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EXCEL - IDEA: XBRL DOCUMENT - ForceField Energy Inc. | Financial_Report.xls |
EX-32 - CERTIFICATION - ForceField Energy Inc. | ssie_ex32.htm |
EX-31.2 - CERTIFICATION - ForceField Energy Inc. | ssie_ex312.htm |
EX-31.1 - CERTIFICATION - ForceField Energy Inc. | ssie_ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ
|
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended March 31, 2012
¨
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Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period __________ to __________
Commission File Number: 333-145910
SunSi Energies Inc.
(Exact name of registrant as specified in its charter)
Nevada
|
|
20-8584329
|
(State or other jurisdiction of
incorporation or organization)
|
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(IRS Employer Identification No.)
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245 Park Avenue, 24th Floor
New York, New York
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10167
|
|
(Address of principal executive offices)
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(Zip Code)
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212-672-1786
(Issuer’s telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer
|
o
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Accelerated filer
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o
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Non-Accelerated filer
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o
|
Smaller reporting company
|
þ
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 30,073,302 common shares as of May 21, 2012.
PART I – FINANCIAL INFORMATION
|
|||||
Item 1:
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Financial Statements
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3
|
|||
Item 2:
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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4
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|||
Item 3:
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Quantitative and Qualitative Disclosures About Market Risk
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18
|
|||
Item 4:
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Controls and Procedures
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18
|
|||
PART II – OTHER INFORMATION
|
|||||
Item 1:
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Legal Proceedings
|
19
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|||
Item 1A:
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Risk Factors
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19
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|||
Item 2:
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Unregistered Sales of Equity Securities and Use of Proceeds
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19
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|||
Item 3:
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Defaults Upon Senior Securities
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19
|
|||
Item 4:
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Mine Safety Disclosures
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19
|
|||
Item 5:
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Other Information
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19
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|||
Item 6:
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Exhibits
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20
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2
PART I - FINANCIAL INFORMATION
Our unaudited financial statements included in this Form 10-Q are as follows:
|
|
F-1
|
Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011
|
F-2
|
Interim Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2012 and 2011
|
F-3
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Interim Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011
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F-4
|
Notes to Interim Unaudited Consolidated Financial Statements
|
3
SUNSI ENERGIES INC.
Consolidated Balance Sheets
March 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
332,460
|
$
|
674,291
|
||||
Accounts receivable, net
|
3,689,423
|
3,773,556
|
||||||
Notes receivable
|
158,700
|
559,325
|
||||||
Inventory, net
|
411,043
|
657,287
|
||||||
Prepaid expenses and other current assets
|
115,196
|
207,837
|
||||||
Total current assets
|
4,706,822
|
5,872,296
|
||||||
Property, plant and equipment
|
7,908,205
|
7,890,132
|
||||||
Goodwill
|
608,190
|
608,953
|
||||||
Intangible assets, net
|
2,992,262
|
3,142,997
|
||||||
Accounts receivable, net – non-current
|
34,637
|
—
|
||||||
Related party receivables – trade
|
608,106
|
489,595
|
||||||
Other assets
|
21,710
|
21,737
|
||||||
Total assets
|
$
|
16,879,932
|
$
|
18,025,710
|
||||
LIABILITIES AND EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
2,827,327
|
$
|
3,333,500
|
||||
Accrued liabilities
|
389,431
|
373,802
|
||||||
Related party payables
|
5,683,435
|
5,665,245
|
||||||
Income taxes payable
|
721,464
|
886,050
|
||||||
Total current liabilities
|
9,621,657
|
10,258,597
|
||||||
Long term debt
|
100,000
|
100,000
|
||||||
Total liabilities
|
9,721,657
|
10,358,597
|
||||||
Commitments and contingencies
|
—
|
—
|
||||||
Equity:
|
||||||||
SunSi Energies Inc. stockholders' equity:
|
||||||||
Preferred stock, $0.001 par value. 25,000,000 shares authorized; zero shares
|
||||||||
issued and outstanding
|
—
|
—
|
||||||
Common stock, $0.001 par value. 75,000,000 shares authorized; and 30,070,628 and 30,005,628 shares
|
||||||||
issued and outstanding as of March 31, 2012 and December 31, 2011, respectively
|
30,071
|
30,006
|
||||||
Additional paid-in capital
|
8,940,206
|
8,855,271
|
||||||
Accumulated deficit
|
(4,166,059
|
)
|
(3,701,526
|
)
|
||||
Accumulated other comprehensive income
|
288,787
|
280,024
|
||||||
Total SunSi Energies Inc. stockholders' equity
|
5,093,005
|
5,463,775
|
||||||
Noncontrolling interests
|
2,065,270
|
2,203,338
|
||||||
Total equity
|
7,158,275
|
7,667,113
|
||||||
Total liabilities and equity
|
$
|
16,879,932
|
$
|
18,025,710
|
The accompanying notes are an integral part of the consolidated financial statements.
F-1
SUNSI ENERGIES INC.
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Sales
|
$
|
507,627
|
$
|
5,501,363
|
||||
Cost of goods sold
|
475,325
|
4,986,916
|
||||||
Gross margin
|
32,302
|
514,447
|
||||||
Operating expenses:
|
||||||||
Professional fees
|
141,710
|
91,705
|
||||||
General and administrative
|
605,119
|
170,539
|
||||||
Total operating expenses
|
746,829
|
262,244
|
||||||
Income (loss) from operations before income taxes
|
(714,527
|
)
|
252,203
|
|||||
Interest expense, net
|
2,250
|
—
|
||||||
Income (loss) from operations before income taxes
|
(716,777
|
)
|
252,203
|
|||||
Provision for income taxes (benefit)
|
(114,176
|
)
|
116,395
|
|||||
Net income (loss)
|
(602,601
|
)
|
135,808
|
|||||
Less: Net income (loss) attributable to noncontrolling interests
|
(138,068
|
)
|
120,357
|
|||||
Net income (loss) attributable to SunSi Energies Inc. common shareholders
|
$
|
(464,533
|
)
|
$
|
15,541
|
|||
Basic and diluted earnings (loss) per share
|
$
|
(0.02
|
)
|
$
|
0.00
|
|||
Weighted-average number of common shares outstanding:
|
||||||||
Basic and diluted
|
30,020,628
|
27,953,734
|
||||||
Comprehensive income (loss):
|
||||||||
Net income (loss)
|
$
|
(464,533
|
)
|
$
|
15,451
|
|||
Foreign currency translation adjustment
|
8,763
|
40,008
|
||||||
Comprehensive income (loss)
|
(455,770
|
)
|
55,549
|
|||||
Comprehensive income (loss) attributable to noncontrolling interests
|
(138,068
|
)
|
120,357
|
|||||
Comprehensive income (loss) attributable to SunSi Energies Inc.
|
$
|
(593,838
|
)
|
$
|
175,816
|
The accompanying notes are an integral part of the consolidated financial statements.
F-2
SUNSI ENERGIES INC.
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$
|
(602,601
|
)
|
$
|
135,808
|
|||
Adjustments to reconcile net loss to cash used in operating activities:
|
||||||||
Depreciation and amortization
|
309,002
|
54,864
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
44,701
|
(306,092
|
)
|
|||||
Notes receivable
|
399,345
|
98,795
|
||||||
Inventory
|
245,065
|
(89,897
|
)
|
|||||
Prepaid expenses and other current assets
|
92,246
|
(13,002
|
)
|
|||||
Related party receivables - trade
|
(118,952
|
)
|
11,543
|
|||||
Other assets
|
—
|
7,600
|
||||||
Accounts payable
|
(551,963
|
)
|
(320,382
|
)
|
||||
Accrued liabilities
|
106,647
|
(407,557
|
)
|
|||||
Income taxes payable
|
(163,239
|
)
|
114,686
|
|||||
Net cash used in operating activities
|
(239,749
|
)
|
(713,634
|
)
|
||||
Cash flows from investing activities:
|
||||||||
Cash consideration for acquisition of business
|
—
|
(445,075
|
)
|
|||||
Cash acquired in acquisition of business
|
—
|
966,466
|
||||||
Purchase of property, plant and equipment
|
(190,340
|
)
|
(41,916
|
)
|
||||
Net cash provided by (used in) investing activities
|
(190,340
|
)
|
479,475
|
|||||
Cash flows from financing activities:
|
||||||||
Proceeds from issuance of common stock, net of issuance costs
|
45,000
|
162,000
|
||||||
Proceeds from related party payables
|
44,123
|
387,176
|
||||||
Net cash provided by financing activities
|
89,123
|
549,176
|
||||||
Effect of exchange rates on cash and cash equivalents
|
(865
|
)
|
3,589
|
|||||
Net increase (decrease) in cash and cash equivalents
|
(341,831
|
)
|
318,606
|
|||||
Cash and cash equivalents at beginning of period
|
674,291
|
576,286
|
||||||
Cash and cash equivalents at end of period
|
$
|
332,460
|
$
|
894,892
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid for interest
|
$
|
—
|
$
|
—
|
||||
Cash paid for income taxes
|
$
|
—
|
$
|
—
|
||||
Supplemental disclosure of non-cash investing and financing activities:
|
||||||||
Estimated beginning fair value of assets and liabilities received on consolidation:
|
||||||||
Assets acquired
|
$
|
—
|
$
|
16,013,998
|
||||
Liabilities assumed
|
$
|
—
|
$
|
(10,294,200
|
)
|
|||
Noncontrolling interests
|
$
|
—
|
$
|
(2,956,294
|
)
|
|||
Total net assets acquired
|
$
|
—
|
$
|
2,763,504
|
||||
Identified intangible assets on acquisitions
|
$
|
—
|
$
|
3,093,070
|
||||
Issuance of stock related to acquisitions
|
$
|
—
|
$
|
5,354,109
|
||||
Stock issued to reduce accounts payable | $ | 40,000 | $ |
—
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
SUNSI ENERGIES INC.
Notes to Interim Unaudited Consolidated Financial Statements
March 31, 2012
(Expressed in United States dollars)
1.
|
NATURE OF OPERATIONS
|
On January 30, 2007, SunSi Energies Inc. (“the Company” or “SunSi”) was incorporated in the State of Nevada. Through its operations based in the People’s Republic of China (“China” or “PRC”), SunSi is a manufacturer and distributor of the specialty chemical trichlorosilane (“TCS”). SunSi’s focus is to acquire and develop a portfolio of high quality TCS producing facilities and distribution rights that provide the potential for significant future growth and expansion. TCS is primarily used in the production of polysilicon; an essential raw material required in the production of solar cells for photovoltaic (“PV”) solar panels. A renewable energy source, PV panels convert solar radiation, or sunlight, into direct current electricity. Prior to December 9, 2010 when the Company acquired 90% of Zibo Baokai Commerce and Trade Co., Ltd. (“Baokai”), SunSi was a Development Stage Company as defined by ASC Topic 915. After the purchase of Baokai, the Company emerged from development stage status and started generating revenues.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and are expressed in United States dollars. The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary SunSi Energies Hong Kong Limited (“SunSi HK”), SunSi HK's 90% owned subsidiary Zibo Baokai Commerce and Trade Co., Ltd. and SunSi HK's 60% owned subsidiary Wendeng He Xie Silicon Industry Co., Ltd. (“Wendeng”). All intercompany accounts have been eliminated in consolidation. As a result of the acquisitions of Baokai and Wendeng, the Company transitioned from a development stage company to planned operations. Consequently, the need to disclose certain historical data required as a development stage company and presented in prior company filings is no longer necessary.
Change of Fiscal Year-End
On December 8, 2011, the Company changed its fiscal year-end to December 31 from May 31. This change has no impact on this Quarterly Report on Form 10-Q or on historical financial data shown within this Report.
The Company’s significant accounting policies are as follows:
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates its estimates, including but not limited to those related to the valuation of accounts receivable, inventories, deferred income taxes, goodwill and intangible assets, and the estimation on the useful lives of property, plant and equipment. The Company bases its estimates on historical experience, known or expected trends and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
The Company believes that the following critical accounting policies govern its more significant judgments and estimates used in the preparation of its consolidated financial statements:
F-4
Financial Instruments
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost and consist solely of bank deposits held in the United States, Hong Kong and the PRC (“China”). The carrying amount of cash and cash equivalents approximates fair value.
As of March 31, 2012, $287,540 of the cash and cash equivalents were in banks in China; a Wendeng branch of Industrial & Commercial Bank of China and a Central District, Hong Kong branch of HSBC Bank. The remittance of these funds out of China is subject to exchange control restrictions imposed by the Chinese government. Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. Management believes the probability of a bank failure, causing loss to the Company, is remote.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At March 31, 2012 and December 31, 2011, substantially all of the Company’s cash and cash equivalents and restricted cash were held by major financial institutions located in the United States, Hong Kong and the PRC, which management believes are of high credit quality.
With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of accounts receivable.
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required.
Bad debts are written off when identified. The Company extends unsecured credit to customers up to one month in the normal course of business. The Company does not accrue interest on trade accounts receivable. Historically, losses from uncollectible accounts have not significantly deviated from the specific allowance estimated by the management. This specific provisioning policy has not changed since establishment and the management considers that the aforementioned specific provisioning policy is adequate and does not expect to change this established policy in the near future.
F-5
Inventory
Inventories are stated at the lower of cost or market value. Cost is determined on weighted average basis and includes all expenditures incurred in bringing the goods in a saleable condition to the point of sale. The Company’s inventory reserve requirements generally fluctuate based on projected demands and market conditions. In determining the adequate level of inventories to have on hand, management makes judgments as to the projected inventory demands as compared to the current or committed inventory levels. Inventory quantities and condition are reviewed regularly and provisions for excess or obsolete inventory are recorded based on the condition of inventory and the Company’s forecast of future demand and market conditions.
Intangible assets – land use rights
Land use rights are stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the terms of 50 years. The lease term is obtained from the relevant PRC land authority.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.
The property, plant and equipment of the Company will be depreciated with straight-line method according to the following estimated residual value and service life.
Service life (year)
|
Estimated
residual rate
%
|
Annual
depreciation rate
%
|
||||||||||
Building
|
20
|
5
|
2.05
|
|||||||||
Furniture and equipment
|
5
|
5
|
3.17
|
|||||||||
Machines and equipment
|
10
|
5
|
7.34
|
|||||||||
Automotive equipment
|
5
|
5
|
10.93
|
|||||||||
Office equipment
|
5
|
5
|
8.64
|
F-6
The residual value and service life of property, plant and equipment will be reviewed on each balance sheet date, and adjusted if necessary.
The Company capitalizes the interest expenses incurred before property, plant and equipment are built and installed to the usable state, and capitalizes other loan interest expenses.
Construction in progress
The value of construction in progress comprises buildings and plants under construction, as well as machines and equipment being installed and commissioned, specifically comprises the costs of property, plant and equipment and other direct costs, relevant interest expenses accrued during the construction period and profits and losses from foreign exchange transactions.
Depreciation will not start until the construction in progress is completed and put into operation.
Impairment of Assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its long-lived assets, management performs an analysis of the anticipated undiscounted future net cash flows of the individual assets over the remaining depreciation or amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
Each year, the Company performs a transitional test for impairment of goodwill and other indefinite-lived intangible assets. This test is performed by comparing, at the reporting unit level, the carrying value of goodwill to its fair value. The Company assesses fair value based upon its best estimate of the present value of future cash flows that it expects to generate by the reporting unit. In conjunction with its recent change in fiscal year-end, the Company’s annual fair value assessment is performed each December 31 on subsidiaries with material goodwill on their respective balance sheets. However, changes in expectations as to the present value of the reporting unit’s future cash flows might impact subsequent years’ assessments of impairment.
Goodwill and Intangible Assets
Under ASC 350, the Company is required to perform an annual impairment test of the Company’s goodwill and indefinite-lived intangibles. On an annual basis, management assesses the composition of the Company’s assets and liabilities, as well as the events that have occurred and the circumstances that have changed since the most recent fair value determination. If events occur or circumstances change that would more likely than not reduce the fair value of goodwill and indefinite-lived intangibles below their carrying amounts, they will be tested for impairment. The Company will recognize an impairment charge if the carrying value of the asset exceeds the fair value determination. The impairment test that the Company has selected historically consisted of a ten year discounted cash flow analysis including the determination of a terminal value, and requires management to make various assumptions and estimates including revenue growth, future profitability, peer group comparisons, and a discount rate which management believes are reasonable.
F-7
The impairment test involves a two-step approach. Under the first step, the Company determines the fair value of each reporting subsidiary to which goodwill has been assigned. The Company then compares the fair value of each reporting subsidiary to its carrying value, including goodwill. The Company estimates the fair value of each reporting subsidiary by estimating the present value of the reporting subsidiaries' future cash flows. If the fair value exceeds the carrying value, no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is considered potentially impaired and the second step is completed in order to measure the impairment loss.
Under the second step, the Company calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets, including any unrecognized intangible assets, of the reporting unit from the fair value of the reporting unit, as determined in the first step. The Company then compares the implied fair value of goodwill to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, the Company recognizes an impairment loss equal to the difference.
Income Taxes
The Company accounts for income taxes under FASB ASC 740 Accounting for Income Taxes. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05 Accounting for Uncertainty in Income Taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. We have determined that there were no uncertain tax positions for the periods ended March 31, 2012 and December 31, 2011.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with ASC 260 “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Fair value of financial instruments
The Company adopted FASB ASC 820 on June 1, 2010. The adoption of FASB ASC 820 did not materially impact the Company's financial position, results of operations or cash flows. FASB ASC 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the fair value option was not elected. The carrying amounts of both the financial assets and liabilities approximate to their fair values due to short maturities or the applicable interest rates approximate the current market rates.
F-8
Revenue Recognition
Revenue from the sales of the Company’s products is recognized upon customer acceptance. This occurs at the time of delivery to the customer, provided persuasive evidence of an arrangement exists, such as a signed sales contract. The significant risks and rewards of ownership are transferred to the customers at the time when the products are delivered and there is no significant post-delivery obligation to the Company. In addition, the sales price is fixed or determinable and collection is reasonably assured. The Company does not provide customers with contractual rights of return for products. When there are significant post-delivery performance obligations, revenue is recognized only after such obligations are fulfilled. The Company evaluates the terms of the sales agreement with its customer in order to determine whether any significant post-delivery performance obligations exist. Currently, the sales do not include any terms which may impose any significant post-delivery performance obligations on the Company.
Revenue from the sales of the Company’s products represents the invoiced value of goods, net of the value-added tax (VAT). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17 percent of the gross sales price. This VAT may be offset by the VAT paid by the Company on raw and other materials that are included in the cost of producing the Company’s finished products.
Advertising expenses
Advertising costs are expensed as incurred.
Shipping and handling costs
All shipping and handling costs are included in cost of sales expenses.
Foreign Currency Translation
The Company’s functional and reporting currency is the United States dollar. Transactions may occur in Renminbi (“RMB”) dollars and management has adopted ASC 830 “Foreign Currency Matters”. The RMB is not freely convertible into foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' equity in the statement of stockholders' equity.
F-9
Comprehensive Gain or Loss
ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of March 31, 2012, the Company has items that represent comprehensive income and, therefore, has included a schedule of comprehensive income (loss) in the financial statements.
3.
|
THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
|
The following Accounting Standards Codification Updates have been issued prior to, or will become effective after the end of, the period covered by these financial statements. The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
Pronouncement
|
Issued
|
Title
|
||
ASU No. 2010-25
|
September 2010
|
Plan Accounting—Defined Contribution Pension Plans (Topic 962) Reporting Loans to Participants by Defined Contribution Pension Plans EITF consensus
|
||
ASU No. 2010-26
|
October 2010
|
Financial Services—Insurance (Topic 944) Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts EITF consensus
|
||
ASU No. 2010-27
|
December 2010
|
Other Expenses (Topic 720) Fees Paid to the Federal Government by Pharmaceutical Manufacturers EITF consensus
|
||
ASU No. 2010-28
|
December 2010
|
Intangibles—Goodwill and Other (Topic 350) When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts EITF consensus
|
||
ASU No. 2010-29
|
December 2010
|
Business Combinations (Topic 805) Disclosure of Supplementary Pro Forma Information for Business Combinations EITF consensus
|
||
ASU No. 2011-01
|
January 2011
|
Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20
|
||
ASU No. 2011-02
|
April 2011
|
Receivables (Topic 310) A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring
|
||
ASU No. 2011-03
|
April 2011
|
Transfers and Servicing (Topic 860) Reconsideration of Effective Control for Repurchase Agreements
|
||
ASU No. 2011-04
|
May 2011
|
Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
|
||
ASU No. 2011-05
|
June 2011
|
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
|
||
ASU No. 2011-06
|
July 2011
|
Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers
|
||
ASU No. 2011-07
|
July 2011
|
Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities
|
||
ASU No. 2011-08
|
September 2011
|
Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment
|
||
ASU No. 2011-09
|
September 2011
|
Compensation – Retirement Benefits – Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan
|
||
ASU No. 2011-10
|
December 2011
|
Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate – a Scope Clarification (a consensus of the FASB Emerging Issues Task Force)
|
||
ASU No. 2011-11
|
December 2011
|
Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities
|
||
ASU No. 2011-12
|
December 2011
|
Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05
|
To the extent appropriate, the guidance in the above Accounting Standards Codification Updates is already reflected in our financial statements and management does not anticipate that these accounting pronouncements will have any future effect on our financial statements.
F-10
4.
|
ACCOUNTS RECEIVABLE, NET
|
Accounts receivable and notes receivable at March 31, 2012 and December 31, 2011 were comprised of the following:
March 31,
2012
|
December 31,
2011
|
|||||||
Trade receivables
|
$
|
3,299,891
|
$
|
3,799,420
|
||||
Allowance for doubtful accounts
|
(25,831
|
)
|
(25,864
|
)
|
||||
Total
|
3,724,060
|
3,773,556
|
||||||
Less: Current portion
|
(3,689,423
|
)
|
(3,773,556
|
) | ||||
Accounts receivable, non-current
|
$
|
34,637
|
$
|
—
|
At December 31, 2011, the Company established an allowance for doubtful accounts by recording a bad debt expense of $23,163 related to its trade accounts receivable. No additional bad debt expense was recorded during the three months ended March 31, 2012.
As of March 31, 2012, three customers accounted for approximately 11%, 30% and 57%, respectively, or approximately 98% of total accounts receivable. Additionally, one of these three customers accounted for 100% of the Company’s revenues for the three months ended March 31, 2012.
As of December 31, 2011, three customers accounted for approximately 11%, 22% and 65%, respectively, or approximately 98% of total accounts receivable.
5.
|
NOTES RECEIVABLE
|
Accounts receivable and notes receivable at March 31, 2012 and December 31, 2011 were comprised of the following:
March 31,
2012
|
December 31,
2011
|
|||||||
Notes receivable
|
$
|
158,700
|
$
|
559,325
|
||||
Total
|
$
|
158,700
|
$
|
559,325
|
Notes receivable represent negotiable commercial paper which can be utilized to acquire new goods or to satisfy invoices due third parties in China.
6.
|
INVENTORY
|
Inventory at March 31, 2012 and December 31, 2011 was comprised of the following:
March 31,
2012
|
December 31,
2011
|
|||||||
Raw materials
|
$
|
186,989
|
$
|
187,224
|
||||
Finished goods
|
308,074
|
554,189
|
||||||
Allowance for excess or obsolete inventory
|
(84,020
|
)
|
(84,126
|
)
|
||||
Total
|
$
|
411,043
|
$
|
657,287
|
At December 31, 2011, the Company established a provision for excess or obsolete inventory by recording a charge of $82,706 to cost of goods sold. No additional provision for excess or obsolete inventory was made during the three month period ended March 31, 2012.
F-11
7.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expenses and other current assets at March 31, 2012 and December 31, 2011 were comprised of the following:
March 31,
2012
|
December 31,
2011
|
|||||||
Advances to suppliers, net of allowance
|
$
|
113,634
|
$
|
46,632
|
||||
Prepaid expenses
|
431
|
157,222
|
||||||
Other
|
1,131
|
3,983
|
||||||
Total
|
$
|
115,196
|
$
|
207,837
|
Advances made to suppliers are for the purchase of raw materials which are expected to be recovered in one year. At December 31, 2011, the Company established a provision for doubtful accounts by recording a bad debt expense of $9,314 related to its advances to suppliers. No additional bad debt expense was recorded during the three months ended March 31, 2012. Prepaid expenses and other assets represent normal course prepayments made by the Wendeng segment.
8.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment at March 31, 2012 and December 31, 2011 was comprised of the following:
March 31, 2012
|
December 31, 2011
|
|||||||||||||||||||||||
Accumulated
|
Net book
|
Accumulated
|
Net book
|
|||||||||||||||||||||
Cost
|
Depreciation
|
Value
|
Cost
|
Depreciation
|
Value
|
|||||||||||||||||||
Building
|
$
|
3,741,178
|
$
|
(195,016
|
)
|
$
|
3,546,162
|
$
|
3,745,873
|
$
|
(145,042
|
)
|
$
|
3,600,831
|
||||||||||
Furniture and equipment
|
9,721
|
(1,279
|
)
|
8,442
|
9,733
|
(773
|
)
|
8,960
|
||||||||||||||||
Machinery and equipment
|
3,870,539
|
(418,689
|
)
|
3,451,850
|
3,875,396
|
(318,543
|
)
|
3,556,853
|
||||||||||||||||
Automotive equipment
|
321,239
|
(44,465
|
)
|
276,774
|
172,375
|
(33,685
|
)
|
138,690
|
||||||||||||||||
Office equipment
|
12,306
|
(1,909
|
)
|
10,397
|
11,558
|
(1,287
|
)
|
10,271
|
||||||||||||||||
Construction in Progress
|
614,580
|
—
|
614,580
|
574,527
|
—
|
574,527
|
||||||||||||||||||
Total
|
$
|
8,569,563
|
$
|
(661,358
|
)
|
$
|
7,908,205
|
$
|
8,389,462
|
$
|
(499,330
|
)
|
$
|
7,890,132
|
Depreciation expense for the three months ended March 31, 2012 and 2011 totaled $162,419 and $32,487, respectively.
Differences may arise in the amount of depreciation expense reported in the Company's operating results as compared to the corresponding change in accumulated depreciation due to foreign currency translation. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity.
F-12
9.
|
BUSINESS COMBINATIONS
|
During the year ended December 31, 2011, the Company completed its acquisitions of equity interests in both Zibo Baokai Commerce and Trade Co., Ltd. and Wendeng He Xie Silicon Industry Co., Ltd. These acquisitions were accounted for as business combinations under the acquisition method of accounting.
Acquisition of Zibo Baokai Commerce and Trade Co., Ltd
Description of Transaction
On December 8, 2010, SunSi HK acquired a 90% equity interest in Zibo Baokai Commerce and Trade Co., Ltd (“Baokai”) for cash consideration of $263,647. As part of the closing, Baokai was re-formed as a joint venture business under Chinese law and issued a new business license.
Founded in January 2008, Baokai is located in the city of Zibo in the Shandong province of the People’s Republic of China. Baokai maintains the right to distribute the trichlorosilane production of Zibo Baoyun Chemical Plant both domestically and internationally. Trichlorosilane (“TCS”), a chemical primarily used in the production of polysilicon, is an essential raw material used in the production of solar cells for photovoltaic panels which convert sunlight into electricity.
The acquisition was accounted for as a business combination under the acquisition method of accounting in accordance with generally accepted accounting principles.
Fair Value of Consideration Transferred and Recording of Assets Acquired, Liabilities Assumed and Noncontrolling Interests
The following table summarizes the acquisition date fair value of the consideration transferred, identifiable assets acquired, liabilities assumed and noncontrolling interests including an amount for goodwill:
Consideration:
|
||||
Cash and cash equivalents
|
$
|
263,647
|
||
Fair value of total consideration transferred
|
263,647
|
|||
Recognized amount of identifiable assets acquired and liabilities assumed:
|
||||
Total identifiable net assets
|
$
|
—
|
||
Noncontrolling interest in Baokai
|
(29,294
|
)
|
||
Goodwill
|
292,941
|
|||
$
|
263,647
|
F-13
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the general reputation of the business. The goodwill is not expected to be deductible for tax purposes.
The following summarizes unpaid purchase consideration included in the accompanying Balance Sheet at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
Purchase consideration related to the Baokai acquisition, unpaid and accrued
|
$
|
163,647
|
$
|
163,647
|
Acquisition of Wendeng He Xie Silicon Co., Ltd
Description of Transaction
On March 18, 2011, SunSi HK acquired a 60% equity interest in Wendeng He Xie Silicon Co., Ltd. (“Wendeng”) in exchange for total consideration of approximately $5.8 million comprised of the following:
(1)
|
$445,075 of cash consideration;
|
(2)
|
1,349,628 restricted shares of SunSi common stock, such shares carry an optional right of redemption whereby the Company shall buy such shares back from shareholder if shareholder exercises the option within six months at a price equivalent to RMB 18,000,000 on the transfer date; and
|
(3)
|
1,574,566 restricted shares of SunSi common stock, transferred by an affiliate of SunSi.
|
As part of the closing, Wendeng was re-formed as a joint venture business under Chinese law and issued a new business license.
On June 13, 2011, SunSi HK executed an Addendum with Mr. Dongqiang Liu, the 40% minority shareholder of Wendeng, for the purpose of amending the terms to the Equity Transfer Agreement dated November 22, 2010, as amended on December 15, 2010 (collectively the “Original Agreement”), between the parties for the purchase of a 60% equity interest in Wendeng.
Under the terms of the Original Agreement, the Company would have had an obligation, upon receiving formal notice from Mr. Dongqiang Liu, to buy back 1,349,628 shares of its common stock at a value of RMB 18,000,000 (approximately USD $2.00 per share) from Mr. Dongqiang Liu. The Addendum cancelled any potential obligation of the Company to buy back such shares and confirms that all purchase consideration is fully paid.
As a result of the Addendum, the Company reclassified the value of the common shares previously subject to the buyback provision, approximately $2.7 million, as additional paid-in capital. These shares were presented as redeemable common stock on the Company’s consolidated balance sheets in the prior period.
Founded in April 2008, Wendeng is located in Weihai City in the Shandong province of the People’s Republic of China. Wendeng manufactures and distributes trichlorosilane, a chemical primarily used in the production of polysilicon and an essential raw material utilized in the production of solar cells for photovoltaic panels which convert sunlight into electricity. All of Wendeng’s sales are to destinations within the People’s Republic of China.
The acquisition was accounted for as a business combination under the acquisition method of accounting in accordance with generally accepted accounting principles.
F-14
Fair Value of Consideration Transferred and Recording of Assets Acquired, Liabilities Assumed and Noncontrolling Interests
The following table summarizes the acquisition date fair value of the consideration transferred, identifiable assets acquired, liabilities assumed and noncontrolling interests including an amount for goodwill:
Consideration:
|
||||
Cash and cash equivalents
|
$
|
445,075
|
||
Common stock, 1,574,566 shares of SunSi common stock (1)
|
2,645,271
|
|||
Redeemable common stock, 1,349,628 shares of SunSi common stock (2)
|
2,708,838
|
|||
Fair value of total consideration transferred
|
$
|
5,799,184
|
||
Recognized amount of identifiable assets acquired and liabilities assumed:
|
||||
Financial assets
|
$
|
3,613,721
|
||
Inventory
|
473,354
|
|||
Other current assets
|
309,329
|
|||
Related party receivables
|
1,131,548
|
|||
Property, plant and equipment
|
7,392,976
|
|||
Identifiable intangible assets:
|
||||
Land use leasehold
|
1,559,070
|
|||
Customer relationships
|
1,534,000
|
|||
Financial liabilities
|
(10,294,200
|
)
|
||
Total identifiable net assets
|
5,719,798
|
|||
Noncontrolling interest in Wendeng
|
(2,927,000
|
)
|
||
Goodwill
|
3,006,386
|
|||
$
|
5,799,184
|
(1)
|
The $1.68 per share price was determined by reference to recent private placement shares issued, less a discount for marketability. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC Topic 820.
|
(2)
|
Represents the redeemable option price granted by SunSi to the shareholder.
|
The Company utilized an alternative valuation method for the restricted common stock issued due to the limited public trading volume of its common stock prior to the measurement date. The recent average daily trading volume of the Company’s common shares was below levels considered by management to be representative of an active market.
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the general reputation of the business and the collective experience of the management and employees. The goodwill is not expected to be deductible for tax purposes.
F-15
Below is a summary of the methodologies and significant assumptions used in estimating the fair value of intangible assets and noncontrolling interests.
●
|
Intangible assets — The fair value of the acquired intangible assets was determined using a variety of valuation approaches. In estimating the fair value of the acquired intangible assets, the Company utilized the valuation methodology determined to be most appropriate for the individual intangible asset being valued as described below. The acquired intangible assets include the following:
|
Valuation
Method (2)
|
Estimated
Fair Value
|
Estimated
Useful Lives (1)
|
|||||||
(in years)
|
|||||||||
Cu Customer relationships
|
Multi-Period Excess Earnings
|
$
|
1,534,000
|
3
|
(1)
|
Determination of the estimated useful lives of the individual categories of intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over the shorter of the respective lives of the agreement or the period of time the assets are expected to contribute to future cash flows.
|
(2)
|
The multi-period excess earnings method estimates an intangible asset’s value based on the present value of the prospective net cash flows (or excess earnings) attributable to it. The value attributed to these intangibles was based on projected net cash inflows from existing contracts or customer relationships. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC Topic 820.
|
Some of the more significant estimates and assumptions inherent in determining the fair value of the customer relationships are associated with forecasting cash flows and profitability. The primary assumptions used were generally based upon the present value of anticipated cash flows, assuming a three year customer attrition rate, discounted to present value at a 25% rate.
●
|
Noncontrolling interests — The fair value of the noncontrolling interests of $2.9 million was estimated by applying the income approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC Topic 820. Key assumptions include (i) a compound annual sales growth rate of 33% for the five year period after the measurement date, (ii) a weighted average cost of capital of 19%, (iii) a terminal value based on a long-term sustainable growth rate of 3.5% and (iv) adjustments for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in Wendeng.
|
F-16
10.
|
GOODWILL AND INTANGIBLE ASSETS, NET
|
The carrying amount of goodwill at March 31, 2012 and December 31, 2011 was comprised of the following:
March 31,
2012
|
December 31,
2011
|
|||||||
Goodwill – Wendeng He Xie Silicon Co., Ltd
|
$
|
583,183
|
$
|
583,183
|
||||
Foreign currency translation adjustments
|
25,007
|
25,770
|
||||||
Goodwill, net
|
$
|
608,190
|
$
|
608,953
|
Intangible assets at March 31, 2012 and December 31, 2011 were comprised of the following:
March 31, 2012
|
December 31, 2011
|
|||||||||||||||||||||||||
Amortization
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||||||||||||
Period
|
Carrying
|
Accumulated
|
Book
|
Carrying
|
Accumulated
|
Book
|
||||||||||||||||||||
(Years)
|
Amount
|
Amortization
|
Value
|
Amount
|
Amortization
|
Value
|
||||||||||||||||||||
Intangible assets subject to amortization:
|
||||||||||||||||||||||||||
Customer relationships
|
3.0
|
$
|
1,599,780
|
$
|
(555,479
|
)
|
$
|
1,044,301
|
$
|
1,601,787
|
$
|
(419,105
|
)
|
$
|
1,182,682
|
|||||||||||
Land leasehold and use rights
|
50.0
|
1,988,321
|
(40,360
|
)
|
1,947,961
|
1,990,816
|
(30,501
|
)
|
1,960,315
|
|||||||||||||||||
Total
|
$
|
3,588,101
|
$
|
(595,839
|
)
|
$
|
2,992,262
|
$
|
3,592,603
|
$
|
(449,606
|
)
|
$
|
3,142,997
|
Amortization expense for intangible assets subject to amortization for the three months ended March 31, 2012 and 2011 totaled $146,583 and $22,377, respectively.
Differences may arise in the amount of amortization expense reported in the Company's operating results as compared to the corresponding change in accumulated depreciation due to foreign currency translation. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity.
F-17
11.
|
RELATED PARTY RECEIVABLES - TRADE
|
Related party receivables were comprised of the following at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
Wendeng Huahai Chemical Co., Ltd.
|
$
|
608,106
|
$
|
489,595
|
||||
Total
|
$
|
608,106
|
$
|
489,595
|
The amount represents trade receivables due from a related party; an entity in which a shareholder of the Company maintains an equity interest. The receivable is interest-free, unsecured and payable in accordance with the Company’s standard trade terms.
12.
|
OTHER ASSETS
|
Other assets were comprised of the following at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
Deposit – Department of Extrabudgetary Fund, Wendeng
|
$
|
21,710
|
$
|
21,737
|
||||
Total
|
$
|
21,710
|
$
|
21,737
|
F-18
13.
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
Accounts payable and accrued liabilities were comprised of the following at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
Accounts payable
|
$
|
2,827,327
|
$
|
3,333,500
|
||||
Accrued liabilities
|
389,431
|
373,802
|
||||||
Total
|
$
|
3,216,758
|
$
|
3,707,302
|
Accounts payable and accrued liabilities primarily represent trade payables of the Company’s Chinese operating subsidiaries.
14.
|
RELATED PARTY PAYABLES
|
Related party payables were comprised of the following at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
Advances from minority shareholder of noncontrolling interest (Wendeng)
|
$
|
5,519,788
|
$
|
5,501,598
|
||||
Purchase consideration due minority shareholder of noncontrolling interest (Baokai)
|
163,647
|
163,647
|
||||||
Total
|
$
|
5,683,435
|
$
|
5,665,245
|
The minority shareholder of the Company’s Wendeng subsidiary made a series of advances, both pre and post-acquisition, to fund capital expenditures and plant expansion. These advances were made on an interest-free basis, are unsecured and payable on demand.
The amount due to the minority shareholder of its Baokai subsidiary represents unpaid purchase consideration from the Company’s December 8, 2010 acquisition (see Note 9 – Business Combinations). This amount bears no interest, is unsecured and payable on demand.
F-19
15.
|
INCOME TAXES
|
Income taxes payable were comprised of the following at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
United States income taxes payable
|
$
|
—
|
$
|
—
|
||||
Foreign income taxes payable
|
721,464
|
886,050
|
||||||
Total
|
$
|
721,464
|
$
|
886,050
|
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has incurred a net operating loss of approximately $2,437,000 which expires in 2031. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
As a result of operations recorded at Baokai and Wendeng located in China, the Company recorded a net tax benefit of $114,176 for the three months ended March 31, 2012 based upon their estimated effective tax rates. Pursuant to the new PRC’s enterprise income tax (“EIT”) law, the Company is subject to EIT at the statutory rate of 25%. Income taxes in the statements of operations and comprehensive income (loss) represent current taxes for the periods ended March 31, 2012 and 2011. The effective income tax rate has no material difference with the PRC statutory income tax rate of 25% for the periods ended March 31, 2012 and 2011.
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provision of FASB ASC 740. The Company has recorded no deferred tax assets or liabilities as of March 31, 2012 and December 31, 2011, since nearly all differences in tax basis and financial statement carrying values are permanent differences.
16.
|
DEBT
|
Debt was comprised of the following at March 31, 2012 and December 31, 2011:
March 31,
2012
|
December 31,
2011
|
|||||||
9% Unsecured, convertible debenture
|
$
|
100,000
|
$
|
100,000
|
||||
Loan discount on unsecured, convertible debenture
|
—
|
—
|
||||||
Total long term debt
|
100,000
|
100,000
|
||||||
Less: Current portion
|
—
|
—
|
||||||
Long term debt
|
$
|
100,000
|
$
|
100,000
|
F-20
The following table summarizes the issuance of all unsecured, convertible debentures during the three month period ended March 31, 2012 and year ended December 31, 2011:
Issue Date
|
Interest Rate
|
Face Value
|
Maturity Date
|
Conversion Rate of
Face Value to Common Shares
|
|||||
10/15/2011
|
9%
|
$
|
100,000
|
10/15/2014
|
0.25
|
||||
Total
|
$
|
100,000
|
On October 15, 2011, the Company completed the private placement of an unsecured, convertible debenture in the amount of $100,000. The debenture carries an interest of 9% per annum, payable semiannually each April 15 and October 15, for a three-year term with a fixed conversion price of $4.00 per share, or 25,000 shares of the Company’s common stock.
No debt was issued prior to October 15, 2011.
17.
|
STOCKHOLDERS’ EQUITY
|
SunSi is authorized to issue 75,000,000 shares of common stock at a par value of $0.001 and had 30,070,628 and 30,005,628 shares of common stock issued and outstanding as of March 31, 2012 and December 31, 2011, respectively.
Beginning September 10, 2009, the Company conducted a private placement of its common stock at a price of $2.00 per share and a maximum issuance of 8,000,000 shares. During the year ended December 31, 2011, the Company accepted subscription agreements from investors pursuant to this offering and issued 917,500 shares of its common stock for gross proceeds totaling $1,875,000. The cost of these issuances was $187,500.
On September 5, 2011, the Company closed this offering and commenced a new offering of 3.0 million shares at $3.00 per share. In October 2011, the Company accepted a subscription agreement from an investor for 40,000 shares of its common stock pursuant to this new offering. The Company received $120,000 in gross proceeds and incurred issuance costs of $12,000 as a result of the offering.
During the three months ended March 31, 2012, the Company amended this offering by reducing the share price from $3.00 to $2.00 per share. Following this amendment, the Company accepted subscription agreements from investors pursuant to this offering and issued 25,000 shares of its common stock for gross proceeds totaling $50,000. The cost of these issuances was $5,000.
On June 13, 2011, SunSi HK executed an Addendum with Mr. Dongqiang Liu, the 40% minority shareholder of Wendeng, for the purpose of amending the terms to the Equity Transfer Agreement dated November 22, 2010, as amended on December 15, 2010 (collectively the “Original Agreement”), between the parties for the purchase of a 60% equity interest in Wendeng.
Under the terms of the Original Agreement, the Company would have had an obligation, upon receiving formal notice from Mr. Dongqiang Liu, to buy back 1,349,628 shares of its common stock at a value of RMB 18,000,000 (approximately USD $2.00 per share) from Mr. Dongqiang Liu. The Addendum cancelled any potential obligation of the Company to buy back such shares and confirms that all purchase consideration is fully paid.
As a result of the Addendum, the Company reclassified the value of the common shares previously subject to the buyback provision, approximately $2.7 million, as additional paid-in capital. These shares were presented as redeemable common stock on the Company’s consolidated balance sheets in the prior period.
F-21
18.
|
COMMITMENTS
|
SunSi entered into various engagement agreements for advisory and consulting services on a non-exclusive basis to obtain equity capital. In the event that the Company completes a financing from a funding source provided by one of the consultants, then such consultant will receive a finders or referral fee at closing ranging from seven percent (7%) to ten percent (10%) of the amount received by the Company. Currently, the total financing sought by the Company to expand the Wendeng facility is $9.0 million in the form of common equity. The maximum potential amount of fees that can be paid totals $0.9 million. The terms and condition of financing are subject to Company approval.
On November 10, 2009, the Company entered into an agreement to pay its Director of Business Development an annual amount of $60,000 plus any documented out of pocket business expenses. On May 15, 2009, the Company entered into an agreement to pay its Head Representative in China an annual amount of $60,000. On February 9, 2010, the Company entered into an agreement to pay its Chief Executive Officer an annual amount of $60,000 plus any documented out of pocket business expenses.
19.
|
SEGMENT INFORMATION
|
As a result of the acquisition of its equity interest in Wendeng, the Company reassessed its requirement for segment reporting based on the operating and reporting structure of the combined company.
The Company utilized several criteria, including (i) the Company’s organizational structure, (ii) the manner in which the Company’s operations are managed, (iii) the criteria used by the Company’s Chief Executive Officer, the Chief Operating Decision Maker (“CODM”), to evaluate segment performance and (iv) the availability of separate financial information, as a basis to identify its operating segments.
The Company determined that it has two reportable business segments, Baokai and Wendeng. The Baokai segment consists of the business of Zibo Baokai Commerce and Trade Co., Ltd., a company based in the Shandong province of the People’s Republic of China that distributes the trichlorosilane production of Zibo Baoyun Chemical Plant. The Wendeng segment consists of the operations of Wendeng He Xie Silicon Industry Co., Ltd., a company based in the Shandong province of the People’s Republic of China that directly manufactures and sells trichlorosilane.
The accounting policies of the reportable segments are the same as those described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements. The Company’s CODM reviews financial information presented on a consolidated basis, accompanied by disaggregated information by segment for purpose of evaluating financial performance.
F-22
Segment Results
The following table sets forth operations by segment for the three months ended March 31, 2012 and 2011:
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Sales:
|
||||||||
Baokai
|
$
|
234,959
|
$
|
4,245,917
|
||||
Wendeng
|
272,668
|
1,255,446
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
507,627
|
$
|
5,501,363
|
||||
Cost of goods sold:
|
||||||||
Baokai
|
$
|
230,260
|
$
|
4,160,064
|
||||
Wendeng
|
245,065
|
826,852
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
475,325
|
$
|
4,986,916
|
||||
Gross margin:
|
||||||||
Baokai
|
$
|
4,699
|
$
|
85,853
|
||||
Wendeng
|
27,603
|
428,594
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
32,302
|
$
|
514,447
|
||||
Operating expenses:
|
||||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
489,006
|
48,867
|
||||||
Corporate
|
257,823
|
213,377
|
||||||
Total
|
$
|
746,829
|
$
|
262,244
|
||||
Interest expense, net:
|
||||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
—
|
—
|
||||||
Corporate
|
2,250
|
—
|
||||||
Total
|
$
|
2,250
|
$
|
—
|
||||
Provision for income taxes (benefit):
|
||||||||
Baokai
|
$
|
1,175
|
$
|
21,463
|
||||
Wendeng
|
(115,351
|
)
|
94,932
|
|||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
(114,176
|
)
|
$
|
116,395
|
|||
Net income (loss):
|
||||||||
Baokai
|
$
|
3,524
|
$
|
64,390
|
||||
Wendeng
|
(346,052
|
)
|
284,795
|
|||||
Corporate
|
(260,073
|
)
|
(213,377
|
)
|
||||
Total
|
$
|
(602,601
|
)
|
$
|
135,808
|
Operating segments do not sell products to each other, and accordingly, there is no inter-segment revenue to be reported.
F-23
Total Assets
The following table sets forth the total assets by segment at March 31, 2012 and December 31, 2011:
Total assets by segment:
|
March 31,
2012
|
December 31,
2011
|
||||||
Baokai
|
$
|
1,111,860
|
$
|
840,280
|
||||
Wendeng
|
15,722,721
|
16,986,030
|
||||||
Corporate
|
45,351
|
199,400
|
||||||
Total
|
$
|
16,879,932
|
$
|
18,025,710
|
Goodwill, Intangible and Long-Lived Assets
The following table sets forth the carrying amount of goodwill by segment at March 31, 2012 and December 31, 2011:
Goodwill by segment:
|
March 31,
2012
|
December 31,
2011
|
||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
608,190
|
608,953
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
608,190
|
$
|
608,953
|
The following table sets forth the carrying amount of intangible assets by segment at March 31, 2012 and December 31, 2011:
Intangible assets by segment:
|
March 31,
2012
|
December 31,
2011
|
||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
2,992,262
|
3,142,997
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
2,992,262
|
$
|
3,142,997
|
The following table sets forth the carrying amount of property, plant and equipment by segment at March 31, 2012 and December 31, 2011:
Property, plant and equipment by segment:
|
March 31, 2012
|
December 31, 2011
|
||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
7,908,205
|
7,890,132
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
7,908,205
|
$
|
7,890,132
|
F-24
Amortization expense for Wendeng totaled $146,583 for the three months ended March 31, 2012. Depreciation expense for Wendeng totaled $162,419 for the three months ended March 31, 2012. Capital expenditures for Wendeng totaled $190,340 during the three months ended March 31, 2012. Baokai did not record any depreciation or amortization expense, nor did it incur any capital expenditures during the three months ended March 31, 2012.
The Company had no goodwill, intangible or long-lived assets prior to December 9, 2010.
Customer information
For the three month period ended March 31, 2012, one customer accounted for 100% of Baokai's sales and one customer accounted for 100% of Wendeng’s sales.
For the three month period ended March 31, 2012, one customer accounted for approximately 97% of Baokai's sales. For the year ended March 31, 2012, two customers accounted for approximately 87% of Wendeng’s sales. Concentration levels for these two customers were 33% and 54% of Wendeng’s total sales. No other customer accounted for more than 10% of either segment’s revenue for years ended March 31, 2012.
At March 31, 2012, one customer accounted for approximately 100% of Baokai’s accounts receivable. At March 31, 2012, two customers accounted for approximately 98% of Wendeng’s accounts receivable. Concentration levels for these two customers were 16% and 82% of Wendeng’s total trade receivables. No other single customer accounted for 10% or more of either segment’s trade accounts receivable at March 31, 2012.
Geographic Information
All of the Company’s long-lived assets are located in the People’s Republic of China. During the three months ended March 31, 2012 and 2011, all of the Company’s sales as determined by shipping destination were located within the People’s Republic of China.
20.
|
DEFINED CONTRIBUTION PLAN
|
Pursuant to the relevant PRC regulations, the Company is required to make contributions at a rate of 28% of employees’ salaries and wages to a defined contribution retirement plan organized by a state-sponsored social insurance plan in respect of the retirement benefits for the Company’s employees in the PRC. The only obligation of the Company with respect to the retirement plan is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in the future years. The defined contribution plan contributions were charged to the statements of operations. The Company contributed $8,076 for the three month period ended March 31, 2012.
21.
|
SUBSEQUENT EVENTS
|
On April 20, 2012, SunSi signed a letter of intent to purchase a 51% interest in the common stock of TransPacific Energy, Inc. (“TPE”). Located in California and Nevada, TPE designs and sells energy systems which maximize heat recovery and convert waste heat into electrical energy. Purchase consideration for the transaction will be satisfied in full through the issuance shares of SunSi’s common stock. The closing of the transaction is subject to the execution of a definitive agreement and approval by the board of directors of both companies.
The Company has evaluated subsequent events from the balance sheet through the date the financial statements were issued, and determined there are no other events to disclose.
F-25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Some of the factors that could cause results or events to differ materially from current expectations include, but are not limited to: general economic, market or business conditions; general stock market performance; the performance of the solar energy industry in general; increasingly competitive environment; changing regulatory conditions or requirements; changing government incentive programs for solar energy projects; changing alternative energy technologies; raising sufficient capital to fund the expansion of Wendeng to 75,000 MT and acquisition of other TCS manufacturing facilities; our ability to find suitable TCS acquisition targets, our ability to complete the Wendeng expansion on budget and on time, the price of TCS sold within China and outside of China; the price of, and demand for, polysilicon; the price of, and demand for, solar PV panels; the level of production by the Wendeng factory; Baokai's success in attaining new clients under its TCS distribution agreement; the decision by potential investors who have signed subscription agreements not to pay for such SunSi common shares; the decision by the NASDAQ Capital Market to reject the Company's application for listing; our ability to successfully manage a business in China; the re-opening of our Wendeng facility and the ZBC TCS facility that provides TCS to our Baokai distribution company; that Wendeng is one of the lowest cost producers of TCS and that we will emerge as one of the strongest TCS manufacturers in 2012; and success in implementing productivity initiatives. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
SunSi’s goal is to acquire and develop a portfolio of high quality TCS producing facilities (and in some cases distribution rights) that are strategically located and possess a potential for future growth and expansion. TCS is the main feedstock of the solar energy industry, used in the production of silicon, which in turn is used in the production of solar PV energy producing panels.
4
Acquisition of Zibo Baokai Trade and Commerce Co. Ltd.
During a significant portion of 2009 and into early 2010, we performed due diligence and negotiated with the shareholders of ZBC, a 25,000 MT TCS production factory located in Zibo China, to acquire their facility. On December 12, 2009, prior to our determining whether or not we would buy ZBC, we secured the exclusive international distribution rights (“international rights”) for all of the TCS produced by the ZBC factory. These international rights which were secured by SunSi HK, for nominal consideration, were not contingent on our purchasing ZBC. The international rights entitled us to sell TCS produced by the ZBC factory outside of China only. It gave us no rights to sell ZBC’s production within China. ZBC granted us these international rights because they were hopeful we could generate new customers for their TCS production outside of China. Historically, all of ZBC’s sales have been within China.
In early 2010, we determined that despite our best efforts, we could not acquire ZBC, as planned, on terms that would be beneficial to SunSi. Therefore, we discontinued our efforts to acquire the ZBC factory, and instead negotiated with ZBC to obtain the exclusive domestic distribution rights, for the TCS produced by ZBC within China to supplement the exclusive international distribution rights which we acquired on December 12, 2009 (described above).
On December 8, 2010, SunSi HK acquired 90% of Baokai for $263,647, an acquisition which gave us the exclusive distribution rights to 100% of ZBC’s production both internationally and domestically; however, we did not acquire any interest or ownership position in the ZBC factory.
As part of the Baokai distribution rights, ZBC agreed to sell Baokai all of its TCS production at a price of cost, plus a 10% to 15% mark-up depending on the nature of the sale. During the period ended February 28, 2011, we generated approximately $4.6 million in revenues with a gross margin of approximately 2.0%. By mutual agreement with ZBC, Baokai agreed to earn a smaller profit margin than originally anticipated on these sales because the sales came from existing customers of ZBC and from the efforts of the ZBC sales force. We are in discussions with a number of international clients who are interested in purchasing TCS from Baokai. These new purchases would generate significantly higher gross margins for Baokai than the 2.0%; however, there can be no assurances that we will be successful in obtaining sales from these new customers.
Baokai has one client which comprised approximately 100% of their sales for the three month period ended March 31, 2012. The facility is easily accessible via rail and major highways, in addition to being well equipped for handling chemical products. We believe we can expand Baokai’s client base in the future, although there can be no assurances.
Acquisition of Wendeng He Xie Silicon Co. Ltd
On March 18, 2011, we acquired a 60% equity interest in Wendeng, a trichlorosilane manufacturing company, from Liu Dongqiang, a Chinese individual. Wendeng is located in the Shandong province of China close to strategic ports, including Weihai and Qingdao. The state-of-the-art Wendeng facility was built in 2008 and currently has an annual capacity of 30,000 MT of TCS. The Wendeng facility was designed and is currently managed by Zhang Fahe, who possesses over 30 years of experience in the Chinese chemical industry. Mr. Fahe has been working in the TCS field since 2001 where he developed efficient TCS production technologies. As part of the closing, Wendeng was re-formed as a joint venture business under Chinese law and issued a new business license.
5
As of March 18, 2011, Wendeng had a production capacity of approximately 20,000 MT tons of Trichlorosilane. As a result of closing the Wendeng Acquisition, SunSi began to immediately consolidate all of Wendeng’s revenues, and 60% of its profits.
On June 13, 2011, we amended the terms of the Wendeng Acquisition, whereby Mr. Liu canceled our obligation to buy back the 1,349,628 shares of our stock and confirmed that the purchase price for the 60% equity interest in Wendeng is fully paid. Such shares had been classified as “Redeemable Common Stock” on the Registrant's balance sheet and excluded from Stockholders’ Equity and are now included in the Company’s Stockholders’ Equity section of the balance sheet at a value of approximately $2.7 million.
Our plan is to expand the manufacturing capacity of Wendeng to 75,000 MT per year. In October 2011, the construction of the expanded capacity from 20,000 to 30,000 MT was completed. The cost of this 10,000 MT ton expansion was approximately $1.5 million. The expanded capacity is now fully operational. We estimate the total amount of funding required by SunSi to complete the Wendeng expansion from 30,000 MT to 75,000 MT is currently approximately $15.0 million. Mr. Liu, our 40% minority partner in the facility, is expected to contribute $5.0 million towards this expansion. Our portion of this expansion will be approximately $10 million.
If we are unable to raise this amount through the sale of equity securities, we will have to secure additional debt financing to complete the acquisition and the planned expansion project. If necessary, we intend to negotiate terms of a revolving line of credit and/or conditions for a construction/term loan with various banking institutions. However, there is no assurance that debt financing will be available or, if available, on terms that are favorable to us. In addition, if we are unable to raise sufficient equity capital to commence development of the plant expansion, we may pursue the plant expansion through alternative ownership structures, such as joint ventures with other entities. We currently have no commitment for either equity or debt financing. There can be no assurances that the Company will be successful in raising sufficient funds to complete the expansion.
TCS Market and our Future Strategy
During calendar year 2011, the world polysilicon prices decreased approximately 60% as the top five producers more than doubled output, according to data compiled by Bloomberg News. For the week ended May 11, 2012, the polysilicon spot price averaged $23.17 per KG. According to the Macquarie Group Ltd. global investment banking and diversified financial services group regarding the oversupply situation, the polysilicon industry will make about 20 percent more than is needed this year, and the oversupply will increase to 28 percent in 2012. As a result of historically low prices for polysilicon in November and December of 2011, about 90 percent of China’s polysilicon plants, comprising half of the country’s production suspended output in November and December according to the China Nonferrous Metals Industrial Association, which acts as a conduit between industry and government. This oversupply situation has continued throughout 2012 with an estimated 50-80% of China’s polysilicon capacity currently idle. A leading solar industry publication, Solarbuzz stated that “it is significant that polysilicon manufacturing capacity long the most constrained and profitable part of the PV chain now has the highest capacity in the PV chain”.
During November and December 2011, the low price of polysilicon coupled with the significant oversupply of polysilicon had a material adverse impact on the price we could sell TCS for, and the level of plant utilization at Wendeng and our exclusive supplier to Baokai, ZBC. This negatively impacted our revenues and results of operations. We believe that due to the current polysilicon oversupply there will be an industry consolidation where we will emerge as one of the strongest entities and lowest cost producers. The ZBC plant that supplies our Baokai distribution operations and the Wendeng facility has been closed since December 2011. We had expected these facilities to open at the end of February 2012 after the Chinese New Year; however, the ongoing low pricing of polysilicon and the resulting low price bids from our customers to supply them TCS would not enable us to operate profitably. Currently during the shutdown period, the Baokai distribution segment is at a breakeven level because we are not incurring any marketing or business development expenses directly associated with Baokai operations.
6
Based upon our knowledge and experience in the TCS marketplace in China, and based upon our ongoing discussions with our existing and potential new customers, we believe that no TCS supplier in China can produce TCS profitably at current price levels. At Wendeng, our operating losses of approximately $30,000-$40,000 per month when closed are significantly less than the loss we would incur by producing TCS at the current market price. Therefore, our operating losses are lower by staying closed rather than manufacturing TCS at a significantly higher loss. Our Wendeng facility has sold some of its existing inventory during 2012 at a loss; however, it has not manufactured any TCS during 2012.
Additionally, there can be no assurances that we will be successful in our efforts to operate Wendeng, or to sell TCS at a price that will enable Wendeng to operate profitably. Additionally, there can be no assurance that the price of polysilicon will not continue to fall or that an industry consolidation will occur.
In 2011 and reiterated in 2012, the Chinese government in widely publicized announcements has promised to commit $454 billion dollars towards to alternative energy which includes a commitment to expand and support a fivefold increase in solar production above current levels over the next five to years ten years. We believe the oversupply of polysilicon will be mitigated during 2012, and that the demand and price of TCS will increase significantly as this commitment is implemented, although there can be no assurances. Currently, we remain committed to expanding our Wendeng facility from 30,000 MT to 75,000 MT. We estimate the total amount of funding required to complete this expansion to be $15.0 million. We expect to raise $10.0 million through the sale of our common stock, with the remainder expected to be contributed by our 40% minority partner of Wendeng. If we are unable to raise this amount through the sale of equity securities, we will have to secure additional debt financing to complete the acquisition and the planned expansion project. If necessary, we intend to negotiate terms of a revolving line of credit and/or conditions for a construction/term loan with various banking institutions. However, there is no assurance that debt financing will be available or, if available, on terms that are favorable to us. In addition, if we are unable to raise sufficient equity capital to commence development of the plant expansion, we may pursue the plant expansion through alternative ownership structures, such as joint ventures with other entities. We currently have no commitment for either equity or debt financing. There can be no assurances that the Company will be successful in raising sufficient funds to complete the expansion.
Letter of Intent to Purchase TransPacific Energy, Inc.
On April 20, 2012 we signed a letter of intent to purchase a 51% interest in the common stock of TransPacific Energy, Inc. ("TPE"). The closing of the transaction is subject to the execution of a definitive agreement. TPE is a renewable energy company based in Nevada and California. If the transaction is successfully consumated, it woud create a new business segment for Sunsi. We believe the transaction will be completed, however; there can be no assurances.
7
Results of Operations for the three months ended March 31, 2012 and 2011
In December 2010 and March 2011, we completed the acquisitions of our Baokai and Wendeng subsidiaries, respectively. As a result, we emerged from Development Stage Company as defined by ASC Topic 915 and began to generate revenue from our operations. Our results of operations include three months of operations for both our Baokai and Wendeng subsidiaries for the three months ended March 31, 2012, compared with three months of operations for Baokai and less than one full month for Wendeng during the comparable period of the prior year. Comparisons between the three months ended March 31, 2012 and 2011 may not be indicative of current trends.
Segment Results
The following table sets forth operations by segment for the three months ended March 31, 2012 and 2011:
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Sales:
|
||||||||
Baokai
|
$
|
234,959
|
$
|
4,245,917
|
||||
Wendeng
|
272,668
|
1,255,446
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
507,627
|
$
|
5,501,363
|
||||
Cost of goods sold:
|
||||||||
Baokai
|
$
|
230,260
|
$
|
4,160,064
|
||||
Wendeng
|
245,065
|
826,852
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
475,325
|
$
|
4,986,916
|
||||
Gross margin:
|
||||||||
Baokai
|
$
|
4,699
|
$
|
85,853
|
||||
Wendeng
|
27,603
|
428,594
|
||||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
32,302
|
$
|
514,447
|
||||
Operating expenses:
|
||||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
489,006
|
48,867
|
||||||
Corporate
|
257,823
|
213,377
|
||||||
Total
|
$
|
746,829
|
$
|
262,244
|
||||
Interest expense, net:
|
||||||||
Baokai
|
$
|
—
|
$
|
—
|
||||
Wendeng
|
—
|
—
|
||||||
Corporate
|
2,250
|
—
|
||||||
Total
|
$
|
2,250
|
$
|
—
|
||||
Provision for income taxes (benefit):
|
||||||||
Baokai
|
$
|
1,175
|
$
|
21,463
|
||||
Wendeng
|
(115,351
|
)
|
94,932
|
|||||
Corporate
|
—
|
—
|
||||||
Total
|
$
|
(114,176
|
)
|
$
|
116,395
|
|||
Net income (loss):
|
||||||||
Baokai
|
$
|
3,524
|
$
|
64,390
|
||||
Wendeng
|
(346,052
|
)
|
284,795
|
|||||
Corporate
|
(260,073
|
)
|
(213,377
|
)
|
||||
Total
|
$
|
(602,601
|
)
|
$
|
135,808
|
Operating segments do not sell products to each other, and accordingly, there is no inter-segment revenue to be reported.
8
Revenue
Sales for the three months ended March 31, 2012 totaled $507,627, compared to $5,501,363 for the three months ended March 31, 2011. Sales for the three months ended March 31, 2012 and March 31, 2011 were comprised of $234,959 and $4,245,917, respectively, from our Baokai segment and $272,668 and $1,255,446, respectively, from our Wendeng segment. All sales during these periods were recorded within China.
In China, the price of TCS is typically based on short-term contracts and spot prices enabling both the buyer and the seller to adapt to changing market conditions. During 2011, the price of TCS ranged from a high of approximately $1,600 per metric ton to a low of approximately $700 per metric ton. Since the fourth quarter of 2011, a global oversupply of polysilicon has materially reduced both the demand and sales price for TCS. The decline in price for TCS is consistent with the change in the price of polysilicon, which has decreased approximately 50%-60% since January 2011. Each of these factors has had an adverse impact on our subsidiaries’ sales prices and product demand.
As of May 2012, the spot price of TCS was approximately $775 per metric ton. We do not believe many, if any, TCS suppliers can operate profitably at these price levels. We believe that other manufacturers are selling their existing TCS inventories at a significant loss. As the polysilicon oversupply is absorbed, we anticipate that the price and demand for TCS will improve. We anticipate that these events will occur within the latter half of 2012; however, we can provide no assurances that this will occur.
Our Wendeng facility has been closed for all of 2012. Based upon Wendeng’s cost structure, we estimate that a sales price ranging from approximately $770-$800 per metric ton is required to generate breakeven operating cash flows. We continue to have sales discussions and inquiries with new and existing customers and we have established a small backlog of orders near the $770-$800 price levels described above. As a result, we expect our Wendeng facility to re-open by the end of May or early June 2012; however, we can provide no assurances that this will occur.
Our Baokai segment purchases and distributes the TCS manufactured by Zibo Baoyun Chemical Factory (“ZBC”). Since April 2012, Baokai has recorded three sales approximating $450,000 in revenue. We believe that these sales are indicative of an improving trend in TCS pricing.
Gross Margin
We calculate gross margin by subtracting cost of goods sold from sales. Gross margin percentage is calculated by dividing gross margin by sales.
Gross margin for the three months ended March 31, 2012 was $32,302, compared to $514,447 for the three months ended March 31, 2011. Gross margin percentage for the three months ended March 31, 2012 was 6.4%, compared to 9.4% for the three months ended March 31, 2011. The decrease in gross margin is primarily attributable to the decreased level of sales realized compared to the prior year period. Additionally, our gross margin and gross margin percentage continues to be adversely impacted by the low price levels for polysilicon.
9
For the three months ended March 31, 2012, we realized a gross margin percentage of 2.0% at our Baokai segment, compared to a gross margin percentage of 2.0% in the prior year period. Currently, our margins are fixed at 2% at our Baokai segment because we are a distributor of the TCS produced by Zibo Baoyun Chemical Factory. Our purchase price is fixed to the percentage of the selling price; therefore, our gross margin percentage is not affected by market price fluctuations. We have the opportunity to realize greater margin percentages, potentially up to 10%-15%, at our Baokai segment if we introduce new customers to ZBC. There can be no assurances that we will be successful in generating new customers or realizing these higher margin opportunities.
For the three months ended March 31, 2012, we realized a gross margin percentage of 10.1% at our Wendeng segment, compared to a gross margin percentage of 34.1% in the prior year period. The decrease in gross margin and gross margin percentage at our Wendeng segment is directly attributable to the decline in the segment’s product sales and sale prices as under revenue described above.
Professional Fees
We incurred professional fees of $141,710 for the three months ended March 31, 2012, compared to $91,705 for the three months ended March 31, 2011. Professional fees consist of legal, accounting and other consulting or service provider fees. Most of our professional services are attributable to our status as a publicly traded company. The increase in our professional feesare largely attributable to the increased audit accounting review and compliance services related to the acquisition of our Chinese subsidiaries.
General and Administrative Expenses
General and administrative expenses (“G&A”) totaled $605,119 for the three ended March 31, 2012, compared to $170,539 for the three months ended March 31, 2011. The primary components of our G&A expenses include salaries and benefits not directly associated with our manufacturing processes, depreciation on non-production capital assets, amortization, facility costs and maintenance, investor relations activities and various administrative and office expenses. The increase in our G&A expenses is largely attributable to the inclusion of a full three months of operations from our Wendeng segment, compared to the inclusion of a partial period in 2011 following our acquisition of the segment on March 18, 2011.
Provision for Income Taxes (Benefit)
We recorded an income tax benefit of $114,176 for the three months ended March 31, 2012, compared to a provision for income taxes of $116,395 for the three months ended March 31, 2011.
As a result of operations recorded at the Baokai subsidiary and Wendeng subsidiaries located in China for the period ended March 31, 2012, we have recorded a net tax benefit of $114,176, or a 25% tax rate which is the statutory rate in China for all earnings. The profits generated in China are not available to be offset against net operating losses in the United States.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has generated a net operating loss from its U.S.-based operations of approximately $2,437,000 which expires in 2031. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses in the United States carried forward in future years.
10
For the three months ended March 31, 2012, we incurred a net loss of ($602,601), compared to net income of $135,808 for the three months ended March 31, 2011.
The weighted average number of basic and fully diluted shares outstanding for the three months ended March 31, 2012 was 30,020,628, compared to 27,953,734 for the three months ended March 31, 2011. There are no dilutive equivalents included in our calculation of fully diluted shares for the three months ended March 31, 2012, since their inclusion would be anti-dilutive due to our net loss per share. There were no warrants, convertible features or other dilutive equivalents that would have impacted our calculation of fully diluted shares for the three months ended March 31, 2011.
Liquidity and Capital Resources
At March 31, 2012, we had cash on hand of $332,460. Of this amount, $43,524 was on deposit with institutions located in the United States, $287,540 in China and $1,396 in Hong Kong. For the foreseeable future, we do not intend to repatriate any funds from China to support our operations within the United States. Our U.S.-based operations consist solely of a holding company that incurs expenses and has no revenue generating activities. Proceeds generated from private placements of our common stock have been the sole source of funding for our U.S.-based operations. We believe our current cash position and ability to raise funds through the sale of new equity will be sufficient to fund our U.S. activities for the twelve months.
We expect to generate positive cash flow from Chinese operations over the next twelve months. We are seeking increased funding in the form of equity or debt in order to expand our Wendeng facility from 30,000 MT to 75,000 MT. We estimate that this expansion will cost approximately $15.0 million, of which we expect our minority equity partner to contribute $5.0 million. While we can provide no assurances, we believe we will be successful in raising these funds.
At March 31, 2012, we had a working capital deficit of $4,914,835. The deficit is primarily attributable to the related party payable of $5,519,788 due to the minority shareholder of Wendeng. These funds were used to build and expand the Wendeng facility. Our Wendeng subsidiary minority shareholder is currently not requesting repayment of this amount; however, since this is an interest free demand loan to the Company, it has been categorized as a current liability.
Net cash used in operating activities was $239,749 for the three months ended March 31, 2012, compared to net cash used in operating activities of $713,634 for the three months ended March 31, 2011. The decrease in 2012 compared to 2011 is attributable to a significant improvement in the net change in operating assets and liabilities offset by the realization of a net loss of ($602,601) compared to net income of $135,808 for the prior year period. More specifically, we generated a net cash improvement in the net cash used relative to our working capital assets and liabilities (defined here as accounts receivable, inventory and accounts payable) of $454,174 over the prior year period.
Net cash used in investing activities was $190,340 for the three months ended March 31, 2012, compared to cash provided by investing activities of $479,475 for the three months ended March 31, 2011. The net cash used in the current period is solely attributable to the purchase of $190,340 in capital assets to support our ongoing efforts to expand the capacity of our Wendeng production facility. During the three months ended March 31, 2011, we realized a net cash increase of $521,391 from our acquisition of our Wendeng segment, which was mostly funded with shares of our common stock. Capital expenditures in the prior year period totaled $41,916.
Net cash provided by financing activities was $89,123 for the three months ended March 31, 2012, compared to $549,176 for the three months ended March 31, 2011. We received $45,000 in net proceeds from the issuance of new equity, compared to $162,000 in the prior year period. Additionally, we received $44,123 from our Wendeng subsidiary minority shareholder, compared to $387,176 in the prior year period. These funds were utilized towards the improvement and expansion of our Wendeng manufacturing facility.
11
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.
Financial Instruments
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost and consist solely of bank deposits held in the United States, Hong Kong and the PRC. The carrying amount of cash and cash equivalents approximates fair value.
At March 31, 2012, cash and cash equivalents totaling $287,540 were held in banks in China; a Wendeng branch of Industrial & Commercial Bank of China and a Central District, Hong Kong branch of HSBC Bank. The remittance of these funds out of China is subject to exchange control restrictions imposed by the Chinese government. Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. Management believes the probability of a bank failure, causing loss to the Company, is remote.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At March 31, 2012 and December 31, 2011, substantially all of the Company’s cash and cash equivalents and restricted cash were held by major financial institutions located in the United States, Hong Kong and the PRC, which management believes are of high credit quality.
With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of accounts receivable.
12
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required.
Bad debts are written off when identified. The Company extends unsecured credit to customers up to one month in the normal course of business. The Company does not accrue interest on trade accounts receivable. Historically, losses from uncollectible accounts have not significantly deviated from the specific allowance estimated by the management. This specific provisioning policy has not changed in the past since establishment and the management considers that the aforementioned specific provisioning policy is adequate and does not expect to change this established policy in the near future.
Inventory
Inventories are stated at the lower of cost or market value. Cost is determined on weighted average basis and includes all expenditures incurred in bringing the goods in a saleable condition to the point of sale. The Company’s inventory reserve requirements generally fluctuate based on projected demands and market conditions. In determining the adequate level of inventories to have on hand, management makes judgments as to the projected inventory demands as compared to the current or committed inventory levels. Inventory quantities and condition are reviewed regularly and provisions for excess or obsolete inventory are recorded based on the condition of inventory and the Company’s forecast of future demand and market conditions.
Intangible assets – land use rights
Land use rights are stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the terms of 50 years. The lease term is obtained from the relevant PRC land authority.
13
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.
The property, plant and equipment of the Company will be depreciated with straight-line method according to the following estimated residual value and service life.
Service life (year)
|
Estimated
residual rate
%
|
Annual
depreciation rate
%
|
||||||||||
Building
|
20
|
5
|
2.05
|
|||||||||
Furniture and equipment
|
5
|
5
|
3.17
|
|||||||||
Machines and equipment
|
10
|
5
|
7.34
|
|||||||||
Automotive equipment
|
5
|
5
|
10.93
|
|||||||||
Office equipment
|
5
|
5
|
8.64
|
The residual value and service life of property, plant and equipment will be reviewed on each balance sheet date, and adjusted if necessary.
The Company capitalizes the interest expenses incurred before property, plant and equipment are built and installed to the usable state, and capitalizes other loan interest expenses.
Construction in progress
The value of construction in progress comprises buildings and plants under construction, as well as machines and equipment being installed and commissioned, specifically comprises the costs of property, plant and equipment and other direct costs, relevant interest expenses accrued during the construction period and profits and losses from foreign exchange transactions.
Depreciation will not start until the construction in progress is completed and put into operation.
14
Impairment of Assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its long-lived assets, management performs an analysis of the anticipated undiscounted future net cash flows of the individual assets over the remaining depreciation or amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
Each year, the Company performs a transitional test for impairment of goodwill and other indefinite-lived intangible assets. This test is performed by comparing, at the reporting unit level, the carrying value of goodwill to its fair value. The Company assesses fair value based upon its best estimate of the present value of future cash flows that it expects to generate by the reporting unit. In conjunction with its recent change in fiscal year-end, the Company’s annual fair value assessment is performed each December 31 on subsidiaries with material goodwill on their respective balance sheets. However, changes in expectations as to the present value of the reporting unit’s future cash flows might impact subsequent years’ assessments of impairment.
Goodwill and Intangible Assets
Under ASC 350, the Company is required to perform an annual impairment test of the Company’s goodwill and indefinite-lived intangibles. On an annual basis, management assesses the composition of the Company’s assets and liabilities, as well as the events that have occurred and the circumstances that have changed since the most recent fair value determination. If events occur or circumstances change that would more likely than not reduce the fair value of goodwill and indefinite-lived intangibles below their carrying amounts, they will be tested for impairment. The Company will recognize an impairment charge if the carrying value of the asset exceeds the fair value determination. The impairment test that the Company has selected historically consisted of a ten year discounted cash flow analysis including the determination of a terminal value, and requires management to make various assumptions and estimates including revenue growth, future profitability, peer group comparisons, and a discount rate which management believes are reasonable.
The impairment test involves a two-step approach. Under the first step, the Company determines the fair value of each reporting subsidiary to which goodwill has been assigned. The Company then compares the fair value of each reporting subsidiary to its carrying value, including goodwill. The Company estimates the fair value of each reporting subsidiary by estimating the present value of the reporting subsidiaries' future cash flows. If the fair value exceeds the carrying value, no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is considered potentially impaired and the second step is completed in order to measure the impairment loss.
Under the second step, the Company calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets, including any unrecognized intangible assets, of the reporting unit from the fair value of the reporting unit, as determined in the first step. The Company then compares the implied fair value of goodwill to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, the Company recognizes an impairment loss equal to the difference.
15
Income Taxes
The Company accounts for income taxes under FASB ASC 740 Accounting for Income Taxes. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05 Accounting for Uncertainty in Income Taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. We have determined that there were no uncertain tax positions for the periods ended March 31, 2012 and December 31, 2011.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with ASC 260 “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Fair value of financial instruments
The Company adopted FASB ASC 820 on June 1, 2010. The adoption of FASB ASC 820 did not materially impact the Company's financial position, results of operations or cash flows. FASB ASC 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the fair value option was not elected. The carrying amounts of both the financial assets and liabilities approximate to their fair values due to short maturities or the applicable interest rates approximate the current market rates.
16
Revenue Recognition
Revenue from the sales of the Company’s products is recognized upon customer acceptance. This occurs at the time of delivery to the customer, provided persuasive evidence of an arrangement exists, such as a signed sales contract. The significant risks and rewards of ownership are transferred to the customers at the time when the products are delivered and there is no significant post-delivery obligation to the Company. In addition, the sales price is fixed or determinable and collection is reasonably assured. The Company does not provide customers with contractual rights of return for products. When there are significant post-delivery performance obligations, revenue is recognized only after such obligations are fulfilled. The Company evaluates the terms of the sales agreement with its customer in order to determine whether any significant post-delivery performance obligations exist. Currently, the sales do not include any terms which may impose any significant post-delivery performance obligations on the Company.
Revenue from the sales of the Company’s products represents the invoiced value of goods, net of the value-added tax (VAT). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17 percent of the gross sales price. This VAT may be offset by the VAT paid by the Company on raw and other materials that are included in the cost of producing the Company’s finished products.
Advertising expenses
Advertising costs are expensed as incurred.
Shipping and handling costs
All shipping and handling costs are included in cost of sales expenses.
Foreign Currency Translation
The Company’s functional and reporting currency is the United States dollar. Transactions may occur in Renminbi (“RMB”) dollars and management has adopted ASC 830 “Foreign Currency Matters”. The RMB is not freely convertible into foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
Assets and liabilities of the Company’s operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' equity in the statement of stockholders' equity.
17
Comprehensive Gain or Loss
ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of March 31, 2012, the Company has items that represent comprehensive income and, therefore, has included a schedule of comprehensive income (loss) in the financial statements.
Off Balance Sheet Arrangements
As of March 31, 2012, there were no off balance sheet arrangements.
A smaller reporting company is not required to provide the information required by this Item.
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
18
PART II – OTHER INFORMATION
None.
Information on risk factors can be found in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the transition period ended December 31, 2011, filed with the Securities and Exchange Commission on April 16, 2012. There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the transition period ended December 31, 2011.
During the three months ended March 31, 2012, the Company accepted subscription agreements from investors and correspondingly sold 25,000 shares of its common stock pursuant to its current private placement offering, and received $50,000 in gross proceeds. The offer and sale of the securities was exempt from registration under the Securities Act of 1933 pursuant to Rule 506 of Regulation D.
None.
None.
None.
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ITEM 6. EXHIBITS
Exhibit Number
|
Description of Exhibit
|
|
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS
|
XBRL INSTANCE DOCUMENT
|
|
101.SCH
|
XBRL TAXONOMY EXTENSION SCHEMA
|
|
101.CAL
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
|
101.DEF
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
|
101.LAB
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE
|
|
101.PRE
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
20
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUNSI ENERGIES INC.
|
|||
May 21, 2012
|
By:
|
/s/ David Natan
|
|
David Natan
|
|||
Chief Executive Officer
|
May 21, 2012
|
By:
|
/s/ Jason Williams
|
|
Jason Williams
|
|||
Chief Accounting and Financial Officer
|
21