ForceField Energy Inc. - FORM 10-Q

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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 November 30, 2011

¨	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

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)		(IRS Employer Identification No.)

45 Main Street, Suite 309 Brooklyn, New York		11201
(Address of principal executive offices)		(Zip Code)

646-205-0291

(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	Accelerated filer	o
Non-Accelerated filer	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: 30,005,628 common shares as of January 13, 2012.

		Page
PART I – FINANCIAL INFORMATION

Item 1:	Financial Statements		3

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4

Item 3:	Quantitative and Qualitative Disclosures About Market Risk		17

Item 4:	Controls and Procedures		17

PART II – OTHER INFORMATION

Item 1:	Legal Proceedings		18

Item 1A:	Risk Factors		18

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		18

Item 3:	Defaults Upon Senior Securities		18

Item 4:	[Removed and Reserved]		18

Item 5:	Other Information		18

Item 6:	Exhibits		19

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our unaudited financial statements included in this Form 10-Q are as follows:

F-1	Consolidated Balance Sheets as of November 30, 2011 (Unaudited) and May 31, 2011

F-2	Interim Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended November 30, 2011 and 2010

F-3	Interim Unaudited Consolidated Statements of Cash Flows for the Six Months Ended November 30, 2011 and 2010

F-4	Notes to Interim Unaudited Consolidated Financial Statements

SUNSI ENERGIES INC.

Consolidated Balance Sheets

	November 30,			May 31,
	2011			2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	822,256		$	640,880
Accounts receivable, net		3,250,961			4,669,490
Notes receivable		802,716			941,314
Inventory		1,412,884			563,579
Prepaid expenses and other current assets		105,280			399,086
Total current assets		6,394,097			7,214,349
Property, plant and equipment		7,802,499			7,559,369
Goodwill		3,411,608			3,357,277
Intangible assets, net		3,148,958			3,025,489
Related party receivables		298,686			1,177,204
Other assets		21,451			248,879
Total assets	$	21,077,299		$	22,582,567

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	3,543,031		$	5,320,381
Accrued liabilities		234,216			256,444
Related party payables		5,635,546			5,535,149
Income taxes payable		910,228			1,561,112
Total current liabilities		10,323,021			12,673,086
Long term debt		100,000			—
Total liabilities		10,423,021			12,673,086

Commitments and contingencies		—			—
Redeemable common stock and capital in excess of $0.001 par value. Zero and 1,349,628 shares
included in issued and outstanding below, respectively		—			2,707,488

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; 29,999,628 and 29,436,928 shares
issued and outstanding as of November 30, 2011 and May 31, 2011, respectively		30,000			29,437
Additional paid-in capital		8,831,277			5,057,252
Accumulated deficit		(1,827,138	)		(1,253,344	)
Accumulated other comprehensive income		213,501			100,896
Total SunSi Energies Inc. stockholders' equity		7,247,640			3,934,241
Noncontrolling interests		3,406,638			3,267,752
Total equity		10,654,278			7,201,993
Total liabilities and equity	$	21,077,299		$	22,582,567

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 November 30,						Six Months Ended November 30,
	2011			2010			2011			2010

Sales	$	3,564,430		$	—		$	13,831,221		$	—
Cost of goods sold		3,457,055			—			11,687,449			—
Gross margin		107,375			—			2,143,772			—
Operating expenses:
Professional fees		186,819			205,741			413,886			322,978
General and administrative		760,442			25,972			2,225,534			67,131
Total operating expenses		947,261			231,713			2,639,420			390,109
Loss from operations before income taxes		(839,886	)		(231,713	)		(495,648	)		(390,109	)
Provision for income taxes (benefit)		(154,171	)		—			(7,423	)		—
Net loss		(685,715	)		(231,713	)		(488,225	)		(390,109	)
Less: Net income (loss) attributable to noncontrolling interests		(146,721	)		—			85,569			—
Net loss attributable to SunSi Energies Inc. common shareholders	$	(538,994	)	$	(231,713	)	$	(573,794	)	$	(390,109	)

Basic and diluted loss per share	$	(0.02	)	$	(0.01	)	$	(0.02	)	$	(0.01	)

Weighted-average number of common shares outstanding:
Basic and diluted		29,969,628			27,483,665			29,816,545			27,546,180

Comprehensive loss:
Net loss	$	(685,715	)	$	(231,713	)	$	(488,225	)	$	(390,109	)
Foreign currency translation adjustment		(3,717	)		—			165,922			—
Comprehensive loss		(689,432	)		(231,713	)		(322,303	)		(390,109	)
Comprehensive income (loss) attributable to noncontrolling interests		(148,196	)		—			138,886			—
Comprehensive loss attributable to SunSi Energies Inc.		(541,236	)		(231,713	)		(461,189	)		(390,109	)

The accompanying notes are an integral part of the consolidated financial statements.

F-2

SUNSI ENERGIES INC.

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended November 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(488,225	)	$	(390,109	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		599,494			—
Common stock issued in exchange for services		45,600			—
Changes in operating assets and liabilities:
Accounts receivable		1,486,540			—
Notes receivable		153,054			—
Inventory		(835,936	)		—
Prepaid expenses and other current assets		298,348			—
Related party receivables		893,030			—
Other assets		230,285			—
Accounts payable		(1,851,541	)		11,693
Accrued liabilities		(25,650	)		—
Income taxes payable		(672,729	)		—
Related party payables		—			(5,671	)
Net cash used in operating activities		(167,730	)		(384,087	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(437,541	)		—
Purchase of intangible assets		(356,272	)		—
Net cash used in investing activities		(793,813	)		—

Cash flows from financing activities:
Proceeds from issuance of common stock		1,021,500			456,300
Proceeds from issuance of long term debt - convertible debenture		100,000			—
Proceeds from related party payables		60,742			—
Repayments of related party payables		(48,302	)		—
Proceeds from advances payable		—			40,200
Repayments of advances payable		—			(243,000	)
Net cash provided by financing activities		1,133,940			253,500

Effect of exchange rates on cash and cash equivalents		8,979			—
Net increase (decrease) in cash and cash equivalents		181,376			(130,587	)
Cash and cash equivalents at beginning of period		640,880			598,468
Cash and cash equivalents at end of period	$	822,256		$	467,881

Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	—
Cash paid for income taxes	$	—		$	—

Supplemental disclosure of non-cash investing and financing activities:
Accrued share issuance costs	$	—		$	40,200

The accompanying notes are an integral part of the consolidated financial statements.

F-3

SUNSI ENERGIES INC.

Notes to Interim Unaudited Consolidated Financial Statements

November 30, 2011

(Expressed in United States dollars)

1.	NATURE OF OPERATIONS

SunSi Energies Inc. (“the Company”, or “SunSi”) was incorporated on January 30, 2007 in the State of Nevada. SunSi, through its operations in The People’s Republic of China (“China” or “the PRC”), is a specialty chemical manufacturer and distributor whose focus is to acquire and develop a portfolio of high quality trichlorosilane (“TCS”) producing facilities and distribution rights that possess a potential for future growth and expansion. TCS, a chemical primarily used in the production of polysilicon, is an essential raw material utilized in the production of solar cells for photovoltaic (“PV”) energy producing panels which convert sunlight into electricity. Prior to December 9, 2010, SunSi was a Development Stage Company as defined by ASC Topic 915. After its December 9, 2010 acquisition of a 90% equity interest in Zibo Baokai Commerce and Trade Co., Ltd. ("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.

Prior to December 7, 2011, the Company’s fiscal year-end was May 31. On December 8, 2011, the Company changed its year-end to December 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. 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.

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. The carrying amount of cash and cash equivalents approximates fair value.

At November 30, 2011, cash and cash equivalents totaling $507,815 were held in banks in China; $504,815 at Industrial & Commercial Bank of China in Wendeng and $3,000 at HSBC Bank in Hong Kong. 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 November 30, 2011 and May 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.

No provisions for excess or obsolete inventory were made as of November 30, 2011 or May 31, 2011.

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 November 30, 2011 and May 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 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.

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 November 30, 2011, 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 AND NOTES RECEIVABLE

Accounts receivable and notes receivable at November 30, 2011 and May 31, 2011 were comprised of the following:

	November 30, 2011		May 31, 2011

Accounts receivable	$	3,250,961	$	4,669,490
Notes receivable		802,716		941,314

Total	$	4,053,677	$	5,610,804

Notes receivable represent negotiable commercial paper which can be utilized to acquire new goods or to satisfy invoices due third parties in China.

INVENTORY

Inventory at November 30, 2011 and May 31, 2011 was comprised of the following:

	November 30, 2011		May 31, 2011

Raw materials	$	378,202	$	526,753
Finished goods		1,034,682		36,826

Total	$	1,412,884	$	563,579

No provision for excess or obsolete inventory was made at November 30, 2011 or May 31, 2011.

F-11

6.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at November 30, 2011 and May 31, 2011 were comprised of the following:

	November 30, 2011		May 31, 2011

Advances to suppliers	$	100,456	$	360,113
Prepaid expenses		169		36,101
Other		4,655		2,872

Total	$	105,280	$	399,086

Advances made to suppliers are for the purchase of raw materials and are expected to be recovered within one year.

7.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at November 30, 2011 and May 31, 2011 is comprised of the following:

						November 30, 2011							May 31, 2011
			Accumulated			Net book				Accumulated			Net book
	Cost		Depreciation			Value		Cost		Depreciation			Value

Building	$	3,696,649	$	(129,171	)	$	3,567,478	$	3,637,779	$	(36,604	)	$	3,601,175
Furniture and equipment		4,180		(682	)		3,498		4,113		(193	)		3,920
Machinery and equipment		3,815,759		(283,802	)		3,531,957		3,637,067		(78,255	)		3,558,812
Automotive equipment		170,110		(29,677	)		140,433		167,401		(8,157	)		159,244
Office equipment		11,406		(1,052	)		10,354		4,260		(210	)		4,050
Construction in Progress		548,779		—			548,799		232,168		—			232,168

Total	$	8,246,883	$	(444,384	)	$	7,802,499	$	7,682,788	$	(123,419	)	$	7,559,369

Depreciation expense for the three and six months ended November 30, 2011 totaled $160,095 and $317,354, respectively. The Company did not record any depreciation expense in either the three or six months ended November 30, 2010.

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

8.	BUSINESS COMBINATIONS

During the year ended May 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 November 30, 2011 and May 31, 2011:

		November 30, 2011				May 31, 2011
Purchase consideration related to the Baokai acquisition, unpaid and accrued		$	163,647			$	213,647

ACQUISITION OF WENDENG HE XIE SILICON INDUSTRY CO., LTD.

Description of Transaction

On March 18, 2011, SunSi HK acquired a 60% equity interest in Wendeng He Xie Silicon Industry 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

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

Tot Total acquired intangible assets		$	1,534,000

(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

9.	GOODWILL AND INTANGIBLE ASSETS, NET

The carrying amount of goodwill at November 30, 2011 and May 31, 2011 was comprised of the following:

	November 30, 2011		May 31, 2011

Goodwill – Zibo Baokai Commerce and Trade Co., Ltd	$	292,941	$	292,941
Goodwill – Wendeng He Xie Silicon Industry Co., Ltd		3,006,386		3,006,386
Foreign currency translation adjustments		112,281		57,950

Goodwill, net at November 30, 2011	$	3,411,608	$	3,357,277

Intangible assets at November 30, 2011 and May 31, 2011 were comprised of the following:

		November 30, 2011								May 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		$	1,580,739	$	(369,689	)	$	1,211,050		$	1,555,565	$	(104,541	)	$	1,451,024
Land lease	50.0			1,964,655		(26,747	)		1,937,908			1,580,988		(6,523	)		1,574,465

Total			$	3,545,394	$	(396,436	)	$	3,148,958		$	3,136,553	$	(111,064	)	$	3,025,489

Amortization expense for intangible assets subject to amortization for the three and six months ended November 30, 2011 totaled $141,843 and $282,140, respectively. The Company did not record any amortization expense in either the three and six months ended November 30, 2010.

Differences may arise in the amount of amortization expense reported in the Company's operating results as compared to the corresponding change, a accumulated amortization 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

10.	RELATED PARTY RECEIVABLES

Related party receivables were comprised of the following at November 30, 2011 and May 31, 2011:

	November 30, 2011		May 31, 2011

Wendeng Huahai Chemical Co., Ltd.	$	298,686	$	1,177,204

Total	$	298,686	$	1,177,204

Related party receivables represent trade receivables due from a customer, in which a SunSi shareholder maintains an equity interest. For the three and six month periods ended November 30, 2011, sales to this related party customer totaled $283,675 and $619,531, respectively (all attributable to the Wendeng segment). For the three and six months ended November 30, 2010, the Company did not record any sales with this related party customer as it was prior to the March 18, 2011 acquisition of Wendeng.

11.	OTHER ASSETS

Other assets were comprised of the following at November 30, 2011 and May 31, 2011:

	November 30, 2011		May 31, 2011

Deposit – Department of Extrabudgetary Fund, Wendeng	$	21,451	$	21,110
Deposit – TCS Management Association, Wendeng		—		7,715
Deposit – Intangible assets, Wendeng		—		220,054

Total	$	21,451	$	248,879

F-18

12.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities were comprised of the following at November 30, 2011 and May 31, 2011:

	November 30, 2011		May 31, 2011

Accounts payable	$	3,543,031	$	5,320,381
Accrued liabilities		234,216		256,444

Total	$	3,777,247	$	5,576,825

Accounts payable and accrued liabilities primarily represents trade payables due for Chinese operations.

13.	RELATED PARTY PAYABLES

Related party payables were comprised of the following at November 30, 2011 and May 31, 2011:

	November 30, 2011		May 31, 2011

Dongqiang Liu – Advances, Wendeng	$	5,471,899	$	5,321,502
Yuhua Song – Purchase consideration, Baokai acquisition		163,647		213,647

Total	$	5,635,546	$	5,535,149

The payables due to Mr. Liu and Mr. Song represents amounts due to related parties, of which a shareholder of the Company has an equity interest, and are interest-free, unsecured and repayable on demand.

F-19

14.	INCOME TAXES

Income taxes payable were comprised of the following at November 30, 2011 and May 31, 2011:

	November 30, 2011		May 31, 2011

United States income taxes payable	$	—	$	—
Foreign income taxes payable		910,228		1,561,112
Total	$	910,228	$	1,561,112

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 $2,179,000 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 tax benefit of $7,423 for the six months ended November 30, 2011 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 represent current taxes for the periods ended November 30, 2011 and 2010. The effective income tax rate has no material difference with the PRC statutory income tax rate of 25% for the periods ended November 30, 2011 and 2010.

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 November 30, 2011 and May 31, 2011, since nearly all differences in tax basis and financial statement carrying values are permanent differences.

15.

DEBT

Debt was comprised of the following at November 30, 2011 and May 31, 2011:

	November 30, 2011		May 31, 2011

9% Unsecured, convertible debenture	$	100,000	$	—
Loan discount on unsecured, convertible debenture		—		—
Total long term debt		100,000		—
Less: Current portion		—		—
Long term debt	$	100,000	$	—

F-20

The following table summarizes the issuance of all unsecured, convertible debentures during the six month period ended November 30, 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.

At May 31, 2011, the Company had no unsecured, convertible debentures outstanding. No debt was issued prior to October 15, 2011.

16.	STOCKHOLDERS’ EQUITY

SunSi is authorized to issue 75,000,000 shares of common stock at a par value of $0.001 and had 29,999,628 and 29,436,928 shares of common stock issued and outstanding as of November 30, 2011 and May 31, 2011, respectively.

Since September 10, 2009, the Company has 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 May 31, 2011, the Company accepted subscription agreements from investors and correspondingly issued 711,000 shares of its common stock pursuant to this offering, and received $1,422,000 in gross proceeds. The cost of this issuance was $142,200.

During the six months ended November 30, 2011, the Company accepted subscription agreements from investors and correspondingly issued 507,500 shares of its common stock pursuant to this offering, and received $1,015,000 in gross proceeds. The cost of this issuance was $101,500. Further, the Company issued 15,200 shares of common stock in exchange for consulting, professional and other services rendered. The value of these services aggregated $45,600.

On September 5, 2011, the Company closed this offering and commenced a new offering of 3.0 million shares at $3.00 per share. As of November 30, 2011, the Company accepted subscription agreements from investors and correspondingly issued 40,000 shares of its common stock pursuant to this new offering, and received $120,000 in gross proceeds. The cost of this issuance was $12,000.

F-21

17.	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.

18.	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 and six months ended November 30, 2011 and November 30, 2010:

	Three Months Ended November 30,						Six Months Ended November 30,
	2011			2010			2011			2010

Sales:
Baokai	$	1,848,377		$	—		$	5,808,395		$	—
Wendeng		1,716,053			—			8,022,826			—
Corporate		—			—			—			—
Total	$	3,564,430		$	—		$	13,831,221		$	—
Cost of goods sold:
Baokai	$	1,811,524		$	—		$	5,713,287		$	—
Wendeng		1,645,531			—			5,974,162			—
Corporate		—			—			—			—
Total	$	3,457,055		$	—		$	11,687,449		$	—
Gross margin:
Baokai	$	36,852		$	—		$	95,107		$	—
Wendeng		70,523			—			2,048,665			—
Corporate		—			—			—			—
Total	$	107,375		$	—		$	2,143,772		$	—
Operating expenses:
Baokai	$	19,000		$	—		$	38,000		$	—
Wendeng		705,057			—			2,135,462			—
Corporate		223,204			231,713			465,958			390,109
Total	$	947,261		$	231,713		$	2,639,420		$	390,109
Provision for income taxes:
Baokai	$	4,462		$	—		$	14,276		$	—
Wendeng		(158,633	)		—			(21,699	)		—
Corporate		—			—			—			—
Total	$	(154,171	)	$	—		$	(7,423	)	$	—
Net income (loss):
Baokai	$	13,389		$	—		$	42,830		$	—
Wendeng		(475,901	)		—			(65,098	)		—
Corporate		(223,204	)		(231,713	)		(465,957	)		(390,109	)
Total	$	(685,715	)	$	(231,713	)	$	(488,225	)	$	(390,109	)

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 November 30, 2011 and May 31, 2011:

Total assets by segment:
Baokai	$	976,643	$	2,028,632
Wendeng		19,783,215		20,458,838
Corporate		317,441		95,097
Total	$	21,077,299	$	22,582,567

Goodwill, Intangible and Long-Lived Assets

The following table sets forth the carrying amount of goodwill by segment at November 30, 2011 and May 31, 2011:

Goodwill by segment:
Baokai	$	313,622	$	308,627
Wendeng		3,097,986		3,048,650
Total	$	3,411,608	$	3,357,277

The following table sets forth the carrying amount of intangible assets by segment at November 30, 2011 and May 31, 2011:

Intangible assets by segment:
Baokai	$	—	$	—
Wendeng		3,148,958		3,025,489
Total	$	3,148,958	$	3,025,489

The following table sets forth the carrying amount of property, plant and equipment by segment at November 30, 2011 and May 31, 2011:

Property, plant and equipment by segment:
Baokai	$	—	$	—
Wendeng		7,802,499		7,559,369
Total	$	7,802,499	$	7,559,369

F-24

Amortization expense for Wendeng totaled $141,843 and $282,140, respectively, for the three and six months ended November 30, 2011. Depreciation expense for Wendeng totaled $160,095 and $317,354, respectively, for the three and six months ended November 30, 2011. Capital expenditures for Wendeng totaled $437,541 during the six months ended November 30, 2011. Baokai did not record any depreciation or amortization expense, nor did it incur any capital expenditures during the six months ended November 30, 2011.

The Company had no goodwill, intangible or long-lived assets prior to December 9, 2010.

Geographic Information

All of the Company’s long-lived assets and revenues, as determined by shipping destination, are located within The People’s Republic of China.

19.	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 $7,673 and $16,694 for the three and six month periods ended November 30, 2011.

20.	SUBSEQUENT EVENTS

Prior to December 7, 2011, the Company's fiscal year-end was May 31. On December 8, 2011, the Company changed it year-end to December 31.

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 required to be disclosed.

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 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.

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 98.2% of their sales for the six month period ended November 30, 2011. 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 (“Wendeng Acquisition”) a 60% 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.

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.

We remain committed to our plan to expand the manufacturing capacity of Wendeng to 75,000 MT per year. In September 2011, we completed the first phase of this expansion increasing the manufacturing capacity from 20,000 MT to 30,000 MT at an approximate cost of $1.5 million. By the end October 2011, the additional capacity became operational following the completion of certain quality control measures and other tests.

TCS Market and our Future Strategy

During calendar year 2011, the world polysilicon prices decreased approximately 60% pas the top five producers more than doubled output, according to data compiled by Bloomberg. The polysilicon industry will make about 20 percent more than is needed this year, and the oversupply will increase to 28 percent in 2012, according to the Macquarie Group Ltd. As a result, about 90 percent of China’s polysilicon plants comprising half of the country’s production suspended output in November and December because of the price slump, the China Nonferrous Metals Industrial Association, which acts as a conduit between industry and government, said.

During our third fiscal quarter ended November 30, 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 the pricing of polysilicon will increase in 2012 and that due to the oversupply there will be an industry consolidation where we will emerge as one of the strongest entities and lowest cost producers.

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 it to operate profitably, make future TCS plant acquisitions, conduct TCS plant expansions or to enter into any future TCS distribution agreements. Additionally, there can be no assurance that the price of polysilicon will not continue to fall or that an industry consolidation will occur.

We remain committed to expanding our Wendeng facility from 30,000 metric tons to 75,000 metric tons. We estimate the total amount of funding required to complete this expansion to be $15.0 million. We expect to raise $9.0 to $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.

Results of Operations for the three and six months ended November 30, 2011 and 2010

During our fiscal year ended May 31, 2011, we consummated the acquisitions of Baokai in December, 2010 and Wendeng in March 2011 as described throughout this Report. As a result of these acquisitions, we emerged from a Development Stage company into planned operations. The results of operations include a full three months of operations for Baokai and Wendeng, respectively for the three and six months ended November 30, 2011, compared to nil in the comparable period of the prior year. Therefore, comparisons between 2011 and 2010 may not be indicative of current trends.

Segment Results

The following table sets forth operations by segment for the three and six months ended November 30, 2011 and 2010:

	Three Months Ended November 30,						Six Months Ended November 30,
	2011			2010			2011			2010

Sales:
Baokai	$	1,848,377		$	—		$	5,808,395		$	—
Wendeng		1,716,053			—			8,022,826			—
Corporate		—			—			—			—
Total	$	3,564,430		$	—		$	13,831,221		$	—
Cost of goods sold:
Baokai	$	1,811,524		$	—		$	5,713,287		$	—
Wendeng		1,645,531			—			5,974,162			—
Corporate		—			—			—			—
Total	$	3,457,055		$	—		$	11,687,449		$	—
Gross margin:
Baokai	$	36,852		$	—		$	95,107		$	—
Wendeng		70,523			—			2,048,665			—
Corporate		—			—			—			—
Total	$	107,375		$	—		$	2,143,772		$	—
Operating expenses:
Baokai	$	19,000		$	—		$	38,000		$	—
Wendeng		705,057			—			2,135,462			—
Corporate		223,204			231,713			465,958			390,109
Total	$	947,261		$	231,713		$	2,639,420		$	390,109
Provision for income taxes:
Baokai	$	4,462		$	—		$	14,276		$	—
Wendeng		(158,633	)		—			(21,699	)		—
Corporate		—			—			—			—
Total	$	(154,171	)	$	—		$	(7,423	)	$	—
Net income (loss):
Baokai	$	13,389		$	—		$	42,830		$	—
Wendeng		(475,901	)		—			(65,098	)		—
Corporate		(223,204	)		(231,713	)		(465,957	)		(390,109	)
Total	$	(685,715	)	$	(231,713	)	$	(488,225	)	$	(390,109	)

Operating segments do not sell products to each other, and accordingly, there is no inter-segment revenue to be reported.

Net Revenue

Revenue for the three months ended November 30, 2011 totaled $3,564,430 as compared to nil for the same period ended November 30, 2010. The revenues generated in fiscal 2011 were as a result of two acquisitions (Baokai and Wendeng) described throughout this Report. The revenue for the three month and six month periods ended November 30, 2011 was comprised of $1,848,377 and $5,808,395 in revenue at Baokai, respectively and $1,716,053 and $8,022,826, respectively at Wendeng. With the exception of approximately $188,000 in revenue recorded from shipments to a polysilicon company in Russia, from our Wendeng segment, all of these revenues were recorded within China. The price of TCS in China is typically based on short term contracts and the spot market enabling both the buyer and the seller to adapt to market conditions. Currently, the price of TCS within China is approximately $850 USD per metric ton compared to pricing of $1,100-$1,300 during the period from January 1, 2011- August 31, 2011.

Currently, due to the oversupply of polysilicon in the world market, many polysilicon makers in China and worldwide have either temporarily shut down and in some cases, ceased operations. Both the ZBC facility that is the exclusive supplier of Baokai and our Wendeng facility are closed and not operating as of January 15, 2012. We expect both facilities to re-open after the Chinese New Year (which is typically a slower than normal operating period in China) in mid-February and to begin selling TCS.

Based on current market indications, we believe the TCS market both in terms of pricing and the amount of orders placed will begin to improve gradually during the quarter ending March 31, 2012 with a more significant recovery in the June quarter. However, there can be no assurance that the price of TCS will not decline further in the next 12 months, and that we will receive a sufficient amount of orders for TCS to run the Wendeng facility or Baokai operations profitably.

Gross Margin

Gross margin is calculated by subtracting cost of sales from net revenue. The gross margin percentage is calculated by dividing the gross margin by net revenues. The gross margin percentage of approximately 3.0% and 15.5% for the three and six month periods ended November 30, 2011 is attributable to a 4.1% and 25.5% margin on sales, respectively, at Wendeng for the three and six month periods ended November 30, 2011 offset by an approximate 2.0% margin earned on net revenues at Baokai. Margins are approximately 2.0% at Baokai because we are a distributor of TCS produced by the ZBC factory and our purchase price is fixed. The gross margin at Baokai is fixed at 2.0% for all existing customers, but will increase if we can bring new customers to Baokai that will purchase TCS from the ZBC TCS factory which Baokai buys all of its TCS from. There can be no assurances that we will be successful in doing so. If the price of TCS fluctuates at Baokai, we should still earn a 2.0% margin; however, if there are price fluctuations either up or down for TCS, the gross margin percentage at Wendeng will be impacted.

Due to the oversupply of polysilicon, as described throughout this report, we have negotiated with our suppliers to reduce the price of the raw materials they sell to us necessary to manufacture TCS. We have negotiated decreases of approximately 10-15% in our raw materials which represent approximately 60% of the cost of manufacturing a metric ton of TCS. We expect that the decreased cost of raw materials will help to improve our gross margins when we resume manufacturing in mid-February; however, there can be no assurances that reduced manufacturing costs will enable us to improve our gross margins over current levels if the selling price of TCS continues to fall.

Professional Fees

We incurred professional fees of $186,819 and $413,886, respectively, for the three months and six months ended November 30, 2011, compared to $205,741 and $322,978 for the same three and six month periods ended November 30, 2010. Professional fees consist of legal, accounting and other due diligence fees. The increase in 2011 professional fees, which were primarily incurred in the United States associated with public company activity compared to the same period in 2010, is attributable to an increase in accounting, legal and business valuation services incurred in connection with our Wendeng acquisition.

General and Administrative Expenses

General and administrative expenses (“G&A”) totaled $760,442 and $2,225,534 for the three and six months ended November 30, 2011 compared to $25,972 and $67,131 for the periods ended November 30, 2010. The increase in G&A expense in 2011 is primarily attributable to the inclusion of G&A expenses at Wendeng in 2011 due to the acquisition of Wendeng on March 18, 2011. Additionally, we incurred significantly higher investor relations and promotion expenses of approximately $204,000 related to our efforts to increase the visibility of SunSi. The primary components of G&A expenses include office expense, salaries and benefits not directly associated with manufacturing process, and building expenses and maintenance.

Provision for Income Taxes

The provision for income taxes was ($154,171) and ($7,423), or 18.4% and 1.5%, for the three and six months ended November 30, 2011 compared to nil, or 0%, for the same periods ended November 30, 2010.

As a result of operations recorded at the Baokai subsidiary and Wendeng subsidiaries located in China for the period ended November 30, 2011, we have recorded a tax benefit of $7,423, 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 incurred a U.S net operating loss of approximately $2,179,000 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 in the United States carried forward in future years.

Net loss

For the three and six months ended November 30, 2011, we had net losses of ($685,715) and ($488,225), respectively compared to a losses of ($231,713) and ($390,109) for the comparable periods ended November 30, 2010. During 2010, we were a development stage company with no revenues and only expenses.

The weighted average number of basic and fully diluted shares outstanding for the three and six months periods ended November 30, 2011 were 29,969,628 and 29,816,545, respectively, compared to 27,483,665 and 27,546,180, respectively for the same period ended November 30, 2010. There are no dilutive equivalents included in our calculation of fully diluted shares in either period, since their inclusion would be anti-dilutive due to our net loss per share.

Liquidity and Capital Resources

At November 30, 2011, we had cash on hand of $822,256. Of this amount, $314,441 was in the United States and $504,815 was in China and $3,000 was in Hong Kong. For the foreseeable future, we do not intend to repatriate any funds from China to support operations in the United States. U.S. operations are comprised of a holding company with expenses and no business operating activities that are revenue generating. Historically, the sole source of funding for U.S. corporate activities has been in the form of private placements of our common stock. We believe our current cash on hand and our ability to continue raising funds from the sale of equity will be sufficient to fund our U.S. activities for the next year.

We expect to generate positive cash flow from Chinese operations during the next year. We are in the process of seeking funding in the form of equity or debt 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 40% minority partner to contribute $5.0 million. We believe we will be successful in raising these funds; however, there can be no assurances.

At November 30, 2011, we had a working capital deficit of $3,928,924. The deficit is primarily attributable to the related party payable of $5,635,546 due to the 40% minority shareholder of Wendeng. These funds were used to build and expand the Wendeng facility. The 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 $167,730 for the six months ended November 30, 2011 as compared to net cash used in operating activities of $384,087 for the comparable period in the prior year. The increase in 2011 compared to 2010 is attributable to a net change in operating assets and liabilities offset by a decrease in net loss.

Net cash used in investing activities was $793,813 for the six months ended November 30, 2011 as compared to no activity for the comparable period in the prior year. The net cash used in the current period is directly attributable to the purchase of $437,541 in capital assets and $356,272 in land use rights to support our ongoing efforts to expand the capacity of our Wendeng production facility.

Net cash provided by financing activities was $1,133,940 for the six months ended November 30, 2011 as compared to $253,500 for the same period in 2010. The proceeds received in both periods are primarily attributable to the sale of equity through private placements.

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

Financial Instruments

Concentration of Credit Risk

Allowance for doubtful accounts

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

No provisions for excess or obsolete inventory were made at November 30, 2011 and May 31, 2011.

Intangible assets – land use rights

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

Depreciation will not start until the construction in progress is completed and put into operation.

Impairment of Assets

Goodwill and Intangible Assets

Income Taxes

Basic and Diluted Net Income (Loss) Per Share

Fair value of financial instruments

Revenue Recognition

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

Comprehensive Gain or Loss

Off Balance Sheet Arrangements

As of November 30, 2011, there were no off balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

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.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Information on risk factors can be found in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended May 31, 2011, filed with the Securities and Exchange Commission on September 12, 2011. There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended May 31, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended November 30, 2011, the Company accepted subscription agreements from investors and correspondingly sold 52,500 shares of its common stock pursuant to its current private placement offering, and received $145,000 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION

None

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

SIGNATURES

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.

January 17, 2012	By:	/s/ David Natan
		David Natan
		Chief Executive Officer

January 17, 2012	By:	/s/ Jason Williams
		Jason Williams
		Chief Accounting and Financial Officer

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