- 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 February 28, 2009

¨	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. þ 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 þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ). □ Yes þ No

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 April 8, 2009.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	8
Item 4.	Controls and Procedures.	8

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	9
Item 1A.	Risk Factors.	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	9
Item 3.	Defaults Upon Senior Securities.	9
Item 4.	Submission of Matters to a Vote of Security Holders.	9
Item 5.	Other Information.	9
Item 6.	Exhibits.	9

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 February 28, 2009 and May 31, 2008		F-2

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended February 28, 2009 and February 29, 2008		F-3

Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 2009 and February 29, 2008		F-4

Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended February 28, 2009		F-5

Notes to Condensed Consolidated Financial Statements		F-6 – F-19

F-1

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF FEBRUARY 28, 2009 AND MAY 31, 2008

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

	February 28, 2009		May 31, 2008
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	12,185,403	$	3,879,114
Accounts receivable, trade		2,885,006		1,302,176
Inventories		949,071		4,705,189
Value-added tax receivable		-		447,346
Deposits and prepayments		1,346,507		73,235

Total current assets		17,365,987		10,407,060

Non-current assets:
Property, plant and equipment, net		15,442,568		14,598,684

TOTAL ASSETS	$	32,808,555	$	25,005,744

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	817,661	$	733,490
Customer deposits		-		338
Value-added tax payable		401,543		-
Income tax payable		1,543,002		980,027
Other payables and accrued liabilities		606,145		448,556

Total liabilities		3,368,351		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 February 28, 2009 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 February 28, 2009 and May 31, 2008		53,423		53,423
Additional paid-in capital		9,585,204		9,585,204
Accumulated other comprehensive income		2,952,633		2,588,188
Statutory reserve		899,819		899,819
Retained earnings		15,949,125		9,716,699

Total stockholders’ equity		29,440,204		22,843,333

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	32,808,555	$	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 NINE MONTHS ENDED FEBRUARY 28, 2009

AND FEBRUARY 29, 2008

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

(Unaudited)

	Three months ended February						Nine months ended February
		28, 2009			29, 2008			28, 2009			29, 2008

Revenues, net	$	8,807,184		$	7,106,959		$	27,400,292		$	16,199,986

Cost of revenue (inclusive of depreciation)		5,561,556			4,528,705			17,211,727			10,529,991

Gross profit		3,245,628			2,578,254			10,188,565			5,669,995

Operating expenses:
Reversal of allowance for doubtful accounts		-			(574,190	)		-			(574,190	)
Research and development		25,536			1,701			75,823			88,101
Depreciation		64,371			61,871			192,785			178,525
General and administrative		390,893			9,706			1,538,679			777,691

Total operating expenses		480,800			(500,912	)		1,807,287			470,127

INCOME FROM OPERATIONS		2,764,828			3,079,166			8,381,278			5,199,868

Other income:
Interest income		6,372			7,035			24,988			8,311

INCOME BEFORE INCOME TAXES		2,771,200			3,086,201			8,406,266			5,208,179

Income tax expense		(737,536	)		(295,679	)		(2,173,840	)		(1,035,982	)

NET INCOME	$	2,033,664		$	2,790,522		$	6,232,426		$	4,172,197

Other comprehensive (loss) income:
- Foreign currency translation (loss) gain		(50,599	)		744,185			364,445			1,790,018

COMPREHENSIVE INCOME	$	1,983,065		$	3,534,707		$	6,596,871		$	5,962,215

Net income per share – Basic and diluted	$	0.04		$	0.05		$	0.12		$	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 NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

	Nine months ended February
		28, 2009			29, 2008
Cash flows from operating activities:
Net income	$	6,232,426		$	4,172,197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		499,419			287,878
Reversal of allowance for doubtful accounts		-			(574,190	)
Changes in operating assets and liabilities:
Accounts receivable, trade		(1,560,900	)		5,075,443
Inventories		3,425,615			(562,911	)
Deposits and prepayments		(873,536	)		(1,365	)
Accounts payable, trade		72,913			133,515
Customer deposits		(343	)		(707,271	)
Value-added tax payable		854,534			738,183
Income tax payable		547,321			(282,215	)
Other payables and accrued liabilities		98,206			608,120
Net cash provided by operating activities		9,295,655			8,887,384

Cash flows from investing activities:
Purchase of plant and equipment		(1,065,334	)		(42,264	)
Net cash used in investing activities		(1,065,334	)		(42,264	)

Cash flows from financing activities:
Advance from a related party		-			4,740
Net cash provided by investing activities		-			4,740

Effect of exchange rate changes on cash and cash equivalents		75,968			382,607

NET CHANGE IN CASH AND CASH EQUIVALENTS		8,306,289			9,232,467

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

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	12,185,403		$	10,045,630

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,626,155		$	1,318,198
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 NINE MONTHS ENDED FEBRUARY 28, 2008

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

(Unaudited)

	Convertible preferred stock			Common stock			Additional paid-in capital		Accumulated other comprehensive income		Statutory reserve		Retained earnings		Total stockholders’ equity
	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	-		-	-		-		-		-		-		6,232,426		6,232,426

Foreign currency translation adjustment	-		-	-		-		-		364,445		-		-		364,445

Balance as of February 28, 2009	-	$	-	53,422,971	$	53,423	$	9,585,204	$	2,952,633	$	899,819	$	15,949,125	$	29,440,204

See accompanying notes to condensed consolidated financial statements.

F-5

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

(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 February 28, 2009 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. The operation activity was commenced from April 2006.

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

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

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 February 28, 2009, the Company has VAT payable of $401,543 in the consolidated financial statements.

F-7

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

l	Cost of revenue

Cost of revenue primarily includes the purchase of raw materials, direct labor, manufacturing overhead that are directly attributable to the production. Shipping and handling costs are included in cost of revenue.

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 February 28, 2009, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

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.

F-8

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

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 February 28, 2009.

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.

The Company also adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. The Company did not have any adjustment to the opening balance of retained earnings as of January 1, 2007 as a result of the implementation of FIN 48. In accordance with FIN 48, the Company also adopted the policy of recognizing interest and penalties, if any, related to unrecognized tax positions as income tax expense. For the period ended February 28, 2009 and February 29, 2008, the Company did not have any interest and penalties associated with tax positions. As of February 28, 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.

F-9

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

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$1 has been made at the following exchange rates for the respective period:

	2009		2008
Months end RMB: US$1 exchange rate		6.8488		7.1022
Average monthly RMB: US$1 exchange rate		6.8581		7.3616

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.

F-10

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

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 in the PRC.

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 Hierarchy 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 Wit h 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.

F-11

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

In June 2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Determining 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.

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 FAS 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 No. 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 FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of FSP 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 nine months period ended February 28, 2009.

F-12

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

NOTE － 5 PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of:

	As of
	February 28, 2009			May 31, 2008
	(Unaudited)			(Audited)

Building	$	6,308,373		$	6,308,373
Plant and machinery		8,472,650			7,358,776
Office equipment		165,585			159,109
Motor vehicle		34,816			34,816
Foreign translation difference		2,114,647			1,873,731
		17,096,071			15,734,805
Less: accumulated depreciation		(1,528,971	)		(1,029,552	)
Less: foreign translation difference		(124,532	)		(106,569	)
Property, plant and equipment, net	$	15,442,568		$	14,598,684

Depreciation expenses for the three months ended February 28, 2009 and February 29, 2008 were $166,711 and $100,147, which included $102,340 and $38,654 in cost of revenue, respectively.

Depreciation expenses for the nine months ended February 28, 2009 and February 29, 2008 were $499,419 and $287,878, which included $306,634 and $109,353 in cost of revenue, respectively.

NOTE － 6 OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of:

	As of
	February 28, 2009		May 31, 2008
	(Unaudited)		(Audited)

Welfare payable	$	273,997	$	216,527
Other tax payable		31,178		-
Accrued expenses		182,000		-
Rental payable		63,880		57,529
Other payable		55,090		174,500
Other payables and accrued liabilities	$	606,145	$	448,556

F-13

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

NOTE － 7 INCOME TAXES

For the nine months ended February 28, 2009 and February 29, 2008, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:

	Nine months ended February
		28, 2009			29, 2008
Tax jurisdiction from:
– Local	$	(209,456	)	$	(118,433	)
– Foreign		8,615,722			5,326,612
Income before income taxes	$	8,406,266		$	5,208,179

The provision for income taxes consisted of the following:

	Nine months ended February
		28, 2009		29, 2008
Tax jurisdiction from:
– Local	$	-	$	-
– Foreign		2,173,840		1,035,982

Income tax expense	$	2,173,840	$	1,035,982

The effective tax rate in the years 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 February 28, 2009, the operation in the United States of America incurred $920,771 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-14

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

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 is subject to the unified income tax rate of 25% on the taxable income.

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes from foreign operation for the nine months ended February 28, 2009 and February 29, 2008 are as follows:

	Nine months ended February
		28, 2009			29, 2008

Income before income taxes	$	8,615,722		$	5,326,612
Income statutory tax rate		25	%		28	%
Income taxes at statutory rate		2,153,931			1,491,451

Items not deductible or taxable for income tax purpose
Provision and accrued expenses		-			(455,469	)
Non-deductible items		19,909			-
Income tax expense	$	2,173,840		$	1,035,982

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of February 28, 2009 and May 31, 2008:

	As of
	February 28, 2009				May 31, 2008
	(Unaudited)				(Audited)
Deferred tax assets:
- Net operating loss carryforwards		$	322,269			$	211,024
Less: valuation allowance			(322,269	)			(211,024	)
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 $322,269 as of February 28, 2009. During the nine months ended February 28, 2009, the valuation allowance increased by $111,245, primarily relating to net operating loss carryforwards from the local tax regime.

F-15

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

NOTE － 8 CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customers

For the three and nine months ended February 28, 2009, the customers who account for 10% or more of revenues of the Company are presented as follows:

	Three months ended February 28, 2009
	Revenues			Percentage of revenues			Trade accounts receivable

Customer A		$	2,463,444		28	%		$	1,173,726
Customer C			3,082,986		35	%			-
Customer D			1,744,771		20	%			1,360,853
Customer E			971,763		11	%			-
Total:		$	8,262,964		94	%		$	2,534,579

	Nine months ended February 28, 2009
	Revenues			Percentage of revenues			Trade accounts receivable

Customer A		$	7,340,123		27	%		$	1,173,726
Customer B			8,019,713		29	%			-
Customer C			5,254,839		19	%			-
Customer D			3,747,643		14	%			1,360,853
Total:		$	24,362,318		89	%		$	2,534,579

For the three and nine months ended February 29, 2008, the customers who account for 10% or more of revenues of the Company are presented as follows:

	Three months ended February 29, 2008
	Revenues			Percentage of revenues			Trade accounts receivable

Customer A		$	3,547,027		50	%		$	42,069
Customer B			2,424,919		34	%			-
Total:		$	5,971,946		84	%		$	42,069

F-16

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

	Nine months ended February 29, 2008
	Revenues			Percentage of revenues			Trade accounts receivable

Customer A		$	6,538,733		40	%		$	42,069
Customer B			3,408,014		21	%			-
Customer D			2,508,647		16	%			-
Customer C			2,151,570		13	%			-
Total:		$	14,606,964		90	%		$	42,069

For the nine months ended February 28, 2009 and February 29, 2008, 100% of the Company’s revenues were derived from customers located in the PRC.

(b)	Major vendors

For the three and nine months ended February 28, 2009, the vendors who account for 10% or more of purchases of the Company are presented as follows:

	Three months ended February 28, 2009
	Purchases			Percentage of purchase			Accounts payable

Vendor A		$	1,304,606		28	%		$	-
Vendor B			1,718,556		37	%			-
Vendor C			1,643,720		35	%			817,661
Total:		$	4,666,882		100	%		$	817,661

	Nine months ended February 28, 2009
	Purchases			Percentage of purchase			Accounts payable

Vendor A		$	6,144,297		48	%		$	-
Vendor B			4,354,794		34	%			-
Vendor C			2,227,384		18	%			817,661
Total:		$	12,726,475		100	%		$	817,661

F-17

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

For the three and nine months ended February 29, 2008, the vendors who account for 10% or more of purchases of the Company are presented as follows:

	Three months ended February 29, 2008
	Purchases			Percentage of purchases			Accounts payable

Vendor A		$	1,929,411		48	%		$	427,489
Vendor B			1,587,578		40	%			332,938
Total		$	3,516,989		88	%		$	760,427

	Nine months ended February 29, 2008
	Purchases			Percentage of purchase			Accounts payable

Vendor A		$	5,742,323		45	%		$	427,489
Vendor B			3,432,917		27	%			332,938
Vendor C			3,096,513		24	%			-
Total:		$	12,272,573		96	%		$	760,427

For the nine months ended February 28, 2009 and February 29, 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.

(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-18

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008

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

(Unaudited)

NOTE － 9 COMMITMENTS AND CONTINGENCIES

(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 $5,103 and $4,754 for the nine months ended February 28, 2009 and February 29, 2008.

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

Year ending February 28:
2010	$	7,300
2011		2,998

Total:	$	10,298

(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 to $3 million over a term of 15 years. As of February 28, 2009, the Company had contingent payments of $2 million to $3 million relating to the purchase of the prospecting and mining rights. Due to delays caused by the current global economic downturn, this capital commitment is not expected to become effective until the second half of 2010.

F-19

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

Results of Operations

Three Months Ended February 28, 2009 and February 29, 2008

Net Revenue

Net revenue for the three months ended February 28, 2009 was $8,807,184, an increase of $1,700,225 or 24% from net revenue of $7,106,959 for the comparable period in 2008. The increase resulted from increased customer demand and sales.

Cost of Revenue

Cost of revenue for the three months ended February 28, 2009 was $5,561,556, an increase of $1,032,851 or 23% from $4,528,705 for the comparable period in 2008. The increase resulted directly from increased production of our products which is in tandem with increased demand for such products.

Gross Profit

Gross profit for the three months ended February 28, 2009 was $3,245,628, an increase of $667,374 or 26% from $2,578,254 for the comparable period in 2008. The increase in gross profit was primarily due to an increase in revenue generated by increased customer demand and production of our products.

General and Administrative Expenses

General and administrative expenses for the three months ended February 28, 2009 were $390,893, an increase of $381,187 or 3927% from $9,706 for the comparable period in 2008. The increase was primarily attributable to our more aggressive marketing efforts to expand our market share during the recent financial turmoil.

Research and Development Expenses

Research and development expenses for the three months ended February 28, 2009 were $25,536, an increase of $23,835 or 1401% compared to $1,701 for the comparable period in 2008. The increase was primarily attributable to the hiring of additional personnel during these three months ended February 28, 2009.

Depreciation Expenses

Depreciation expenses for the three months ended February 28, 2009 were $64,371, an increase of $2,500 or 4% compared to $61,871 for the comparable period in 2008. The increase in our depreciation expenses is primarily attributable to the addition of new office equipment during the period ended February 28, 2009.

Income (Loss) From Operations

Income from operations for the three months ended February 28, 2009 was $2,764,828, a decrease of $314,338 or 10% compared to $3,079,166 for the comparable period in 2008. The decrease resulted primarily from the one-off reversal of allowance for doubtful accounts that occurred in the third quarter of the 2008 fiscal year.

Other Income

Interest income for the three months ended February 28, 2009 was $6,372, a decrease of $663 or 9% as compared to $7,035 for the comparable period in 2008. The fluctuation in interest income between the two periods was immaterial.

Income Taxes

Provision for income tax expenses was $737,536 for the three months ended February 28, 2009, an increase of $441,857 or 149% as compared to $295,679 for the comparable period in 2008. The increase resulted primarily from the increase in our revenue due to increased sales.

Foreign Currency Translation (Loss) Gain

The foreign currency translation (loss) gain for the three months ended February 28, 2009 was $(50,599), a decrease of $794,784 or 107% as compared to $744,185 for the comparable period in 2008. The decrease was primarily attributable to the slowdown in the exchange rate revaluation of the Renminbi against the U.S. dollar.

Net Income

Net income for the three months ended February 28, 2009 was $2,033,664, a decrease of $756,858 or 27% as compared to the net income of $2,790,522 for the comparable period in 2008. The increase was primarily attributable to the one-off reversal of allowance for doubtful accounts and the increase in general and administrative expenses during the three months ended February 28, 2009.

Nine Months Ended February 28, 2009 and February 29, 2008

Net Revenue

Net revenue for the nine months ended February 28, 2009 was $27,400,292, an increase of $11,200,306 or 69% from net revenue of $16,199,986 for the comparable period in 2008. The increase in revenue was primarily attributable to increased customer demand for our products in line with sales growth.

Cost of Revenue

Cost of revenue for the nine months ended February 28, 2009 was $17,211,727, an increase of $6,681,736 or 63% from $10,529,991 for the comparable period in 2008. 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 nine months ended February 28, 2009 was $10,188,565, an increase of $4,518,570 or 80% from $5,669,995 for the comparable period in 2008. The increase in gross profit was primarily due to revenue generated by increased production and sales.

General and Administrative Expenses

General and administrative expenses for the nine months ended February 28, 2009 were $1,538,679, an increase of $760,988 or 98% from $777,691 for the comparable period in 2008. The increase was primarily attributable to our more aggressive marketing efforts to expand our market share during the recent financial turmoil.

Research and Development Expenses

Research and development expenses for the nine months ended February 28, 2009 were $75,823, a decrease of $12,278 or 14% compared to $88,101 for the comparable period in 2008. The decrease resulted from stricter expense control.

Depreciation Expenses

Depreciation expenses for the nine months ended February 28, 2009 were $192,785, an increase of $14,260 or 8% compared to $178,525 for the comparable period in 2008. The increase in our depreciation expenses is primarily attributable to the addition of new office equipment during the period ended February 28, 2009.

Income from Operations

Income from operations for the nine months ended February 28, 2009 was $8,381,278 an increase of $3,181,410 or 61% compared to $5,199,868 for the comparable period in 2008. The increase resulted primarily from the increased customer demand for our products and in line with sales growth.

Other Income

Interest income for the nine months ended February 28, 2009 was $24,988, an increase of $16,677 or 200% as compared to $8,311 for the comparable period in 2008. The increase resulted primarily from interest income derived from cash in our bank accounts.

Income Taxes

Provision for income tax expenses was $2,173,840 for the nine months ended February 28, 2009, an increase of $1,137,858 or 110% as compared to $1,035,982 for the comparable period in 2008. 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 nine months ended February 28, 2009 was $364,445, a decrease of $1,425,573 or 80% as compared to $1,790,018 for the comparable period in 2008. The decrease was primarily attributable to the slowdown in the exchange rate revaluation of the Renminbi against the U.S. dollar.

Net Income

Net income for the nine months ended February 28, 2009 was $6,232,426, an increase of $2,060,229 or 49 % as compared to $4,172,197 for the comparable period in 2008.

Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalent were $3,879,114 at the beginning of the nine months ended February 28, 2009 and increased to $12,185,403 by the end of such period, an increase of $8,306,289 or 214% from $813,163 for the same period in 2008.

Net Cash Provided by Operating Activities

Net cash provided by our operating activities was $9,295,655 for the nine months ended February 28, 2009, an increase of $408,271 or 5% as compared to net cash of $8,887,384 for the same period in 2008. This increase was due primarily to the growth in sales revenue with the decrease in inventories by $3,425,615, the increase in value-added tax payable by $854,534, the increase in other payable and accrued liabilities by $98,206, the increase in accounts payable by $72,913, and the increase in income tax payable by $547,321 partially offset by the decrease in customer deposits by $343, the increase in deposits and prepayments by $873,536 and the increase in accounts receivable by $1,560,900 in this period.

Net Cash Used in Investing Activities

Net cash used in investing activities was $1,065,334 for the nine months ended February 28, 2009, an increase of $1,023,070 or 2421% from $42,264 for the same period in 2008. The increase was primarily attributable to the purchase of new plant and equipment for the assembly of a new product.

Net Cash Used in Financing Activities

No cash was generated from financing activities for the nine months ended February 28, 2009, a decrease of $4,740 or 100% from $4,740 for the same period in 2008. The decrease was primarily attributable to the reduced advances from related parties.

Income Taxes

Income tax expense was $1,626,155 for the nine months ended February 28, 2009, an increase of $307,957 or 23% compared to $1,318,198 for the same period in 2008. The increase resulted primarily from the increase in income from operations.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

Effect of exchange rate changes on cash and cash equivalents resulted in $75,968 for the nine months ended February 28, 2009, a decrease of $306,639 or 80% compared to $382,607 for the same period in 2008.

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 second 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 $7,300.

On June 9, 2007, our 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 to $3 million over a term of 15 years. As of February 28, 2009, DLX had contingent payments of $2 million to $3 million relating to the purchase of the prospecting and mining rights. Due to delays caused by the current global economic downturn, this capital commitment is not expected to become effective until the second half of 2010.

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 third 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.

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.

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: April 14, 2009	By:	/s/ Bin Wang
		Name: Bin Wang
		Title: President, Chief Executive Officer and Chairman
		(Principle Executive Officer)