulations were announced thereafter. Among
other things, the Sarbanes-Oxley Act of 2002 imposes new corporate governance,
reporting, and disclosure requirements, introduces stricter independence and
financial expertise standards for audit committees and imposes stiff penalties
for securities fraud. In addition, the United States Securities and Exchange
Commission and all domestic securities markets are considering proposals on
related corporate governance topics. The Sarbanes-Oxley Act of 2002 and the
related rules and regulations will likely increase the scope, complexity and
costs of our corporate governance, reporting and disclosure practices, and may
increase the risk of personal liability for our board members, chief executive
officer, and chief financial officer. Consequently, it may become more difficult
2
to attract and/or retain such individuals; resulting in a decrease in the number
and/or quality of board members, which may materially and adversely affect our
business, operating results, financial conditions and our ability to meet
listing the criteria of an exchange other than the OTC Bulletin Board or
PinkSheets.
Employees
As of December 31, 2004, we had one employee, Mr. Timothy P. Halter, who
provided his services free of charge.
Reports to Shareholders
The public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
ITEM 2. DESCRIPTION OF PROPERTY.
As of December 31, 2004, we neither owned nor leased any real property.
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 2004, we were not a party to any pending legal proceeding. To
the knowledge of management, no federal, state or local governmental agency was
contemplating any proceeding against us as of that date. As of December 31,
2004, no director, executive officer or affiliate or owner of record or
beneficially of more than five percent of our common stock was a party adverse
to us or had a material interest adverse to us in any proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of our security holders during the fiscal
calendar year covered by this report through solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
General
As of March 29, 2005 our stock is quoted on the Over the Counter Bulletin Board
("OTCBB") under the symbol "CBBT.OB". The following quotations reflect the high
and low bids for our common stock based on inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions. The
high and low bid prices for our common shares for each full financial quarter
for the two most recent full fiscal years were as follows:
3
Fiscal Period High Low
------------- ------ ------
2003
First Quarter $0.39 $0.37
Second Quarter $0.60 $0.60
Third Quarter $1.01 $1.01
Fourth Quarter $1.01 $1.01
2004
First Quarter $1.01 $1.01
Second Quarter $1.01 $1.01
Third Quarter $1.25 $1.45
Fourth Quarter $1.25 $3.50
As of March 29, 2005, the current bid ask of the Company is $6.50/$6.65. Our
stock is thinly traded and the above trading prices do not accurately represent
the trading market of the Company.
Dividends Policy
We have not declared or paid cash dividends or made distributions in the past,
and we do not anticipate that we will pay cash dividends or make distributions
in the foreseeable future. We currently intend to retain and reinvest future
earnings, if any, to finance our operations.
Sales of "Unregistered" and "Restricted" Securities over the past Three Years
The shares of our common stock issued over the past three fiscal year periods
that was not covered by a registration statement is as follows:
o 99,858 shares of common stock of the Company in full satisfaction of a
debt in the amount of $49,929 on June 8, 2004 and previously disclosed
by the Company in a Form 8-K filed on June 10, 2004.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General Plan of Operation
We were formed on October 4, 1999 for the purpose of developing an espresso cart
based business. We obtained and delivered our first espresso cart to the
Bellevue Art Museum on July 30, 2002. However, by the end of fiscal 2003, the
decision was made to cease operations in the espresso cart business.
On June 14, 2004, Mr. Harry Miller, our then principal stockholder, sold 586,224
of our restricted common shares to Halter Financial Group, Inc. for $115,000.
Halter Financial Group also paid Mr. Miller $1,050 to compensate Mr. Miller for
expenses related to the sale. The consideration for the shares was determined as
a result of arms-length negotiation between the parties. The shares sold by Mr.
Miller represented approximately 51% of our issued and outstanding common
shares. Concurrently with the foregoing transaction, Mr. Miller resigned from
the Board of Directors and as an officer of the company and Mr. Timothy P Halter
was appointed the company's sole officer and director.
As of December 31, 2004, our business plan was to locate and combine with an
existing, privately-held company which was profitable or, in management's view,
had growth potential, irrespective of the industry in which it was engaged.
Results of Operations
The following discussion relates solely to our results of operations in fiscal
2004 and prior to our entering into the exchange transaction with BAK
International. All future reports that we file with the SEC will contain
4
financial information related to us and our subsidiaries, BAK International and
BAK Battery, on a consolidated basis.
Revenue.
Total revenue for the fiscal year ended December 31, 2004 was $0 compared to
revenues of $40,914 for the fiscal year ended December 31, 2003. The majority of
our revenues in 2003 were generated from our operations at the Bellevue Art
Museum which were subsequently closed in September of 2003 as the museum decided
to close its facilities as part of a cost savings measure.
Expenses.
Our expenses are directly related to the costs of goods sold and were $0 for the
fiscal year ended December 31, 2004, compared to $21,599 for the fiscal year
ended December 31, 2003. Our general and administrative costs for the fiscal
year ended December 31, 2004 were $14,677, compared to general and
administrative costs of $61,474 for the fiscal year ended December 31, 2003. A
large portion of these costs are related to professional and other costs
associated with maintaining our status as a reporting issuer with the SEC.
Loss Per Period.
Our net loss per share for the fiscal year ended December 31, 2004 was $(.0127),
the net loss per share in the same period in 2003 being ($.0401).
Liquidity and Capital Resources.
As of December 31, 2004, we had $16,060 in cash and $20,000 in liabilities. This
is in comparison to $108 in cash and $42,340 in liabilities for the fiscal year
ended December 31, 2003.
Recent Accounting Pronouncements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activity," which was subsequently amended by SFAS 137, "Accounting
for Derivative Instruments and Hedging Activities: Deferral of Effective Date of
FASB 133" and Statement No.138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities: an amendment of FASB Statement No. 133." SFAS
137 requires adoption of SFAS 133 in years beginning after June 15, 2000. SFAS
138 establishes accounting and reporting standards for derivative instruments
and addresses a limited number of issues causing implementation difficulties for
numerous entities. The Statement requires us to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be recorded at
fair value through earnings. If the derivative qualifies as a hedge, depending
on the nature of the exposure being hedged, changes in the fair value of
derivatives are either offset against the change in fair value of hedged assets,
liabilities, or firm commitments through earnings or are recognized in other
comprehensive income until the hedged cash flow is recognized in earnings. The
ineffective portion of a derivative's change in fair value is recognized in
earnings. The Statement permits early adoption as of the beginning of any fiscal
quarter. SFAS 133 became effective for our first fiscal quarter of fiscal year
2002 and its adoption did not have a material effect on our financial
statements.
In December 1999, the SEC issued SAB 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain aspects of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On March 24, 2000 and June 26, 2000, the SEC issued Staff Accounting
Bulletin No. 101A and No. 101B, respectively, which extend the transition
provisions of SAB 101 until no later than the fourth quarter of fiscal years
beginning after December 15, 1999, which was December 31, 2000 for us.
5
In March 2000, the FASB issued FIN 44, Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB No. 25, Accounting for
Stock Issued to Employees". This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000.
ITEM 7. FINANCIAL STATEMENTS.
Reference is made to page F-1 herein for the Index to the Financial Statements.
Our audited financial statements and related Notes have been audited by Schwartz
Levitsky Feldman L.L.P., and have been so included in reliance upon the opinion
of such accountants given upon their authority as experts in auditing and
accounting.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 20, 2005, we dismissed George Stewart, C.P.A. as our independent
registered public accounting firm and appointed Schwartz Levitsky Feldman
L.L.P., as our independent registered public accounting firm. There were no
disagreements or events as described in Item 304(a)(1)(iv) of Regulation S-B in
connection with the change in accountants described above.
ITEM 8A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) as of a
date within ninety days of the filing date of this annual report on Form 10-KSB.
Based upon their evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are
effective.
Changes in Internal Controls
There were no significant changes in the our internal controls or in any factors
that could significantly affect internal controls subsequent to the date of the
Chief Executive Officer and the Chief Financial Officer's evaluation.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification of Directors and Executive Officers
The following table sets forth the names of all of our directors and executive
officers as of December 31, 2004.
NAME AGE POSITION HELD
---- --- -------------
Timothy P. Halter 38 Director, President, Chief Executive Officer,
Secretary & Treasurer
6
The following describes the business experience of Mr. Halter for the previous
five years:
Timothy P. Halter has served as the President, Chief Executive Officer,
Secretary and Treasurer of the Company since June 2004. Mr. Halter is the
President of Halter Financial Group, Inc., a position he has held since 1995.
Halter Financial Group is a Dallas, Texas based consulting firm. In addition,
Mr. Halter has served as a Director of DXP Enterprises, Inc. since July 2001.
Information regarding our current management can be found in the Current Report
filed with the SEC on January 21, 2005.
Significant Employees
As of December 31, 2004, we had no employees who were not executive officers but
were expected to make a significant contribution to our business. As of December
31, 2004, the Company had one employee, Mr. Timothy Halter, who provided his
services free of charge.
Information regarding our current employees can be found in the Current Report
filed with the SEC on January 21, 2005.
Family Relationships
Not Applicable.
Involvement in Certain Legal Proceedings
Except as indicated below and/or hereinbefore, to the knowledge of Management,
during the past five years, no present or former director, executive officer, or
person nominated to become a director or executive officer of the Company:
1. filed a petition under federal bankruptcy laws or any state insolvency
law, nor had a receiver, fiscal agent or similar officer appointed by
a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which he was an executive officer at or within two
years before the time of such filing;
2. was convicted in a criminal proceeding or named subject of a pending
criminal proceeding (excluding traffic violations and other minor
offences);
3. was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or
otherwise limiting his/her involvement in any type of business,
securities or banking activities; and
4. Was found by a court of competent jurisdiction in a civil action, by
the SEC or the Commodity Futures Trading Commission, to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the SEC has not been subsequently reversed,
suspended, or vacated.
7
Audit Committee Financial Expert
As of December 31, 2004, we had no audit committee financial expert serving on
the Board of Directors or an audit committee. We did not believe, at that time,
that the addition of such an expert would add anything meaningful to our
company. It was also unlikely we would be able to attract an independent
financial expert to serve on our Board of Directors at that stage in our
development. In order to entice such a director to join our Board of Directors,
we would have probably needed to acquire directors' errors and omission
liability insurance and provide some form of meaningful compensation to such a
director; two things we were unable to afford at that time.
As a result of the change in control of our company in January 2005, current
management is in the process of implementing a corporate governance program,
which shall involve the establishment of an audit committee as well as other
committees of the Board of Directors, which management believes will be
completed by the end of June 2005.
Identification of the Audit Committee
Not Applicable
Material Changes to procedure for Recommending Nominees to Board of Directors
There have been no material changes to the procedures by which our stockholders
may recommend nominees to the Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Under the securities laws of the United States, our directors, executive
officers (and certain other officers) and any persons holding more than 10% of
our outstanding voting securities are required to report their ownership in our
securities and any changes in that ownership to the Securities and Exchange
Commission. The Securities Exchange Commission has established specific due
dates, and we are required to disclose in the Annual Report any failure to file
by those dates. Based on our review of copies of Section 16(a) reports that we
received from insiders for their 2004 transactions, we believe that our insiders
have complied with all Section 16(a) filing requirements applicable to them
during 2004 with the following exceptions:
A Form 4 covering the issuance of 99,858 shares of our common stock to Harry
Miller was filed on June 22, 2004 rather than on June 10, 2004.
Code of Ethics
As of December 31, 2004, we had not adopted a Code of Ethics that applied to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or any person performing a similar function with us at
that time. Our management had been focused on accomplishing a business
acquisition and we determined that in order to have a meaningful Code of Ethics,
tailored to our new business operations, it would be in our best interest to
take the time to carefully consider all of these issues prior to adopting a Code
of Ethics. It is our intention that a Code of Ethics be adopted by the full
Board of Directors by the end of June 2005. Upon adoption of our Code of Ethics,
we will post the Code of Ethics on our Internet website. We will also file a
copy of our Code of Ethics as an exhibit to our next annual report and undertake
in our next annual report to provide a copy of the Code of Ethics, without
charge, to any person who requests a copy.
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ITEM 10. EXECUTIVE COMPENSATION.
Summary of Compensation of Executive Officers
No compensation has been awarded to, earned by or paid to any of the named
executive officers required to be reported under Item 402 of Regulation S-B,
during the last three complete fiscal years.
Stock Options/SAR Grants and Exercises
No grants of stock options or stock appreciation rights were made during the
fiscal year ended December 31, 2004 to our named executive officers or any other
parties. No stock options or stock appreciation rights were exercised by any of
our named executive officers or any other parties during the fiscal year ended
December 31, 2004.
Long-Term Incentive Plans
As of December 31, 2004, there were no arrangements or plans in which we
provided pension, retirement or similar benefits for directors or executive
officers, except that our directors and executive officers were able to receive
stock options at the discretion of our Board of Directors. As of December 31,
2004, we did not have any material bonus or profit sharing plans pursuant to
which cash or non-cash compensation was paid to our directors or executive
officers, except that stock options may be granted at the discretion of our
Board of Directors.
Compensation of Directors
No cash compensation was paid to any director for their respective services as a
director during the fiscal year ended December 31, 2004. As of December 31,
2004, we had no standard arrangement pursuant to which our directors were to be
compensated for their services in their capacity as directors except for the
granting from time to time of incentive stock options. No director received
and/or accrued any compensation for his services as a director, including
committee participation and/or special assignments.
Employment Contracts and Termination of Employment or Change of Control
As of December 31, 2004, there were no compensatory plans or arrangements,
including payments to be received from the company, with respect to anyone which
would in any way result in payments to any such person because of his or her
resignation, retirement, or other termination of such person's employment with
the company or our subsidiaries, or any change in control of the company, or a
change in the person's responsibilities following a change in control of the
company; where the value of such compensation exceeds $100,000 per executive
officer.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 2004, the name and address and
the number of shares of our common stock held of record or beneficially by each
person who held of record, or was known by us to own beneficially, more than 5%
of the issued and outstanding shares of our common stock, and the name and
shareholdings of each director and of all officers and directors as a group.
9
Amount and Nature of Beneficial
-------------------------------
Ownership(1)
------------
Number Percent of
Name of Beneficial Owner of Shares(2) Voting Stock(3)
------------------------ ------------ ---------------
Halter Financial Group, Ltd.
12890 Hilltop Road 586,224 50.9%
Argyle, TX 76226
Harry Miller 414,204(4) 35.9%
401 Detwiller Lane
Bellevue, WA 98004
Kevin B. Halter, Jr. 464,204(5) 31.6%
2591 Dallas Parkway
Frisco, TX 75034
Directors and executive officers
as a group (1 person) 586,224 50.9%
1. On December 31, 2004, there were 1,152,458 shares of common stock
outstanding and no issued and outstanding preferred stock. Each person
named above has the sole investment and voting power with respect to all
shares of common stock shown as beneficially owned by the person, except as
otherwise indicated below.
2. Under applicable SEC rules, a person is deemed to be the "beneficial owner"
of a security with regard to which the person directly or indirectly, has
or shares (a) the voting power, which includes the power to vote or direct
the voting of the security, or (b) the investment power, which includes the
power to dispose, or direct the disposition, of the security, in each case
irrespective of the person's economic interest in the security. Under these
SEC rules, a person is deemed to beneficially own securities which the
person has the right to acquire within 60 days through the exercise of any
option or warrant or through the conversion of another security.
3. In determining the percent of voting stock owned by a person on December
31, 2004, (a) the numerator is the number of shares of common stock
beneficially owned by the person, including shares the beneficial ownership
of which may be acquired within 60 days upon the exercise of options or
warrants or conversion of convertible securities, and (b) the denominator
is the total of (i) the 1,152,458 shares in the aggregate of common stock
outstanding on December 31, 2004, and (ii) any shares of common stock which
the person has the right to acquire within 60 days upon the exercise of
options or warrants or conversion of convertible securities. Neither the
numerator nor the denominator includes shares which may be issued upon the
exercise of any other options or warrants or the conversion of any other
convertible securities.
4. Includes 364,204 shares of common stock which Mr. Miller granted Mr. Kevin
Halter an option to purchase, such option being exercisable from and
including the date that we complete any form of merger or exchange
transaction with an unaffiliated entity. The option was exercised by Mr.
Halter in January 2005.
5. Includes 364,204 shares of common stock which Mr. Halter has a right to
acquire from Mr. Miller through the exercise of an option granted to Mr.
Halter by Mr. Miller, such option being exercisable from and including the
date that the Company completes any form of merger or exchange transaction
with an unaffiliated entity. The option was exercised by Mr. Halter in
January 2005.
Changes in Control
As of December 31, 2004, there were no arrangements or pledges of the Company's
securities which would have resulted in a change in control of the Company.
10
Equity Compensation Plan
As of December 31, 2004, we did not have any securities authorized for issuance
under any equity compensation plans.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Party Transactions
On June 8, 2004, we issued Harry Miller, the Company's President and sole
Director at the time, 99,858 shares of common stock of the Company in full
satisfaction of a debt in the amount of $49,929. As of December 31, 2004, there
were no other related party transactions, or any other transactions or
relationships required to be disclosed pursuant to Item 404 of Regulation S-B.
Indebtedness of Management
Not Applicable
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
Statements filed as part of this Report:
1. Financial Statements
See "Index to Financial Statements" on page F-1 of this Report.
Exhibits
Exhibit
Number Description
------- -----------
3.1* Articles of Incorporation of the Registrant.
3.2* Articles of Amendment.
3.3+ Amended and Restated Bylaws.
10.1+ Securities and Exchange Agreement by and among BAK International,
Ltd., Medina Coffee, Inc. and the stockholders of BAK
International, Ltd. dated as of January 20, 2005.
10.2+ Escrow Agreement by and among Medina Coffee, Inc., the selling
stockholders, Xiangqian Li, and Securities Transfer Corporation
dated as of January 20, 2005.
10.3+ Lock-up Agreement by and between Medina Coffee, Inc. and
Xiangqian Li dated as of January 20, 2005.
10.4+ Form of Subscription Agreement.
10.5+ Summary of Sales Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Zhongshan Mingji Battery Co., Ltd. dated as of
October 25, 2003.
10.6+ Summary of Purchase Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Luhua Technology (Shenzhen) Co., Ltd. dated as of
April 14, 2004.
10.7+ Summary of Purchase Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Beijing CITIC Guoan Mengguli Electricity Supply
Ltd. Co. dated as of September 30, 2004.
11
10.8+ Summary of Revolvable Credit Facilities Agreement by and between
Shenzhen BAK Battery Co., Ltd. and Longgang Division, Shenzhen
Branch, Agricultural Bank of China dated as of June 27, 2003.
10.9+ Summary of Guaranty Contract of Maximum Amount by and between
Longgang Division, Shenzhen Branch, Agricultural Bank of China
and Jilin Provincial Huaruan Technology Company Limited by Shares
dated as of June 27, 2003.
10.10+ Summary of Comprehensive Credit Facilities Agreement of Maximum
Amount by and between Shenzhen BAK Battery Co., Ltd. and Longgang
Division, Shenzhen Branch, Agricultural Bank of China dated as of
April 5, 2004.
10.11+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Branch, Agricultural Bank of China,
Development and Construction (Group) Company Limited by Shares of
Changchun Economic & Technology Development District, Jilin
Provincial Huaruan Technology Company Limited by Shares and
Xiangqian Li dated as of April 5, 2004.
10.12+ Summary of Comprehensive Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Development Bank dated as of April 1, 2004.
10.13+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Development Bank, Development and
Construction (Group) Company Limited by Shares of Changchun
Economic & Technology Development District, Jilin Provincial
Huaruan Technology Company Limited by Shares, Xiangqian Li,
Yanlong Zou, Fenghua Li, Jimin Li, Jiajun Huang, Baicheng Zhou,
Jinghui Wang, Yongbin Han, Shuquan Zhang, Xinrong Yang, Yunfei Li
and Weiqiang Zhang dated as of April 1, 2004.
10.14+ Summary of Comprehensive Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Branch, China Minsheng Bank dated as of January 14,
2004.
10.15+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Branch, China Minsheng Bank, Jilin
Provincial Huaruan Technology Company Limited by Shares and
Xiangqian Li dated as of November 15, 2003.
10.16+ Summary of Loan Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Shenzhen Branch, Industrial Bank dated as of March
11, 2004.
10.17+ Summary of Guaranty Agreement by and between Shenzhen Branch,
Industrial Bank and Shenzhen High-Tech Investment Service Co.
dated as of March 10, 2004.
10.18+ Summary of Related Transaction Agreement by and between Shenzhen
BAK Battery Co., Ltd. and Jilin Provincial Huaruan Technology
Company Limited by Shares dated as of October 18, 2003.
10.19+ Summary of Loan Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Longgang Division, Shenzhen Development Bank dated
as of April 1, 2004.
21.1(Y) Subsidiaries of the Registrant.
31.1(Y) Section 302 Certification of Chief Executive Officer
(certification required pursuant to Rule 13a-14(a) and 15d-14(a))
(filed herewith).
31.2(Y) Section 302 Certification of Senior Financial Officer
(certification required pursuant to Rule 13a-14(a) and 15d-14(a))
(filed herewith).
32.1(Y) Section 906 Certification of Chief Executive Officer
(certification required pursuant to 18 U.S.C. 1350) (filed
herewith).
12
32.2(Y) Section 906 Certification of Senior Financial Officer
(certification required pursuant to 18 U.S.C. 1350) (filed
herewith).
* Previously filed as an exhibit to Registration Statement on Form SB-1
(#333-41124) filed with the Commission on July 10, 2000.
+ Previously filed as an exhibit to Current Report on Form 8-K filed with the
Commission on January 20, 2005.
(Y) Filed herewith
Reports of Form 8-K
There were no reports on Form 8-K filed with the SEC during the last quarter of
the fiscal year ended December 31, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees. The aggregate fees billed by Schwartz Levitsky Feldman L.L.P. for
professional services rendered for the audit of our financial statements for the
fiscal year ended December 31, 2004 were $10,000. The aggregate fees billed by
George Stewart, C.P.A. for professional services rendered for (i) the review of
financial statements included in the Company's Forms 10-Q for the quarters ended
March 31, 2004, June 30, 2004 and September 30, 2004 and (ii) the audit of the
Company's financial statements for the fiscal year ended December 31, 2003 were
$2,550 and $2,750, respectively.
Audit-Related Fees. There were no fees for assurance and related services by
Schwartz Levitsky Feldman L.L.P. or George Stewart, C.P.A. for the fiscal years
ended December 31, 2004 and December 31, 2003.
Tax Fees. There were no fees for tax compliance, tax advice or tax planning
services by Schwartz Levitsky Feldman L.L.P. for the fiscal years ended December
31, 2004 and December 31, 2003. George Stewart, C.P.A. billed us $500 for its
professional services rendered for the preparation of our 2003 tax return.
All Other Fees. There were no other fees for either audit-related or non-audit
services billed by Schwartz Levitsky Feldman L.L.P. or George Stewart, C.P.A.
for the fiscal years ended December 31, 2004 and December 31, 2003.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHINA BAK BATTERY, INC.
/s/ Xiangqian Li
------------------------------------------------
Name: Xiangqian Li
Title: Director, Chairman of the Board, Chief Executive
Officer and President
Date: March 29, 2005
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Xiangqian Li
------------------------------------------------
Name: Xiangqian Li
Title: Director, Chairman of the Board, Chief Executive
Officer and President
Date: March 29, 2005
/s/ Yongbin Han
------------------------------------------------
Name: Yongbin Han
Title: Chief Financial Officer and Secretary
Date: March 29, 2005
14
Medina Coffee, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND DECEMBER 31, 2003
Together with Report of Independent
Registered Public Accounting Firm
(Amounts expressed in US Dollars)
Medina Coffee, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND DECEMBER 31, 2003
Together with Report of Independent
Registered Public Accounting Firm
(Amounts expressed in US Dollars)
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Independent Auditors Report 2
Balance Sheet as of December 31, 2004 and December 31, 2003 3
Statement of Operations for the years ended December 31, 2004 and
December 31, 2003 4
Statement of Cash Flows for the years ended December 31, 2004 and
December 31, 2003 5
Statement of Stockholders' Deficiency for the years ended
December 31, 2004 and December 31, 2003 6
Notes of Financial Statements 7 - 11
Letterhead of Schwartz Levitsky Feldman llp
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Medina Coffee Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Medina Coffee Inc.
(incorporated in Nevada) as at December 31, 2004 and the related statements of
operations, cash flows and stockholders' equity for the year ended December 31,
2004. These financial statements are the responsibility of the Company's
management. We did not audit the financial statements of the Company from the
date of inception to December 31, 2003, which statements reflect cumulative
total assets of $3,148 as of December 31, 2003 and cumulative expenses of
$76,523 for the period form inception to December 31, 2003. Those statements
were audited by another auditor whose report has been furnished to us, and our
opinion, insofar as it relates to the cumulative financial information from
inception to December 31, 2003, is based solely on the report of the other
auditor.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
the other auditor provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditor the
financial statements referred to above present fairly, in all material respects,
the financial position of Medina Coffee Inc. as at December 31, 2004 and the
results of its operations and its cash flows for the year ended December 31,
2004 and for the period from inception to December 31, 2004 in accordance with
generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 5 to the financial
statements, the Company is a development stage company and has no established
source of revenues. These conditions raise substantial doubt about its ability
to continue as going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The financial statements of Medina Coffee as of December 31, 2003 were audited
by another auditor whose report dated April 11, 2004, expressed a qualified
opinion on those financial statements.
/s/ Schwartz Levitsky Feldman llp
1
Toronto, Ontario, Canada
March 28, 2005 Chartered Accountants
GEORGE STEWART, CPA
2301 SOUTH JACKSON STREET, SUITE 101-G
SEATTLE, WASHINGTON 98144
(206) 328-8554 FAX (206) 328 -0383
Independent Auditors Report
To the Board of Directors
Medina Coffee, Inc.
Bellevue, Washington
I have audited the accompanying balance sheets of Medina Coffee, Inc. (A
Development Stage Company) as of December 31, 2003 and 2002, and the related
statements of operations, stockholder's equity and cash flows for the year ended
December 31, 2003 and 2002 and October 4, 1999 (inception), to December 31,
2003. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards in
the United States. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financing statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financing statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medina Coffee Inc. (A Development
Stage Company) as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for the years ended December 31, 2003 and 2002 and
October 4, 1999, (inception), to December 31, 2003 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 4 to the financial
statements, the Company has had operating losses since inception. This raises
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to these matters is also described in note 4. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ George Stewart
April 11, 2004
2
MEDINA COFFEE, INC.
(A Development Stage Company)
Balance Sheet
As of December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
December 31, December 31,
Assets 2004 2003
------ ------------ ------------
Current Assets $ -- $ --
Cash 16,060 108
Property & Equipment (Note # 4) -- 3,040
------------ ------------
16,060 3,148
============ ============
Liabilities and Stockholders' Deficiency
- -------
Current Liabilities
Officers Advances 20,000 42,340
------------ ------------
Stockholder's deficiency: Common stock, $.001 par value,
authorized 100,000,000 shares; 1,152,458
shares issued and outstanding at December 31, 2004 1,150 1,050
Additional paid in capital 65,829 16,000
Deficit accumulated during the development stage (70,919) (56,242)
------------ ------------
(3,940) (39,192)
------------ ------------
16,060 3,148
============ ============
The accompanying notes are an integral part of these financial statements
3
Medina Coffee, INC.
(A Development Stage Company)
Statement of Operations
For the years ended December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
Cumulative Year Ended Year Ended
Since December 31, December 31,
Inception 2004 2003
------------ ------------ ------------
$ $ $
Revenue 45,634 -- 40,914
Cost of Goods Sold 25,353 -- 21,599
------------ ------------ ------------
Gross Profit 20,281 -- 19,315
General and Administrative 91,200 14,677 61,474
------------ ------------ ------------
Net Loss (70,919) (14,677) (42,159)
============ ============ ============
Net Loss per share
Basic and diluted (0.0132) (0.0401)
Weighted average number of
common shares outstanding 1,108,259 1,052,600
============ ============
The accompanying notes are an integral part of these financial statements
4
Medina Coffee, INC.
(A Development Stage Company)
Statement of Cash Flows
For the years ended December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
Deficit
accumulated
Additional during
Common Stock Common stock Paid-in development
# of Shares Amount capital stage
------------ ------------ ------------ ------------
$ $ $
Balance at October 4, 1999
Issuance of common stock for cash 900,100 900 900 --
Net loss, October 4, 1999
(inception) to December 31, 2000 -- -- -- (4,485)
------------ ------------ ------------ ------------
Balance at December 31, 2000 900,100 900 900 (4,485)
Issuance of stock for Cash 2,000 -- 200 --
Net loss year ended
December 31, 2001 -- -- -- (3,275)
------------ ------------ ------------ ------------
Balance at December 31, 2001 902,100 900 1,100 (7,760)
Issuance of stock for Cash 150,500 150 14,900 --
Net loss year ended
December 31, 2002 -- -- -- (6,323)
------------ ------------ ------------ ------------
Balance at December 31, 2002 1,052,600 1,050 16,000 (14,083)
Net loss year ended
December 31, 2003 -- -- -- (42,159)
------------ ------------ ------------ ------------
Balance at December 31, 2003 1,052,600 1,050 16,000 (56,242)
Net loss year ended December 31,
2004 -- -- -- (14,677)
Exchange Debt for Stock 99,858 100 49,829 --
------------ ------------ ------------ ------------
Balance December 31, 2004 1,152,458 1,150 65,829 (70,919)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
5
(A Development Stage Company)
Statements of Changes in Stockholders' Deficiency
For the years ended December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
Since Year Ended Year Ended
Cumulative December 31, December 31,
Inception 2004 2003
------------ ------------ ------------
$ $ $
Cash Flows from Operating Activities
Net loss (70,919) (14,677) (42,159)
Depreciation 760 -- 380
Adjustments to reconcile net loss to cash
(used) in operating activities
Changes in assets and liabilities
Accounts Payable -- -- (592)
Officers Notes Payable -- -- --
Officers Advances Payable 69,929 27,589 38,360
------------ ------------ ------------
Net Cash (used) in operating results (230) (37,017) (4,011)
------------ ------------ ------------
Cash flows from Financing Activities
Proceeds from issuance of stock 17,050 -- --
------------ ------------ ------------
Cash flows from Investing Activities
Sale (Purchase) of Property (760) 3,040 --
------------ ------------ ------------
Net increase (decrease) in cash 16,060 15,952 (4,011)
Cash at Beginning of Period -- 108 4,119
------------ ------------ ------------
Cash at End of Period 16,060 16,060 108
============ ============ ============
Supplementary disclosure of non-cash investing and
financing activities in connection with exchange
of debt for stock:
Officers advances payable (49,929) (49,929) --
Issuance of stock 49,929 49,929 --
The accompanying notes are an integral part of these financial statements
6
MEDINA COFFEE, INC.
(A Development Stage Company)
Notes To Financial Statements
December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized October 4, 1999, under the laws of the State of
Nevada as Medina Coffee, Inc. The company commenced operations October 4,
1999 and, in accordance with SFAS # 7, is considered a development stage
company.
On October 4, 1999, the Company issued 900,100 shares of its $0.001 par
value common stock for cash of $ 1,800. On November 30, 2001, the Company
issued 2,000 shares of its $0.001 par value common stock for cash of $200.
On February 25, 2002, the Company issued 69,000 shares of its $0.001 par
value common stock for cash of $6,900. On March 15, 2002, the Company
issued 81,500 shares of its $0.001 par value common stock for cash of
$8,150.
On June 10, 2004, the Company issued 99,858 shares of its $ 0.001 par value
common stock in full settlement of debt owed to Harry Miller, the President
and CEO of the Corporation, in the amount of $ 49,929. The price of the
transaction was $ .50 per share.
On June 14, 2004, Mr. Harry Miller, the Company's sole officer and
director, sold 586,224 restricted, common shares (the "Shares") to Halter
Financial Group, Inc. a Texas Corporation ("Halter") for $ 115,000. Halter
also paid Mr. Miller $ 1,050 to compensate Mr. Miller for expenses related
to the agreement of sale. The consideration for the Shares was determined
as a result of arms-length negotiation between the parties. The Shares sold
by Mr. Miller to Halter represented approximately 51% of the issued and
outstanding shares of the company.
Concurrently with the foregoing transaction, Mr. Miller resigned from the
Board of Directors and as an officer of the Company and Mr. Timothy P
Halter was appointed the Company's sole officer and director.
The Company presently intends to locate and combine with an existing,
privately-held company which is profitable or, in management's view, has
growth potential, irrespective of the industry in which it is engaged.
However, the Company does not intend to combine with a private company
which may de deemed to be an investment company subject to the Investment
Company Act of 1940. A combination may be structured as a merger,
consolidation, exchange of the company's common stock for stock or assets
or any other form which will result in the combined enterprise's becoming a
publicly-held corporation.
7
MEDINA COFFEE, INC.
(A Development Stage Company)
Notes To Financial Statements
December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
2. ACCOUNTING POLICIES AND PROCEDURES
a) Use of Estimates
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States if
America. Because a precise determination of assets and liabilities,
and corresponding revenues and expenses, depend on future events, the
preparation of financial statements for any period necessarily
involves the use of estimates and assumption. Actual amounts may
differ from these estimates. These financial statements have, in
management's opinion, been properly prepared within reasonable limits
of materiality and within the framework of the accounting policies
summarized below
b) Financial Instruments
The carrying amount of the company's officers advances approximates
fair value because of the short maturity of these instruments.
c) Income Taxes
The company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes are
provided using the liability method, deferred income taxes are
recognized for all significant temporary differences between the tax
and financial statement bases of assets and liabilities.
Current income tax expense (recovery) is the amount of income taxes
expected to be payable (recoverable) for the current year. A deferred
tax asset and/ liability and for the expected future tax benefit to be
derived from tax losses. Valuation allowances are established when
necessary to reduce the deferred tax asset to the amount expected to
be "more likely than not" to be realized in future returns. Tax law
and rate changes are reflected in income in the period such changes
are enacted.
d) Earnings or Loss Per Share
The Corporation has adopted FSA No. 128, "Earnings per Share", which
requires disclosure on the financial statements of "basic and diluted"
earnings (loss) per share. Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of common
shares outstanding for the year. Diluted earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number
of common shares outstanding plus common stock equivalents (if
dilutive) related to stock options and warrants for each year
8
MEDINA COFFEE, INC.
(A Development Stage Company)
Notes To Financial Statements
December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
2. ACCOUNTING POLICIES AND PROCEDURES (cont'd)
e) Recent Pronouncements
SFAS No. 149 - Amendment of SFAS 133 on derivative instruments and
hedging activities. This statement amends and clarifies financial
accounting and reporting for derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under SFAS 133, accounting for derivative instruments and
hedging activities.
SFAS No. 150 - Accounting for certain financial instruments with
characteristics of both liabilities and equity. This statement
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities
and equity.
SFAS No. 151 - "Inventory Costs, an Amendment of ARB No. 43, Chapter
4." SFAS No. 151 retains the general principle of ARB No. 43, Chapter
4, "Inventory Pricing," that inventories are presumed to be stated at
cost; however, it amends ARB No. 43 to clarify that abnormal amounts
of idle facilities, freight, handling costs and spoilage should be
recognized as current period expenses. Also, SFAS No. 151 requires
fixed overhead costs be allocated to inventories based on normal
production capacity. The guidance in SAFS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15,
2005.
SFAS 123 (Revised) - "Share Based Payment," which will require the
Company to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value
of the award. That cost will be recognized over the period during
which an employee is required to provide service in exchange for the
award--the requisite service period. No compensation cost is
recognized for equity instruments for which employees do not render
the requisite service. The grant-date fair value of employee share
options and similar instruments will be estimated using option-pricing
models adjusted for the unique characteristics of those instruments.
SFAS No. 123 (Revised) eliminates the use of APB Opinion No. 25. SFAS
No. 123 (Revised) is effective for the first interim or annual
reporting period that begins after June 15, 2005. Early adoption for
interim or annual periods for which financial statements or interim
reports have not been issued is encouraged.
9
MEDINA COFFEE, INC.
(A Development Stage Company)
Notes To Financial Statements
December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
2. ACCOUNTING POLICIES AND PROCEDURES (cont'd)
e) Recent Pronouncements (cont'd)
SFAS 152 - In December 2004, the FASB issued SFAS No. 152 "Accounting
for Real Estate Time-Sharing Transactions - an amendment of FASB
Statements No. 66 and 67" ("SFAS 152"). This statement amends FASB
Statement No. 66 "Accounting for Sales of Real Estate" to reference
the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of
Position 04-2 "Accounting for Real Estate Time-Sharing Transactions"
("SOP 04-2"). SFAS 152 also amends FASB Statement No. 67"Accounting
for Costs and Initial Rental Operations of Real Estate Projects" to
state that the guidance for incidental operations and costs incurred
to sell real estate projects does not apply to real estate
time-sharing transactions, with the accounting for those operations
and costs being subject to the guidance in SOP 04-2. The provisions of
SFAS 152 are effective in fiscal years beginning after June 15, 2005.
SFAS 153 - In December 2004, the FASB issued SFAS No. 153 "Exchanges
of Non-monetary Assets - an amendment of APB Opinion No. 29"("SFAS
153"). SFAS 153 replaces the exception from fair value measurement in
APB Opinion No. 29 for non-monetary exchanges of similar productive
assets with a general exception from fair value measurement for
exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly
as a result of the exchange. SFAS 153 is effective for all interim
periods beginning after June 15, 2005.
The Company believes that the above standards would not have a
material impact on its financial position, results of operations or
cash flows.
3. WARRANTS AND OPTIONS
There are no warrants or options outstanding to issue any additional shares
of common stock of the Company.
4. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
2004 2003
-------- --------
$ $
Equipment -- 3,800
Accumulated Depreciation -- 760
-------- --------
-- 3,040
======== ========
10
MEDINA COFFEE, INC.
(A Development Stage Company)
Notes To Financial Statements
December 31, 2004 and December 31, 2003
(Amounts expressed in US Dollars)
5. GOING CONCERN
The company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the Company has incurred operating
losses since inception. Without realization of additional capital, it would
be unlikely for the Company to continue as a going concern. It is
management's plan to seek additional capital through further equity
financing's and seeking necessary bank loans.
6. RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. Office
services are provided without charge by the sole officer and director of
the Company. Such costs are immaterial to the financial statements and
accordingly, have not been reflected therein
7. Officers Advances
The officers advances are interest free and are repayable on demand.
8. Subsequent Events
On January 20, 2005, Medina Coffee, Inc., a Nevada corporation, completed a
stock exchange transaction with the stockholders of BAK International,
Limited, a company incorporated under the laws of Hong Kong ("BAK
International"). The exchange was consummated under Nevada law and pursuant
to the terms of that certain Securities Exchange Agreement dated effective
as of January 20, 2005.
Pursuant to the Exchange Agreement, the Company issued 39,826,075 shares of
its common stock, par value $0.001 per share, to the stockholders of BAK
International, representing approximately 97.2% of the Company's
post-exchange issued and outstanding common stock, in exchange for 100% of
the outstanding capital stock of BAK International. Immediately, after
giving effect to the exchange, the Company had 40,978,533 shares of its
common stock outstanding. Pursuant to the exchange, BAK International
became a wholly-owned subsidiary of the Company. The Company presently
carries on the business of Shenzhen BAK Battery Co., LTD., a Chinese
corporation and BAK International's wholly-owned subsidiary ("BAK
Battery").
The shares of the Company's common stock issued to stockholders of BAK
International in connection with the exchange were not registered under the
Securities Act of 1933, as amended (the "Securities Act") and, as a result,
are "restricted securities" that may not be offered or sold in the United
States absent registration or an applicable exemption from registration.
Certificates representing these shares contain a legend stating the same.
The Company has relocated its executive offices to those of BAK Battery at
BAK Industrial Park, No. 1 BAK Street, Kuichong Town, Longgang District,
Shenzhen, People's Republic of China.
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