- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

( Mark One)

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

For the quarterly period ended November 30, 2008

¨	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) 8289-7752

(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. T Yes □ 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.

Large accelerated filer □	Accelerated filer □

Non-accelerated filer □ (Do not check if a smaller reporting company)	Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). □ Yes T 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 12 , 2009.

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, 2008 and May 31, 2008		F-2
Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended November 30, 2008 and 2007		F-3
Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2008 and 2007		F-4
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended November 30, 2008		F-5
Notes to Condensed Consolidated Financial Statements		F-6 – F-16

F-1

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF NOVEMBER 30, 2008 AND MAY 31, 2008

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

(Unaudited)

	November 30, 2008		May 31, 2008
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,316,448	$	3,879,114
Accounts receivable, trade		2,130,901		1,302,176
Inventories		1,958,730		4,705,189
Value-added tax receivable		-		447,346
Deposits and prepayments		641,223		73,235

Total current assets		16,047,302		10,407,060

Property, plant and equipment, net		14,520,018		14,598,684

TOTAL ASSETS	$	30,567,320	$	25,005,744

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	981,407	$	733,490
Customer deposits		-		338
Value-added tax payable		318,657		-
Income tax payable		1,296,535		980,027
Other payables and accrued liabilities		513,582		448,556

Total liabilities		3,110,181		2,162,411

Commitments and contingencies

Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued and outstanding as of November 30, 2008 and May 31, 2008		-		-
Common stock, $0.001 par value; 100,000,000 shares authorized; 53,422,971 shares and 53,422,971 shares issued and outstanding as of November 30, 2008 and May 31, 2008		53,423		53,423
Additional paid-in capital		9,585,204		9,585,204
Accumulated other comprehensive income		3,003,232		2,588,188
Statutory reserve		899,819		899,819
Retained earnings		13,915,461		9,716,699

Total stockholders’ equity		27,457,139		22,843,333

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	30,567,320	$	25,005,744

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, 2008 AND 2007

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

(Unaudited)

	Three months ended November 30,						Six months ended November 30,
	2008			2007			2008			2007

Revenues, net	$	7,606,217		$	5,357,190		$	18,593,108		$	9,093,027

Cost of revenue		4,815,862			3,606,368			11,650,171			6,116,503

Gross profit		2,790,355			1,750,822			6,942,937			2,976,524

Operating expenses:
Sales and marketing		95,614			7,837			465,295			14,909
Research and development		25,646			61,527			50,287			86,400
Depreciation		64,621			36,645			128,414			72,423
General and administrative		207,185			510,928			682,491			682,090
Total operating expenses		393,066			616,937			1,326,487			855,822

INCOME FROM OPERATIONS		2,397,289			1,133,885			5,616,450			2,120,702

Other income:
Interest income		10,605			1,276			18,616			1,276

INCOME BEFORE INCOME TAXES		2,407,894			1,135,161			5,635,066			2,121,978

Income tax expenses		(597,919	)		(396,679	)		(1,436,304	)		(740,303	)

NET INCOME	$	1,809,975		$	738,482		$	4,198,762		$	1,381,675

Other comprehensive income:
- Foreign currency translation gain		27,887			381,624			415,044			1,045,833

COMPREHENSIVE INCOME	$	1,837,862		$	1,120,106		$	4,613,806		$	2,427,508

Net income per share – Basic and diluted	$	0.03		$	0.01		$	0.08		$	0.03

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, 2008 AND 2007

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

(Unaudited)

	Six months ended November 30,
	2008			2007

Cash flows from operating activities:
Net income	$	4,198,762		$	1,381,675
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		332,708			187,640
Changes in operating assets and liabilities:
Accounts receivable, trade		(803,567	)		1,673,161
Inventories		2,817,062			(1,194,393	)
Deposits and prepayments		(564,729	)		-
Accounts payable, trade		234,518			(441,807	)
Customer deposits		(342	)		(693,937	)
Value-added tax payable		770,930			403,481
Income tax payable		298,660			(69,359	)
Other payables and accrued liabilities		60,146			333,774
Net cash provided by operating activities		7,344,148			1,580,235

Cash flows from investing activities:
Purchase of plant and equipment		(5,127	)		(470	)
Net cash used in investing activities		(5,127	)		(470	)

Effect of exchange rate changes on cash and cash equivalents		98,313			51,760

NET CHANGE IN CASH AND CASH EQUIVALENTS		7,437,334			1,631,525

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		3,879,114			813,163

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,316,448		$	2,444,688

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,137,620		$	809,662
Cash paid for interest expenses	$	-		$	-

See accompanying notes to condensed consolidated financial statements.

F-4

CHINA SUN GROUP HIGH-TECH CO.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED NOVEMBER 30, 2008

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

(Unaudited)

	Convertible preferred stock				Common stock
	No. of share		Amount		No. of share		Amount		Additional paid-in capital		Accumulated other comprehensive income		Statutory reserve		Retained earnings		Total stockholders’ equity
Balance as of May 31, 2008		-	$	-		53,422,971	$	53,423	$	9,585,204	$	2,588,188	$	899,819	$	9,716,699	$	22,843,333

Net income for the period		-		-		-		-		-		-		-		4,198,762		4,198,762

Foreign currency translation adjustment		-		-		-		-		-		415,044		-		-		415,044
Balance as of November 30, 2008		-	$	-		53,422,971	$	53,423	$	9,585,204	$	3,003,232	$	899,819	$	13,915,461	$	27,457,139

See accompanying notes to condensed consolidated financial statements.

F-5

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(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 condensed balance sheet as of May 31, 2008 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, 2008 are not necessarily indicative of the results to be expected for the entire fiscal year ending May 31, 2009 or for any future period.

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, 2008.

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.

Respectively, on September 6, 2006 and May 30, 2008, CSGH entered a stock exchange transaction with Da Lian Xin Yang High-Tech Development Co., Ltd (“DLX”), whereby 40,000,000 new shares of common stock of CSGH pursuant to Regulation S under the Securities Act of 1933, as amended, were issued to the owners of DLX in exchange for 100% equity interest in DLX. The stock exchange transaction was effectively completed on February 28, 2007. DLX was incorporated as a limited liability company in the People’s Republic of China (“PRC”) on August 8, 2000 with its principal place of business in Da Lian City, Liaoning Province, the PRC. Upon the completion of this transaction, DLX became a wholly-owned subsidiary of the Company.

These two consecutive stock exchange transactions have been accounted for as a reverse acquisition and recapitalization of the Company whereby DLX is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of DLX, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction. The Company is deemed to be a continuation of the business of DLX.

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

F-6

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 period reported. Actual results may differ from these estimates.

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 within the Company 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.

The Company is required to remit VAT collected to the tax authority, but may deduct VAT it has paid on eligible purchases. To the extent that the Company paid more than collected, the difference represents the net VAT recoverable balance at the balance sheet date. As of November 30, 2008, there was no such VAT recoverable balance in the consolidated financial statements.

l Cost of revenue

Cost of revenue primarily includes the purchase of raw materials, direct labor and manufacturing overhead that are directly attributable to the production.

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 three 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, 2008, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

F-7

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 Valuation of long-lived assets

Long-lived assets primarily include property, plant and equipment. In accordance with SFAS No. 144, “ Accounting for the 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, 2008.

l Comprehensive income

SFAS No. 130, “Reporting 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.

l Income taxes

The Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes,” which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the periods of recovery or reversal and the effect from a change in tax rates is recognized in the consolidated statement of operations and comprehensive income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

F-8

The Company also adopts the provisions of the Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“ FIN 48 ”) . FIN 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The adoption of FIN 48 did not have a significant impact on the Company’s consolidated financial statements.

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 SFAS No. 128, “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 SFAS No 52. “ Foreign Currency Translation” , 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.

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

	2008		2007

Months end RMB: US$ exchange rate		6.8359		7.5725
Average monthly RMB: US$ exchange rate		6.8602		7.5968

l Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

l Segment reporting

SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” 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.

F-9

l Fair value of financial instruments

The Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of amounts that the Company could realize in a current market exchange.

The Company’s financial instruments primarily include cash and cash equivalents, accounts receivable, deposits and prepayments, accounts payable, value-added tax payable, income tax payable, other payables and accrued liabilities.

As of the balance sheet date, the estimated fair values of financial instruments were not materially different from their carrying values as presented due to short maturities of these instruments.

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 May, 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 162, "The Hi erarchy of Generally Accepted Accounting Principles," ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 will be effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The FASB has stated that it does not expect SFAS No. 162 will result in a change in current practice. The application of SFAS No. 162 will have no effect on the Company's financial position, results of operations or cash flows.

Also in May 2008, the FASB issued SFAS No. 163, " Accounting for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement No. 60 " ("SFAS No. 163"). SFAS No. 163 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company is currently evaluating the impact of SFAS No. 163 on its financial statements but does not expect it to have an effect on the Company's financial position, results of operations or cash flows.

In June 2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Det ermining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share under the two-class method as described in SFAS No. 128, Earnings per Share. Under the guidance of FSP EITF 03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and all prior-period earnings per share data presented shall be adjusted retrospectively. Early application is not permitted. The Company is assessing the potential impact of this FSP on the earnings per share calculation.

In June 2008, the FASB ratified EITF No. 07-5, " Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock " ("EITF 07-5"). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early application is not permitted. The adoption of EITF 07-5 did not have a material impact on the Company’s current consolidated financial position, results of operations or cash flows.

F-10

In September 2008, the FASB issued FSP 133-1 and FIN 45-4, “ Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“FSP FAS 133-1” and “FIN 45-4”). SP 133-1 and FIN 45-4 amends disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies the disclosure requirements of SFAS No. 161 and is effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. The adoption of FSP 133-1 and FIN 45-4 did not have a material impact on the Company’s current consolidated financial position, results of operation or cash flows.

In October 2008, the FASB issued Staff Position (“FSP”) No. 157-3, “ Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS 157-3.”) FSP FAS 157-3 clarifies the application of SFAS 157 in an inactive market. It illustrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of FAS 157-3 did not have a material impact on the Company’s current consolidated financial position, results of operations or cash flows.

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 provided for the six months period ended November 30, 2008.

NOTE － 5 PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of:

	As of
	November 30, 2008			May 31, 2008
	(Unaudited)			(Audited)

Building	$	6,308,373		$	6,308,373
Plant and machinery		7,358,776			7,358,776
Office equipment		164,236			159,109
Motor vehicle		34,816			34,816
Foreign translation difference		2,143,289			1,873,731
		16,009,490			15,734,805
Less: accumulated depreciation		(1,468,911	)		(1,029,552	)
Less: foreign translation difference		(20,561	)		(106,569	)
Property, plant and equipment, net	$	14,520,018		$	14,598,684

Depreciation expenses for the three months ended November 30, 2008 and 2007 were $167,377 and $94,943, which included $102,756 and $58,298 in cost of revenue, respectively.

Depreciation expenses for the six months ended November 30, 2008 and 2007 were $332,708 and $187,640, which included $204,294 and $115,217 in cost of revenue, respectively.

F-11

NOTE － 6 OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of:

	As of
	November 30, 2008		May 31, 2008
	(Unaudited)		(Audited)

Welfare payable	$	246,685	$	216,527
Government levy payable		21,893		-
Accrued expenses		182,000		-
Rental payable		63,004		57,529
Other payable		-		174,500
Other payables and accrued liabilities	$	513,582	$	448,556

NOTE － 7 INCOME TAXES

The Company is registered in the United States of America and has operations in two tax jurisdictions: the United States of America and the PRC. The operation in the United States of America has incurred net operating losses for income tax purposes. The Company generated substantially all of its net income from its PRC operations through DXL, its subsidiary and has recorded income tax expense for the six months ended November 30, 2008 and 2007.

The components of income before income taxes and current taxes between the local and foreign operations are as follows:

	Six months ended November 30,
	2008			2007

Local	$	(192,823	)	$	(118,433	)
Foreign		5,827,889			2,240,411
Income before income taxes	$	5,635,066		$	2,121,978


Local	$	-			-
Foreign		1,436,304			740,303

Current tax	$	1,436,304		$	740,303

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, 2008, the operation in the United States of America incurred $904,139 of net operating losses available for federal tax purposes, which are available to offset future taxable income. The net operating loss carry forwards begin to expire in 2029, if unutilized. 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.

F-12

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 rate of 25%.

On March 16, 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises with effect from January 1, 2008. DLX will be entitled to the tax rate reduction from 33% to 25% that may impact the carrying value of deferred tax assets as a result of new tax rate.

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes from foreign operation for the six months ended November 30, 2008 and 2007 are as follows:

	Six months ended November 30,
	2008			2007

Income before income taxes	$	5,827,889		$	2,240,411
Income tax rate		25	%		33	%
		1,456,972			739,336
Non-deductible (taxable) items		(20,668	)		967
Income tax expenses	$	1,436,304		$	740,303

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of November 30, 2008 and May 31, 2008:

	As of
	November 30, 2008				May 31, 2008
	(Unaudited)				(Audited)
Deferred tax assets:
- Net operating loss carryforwards		$	316,449			$	211,024
Less: valuation allowance			(316,449	)			(211,024	)
Deferred tax assets		$	-			$	-

For the six months ended November 30, 2008 and 2007, valuation allowance of $316,449 and $211,024 was provided to the deferred tax assets due to the uncertainty surrounding their realization.

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, 2008, the customers who account for 10% or more of revenues of the Company are presented as follows:

	Three months ended 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

F-13

	Six months ended 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, 2007, the customers who account for 10% or more of revenues of the Company are presented as follows:

	Three months ended November 30, 2007
	Revenues		Percentage of revenues			Trade accounts receivable

Customer A	$	1,867,850		35	%		$	1,890,668
Customer B		1,735,987		33	%			1,757,194
Customer C		962,340		18	%			-
Customer D		529,586		10	%			-
Total:	$	5,095,763		96	%		$	3,647,862

	Six months ended November 30, 2007
	Revenues		Percentage of revenues			Trade accounts receivable

Customer A	$	1,861,804		20	%		$	1,890,668
Customer B		2,926,797		32	%			1,757,194
Customer C		959,224		11	%			-
Customer E		2,110,038		23	%			-
Total:	$	7,857,863		86	%		$	3,647,862

For the six months ended November 30, 2008 and 2007, 100% of the Company’s revenues were derived from customers located in the PRC.

(b) Major vendors

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

	Three months ended 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

F-14

	Six months ended 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, 2007, the vendors who account for 10% or more of purchases of the Company are presented as follows:

	Three months ended November 30, 2007
	Purchases		Percentage of purchases			Accounts payable

Vendor A	$	1,777,669		37	%		$	-
Vendor B		1,468,151		31	%			165,757
Vendor C		1,144,383		24	%			-
Total	$	4,390,203		92	%		$	165,757

	Six months ended November 30, 2007
	Purchases		Percentage of purchase			Accounts payable

Vendor B	$	3,736,397		47	%		$	165,757
Vendor C		1,806,514		31	%			-
Vendor A		1,140,678		22	%			-
Total:	$	6,683,589		100	%		$	165,757

For the six months ended November 30, 2008 and 2007, 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.

(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.

F-15

NOTE － 9 COMMITMENTS AND CONTINGENTS

(a) Operating lease commitment

The Company 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 $3,644 and $3,291 for the six months ended November 30, 2008 and 2007.

Future minimum rental payments due under a non-cancelable operating lease are as follows:

Years ending November 30:
2009	$	7,288
2010		4,859
Total:	$	12,147

(b) Capital commitment

On June 9, 2007, the Company’s subsidiary, DLX 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, DLX 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, 2008, 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.

F-16

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

Results of Operations

Three Months Ended November 30, 2008 and 2007

Net Revenue

Net revenue for the three months ended November 30, 2008 was $7,606,217, an increase of $2,249,027 or 42 % from net revenue of $5,357,190 for the comparable period in 2007. The increase resulted from increased customer demand and sales.

Cost of Revenue

Cost of revenue for the three months ended November 30, 2008 was $4,815,862, an increase of $1,209,494 or 34% from $3,606,368 for the comparable period in 2007. The increase resulted directly from increased production of our products which is in tandem with increased demand for them.

Gross Profit

Gross profit for the three months ended November 30, 2008 was $2,790,355, an increase of $1,039,533 or 59 % from $1,750,822 for the comparable period in 2007. The increase in gross profit was primarily due to revenue generated by increased customer demand and production, and consequently increased sales of our products.

Sales and marketing

Sales and marketing expense for the three months ended November 30, 2008 was $95,614, an increase of $87,777 or 1120% from $7,837 for the comparable period in 2007. The increase resulted from the addition of advertising activities and promotional campaigns of their products during the period of 2008.

Research and Development Expenses

Research and development expenses for the three months ended November 30, 2008 were $25,646, a decrease of $35,881 or 58% compared to $61,527 for the comparable period in 2007. The decrease resulted from the stricter expense control.

Depreciation

Depreciation expenses for the three months ended November 30, 2008 were $64,621, an increase of $27,976 or 76% compared to $36,645 for the comparable period in 2007. The increase resulted from the addition of office equipment that were purchased during the year.

General and Administrative Expenses

General and administrative expenses for the three months ended November 30, 2008 were $207,185, a decrease of $303,743 or 59% from $510,928 for the comparable period in 2007. The decrease resulted from the stricter expense control.

Income From Operations

Income from operations for the three months ended November 30, 2008 was $2,397,289, an increase of $1,263,404 or 111% compared to $1,133,885 for the comparable period in 2007. The increase resulted primarily from the increase in sales and revenue

Other Income

Interest income for the three months ended November 30, 2008 was $10,605, an increase of $9,329 or 731 % compared to $1,276 for the comparable period in 2007.The increase resulted primarily from interest income derived from cash in our bank accounts

Income Taxes Expenses

Provision for income tax expenses was $597,919 for the three months ended November 30, 2007, an increase of $201,240 or 51% as compared to $396,679 for the comparable period in 2007. The increase resulted primarily from the increase in operating income.

Foreign Currency Translation Gain

The foreign currency translation gain for the three months ended November 30, 2008 was $27,887, a decrease of $353,737 or 93 % as compared to $381,624 for the comparable period in 2007. The decreases resulted from the slow down in revaluation of the Renminbi against the U.S. dollar. This updated Renminbi valuation of DLX’s assets and liabilities resulted in this gain.

Net Income

Net income for the three months ended November 30, 2008 was $1,809,975, an increase of $1,071,493 or 145% as compared to $738,482 for the comparable period in 2007.

Six Months Ended November 30, 2008 and 2007

Net Revenue

Net revenue for the six months ended November 30, 2008 was $18,593,108, an increase of $9,500,081 or 104% from net revenue of $9,093,027 for the comparable period in 2007. The increase in revenue was primarily attributable to increased customer demand for our products and consequently, increased sales.

Cost of Revenue

Cost of revenue for the six months ended November 30, 2008 was $11,650,171, an increase of $5,533,668 or 90% from $6,116,503 for the comparable period in 2007. The increase in cost of revenue was primarily attributable to increased production of our products which is in tandem with increased demand for them.

Gross Profit

Gross profit for the six months ended November 30, 2008 was $6,942,937, an increase of $3,966,413 or 133% from $2,976,524 for the comparable period in 2007. The increase in gross profit was primarily due to revenue generated by increased production and sales.

Sales and marketing

Sales and marketing expense for the six months ended November 30, 2008 was $465,295, an increase of $450,386 or 3021% from $14,909 for the comparable period in 2007. The increase resulted from the addition of advertising actvitites and promotional campaigns of their products during the period of 2008.

Research and Development Expenses

Research and development expenses for the six months ended November 30, 2008 were $50,287, a decrease of $36,113 or 42% compared to $86,400 for the comparable period in 2007. The decrease resulted from the stricter expense control.

Depreciation

Depreciation expenses for the six months ended November 30, 2008 were $128,414, a decrease of $55,991 or 77% compared to $72,423 for the comparable period in 2007. The increase resulted from the addition of office equipment that were purchased during the year.

General and Administrative Expenses

General and administrative expenses for the six months ended November 30, 2008 were $682,491, an increase of $401 or 0.1% from $682,090 for the comparable period in 2007. The increase was primarily attributable to the hiring of additional personnel in the first quarter of the 2008 fiscal year.

Income From Operations

Income from operations for the six months ended November 30, 2008 was $5,616,450, an increase of $3,495,748 or 165% compared to $2,120,702 for the comparable period in 2007. The increase resulted primarily from the increase in sale of our productions and consequently, our revenue.

Other Income

Interest income for the six months ended November 30, 2008 was $18,616, an increase of $17,340 or 1359% compared to $1,276 for the comparable period in 2007.The increase resulted primarily from interest income derived from cash in our bank accounts.

Income Taxes Expenses

Provision for income tax expenses was $1,436,304 for the six months ended November 30, 2008, an increase of $696,001 or 94% as compared to $740,303 for the comparable period in 2007. The increase resulted primarily from the increase in our revenue due to increased sales.

Foreign Currency Translation Gain

The foreign currency translation gain for the six months ended November 30, 2008 was $415,044, a decrease of $630,789 or 60% as compared to $1,045,833 for the comparable period in 2007. The decreases resulted from the slow down in revaluation of the Renminbi against the U.S. dollar. This updated Renminbi valuation of DLX’s assets and liabilities resulted in this gain.

Net Income

Net income for the six months ended November 30, 2008 was $4,198,762, an increase of $ 2,817,087 or 204% as compared to $1,381,675 for the comparable period in 2007.

Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalent were $3,879,114 at the beginning of the six months ended November 30, 2008 and increased to $11,316,448 by the end of such period, an increase of $7,437,334 or 192 %. This net change in cash and cash equivalents represented an increase of 356% or $5,805,809 from $1,631,525 for the same period in 2007.

Net cash provided by operating activities

Net cash provided by our operating activities was $7,344,148 for the six months ended November 30, 2008, an increase of $5,763,913 or 365% as compared to net cash of $1,580,235 for the same period in 2007. This increase was due primarily to the growth in sales revenue with the decrease in inventory by $2,817,062, the increase in value-added tax payable by $770,930, the increase in other payables by $60,146, the increase in income tax payable by $298,660 and the increase in accounts payable by $234,518, partially offset by the increase in accounts receivable by $803,567, increase in deposit and prepayments by $564,729.

Net cash used in investing activities

Net cash used in investing activities was $5,127 for the six months ended November 30, 2008, an increase of $4,657 or 991% from $470 for the same period in 2007. The increase was primarily attributable to the purchase of equipment.

Net cash used in financing activities

There was no net cash generated from financing activities for both the six months ended November 30, 2008, and the same period in 2007 because there were no advances from related parties.

Effect of exchange rate changes on cash and cash

Effect of exchange rate changes on cash and cash equivalents resulted in $98,313 for six months ended November 30, 2008, an increase of $46,553 or 90% compared to $51,760 for the same period in 2007.

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 anticipate that the construction of the plant will cost approximately $2,000,000 to $3,000,000. As of November 30, 2008, we have suspended the development plan and will be commenced the construction of a processing plant when the global market begins recoverable.

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 $7,288.

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, 2008, 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.

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 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

Not applicable.

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

SIGN ATURES

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 12, 2009	By:	/s/ Bin Wang
		Name: Bin Wang
		Title: President, Chief Executive Officer and Chairman
		(Principle Executive Officer)