- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

( Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 333-118259

	CHINA SUN GROUP HIGH-TECH CO.
	(Exact name of registrant as specified in its charter)

Delaware	54-2142880
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Hutan Street, Zhongshan District

Dalian, The People’s Republic of China

(Address of principal executive offices) (Zip Code)

011 – 86- (411) 8288 9800/ 8289 2736

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o 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). o Yes o 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

o Large accelerated filer	o Accelerated filer

o Non-accelerated filer (Do not check if a smaller reporting company)	x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

□ Yes □ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

There are presently 53,422,971 shares of common stock, $.001 par value, issued and outstanding as of January 11, 2010.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	7
Item 4.	Controls and Procedures.	7

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	8
Item 1A.	Risk Factors.	8
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	8
Item 3.	Defaults Upon Senior Securities.	8
Item 4.	Submission of Matters to a Vote of Security Holders.	8
Item 5.	Other Information.	8
Item 6.	Exhibits.	8

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA SUN GROUP HIGH-TECH CO.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

		Page

Condensed Consolidated Balance Sheets as of November 30, 2009 and May 31, 2009		F-2

Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months ended November 30, 2009 and 2008		F-3

Condensed Consolidated Statements of Cash Flows for the Six Months ended November 30, 2009 and 2008		F-4

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months ended November 30, 2009		F-5

Notes to Condensed Consolidated Financial Statements		F-6 – F-17

F-1

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF NOVEMBER 30, 2009 AND MAY 31, 2009

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	November 30, 2009		May 31, 2009
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,661,971	$	9,209,953
Accounts receivable, trade		1,666,116		1,580,220
Inventories		389,866		1,657,023
Value-added tax receivable		-		124,627
Deposits and prepayments		679,505		439,560

Total current assets		14,397,458		13,011,383

Non-current assets:
Technical know-how, net		2,563,277		2,608,059
Property, plant and equipment, net		21,371,513		19,630,119

TOTAL ASSETS	$	38,332,248	$	35,249,561

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	-	$	847,796
Income tax payable		1,419,438		1,476,030
Other payables and accrued liabilities		939,312		1,022,303

Total liabilities		2,358,750		3,346,129

Commitments and contingencies

Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; none of shares issued and outstanding as of November 30, 2009 and May 31, 2009		-		-
Common stock, $0.001 par value; 100,000,000 shares authorized; 53,422,971 shares issued and outstanding as of November 30, 2009 and May 31, 2009		53,423		53,423
Additional paid-in capital		9,585,204		9,585,204
Accumulated other comprehensive income		3,056,589		3,067,549
Statutory reserve		1,387,775		1,387,775
Retained earnings		21,890,507		17,809,481

Total stockholders’ equity		35,973,498		31,903,432

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	38,332,248	$	35,249,561

See accompanying notes to condensed consolidated financial statements.

F-2

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009 AND 2008

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

	Three months ended November 30,						Six months ended November 30,
	2009			2008			2009			2008

Revenue, net	$	10,110,020		$	7,606,217		$	19,423,356		$	18,593,108

Cost of revenue (inclusive of depreciation and amortization)		7,078,731			4,815,862			13,333,297			11,650,171

Gross profit		3,031,289			2,790,355			6,090,059			6,942,937

Operating expenses:
Sales and marketing		29,844			95,614			53,138			465,295
Research and development		25,598			25,646			51,173			50,287
Depreciation		64,594			64,621			129,097			128,414
General and administrative		211,884			207,185			389,059			682,491
Total operating expenses		331,920			393,066			622,467			1,326,487

Income from operations		2,699,369			2,397,289			5,467,592			5,616,450

Other income:
Interest income		8,756			10,605			16,814			18,616

Income before income taxes		2,708,125			2,407,894			5,484,406			5,635,066

Income tax expense		(690,442	)		(597,919	)		(1,403,380	)		(1,436,304	)

NET INCOME		2,017,683			1,809,975			4,081,026			4,198,762

Other comprehensive income:
- Foreign currency translation gain (loss)		64,313			27,887			(10,960	)		415,044

COMPREHENSIVE INCOME	$	2,081,996		$	1,837,862		$	4,070,006		$	4,613,806

Net income per share – Basic and diluted	$	0.04		$	0.03		$	0.08		$	0.08

Weighted average number of shares outstanding during the period – Basic and diluted		53,422,971			53,422,971			53,422,971			53,422,971

See accompanying notes to condensed consolidated financial statements.

F-3

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED NOVEMBER 30, 2009 AND 2008

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

	Six months ended November 30,
	2009			2008
Cash flows from operating activities:
Net income	$	4,081,026		$	4,198,762
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		573,949			332,708
Amortization of technical know-how		43,375			-
Changes in operating assets and liabilities:
Accounts receivable, trade		(86,566	)		(803,567	)
Inventories		1,264,253			2,817,062
Deposits and prepayments		(239,780	)		(564,729	)
Accounts payable, trade		(845,986	)		234,518
Customer deposits		-			(342	)
Value-added tax, net		417,912			770,930
Income tax payable		(55,746	)		298,660
Other payables and accrued liabilities		(376,042	)		60,146
Net cash provided by operating activities		4,776,395			7,344,148

Cash flows from investing activities:
Purchase of plant and equipment		(1,297,941	)		(5,127	)
Addition of construction in progress		(1,024,621	)		-
Net cash used in investing activities		(2,322,562	)		(5,127	)

Effect of exchange rate changes on cash and cash equivalents		(1,815	)		98,313

NET CHANGE IN CASH AND CASH EQUIVALENTS		2,452,018			7,437,334

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,209,953			3,879,114

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,661,971		$	11,316,448

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,459,125		$	1,137,620
Cash paid for interest	$	-		$	-

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfer from construction in progress to property, plant and equipment	$	2,560,385		$	-

See accompanying notes to condensed consolidated financial statements.

F-4

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

	Convertible preferred stock				Common stock				Additional paid-in		Accumulated other comprehensive			Statutory		Retained		Total stockholders’
	No. of share		Amount		No. of share		Amount		capital		income			reserve		earnings		equity


Balance as of June 1, 2009		-		-		53,422,971	$	53,423	$	9,585,204	$	3,067,549		$	1,387,775	$	17,809,481	$	31,903,432

Net income for the period		-		-		-		-		-		-			-		4,081,026		4,081,026

Foreign currency translation adjustment		-		-		-		-		-		(10,960	)		-		-		(10,960	)

Balance as of November 30, 2009		-	$	-		53,422,971	$	53,423	$	9,585,204	$	3,056,589		$	1,387,775	$	21,890,507	$	35,973,498

See accompanying notes to condensed consolidated financial statements.

F-5

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

NOTE － 1 BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of May 31, 2009 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended November 30, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year ending May 31, 2010 or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended May 31, 2009.

NOTE-2 ORGANIZATION AND BUSINESS BACKGROUND

China Sun Group High-Tech Co. (the “Company” or “CSGH”) was organized under the laws of the State of North Carolina on February 2, 2004 as a subchapter S-Corporation. On August 24, 2007, the Company was reincorporated in the State of Delaware and changed its name from “Capital Resource Funding, Inc.” to “China Sun Group High-Tech Co.”

The Company, through its operating subsidiaries in the PRC, mainly engages in the production and sales of cobaltosic oxide and lithium cobalt oxide, both anode materials used in lithium ion rechargeable batteries in the PRC. The operation activity was commenced from April 2006.

CSGH and its subsidiaries are hereinafter referred to as (the “Company”).

NOTE-3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

l	Use of estimates

In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.

F-6

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

l	Basis of consolidation

The unaudited condensed consolidated financial statements include the financial statements of CSGH and its subsidiaries. All significant inter-company balances and transactions among CSGH and its subsidiaries have been eliminated upon consolidation.

l	Revenue recognition

Revenue is recognized when products are delivered to customers. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures and the customer’s acceptance.

Revenue represents the invoiced value of goods, net of value-added tax (“VAT”). All of the Company's products that are sold in the PRC are subject to VAT which is levied at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

l	Cash and cash equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of Six months or less as of the purchase date of such investments.

l	Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customers’ current credit worthiness and the economic environment.

l	Inventories

Inventories include material, labor and manufacturing overhead and are stated at lower of cost or market value, cost being determined on a weighted average method. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of November 30, 2009, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

l	Technical know-how

Technical know-how represents the developed product technology acquired from a third party and is carried at its purchase cost, net of accumulated amortization. The Company determined that the estimated useful life of the acquired technology is 15 years and subject to amortization using a straight-line basis over the estimated useful life when its developed products are approved by the government agency in September 2009.

F-7

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

Amortization expense for the three and six months ended November 30, 2009 were $43,375 and $43,375 in cost of revenue.

l	Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

	Depreciable life	Residual value
Building	40 years	5%
Plant and machinery	5-40 years	5%
Office equipment	5 years	5%
Motor vehicle	5 years	5%

Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

l	Construction in progress

Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.

l	Valuation of long-lived assets

Long-lived assets primarily include technical know-how and property, plant and equipment. In accordance with ASC Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ,” the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results. There has been no impairment as of November 30, 2009.

l	Comprehensive income

ASC Topic 220 , “Comprehensive Income” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the period from non-owner sources. Accumulated comprehensive income consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

F-8

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

l	Income taxes

The Company adopts the ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.

For the period ended November 30, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions. As of November 30, 2009, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts its major business in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authorities.

l	Net income per share

The Company calculates net income per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

l	Foreign currencies translation

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. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the condensed consolidated statement of operations.

The reporting currency of the Company is United States dollar ("US$"). The Company's subsidiaries in the PRC, maintain their books and records in its local currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which these entities operate.

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “ Translation of Financial Statement ”, , using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

F-9

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective year:

	Six months ended November 30,
	2009		2008
Period-end RMB:US$1 exchange rate		6.8285		6.8359
Average monthly RMB:US$1 exchange rate		6.8396		6.8602

l	Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. The Company operates one reportable business segment in the PRC.

l	Fair value measurement

ASC Topic 820 “ Fair Value Measurements and Disclosures ” ("ASC 820"), establishes a new framework for measuring fair value and expands related disclosures. Broadly, ASC 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

For financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

l	Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do 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.

In July 2009, the FASB issued SFAS No. 168, “ The Hierarchy of Generally Accepted Accounting Principles ”. SFAS 168 codified all previously issued accounting pronouncements, eliminating the prior hierarchy of accounting literature, in a single source for authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10 “ Generally Accepted Accounting Principles ”, is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have an effect on the Company’s condensed consolidated financial statements.

F-10

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

In August 2009, the FASB issued an update of ASC Topic 820, “ Measuring Liabilities at Fair Value ”. The new guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using prescribed techniques. The Company adopted the new guidance in the third quarter of 2009 and it did not materially affect the Company’s financial position and results of operations.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “ Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force) ” which amends ASC 605-25, “ Revenue Recognition: Multiple-Element Arrangements .” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. The Company is currently evaluating the application date and the impact of this standard on its condensed consolidated financial statements.

NOTE-4 ACCOUNTS RECEIVABLE, NET

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the Company has determined that no allowance for doubtful accounts is required for the period ended November 30, 2009 and 2008.

NOTE-5 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of:

	November 30, 2009			May 31, 2009
	(Unaudited)			(Audited)

Building	$	6,308,373		$	6,308,373
Plant and machinery		15,039,685			11,181,025
Office equipment		206,302			205,467
Motor vehicle		34,816			34,816
Construction in progress		-			1,540,220
Foreign translation difference		2,183,600			2,187,536
		23,772,776			21,457,437
Less: accumulated depreciation		(2,270,158	)		(1,696,209	)
Less: foreign translation difference		(131,105	)		(131,109	)
Property, plant and equipment, net	$	21,371,513		$	19,630,119

F-11

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

Depreciation expenses for the three months ended November 30, 2009 and 2008 were $363,696 and $167,377, which included $299,100 and $102,756 in cost of revenue, respectively.

Depreciation expenses for the six months ended November 30, 2009 and 2008 were $573,949 and $332,708, which included $444,850 and $204,294 in cost of revenue, respectively.

NOTE-6 OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of:

	November 30, 2009		May 31, 2009
	(Unaudited)		(Audited)

Welfare payable	$	293,112	$	293,262
Accrued operating expense		160,028		126,209
Payable to equipment vendor		64,143		83,623
Purchase price payable for technical know-how		-		391,209
VAT payable		294,029		-
Other payable		128,000		128,000
Other payables and accrued liabilities	$	939,312	$	1,022,303

NOTE-7 INCOME TAXES

For the period ended November 30, 2009 and 2008, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:

	Six months ended November 30,
	2009			2008
Tax jurisdiction from:
– Local	$	(121,029	)	$	(192,823	)
– Foreign		5,605,435			5,827,889
Income before income taxes	$	5,484,406		$	5,635,066

F-12

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

The provision for income taxes consisted of the following:

	Six months ended November 30,
	2009		2008
Current tax:
– Local	$	-	$	-
– Foreign		1,403,380		1,436,304

Deferred tax:
– Local		-		-
– Foreign		-		-

Income tax expense	$	1,403,380	$	1,436,304

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company operates in various countries: United States of America and the PRC that are subject to tax in the jurisdictions in which they operate, as follows:

United States of America

The Company is registered in the State of Delaware and is subject to the tax laws of the United States of America.

As of November 30, 2009, the operation in the United States of America incurred $1,077,614 of cumulative net operating losses carryforwards for federal tax purposes, which are available to offset future taxable income. The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

The PRC

The Company’s PRC subsidiaries are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a statutory income tax rate of 25%.

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes from the operation in the PRC for the periods ended November 30, 2009 and 2008 are as follows:

	Six months ended November 30,
	2009			2008

Income before income taxes	$	5,605,435		$	5,827,889
Income statutory tax rate		25	%		25	%
Income taxes calculated at statutory income tax rate		1,401,359			1,456,972

Non-deductible (taxable) items		(1,668	)		(20,668	)
Add: items not deductible to taxes
- Provision and accrued expenses		913			-
- Prior year’s adjustment		2,776			-
Income tax expense	$	1,403,380		$	1 ,436,304

F-13

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of November 30, 2009 and May 31, 2009:

	November 30, 2009			May 31, 2009
	(Unaudited)			(Audited)
Deferred tax assets:
- Net operating loss carryforwards	$	368,873		$	327,723
Less: valuation allowance		(368,873	)		(327,723	)
Deferred tax assets	$	-		$	-

Management believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets of $368,873 as of November 30, 2009. During the period ended November 30, 2009, the valuation allowance increased by $41,150, primarily relating to net operating loss carryforwards from the local tax regime.

NOTE-8 CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customers

For the three and six months ended November 30, 2009 and 2008, the customers who account for 10% or more of revenues of the Company are presented as follows:

	Three months ended November 30, 2009					November 30, 2009
	Revenues		Percentage of revenues			Trade accounts receivable
Customer B	$	2,614,550		26	%	$	665,465
Customer D		1,058,806		10	%		165,038
Customer E		1,271,322		13	%		-
Customer F		1,923,122		19	%		595,900
Customer H		1,554,293		15	%		34,415
Total:	$	8,422,093		83	%	$	1,460,818

F-14

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

	Six months ended November 30, 2009					November 30, 2009
	Revenues		Percentage of revenues			Trade accounts receivable
Customer B	$	4,369,863		22	%	$	665,465
Customer D		2,699,800		14	%		165,038
Customer E		3,190,790		16	%		-
Customer F		2,850,405		15	%		595,900
Total:	$	13,110,858		68	%	$	1,426,403

Three months ended November 30, 2008

November 30, 2008

Revenues

Percentage

of revenues

Trade accounts receivable

Customer A	$	1,987,240	26	%	$	-
Customer C		2,177,426	29	%		585,146
Customer D		2,008,001	27	%		1,545,755
Customer E		862,941	11	%		-
Total:	$	7,035,608	93	%	$	2,130,901

Six months ended November 30, 2008

November 30, 2008

Revenues

Percentage

of revenues

Trade accounts receivable

Customer A	$	4,875,215	26	%	$	-
Customer B		8,017,306	43	%		-
Customer C		2,171,202	12	%		585,146
Customer D		2,002,272	11	%		1,545,755
Total:	$	17,065,995	92	%	$	2,130,901

For the three and six months ended November 30, 2009 and 2008, 100% of the Company’s revenues were derived from customers located in the PRC.

(b)	Major vendors

F-15

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

For the three and six months ended November 30, 2009 and 2008, the vendors who account for 10% or more of purchases of the Company are presented as follows:

Three months ended November 30, 2009

November 30, 2009

Purchases

Percentage

of purchases

Accounts

payable

Vendor B	$	1,776,967	27	%	$	-
Vendor C		3,875,385	60	%		-
Total:	$	5,652,352	87	%	$	-

Six months ended November 30, 2009

November 30, 2009

Purchases

Percentage

of purchase

Accounts

payable

Vendor A	$	3,028,492	27	%	$	-
Vendor B		3,017,828	27	%		-
Vendor C		4,822,359	43	%		-
Total:	$	10,868,679	97	%	$	-

Three months ended November 30, 2008

November 30, 2008

Purchases

Percentage

of purchase

Accounts

payable

Vendor A	$	2,783,653	70	%	$	980,120
Vendor B		581,515	15	%		-
Vendor C		585,161	15	%		-
Total:	$	3,950,329	100	%	$	980,120

Six months ended November 30, 2008

November 30, 2008

Purchases

Percentage

of purchase

Accounts

payable

Vendor A	$	4,838,238	60	%	$	980,120
Vendor B		2,635,446	33	%		-
Total:	$	7,473,684	93	%	$	980,120

For the three and six months ended November 30, 2009 and 2008, 100% of the Company’s purchases were derived from vendors located in the PRC.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

F-16

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

(d) Exchange rate risk

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates against US$, the value of the RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

(e) Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

NOTE-9 COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitment

The Company through its subsidiary in the PRC, leases an office premise under a non-cancelable operating lease for a term of 10 years, due July 25, 2010. Costs incurred under this operating lease are recorded as rental expense and totaled approximately $3,655 and $3,644 for the period ended November 30, 2009 and 2008.

As of November 30, 2009, the Company has the future minimum rental payments of $4,881 under the operating lease agreement within the next 12 months.

(b) Capital commitment

On June 9, 2007, the Company’s subsidiary, DLXY entered into an African Mining Project Contract of Cooperation (the “Purchase Agreement”) with Shengbao Group and South African Shengbao Mining Enterprises (“Shengbao”). Pursuant to the Purchase Agreement, DLXY is obliged to purchase the prospecting and mining rights of a cobalt ore mine for a purchase price of $2 million over a term of 15 years. As of November 30, 2009, the Company had the capital commitment of $2 million in the purchase of the prospecting and mining rights which was contracted for but not provided in the financial statements.

NOTE-10 SUBSEQUENT EVENT

The Company evaluated subsequent events through January 14, 2010, the date the financial statements were issued, and there were no subsequent events which impacted the Company’s financial position or results of operations as of January 14, 2010 or which required disclosure.

F-17

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

Results of Operations

Three Months Ended November 30, 2009 and November 30, 2008

Net Revenue

Net revenue for the three months ended November 30, 2009 was $10,110,020, an increase of $2,503,803 or 32.92% from net revenue of $7,606,217 for the comparable period in 2008. The increase resulted from increased customer demand and hence sales volume, even though our average sales price decreased slightly by 3%. Overall the revenue has increased due to the net effect of sales volume increase and price decrease.

Cost of Revenue

Cost of revenue for the three months ended November 30, 2009 was $7,078,731, an increase of $2,262,869 or 46.99% from $4,815,862 for the comparable period in 2008. The increase resulted directly from increased demand and sales volume and the significant increase in the prices of raw materials.

Gross Profit

Gross profit for the three months ended November 30, 2009 was $3,031,289, an increase of $240,934 or 8.63% from $2,790,355 for the comparable period in 2008. The increase in gross profit was primarily due to the combined effect of the increase in more profitable new products and the increase in raw material prices for some of our old products.

Sales and Marketing Expenses

Sales and marketing expenses for the three months period ended November 30 2009 totaled $29,844, compared to $95,614 for the three months ended November 30, 2008. This represents a decrease of $65,770 or 68.79% for the three months period compared to 2008. The decrease was primarily attributable to management’s heightened control of certain cost saving measures for the three months period ended November 30 2009.

General and Administrative Expenses

General and administrative expenses for the three months ended November 30, 2009 were $211,884, an increase of $4,699 or 2.27% from $207,185 for the comparable period in 2008. The increase was primarily attributable to our more aggressive marketing effort to expand its market share in 2009 compared to the same period in 2008.

Research and Development Expenses

Research and development expenses for the three months ended November 30, 2009 were $25,598, a decrease of $48 or 0.19% compared to $25,646 for the comparable period in 2008. There is no significant fluctuation in research and development expenses.

Depreciation Expenses

Depreciation expenses for the three months ended November 30, 2009 were $64,594, a decrease of $27 or 0.04% compared to $64,621 for the comparable period in 2008. There is no significant fluctuation in research and development expenses.

Income From Operations

Income from operations for the three months ended November 30, 2009 was $2,699,369, an increase of $302,080 or 12.60% compared to $2,397,289 for the comparable period in 2008. The increase resulted primarily from the increase in sales and revenue.

Other Income

Interest income for the three months ended November 30, 2009 was $8,756, a decrease of $1,849 or 17.44 % compared to $10,605 for the comparable period in 2008. The decrease resulted primarily from less interest income derived from cash in our bank accounts. Our average bank balance was lower in 2009 for the six months period compared to 2008.

Income Taxes

Provision for income tax expenses was $690,442 for the three months ended November 30, 2009, an increase of $92,523 or 15.47% as compared to $597,919 for the comparable period in 2008 due to increase in net profit for the period in 2009.

Foreign Currency Translation Gain

The foreign currency translation gain for the three months ended November 30, 2009 was $64,313, an increase of $36,426 or 130.62% as compared to $27,887 for the comparable period in 2008. The increase resulted from the steady appreciation of the Renminbi against the U.S. dollar. The steady appreciation of Renminbi in turn contributed to the gain in valuation of DLXY’s assets and liabilities.

Net Income

Net income for the three months ended November 30, 2009 was $2,017,683, an increase of $207,708 or 11.48% as compared to $1,809,975 for the comparable period in 2008.

Six Months Ended November 30, 2009 and November 30, 2008

Net Revenue

Net revenue for the six months ended November 30, 2009 was $19,423,356, an increase of $830,248 or 4.47 % from net revenue of $18,593,108 for the comparable period in 2008. The increase resulted from increased customer demand and hence sales volume even though , average sales prices decreased by 3%. Overall revenue increased as a result of the net effect of increased sales volume and decreased price.

Cost of Revenue

Cost of revenue for the six months ended November 30, 2009 was $13,333,297, an increase of $1,683,126 or 14.45% from $11,650,171 for the comparable period in 2008. The increase in cost of revenue was primarily attributable to the combined effects of increase in sales volume and the significant increase in the prices of raw materials.

Gross Profit

Gross profit for the six months ended November 30, 2009 was $6,090,059, a decrease of $852,878 or 12.28% from $6,942,937 for the comparable period in 2008. The decrease in gross profit was primarily attributable to the significant increase in the prices of raw materials.

Sales and Marketing Expenses

Sales and marketing expenses for the six months period ended November 30, 2009 totaled $53,138, compared to $465,295 for the six months ended November 30, 2008. This represents a decrease of $412,157 or 88.58% for the six months period compared to 2008. The decrease was primarily attributable to the one-off advertising and promotion expenses of $559,000 during the six months period ended November 30, 2008.

General and Administrative Expenses

General and administrative expenses for the six months ended November 30, 2009 were $389,059, a decrease of $293,432 or 42.99% from $682,491 for the comparable period in 2008. The decrease was primarily attributable to the one-off property repairing expenses of $210,000 for the six months period ended November 30, 2008.

Research and Development Expenses

Research and development expenses for the six months ended November 30, 2009 were $51,173, an increase of $886 or 1.76% compared to $50,287 for the comparable period in 2008. There was no significant fluctuation in research and development expenses.

Depreciation Expenses

Depreciation expenses for the six months ended November 30, 2009 were $129,097, an increase of $683 or 0.53% compared to $128,414 for the comparable period in 2008. There was no significant fluctuation in depreciation expenses.

Income From Operations

Income from operations for the six months ended November 30, 2009 was $5,467,592, a decrease of $148,858 or 2.65 % compared to $5,616,450 for the comparable period in 2008. The decrease resulted primarily from the decrease in gross profit by $852,878 attributable to the significant increase in prices of raw materials and decrease in operating expenses by $704,020.

Other Income

Interest income for the six months ended November 30, 2009 was $16,814, a decrease of $1,802 or 9.68% compared to $18,616 for the comparable period in 2008. The decrease resulted primarily from less interest income derived from cash in our bank accounts as our average bank balance was lower during the six months period ended November 30, 2009 than the comparable period in 2008.

Income Taxes

Provision for income tax expenses was $1,403,380 for the six months ended November 30, 2009, a decrease of $32,924 or 2.29% as compared to $1,436,304 for the comparable period in 2008. The decrease resulted primarily from the decrease in net profit mainly due to the effects of the significant increase in the prices of raw materials and the decrease in operating expenses.

Foreign Currency Translation Loss

The foreign currency translation loss for the six months ended November 30, 2009 was $10,960, a decrease of $426,004 or 102.64% as compared to the foreign currency translation gain at $415,044 for the comparable period in 2008. The decrease resulted from the slowdown in appreciation of the Renminbi against the U.S. dollar. The steady Renminbi valuation of DLXY’s assets and liabilities in 2009 resulted in a significant decrease in translation loss for the period.

Net Income

Net income for the six months ended November 30, 2009 was $4,081,026, a decrease of $117,736 or 2.8% as compared to $4,198,762 for the comparable period in 2008.

Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalent were $9,209,953 at the beginning of the period has increased to $11,661,971, increased by $2,452,018 or 26.62 % at the end of the six months period ended November 30, 2009. This net change in cash and cash equivalents represented the combined effects of cash generated of $4,776,395 from operating activities and cash used in $2,322,562 from investing activities in 2009.

Net cash provided by operating activities

During the six months period ended November 30, 2009, net cash generated from operating activities was $4,776,395. The cash inflow from operations for the period was primarily attributable to net income generated from sales of products and decrease in inventories.

Net cash used in investing activities

Net cash used in investing activities was $2,322,562 for the six months ended November 30, 2009. The cash outflow was primarily due to the payments for construction of production lines and purchase of plant and equipment during the period.

Net cash used in financing activities

There was no net cash generated or used for financing activities for the six months ended November 30, 2009.

Cash paid for Income Taxes

Cash paid for income tax expense was $1,459,125 for the six months ended November 30, 2009.

Trends

Currently, many companies in the cobalt product industry are looking to directly own cobalt producing mines which will provide direct access and supply to cobalt ore, the primary raw material in the cobalt product industry. In June 2007, we acquired certain rights to a cobalt mine in Africa. This acquisition will help us avoid export limitations imposed by the Congo, reduce freight expenses, and help ensure a stable supply of cobalt ore.

We are not aware of any trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.

Inflation

We believe that inflation has not had a material or significant impact on our revenue or our results of operations.

Material Commitments for Capital Expenditures

Currently, we own the prospecting and mining rights of a cobalt mine in Congo. We plan to start the construction of a processing plant in Congo in the fourth quarter of the 2010 fiscal year. We anticipate that the construction of the plant will cost approximately $2,000,000 to $3,000,000.

General

We believe that we currently have sufficient income generated from our operations to meet our operating and/or capital needs.

However, we will continue to evaluate various sources of capital to meet our growth requirements. Such sources will include debt financings, the issuance of equity securities, and entrance into other financing arrangements. There can be no assurance, however, that any of the contemplated financing arrangements described herein will be available and, if available, can be obtained on terms favorable to us.

Contractual Obligations and Commitments

We leased an office premise under a non-cancelable operating lease agreement for a period of 10 years, due July 25, 2010. The annual lease payment is $6,698.

On June 9, 2007, our subsidiary, DLXY entered into an African Mining Project Contract of Cooperation (the “Purchase Agreement”) with Shengbao Group and South African Shengbao Mining Enterprises (“Shengbao”). Pursuant to the Purchase Agreement, DLXY is obliged to purchase the prospecting and mining rights of a cobalt ore mine for a purchase price of $2 million over a term of 15 years. As of November 30, 2009, DLXY had the capital commitment of $2 million in the purchase of the prospecting and mining rights which was contracted for but not provided in the financial statements.

Off Balance Sheet Arrangements

None.

Critical accounting policies and estimates

Revenue recognition

Our subsidiary, DLXY is subject to valued-added tax (“VAT”) which is levied on the majority of the products of DLXY at the rate of 17% on the invoiced value of sales sold in the People’s Republic of China. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

Account receivables and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. We extend unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customers’ current credit worthiness and the economic environment. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

New Financial Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140” ("FAS 166"). FAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. FAS166 is effective for fiscal years beginning after November 15, 2009. The Company will adopt FAS 166 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” ("FAS 167"). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. FAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt FAS 167 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.

In June 2009, the FASB issued SFAS No. 168, “ The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles, ” (“Codification”), which supersedes all existing accounting standard documents and will become the single source of authoritative non-governmental U.S. GAAP. All other accounting literature not included in the Codification will be considered non-authoritative. The Codification was implemented on July 1, 2009 and will be effective for interim and annual periods ending after September 15, 2009. The Company expects to conform its consolidated financial statements and related notes to the new Codification for the quarter ending November 30, 2009.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of our Disclosure Controls

As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during our second fiscal quarter 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.

There is no material legal proceeding pending against us.

Item 1A.

Risk Factors.

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

Item 5.

Other Information.

On September 27, 2009, DLX signed a Letter of Intent (LOI) with Beijing Shuangsheng Technology Co., Ltd. to jointly produce finished lithium ion (li-ion) batteries under the registered brand name "Senkun." The 100An serial power Senkun batteries are made with DLXY's lithium iron phosphate product, an alternative, environmentally-friendly energy component.

Item 6.

Exhibits.

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

Exhibit No.	SEC Ref. No.	Title of Document

1	31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

2	31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

3	32.1	Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

4	32.2	Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHINA SUN GROUP HIGH-TECH CO.

Date: January 14, 2010	By:	/s/ Bin Wang
		Name: Bin Wang
		Title: President, Chief Executive Officer and Chairman
		(Principle Executive Officer)