UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the ~~quarterly~~Quarterly ~~period~~Period ~~ended~~Ended ~~November~~February 3028, ~~2010~~2011

ORor

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

For the transition period from ~~______________~~_______to ~~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~~the People’s Republic of China 116015

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (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). o Yes þ No

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 55,~~472~~ 722,971 shares of common stock, $0.001 par value, issued and outstanding as of ~~January~~April 138, 2011.

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.	215
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	719
Item 4.	Controls and Procedures.	719

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	820
Item 1A.	Risk Factors.	820
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	820
Item 3.	Defaults Upon Senior Securities.	820
Item 4.	(Removed and Reserved)	820
Item 5.	Other Information.	820
Item 6.	Exhibits.	820
	Signatures	21

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, 2010 and May 31, 2010		F-2
Condensed Consolidated Balance Sheets as of February 28, 2011(Unaudited) and May 31, 2010(Audited)		2
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended November 30, 2010 and 2009		F-3
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended February 28, 2011 and 2010		3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended November 30, 2010 and 2009		F-4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 2011 and 2010		4
Condensed Consolidated Statement of Stockholders’ Equity for the Six Months ended November 30, 2010		F-5
Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months ended February 28, 2011		5
Notes to Condensed Consolidated Financial Statements		F-6 ~~– F~~-1514

F-1

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011 AND MAY 31, 2010

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

	November 30, 2010		May 31, 2010
	February 28, 2011		May 31, 2010
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	1925,~~797~~400,~~412~~563	$	18,017,266
Accounts receivable, trade		53,~~428~~026,~~311~~827		2,793,038
Inventories		~~420~~550,~~938~~154		1,218,336
Deposits and prepayments		~~330~~666,~~765~~395		3,049
Total current assets		2529,~~977~~643,~~426~~939		22,031,689
Non-current assets:
Technical know-how, net		2,~~445~~433,~~764~~541		2,475,298
Property, plant and equipment, net		20,~~292~~150,~~073~~743		20,567,954
TOTAL ASSETS	$	4852,~~715~~228,~~263~~223	$	45,074,941
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	~~412~~170,~~207~~135	$	2,127,244
Income tax payable		612,670		1,488,619
Customer deposits		191,078		--
Other payables and accrued liabilities		1,009,703		984,189
Income tax payable		635,336		1,488,619
Total liabilities		2,034,580		4,600,052
Other payables and accrued liabilities		959,839		984,189
Total liabilities		1,956,388		4,600,052
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; none of shares issued and outstanding,		-		-
Convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; none issued and outstanding, respectively		-		-
Common stock, $0.001 par value; 100,000,000 shares authorized; 55,472,971 shares and 53,422,971 shares issued and outstanding, respectively		55,473		53,423
Common stock, $0.001 par value; 100,000,000 shares authorized; 55,722,971 shares and 53,422,971 shares issued and outstanding as of February 28, 2011 and May 31, 2010, respectively		55,723		53,423
Additional paid-in capital		11,~~366~~647,~~654~~029		9,585,204
Accumulated other comprehensive income		4,~~094~~745,~~904~~751		3,043,344
Statutory reserve		23,~~277~~335,~~365~~588		2,277,365
Retained earnings		2830,~~886~~487,~~287~~744		25,515,553
Total stockholders’ equity		4650,~~680~~271,~~683~~835		40,474,889
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4852,~~715~~228,~~263~~223	$	45,074,941

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~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011 AND ~~2009~~2010

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

(Unaudited)

Three months ended November 30,

Six months ended November 30,

Three months ended February 28,

Nine months ended February 28,

2010

2009

2010

2009

2011

2010

2011

2010

Revenues, net

1213,~~639~~359,~~828~~930

10,~~110~~808,~~020~~702

2437,~~393~~753,~~287~~217

1930,~~423~~232,~~356~~058

Cost of revenue (inclusive of depreciation and amortization)

8,~~568~~753,~~216~~182

7,~~078~~427,~~731~~144

1625,~~614~~367,~~672~~854

1320,~~333~~760,~~297~~441

Gross profit

4,~~071~~606,~~612~~748

3,~~031~~381,~~289~~558

712,~~778~~385,~~615~~363

69,~~090~~471,~~059~~617

Operating expenses:

Sales and marketing

3747,~~447~~493

2930,~~844~~057

68116,~~773~~266

5383,~~138~~195

Research and development

3233,~~514~~838

2526,~~598~~328

5387,~~447~~285

5177,~~173~~501

General and administrative

2858,~~195,429~~580

~~276~~376,~~478~~544

23,~~595~~454,~~814~~394

~~518~~894,~~156~~700

Total operating expenses

2939,~~265,390~~911

~~331~~432,~~920~~929

23,~~718~~657,~~034~~945

~~622~~1,~~467~~055,396

INCOME FROM OPERATIONS

13,~~806~~666,~~222~~837

2,~~699~~948,~~369~~629

58,~~060~~727,~~581~~418

58,~~467~~416,~~592~~221

Other income:

Other income

44,432

Subsidy income

291

44,722

Interest income

1314,~~212~~240

89,~~756~~414

2338,~~851~~091

1626,~~814~~228

INCOME BEFORE INCOME TAXES

13,~~863~~681,~~866~~368

2,~~708~~958,~~125~~043

58,~~128~~810,~~864~~231

58,~~484~~442,~~406~~449

Income tax expense

(~~923~~1,~~867~~021,688

)

(~~690~~756,~~442~~920

)

(12,~~758~~779,~~130~~817

)

(12,~~403~~160,~~380~~300

)

NET INCOME

~~939~~2,~~999~~659,680

2,~~017~~201,~~683~~123

36,~~370~~030,~~734~~414

46,~~081~~282,~~026~~149

Other comprehensive income (loss):

- Foreign currency translation gain (loss)

~~944~~650,~~317~~847

64(41,~~313~~340

)

1,~~051~~702,~~560~~407

(1052,~~960~~300

)

COMPREHENSIVE INCOME

13,~~884~~310,~~316~~527

2,~~081~~159,~~996~~783

47,~~422~~732,~~294~~821

46,~~070~~229,~~006~~849

Net income per share – Basic and diluted

0.0205

0.04

0.0611

0.0812

Weighted average common stock outstanding – Basic and diluted

55,~~017~~639,~~415~~638

53,422,971

54,~~220~~693,~~193~~341

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~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011 AND ~~2009~~2010

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

(Unaudited)

	Six months ended November 30,
	Nine months ended February 28,
	2010			2009
	2011			2010
Cash flows from operating activities:
Net income	$	36,~~370~~030,~~734~~414		$	46,~~081~~282,~~026~~149
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		~~810~~1,~~149~~223,915			~~573~~971,~~949~~821
Amortization of technical know-how		87132,~~876~~679			4386,~~375~~762
Shares issued for services, non-cash		12,~~783~~064,~~500~~125			-
Changes in operating assets and liabilities:
Accounts receivable, trade		(2125,~~537,625~~965	)		(861,~~566~~093,057	)
Inventories		~~816~~586,~~781~~798			1436,~~264,253~~813
Value-added tax receivable		-			417,912
Value-added tax, net		-			402,760
Deposits and prepayments		(~~323~~536,~~736~~805	)		(~~239~~242,~~780~~740	)
Accounts payable, trade		(1,~~745~~999,~~030~~474	)		(~~845~~846,~~986~~110	)
Income tax payable		(900,803	)		(55,746	)
Customer deposits		187,520			--
Other payables and accrued liabilities		5,717			(376,042	)
Income tax payable		(892,542	)		32,795
Net cash provided by operating activities		1,367,563			4,776,395
Other payables and accrued liabilities		(54,348	)		(423,155	)
Net cash provided by operating activities		6,616,317			5,608,038
Cash flows from investing activities:
Purchase of plant and equipment		(4952,~~852~~513	)		(1,~~297~~298,~~941~~131	)
Addition of construction in progress		-			(1,024,~~621~~771	)
Net cash used in investing activities		(4952,~~852~~513	)		(2,322,~~562~~902	)
Effect of exchange rate changes on cash and cash equivalents		~~462~~819,~~435~~493			(113,~~815~~969	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		17,~~780~~383,~~146~~297			23,~~452~~271,~~018~~167
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		18,017,266			9,209,953
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1925,~~797~~400,~~412~~563		$	1112,~~661~~481,~~971~~120
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	23,~~658~~742,~~933~~036		$	12,~~459~~127,~~125~~504
Cash paid for interest	$	-		$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfer from construction in progress to property, plant and equipment	$	-		$	2,560,385

See accompanying notes to condensed consolidated financial statements.

F-4

CHINA SUN GROUP HIGH-TECH CO.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

	Convertible preferred stock				Common stock
	No. of shares		Amount		No. of shares		Amount		Additional paid-in capital		Accumulated other comprehensive income		Statutory reserve		Retained earnings			Total stockholders’ equity
Balance as of June 1, 2010		--		--		53,422,971	$	53,423	$	9,585,204	$	3,043,344	$	2,277,365	$	25,515,553		$	40,474,889
Shares issued for services		-		-		2,050,000		2,050		1,781,450		-		-		-			1,783,500
Stock-based compensation		--		--		2,300,000		2,300		2,061,825		--		--		--			2,064,125
Net income for the period		--		--		--		--		--		--		--		36,~~370~~030,~~734~~414			36,~~370~~030,~~734~~414
Foreign currency translation adjustment		-		-		-		-		-		1,051,560		-		-			1,051,560
Appropriationsto statutoryreserve		--		--		--		--		--		--		1,058,223		(1,058,223	)		--
Balance as of November 30, 2010		-	$	-		55,472,971	$	55,473	$	11,366,654	$	4,094,904	$	2,277,365	$	28,886,287		$	46,680,683
Foreign currency translation adjustment		--		--		--		--		--		1,702,407		--		--			1,702,407
Balance as of February 28, 2011		--	$	--		55,722,971	$	55,723	$	11,647,029	$	4,745,751	$	3,335,588	$	30,487,744		$	50,271,835

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~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(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 GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of May 31, 2010 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~~February 3028, ~~2010~~2011 are not necessarily indicative of the results to be expected for the entire fiscal year ending May 31, 2011 or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 31, 2010.

NOTE－2 ORGANIZATION AND BUSINESS BACKGROUND

China Sun Group High-Tech Co. 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 sale of cobaltosic oxide and lithium iron phosphate, both anode materials used in lithium ion rechargeable batteries.

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

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

l● Basis of consolidation

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

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.

~~F-6~~The Company maintains cash and cash equivalent balances at a financial institution in the PRC, which are insured by China Citic Bank. The Company has cash concentration risk of $25,396,408 as of February 28, 2011.

●	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.

●	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, 2011, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

~~The~~● ~~Company~~Technical maintains cash and cash equivalent balances at a financial institution in the PRC, which are insured by China Citic Bank. The Company has cash concentration risk of $19,793,510 as of November 30, 2010.know-how

l Accounts receivable

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, 2010, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

l Technical know-how

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

Amortization expense for the three months ended ~~November~~February 3028, ~~2010~~2011 and ~~2009~~2010 ~~was~~were $44,~~275~~803 and $43,375, which was recorded in cost of revenue~~, respectively~~.

Amortization expense for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 and ~~2009~~2010 ~~was~~were $87132,~~876~~679 and $4386,~~375~~762, which was recorded in cost of revenue~~, respectively~~.

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 vehicles	5 years	5%

Expenditure for repairs and maintenance is expensed as incurred. When assets have been 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-7~~Depreciation expense for the three months ended February 28, 2011 and 2010 were $413,766 and $397,872, which included $277,271 and $333,262 in cost of revenue, respectively.

~~CHINA~~Depreciation ~~SUN~~expense ~~GROUP~~for ~~HIGH-TECH~~the COnine months ended February 28, 2011 and 2010 were $1,223,915 and $971,821, which included $1,020,584 and $778,112 in cost of revenue, respectively.

~~NOTES~~● TOValuation ~~CONDENSED~~of ~~CONSOLIDATED~~long-lived ~~FINANCIAL STATEMENTS~~assets

~~FOR~~Long-lived ~~THE~~assets ~~SIX~~primarily ~~MONTHS~~include ~~ENDED~~technical ~~NOVEMBER~~know-how 30and property, ~~2010~~plant and equipment. In accordance with Accounting Standards Codification (“ASC”) Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ,” the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results. There has been no impairment charge for the periods presented.

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

~~(Unaudited)~~The Company generally receives deposit payments from new customers in the normal course of business. Customer deposits are unsecured and interest-free, which are recognized in revenue when delivery has been received by the customers.

~~Depreciation~~● ~~expense~~Revenue ~~for the three months ended November 30, 2010 and 2009 was $408,826 and $363,696, which included $408,313 and $299,100 in cost of revenue, respectively.~~recognition

~~Depreciation~~In ~~expense~~accordance ~~for~~with the ~~six~~ASC ~~months~~Topic ~~ended~~605, ~~November~~“Revenue 30Recognition”, ~~2010~~the ~~and~~Company ~~2009~~recognizes ~~was~~revenue ~~$810,149~~when ~~and~~the ~~$573,949,~~following ~~which~~four ~~included~~revenue ~~$743~~criteria are met: persuasive evidence of an arrangement exists,~~313~~ ~~and~~delivery ~~$444~~has occurred,~~850~~ inthe ~~cost~~selling ofprice ~~revenue~~is fixed or determinable, ~~respectively~~and collectability is reasonably assured.

l Valuation of long-lived assets

Long-lived assets primarily include technical know-how and property, plant and equipment. In accordance with Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets,” the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results. There has been no impairment as of November 30, 2010.

l Revenue recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

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

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

l● Comprehensive income

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

~~l Income taxes~~7

The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in the financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

F-8

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

●	Income taxes

For the nine months ended February 28, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions. As of February 28, 2011, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts substantially all of its 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 authority.

l● Net income per share

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

l● Foreign currencies translation

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

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

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

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

	November 30, 2010		November 30, 2009
	February 28, 2011		February 28, 2010
Period-end RMB:US$ exchange rate		6.6714		6.8285
Period-end RMB:US$1 exchange rate		6.5830		6.8367
Average period RMB:US$ exchange rate		6.7519		6.8396
Average period RMB:US$1 exchange rate		6.7079		6.8386

l● ~~Stock~~Related ~~based compensation~~parties

For non-employee stock based compensation, the Company adopts ASC Topic 505-50, “Equity-Based Payments to Non-Employees”, stock based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC 718.

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-9~~● Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. For the nine months ended February 28, 2011, the Company operated in one reportable business segment in the PRC.

●	Stock based compensation

For non-employee stock based compensation, the Company adopts ASC Topic 505-50, “Equity-Based Payments to Non-Employees,” stock based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable.

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

l● ~~Segment~~Fair ~~reporting~~value of financial instruments

~~ASC~~Cash ~~Topic~~and ~~280~~cash equivalents, ~~“Segment~~ ~~Reporting”~~accounts ~~establishes~~receivable, ~~standards~~deposits ~~for~~and ~~reporting~~prepayments, ~~information~~accounts ~~about~~payable, ~~operating~~customer ~~segments~~deposits, onincome atax ~~basis~~payable, ~~consistent~~other ~~with~~payables ~~the~~and ~~Company’s~~accrued ~~internal~~liabilities ~~organization~~are ~~structure~~carried asat ~~well~~cost aswhich ~~information~~approximated ~~about~~fair ~~geographical~~value. ~~areas,~~Any ~~business~~changes ~~segments and major customers~~ in ~~the~~fair ~~financial~~value ~~statements.~~of ~~For~~assets ~~the~~or ~~six~~liabilities ~~months~~carried ~~ended~~at ~~November~~fair ~~30,~~value ~~2010,~~are ~~the~~recognized ~~Company~~in ~~operates~~other ~~one~~comprehensive ~~reportable~~income ~~business~~for ~~segment~~each ~~in the PRC~~period.

lThe Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures”("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ~~measurement~~ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

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

~~For~~· ~~financial~~Level ~~assets~~2: ~~and~~Inputs ~~liabilities,~~are ~~fair~~based ~~value~~upon isquoted ~~the~~prices ~~price~~for ~~the~~similar ~~Company~~instruments ~~would~~in ~~receive~~active tomarkets, ~~sell~~quoted anprices ~~asset~~for identical or ~~pay~~similar toinstruments ~~transfer~~in amarkets ~~liability~~that inare annot ~~orderly~~active, ~~transaction~~and ~~with~~model-based avaluation ~~market~~techniques ~~participant~~(e.g. atBlack-Scholes ~~the~~Option-Pricing ~~measurement~~model) ~~date.~~for Inwhich ~~the~~all ~~absence~~significant ofinputs ~~active~~are ~~markets~~observable ~~for~~in the ~~identical~~market ~~assets~~ or ~~liabilities,~~can ~~such~~be ~~measurements~~corroborated ~~involve~~by ~~developing~~observable ~~assumptions~~market ~~based~~data onfor ~~market~~substantially ~~observable~~the ~~data~~full ~~and,~~term inof the ~~absence~~assets ofor ~~such~~liabilities. ~~data~~Where applicable, ~~internal~~these ~~information~~models ~~that~~project isfuture ~~consistent~~cash ~~with~~flows ~~what~~and ~~market~~discount ~~participants~~the ~~would~~future ~~use~~amounts into a ~~hypothetical~~present ~~transaction~~value ~~that~~using ~~occurs~~market-based atobservable ~~the~~inputs; ~~measurement date.~~and

l· ~~Financial~~Level ~~instruments~~3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

~~Cash~~Fair ~~and~~value ~~cash~~estimates ~~equivalents,~~are ~~accounts~~made ~~receivable,~~at ~~deposits~~a ~~and~~specific ~~prepayments,~~point ~~accounts~~in ~~payable,~~time ~~income~~based ~~tax~~on ~~payable,~~relevant ~~other~~market ~~payables~~information ~~and~~about ~~accrued~~the ~~liabilities~~financial ~~are~~instrument. ~~carried~~These atestimates ~~cost~~are ~~which~~subjective ~~approximated~~in ~~fair~~nature ~~value.~~and ~~Any~~involve ~~changes~~uncertainties inand ~~fair~~matters ~~value~~ of ~~assets~~significant orjudgment ~~liabilities~~and, ~~carried~~therefore, atcannot ~~fair~~be ~~value~~determined ~~are~~with ~~recognized~~precision. Changes in ~~other~~assumptions ~~comprehensive~~could ~~income~~significantly ~~for~~affect ~~each~~the ~~period~~estimates.

l● Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In ~~April~~October ~~2010~~2009, the Financial Accounting ~~Standard~~Standards Board (“FASB”) issued FASB Accounting Standards Update (“ASU”) ~~2010~~No. 2009-13, ~~Compensation~~“Revenue –Recognition ~~Stock Compensation~~ (Topic ~~718~~605): ~~Effect~~— ofMultiple-Deliverable ~~Denominating~~Revenue ~~the~~Arrangements ~~Exercise~~— ~~Price~~a consensus of athe ~~Share-Based~~FASB ~~Payment~~Emerging ~~Award~~Issues inTask Force.” In the ~~Currency~~absence of vendor-specific objective evidence (VSOE) or other third party evidence (TPE) of the ~~Market~~selling inprice ~~Which~~for the ~~Underlying~~deliverables ~~Equity~~in ~~Security~~a ~~Trades.~~multiple-element arrangement, this ASU ~~2010-13~~requires ~~provides~~companies ~~guidance~~to onuse an estimated selling price (ESP) for the ~~classification~~individual ofdeliverables. aCompanies ~~share~~are to apply the relative-~~based~~selling ~~payment~~price ~~award~~model asfor ~~either~~allocating ~~equity~~an orarrangement’s atotal ~~liability~~consideration to its individual elements. AUnder ~~share-based~~this ~~payment~~model, ~~that~~the ~~contains~~ESP ais ~~condition~~used for both the delivered and undelivered elements that isdo not ahave ~~market~~VSOE or TPE of the selling price. The FASB also issued ASU No. 2009-14, ~~performance~~“Software (Topic 985) — Certain Revenue Arrangements That Include Software Elements,” orwhich ~~service~~excludes ~~condition~~the software from the scope of software revenue guidance if the software contained in the tangible product is ~~required~~essential to bethe ~~classified~~tangible asproduct’s ~~a liability~~functionality. ~~ASU~~Both ~~2010-13~~ASUs isare effective for fiscal ~~years,~~year ~~and~~beginning ~~interim~~in ~~periods~~2012, ~~within~~with ~~those~~earlier ~~fiscal~~application ~~years,~~permitted. ~~beginning~~The onCompany ordoes ~~after~~not ~~December~~expect ~~15,~~the ~~2010~~adoption ~~and~~of isthis ~~not~~new ~~expected~~accounting guidance to have a ~~significant~~material impact on ~~the~~its ~~Company’s~~ consolidated financial statements.

In July 2010, the FASB issued new accounting guidance that will require additional disclosures about the credit quality of loans, lease receivables and other long-term receivables and the related allowance for credit losses. Certain additional disclosures in this new accounting guidance will be effective for the Company on December 31, 2010 with certain other additional disclosures that will be effective on March 31, 2011. The Company does not expect the adoption of this new accounting guidance to have a material impact on its consolidated financial statements.

F-10

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED NOVEMBER 30, 2010

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

(Unaudited)

NOTE－4 ACCOUNTS RECEIVABLE, TRADE

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the Company has determined that no allowance for doubtful accounts is required for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 and ~~2009~~2010.

NOTE－5 OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of:

	November 30, 2010		May 31, 2010
	February 28, 2011		May 31, 2010
Welfare payable	$	~~426~~432,~~835~~567	$	416,832
Accrued operating expense		22129,~~073~~388		116,849
VAT payable		~~252~~249,~~287~~884		257,752
Other payable		~~308~~148,~~508~~000		192,756
Other payables and accrued liabilities	$	1959,~~009,703~~839	$	984,189

NOTE－6 STOCKHOLDERS’ EQUITY

On September 20, 2010, the Company issued an aggregate of 2,050,000 shares of common stock to certain consultants for advisory and professional services at the current fair value of $0.87 per share, totaling $1,783,500.

~~NOTE－7 INCOME~~On ~~TAXES~~December 31, 2010, the Company issued an aggregate of 250,000 shares of common stock to its CEO and CFO for executive compensation at the current fair value of $1.1225 per share, totaling $280,625.

~~For~~As ~~the~~of ~~six~~February ~~months ended November 30~~28, ~~2010 and 2009~~2011, the ~~local~~issued ~~(“United States of America”)~~ and ~~foreign~~outstanding ~~components~~common stock of ~~income~~the ~~before~~Company ~~income~~is ~~taxes~~55,722,971 ~~were comprised of the following:~~shares.

	Six months ended November 30,
	2010			2009
Tax jurisdiction from:
– Local	$	(1,944,811	)	$	(121,029	)
– Foreign		7,073,675			5,605,435
Income before income taxes	$	5,128,864		$	5,484,406

The provision for income taxes consisted of the following:

	Six months ended November 30,
	2010		2009
Current tax:
– Local	$	-	$	-
– Foreign		1,758,130		1,403,380
Deferred tax:
– Local		-		-
– Foreign		-		-
Income tax expense	$	1,758,130	$	1,403,380

F-11

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

NOTE－7 INCOME TAXES

For the nine months ended February 28, 2011 and 2010, the local (“United States of America”) and foreign components of income (loss) before income taxes were comprised of the following:

	Nine months ended February 28,
	2011			2010
Tax jurisdiction from:
– Local	$	(2,335,805	)	$	(183,008	)
– Foreign		11,146,036			8,625,457
Income before income taxes	$	8,810,231		$	8,442,449

The provision for income taxes consisted of the following:

	Nine months ended February 28,
	2011		2010
Current tax:
– Local	$	-	$	-
– Foreign		2,779,817		2,160,300

Deferred tax:
– Local		-		-
– Foreign		-		-

Income tax expense	$	2,779,817	$	2,160,300

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

United States of America

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

As of ~~November~~February 3028, ~~2010~~2011, the operations in the United States of America incurred $3,~~125~~516,~~126~~120 of cumulative net operating loss carryforwards for federal tax purposes, which are available to offset future taxable income. The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss ~~carryforwards~~carry-forwards as the management believes it is more likely than not that these assets will not be realized in the future.

The PRC

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

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes from the operation in the PRC for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 and ~~2009~~2010 are as follows:

	Six months ended November 30,
	Nine months ended February 28,
	2010			2009
	2011			2010
Income before income taxes	$	711,~~073~~146,~~675~~036		$	58,~~605~~625,~~435~~457
Statutory income tax rate		25	%		25	%
Income taxes calculated at statutory income tax rate		12,~~768~~786,~~419~~509			12,~~401~~156,~~359~~364
Tax effect on non-deductible items		~~819~~4,489			~~913~~1,371
Tax effect on non-taxable items		(11,~~108~~181	)		(13,~~668~~336	)
Prior year’s adjustment		-			25,~~776~~901
Income tax expense	$	12,~~758~~779,~~130~~817		$	12,~~403~~160,~~380~~300

~~The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of November 30, 2010 and May 31, 2010:~~10

	November 30, 2010			May 31, 2010
Deferred tax assets:
- Net operating loss carryforwards	$	1,062,543		$	401,307
Less: valuation allowance		(1,062,543	)		(401,307	)
Deferred tax assets	$	-		$	-

F-12

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

~~Management~~The ~~believes~~following ~~that~~table itsets isforth ~~more likely than not that~~ the ~~deferred~~significant ~~tax~~components ~~assets~~of ~~will not be fully realizable in~~ the ~~future.~~aggregate ~~Accordingly,~~net ~~the Company provided for a full valuation allowance against its~~ deferred tax assets of ~~$1,062,543~~the Company as of ~~November~~February 3028, ~~2010.~~2011 ~~During~~and ~~the~~May ~~six months ended November 30~~31, 2010~~, the valuation allowance increased by $661,236, primarily relating to net operating loss carryforwards from the local tax regime.~~:

NOTE－8 CONCENTRATIONS OF RISK

	February 28, 2011			May 31, 2010
Deferred tax assets:
- Net operating loss carry-forwards	$	1,195,481		$	401,307
Less: valuation allowance		(1,195,481	)		(401,307	)
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 $1,195,481 as of February 28, 2011. During the nine months ended February 28, 2011, the valuation allowance increased by $794,174, primarily relating to net operating loss carry-forwards from the local tax regime.

NOTE－8 SEGMENT INFORMATION BY PRODUCTS

The Company operates in one reportable operating segment in the production and sale of anode materials for lithium ion batteries in the PRC, as defined by ASC Topic 280. Summarized financial information concerning the Company’s major products is shown in the following table for the three and nine months ended February 28, 2011 and 2010:

	Three months ended February 28,
	2011			2010

Lithium iron phosphate		$	3,828,224	$	1,579,166
Cobaltosic oxide			9,531,706		9,229,536
		$	13,359,930	$	10,808,702

	Nine months ended February 28,
	2011			2010

Lithium iron phosphate		$	9,764,849	$	2,327,841
Cobaltosic oxide			27,988,368		27,904,217
		$	37,753,217	$	30,232,058

All of the customers are located in the PRC for the periods presented.

NOTE－9 CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customers

For the three and ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 and ~~2009~~2010, the customers who ~~accounted~~account for ~~10% or more of revenues of the Company are as follows:~~

	Three months ended November 30, 2010						November 30, 2010
	Revenues			Percentage of revenues			Trade accounts receivable
Customer B		$	1,934,364		15	%		$	447,207
Customer E			1,737,489		14	%			764,863
Customer F			1,645,173		13	%			799,331
Customer G			1,237,998		10	%			724,441
Total:		$	6,555,024		52	%		$	2,735,842

10% or more of revenues of the Company are presented as follows:

		Six months ended November 30, 2010						November 30, 2010
	Three months ended February 28, 2011						February 28, 2011
	Revenues	~~Revenues~~		Percentage of revenues			Trade accounts receivable	~~Trade accounts receivable~~
Customer F			3,786,012		16	%			799,331
Customer A		$	2,097,611		16	%		$	728,767
Customer E			3,671,154		15	%			764,863
Customer B			1,897,148		14	%			--
Customer B		$	3,538,443		15	%		$	447,207
Customer C			1,750,724		13	%			141,438
Customer G			2,659,388		11	%			724,441
Customer D			1,636,534		12	%			615,707
Customer H			2,375,547		10	%			426,251
Customer E			1,455,164		11	%			--
Total:		$	168,~~030~~837,~~544~~181		6766	%		$	31,~~162~~485,~~093~~912

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

F-13

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

	Six months ended November 30, 2009						November 30, 2009
		Nine months ended February 28, 2011						February 28, 2011
	~~Revenues~~	Revenues		Percentage of revenues			~~Trade accounts receivable~~	Trade accounts receivable
Customer B		$	4,369,863		22	%		$	665,465
Customer A		$	5,883,623		16	%		$	728,767
Customer E			3,190,790		16	%			-
Customer D			5,174,977		14	%			615,707
Customer F			24,~~850~~746,~~405~~223		1513	%			~~595,900~~--
Customer D			2,699,800		14	%			165,038
Customer C			4,410,112		12	%			141,438
Total:		$	13,110,858		67	%		$	1,426,403
Customer E			3,729,575		10	%			--
Total:		$	23,944,510		65	%		$	1,485,912

	Three months ended February 28, 2010					February 28, 2010
	Revenues		Percentage of revenues			Trade accounts receivable

Customer D	$	2,344,273		22	%	$	1,000,309
Customer A		1,985,111		18	%		293,511
Customer E		1,556,554		14	%		356,055
Customer F		1,484,985		14	%		286,133
Total:	$	7,370,923		68	%	$	1,936,008

	Nine months ended February 28, 2010						February 28, 2010
	Revenues			Percentage of revenues			Trade accounts receivable

Customer D		$	6,714,775		22	%		$	1,000,309
Customer A			4,835,934		16	%			293,511
Customer F			4,676,241		15	%			286,133
Customer E			4,256,748		14	%			356,055
Total:		$	20,483,698		67	%		$	1,936,008

(b)	Major vendors

For the three and ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 and ~~2009~~2010, the vendors who ~~accounted~~ account for 10% or more of purchases of the Company's ~~purchases~~ are presented as follows:

	Three months ended November 30, 2010						November 30, 2010
	Three months ended February 28, 2011						February 28, 2011
	Purchases			Percentage of purchases			Accounts Payable
Vendor A		$	3,~~086~~288,~~112~~297		40	%		$	--
Vendor B			1,727,995		23	%			412,207
Vendor C			1,810,174		22	%			--
Vendor C			1,700,828		22	%			-
Vendor B			1,683,052		21	%			--
Vendor D			939,791		12	%			-
Total:		$	6,781,523		83	%		$	--
Total:		$	7,454,726		97	%		$	412,207

	Six months ended November 30, 2010						November 30, 2010
	Purchases			Percentage of purchases			Accounts Payable
Vendor A		$	5,581,911		39	%		$	-
Vendor C			3,461,269		24	%			-
Vendor B			3,117,688		22	%			412,207
Vendor D			1,743,626		12	%			-
Total:		$	13,904,494		97	%		$	412,207

	Three months ended November 30, 2009						November 30, 2009
	Purchases			Percentage of purchases			Accounts Payable
Vendor C		$	3,875,385		60	%		$	-
Vendor B			1,776,967		27	%			-
Total:		$	5,652,352		87	%		$	-

F-14

CHINA SUN GROUP HIGH-TECH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2010~~2011

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

(Unaudited)

	Six months ended November 30, 2009						November 30, 2009
	Nine months ended February 28, 2011						February 28, 2011
	Purchases			Percentage of purchases			Accounts Payable
Vendor C		$	4,822,359		43	%		$	-
Vendor A		$	8,870,208		39	%		$	--
Vendor A			3,028,492		27	%			-
Vendor C			5,271,443		23	%			--
Vendor B			34,~~017~~800,~~828~~740		2721	%			--
Total:		$	1018,~~868~~942,~~679~~391		9783	%		$	--

	Three months ended February 28, 2010						February 28, 2010
	Purchases			Percentage of purchases			Accounts Payable

Vendor A		$	5,326,116		71	%		$	--
Vendor B			1,292,574		17	%			--
Total:		$	6,618,690		88	%		$	--

	Nine months ended February 28, 2010						February 28, 2010
	Purchases			Percentage of purchases			Accounts Payable

Vendor A		$	8,355,051		44	%		$	--
Vendor C			5,285,420		28	%			--
Vendor B			4,310,843		23	%			--
Total:		$	17,951,314		95	%		$	--

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 the US$. To date, the majority of revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between the US$ and the RMB. If the RMB depreciates against the 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 it to substantial market risk.

(e) Economic and political risks

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

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

~~NOTE－9 COMMITMENTS AND CONTINGENCIES~~13

~~The~~CHINA ~~Company’s~~SUN ~~subsidiary~~GROUP ~~operating in the PRC was committed under several non~~HIGH-~~cancelable~~TECH ~~operating leases for terms ranging from 5 to 10 years, with monthly rentals, due through July 2020~~CO. ~~Costs incurred under these operating leases are recorded as rental expense and totaled approximately $8,516 and $3,655 for the six months ended November 30, 2010 and 2009.~~

AsNOTES ofTO ~~November~~CONDENSED ~~30,~~CONSOLIDATED ~~2010,~~FINANCIAL ~~the Company has future minimum rental payments under the operating lease agreements in the next five years and thereafter, as follows:~~STATEMENTS

Years ending November 30,
2011	$	16,488
2012		16,488
2013		16,488
2014		16,488
2015		15,739
Thereafter		47,967
Total:	$	129,658

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2011

~~F-15~~(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

NOTE－10 COMMITMENTS AND CONTINGENCIES

The Company’s subsidiary operating in PRC was committed under several non-cancelable operating leases for the terms from 5 to 10 years, with monthly rentals, due through July 2020. Costs incurred under these operating leases are recorded as rental expense and totaled approximately $12,050 and $5,484 for the nine months ended February 28, 2011 and 2010.

As of February 28, 2011, the Company has the future minimum rental payments under the operating lease agreements in the next five years and thereafter, as follow:

Years ending February 28,
2012		16,710
2013		16,710
2014		16,710
2015		16,710
2016		14,431
Thereafter		48,609

Total:	$	129,880

NOTE－11 SUBSEQUENT EVENTS

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after February 28, 2011 up through the date was the Company issued the audited consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.

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

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under this item as well as items elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenues, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the factors discussed above in the section entitled “Risk Factors” and the following:

· • the effect of political, economic, and market conditions and geopolitical events; · legislative and regulatory changes that affect our business; · the availability of funds and working capital; · the actions and initiatives of current and potential competitors; · investor sentiment; and · our reputation.

• legislative and regulatory changes that affect our business;

• the availability of funds and working capital;

• the actions and initiatives of current and potential competitors;

• investor sentiment; and

• our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Report on Form 10-Q.

Overview

China Sun Group High-Tech Co. is a large producer of cobaltosic oxide and lithium cobalt oxide, both anode materials for lithium ion batteries. In 2010 the Company also began producing and selling lithium iron phosphate in quantity. The Company's sizable production capacity will help it meet the growing demand for anode materials as the demand for lithium batteries increases. Lithium batteries are becoming widely used due to their power capacity, long service life, and compatibility with carbon cathode materials, necessary for battery circuitry. The expected growth of the lithium ion battery industry affords the Company a business opportunity for increasing revenue. In addition, our current operations are solely in the PRC, which provides us access to low-cost skilled labor, raw materials, machinery and facilities and enables us to price our products competitively in an increasingly price-sensitive market.

2The Company provides a comprehensive selection of cobalt products including battery cobalt carbonate, nano-level cobaltosic oxide, and high-crystallinity ball lithium cobalt oxide. The Company’s main products are cobaltosic oxide (Co3O4) and lithium iron phosphate (LiFePo4). Beginning in fiscal 2010, the Company began producing lithium iron phosphate and planned to convert five of its twelve production lines to the production of lithium iron phosphate. Sales of lithium iron phosphate to customers in quantity began in the second quarter of fiscal 2010. On February 28, 2011, the Company had seven production lines for the production of cobaltosic oxide and lithium cobalt oxide and five production lines for the production of lithium iron phosphate. Three of the five lithium iron phosphate production lines are currently in production and two lines can be brought into production when market conditions allow. During the three and nine months ended February 28, 2011, the Company produced 304 and 889 tons of cobaltosic oxide, respectively, and 205 and 517.88 tons of lithium iron phosphate, respectively.

The Company provides a comprehensive selection of cobalt products including battery cobalt carbonate, nano-level cobaltosic oxide, and high-crystallinity ball lithium cobalt oxide. The Company’s main products are cobaltosic oxide (Co3O4) and lithium iron phosphate (LiFePo4). Beginning in fiscal 2010, the Company began producing lithium iron phosphate and planned to convert five of its twelve production lines to the production of lithium iron phosphate. Sales of lithium iron phosphate to customers in quantity began in the second quarter of fiscal 2010. At November 30, 2010, the Company had seven production lines for the production of cobaltosic oxide and lithium cobalt oxide and five production lines for the production of lithium iron phosphate. Three of the five lithium iron phosphate production lines are currently in production and two lines can be brought into production when market conditions allow. During the three and six months ended November 30, 2010, the Company produced 297 and 585 tons of cobaltosic oxide, respectively, and 180 and 315 tons of lithium iron phosphate, respectively.15

Results of Operations

Three Months ~~Ended~~ended ~~November~~February 3028, ~~2010~~2011 and ~~November 30, 2009~~2010

Net Revenue

Net revenue for the three months ended ~~November~~February 3028, ~~2010~~2011 was $1213,~~639~~359,~~828~~930, an increase of $2,~~529~~551,~~808~~228 or 2524% from net revenue of $10,~~110~~808,~~020~~702 for the comparable period in ~~2009~~2010. The increase in net revenue primarily resulted from an increase in sales of our new product, lithium iron phosphate. Eighty-eight percent (88%) of the net revenue increase was attributed to an increase in sales of our new product, lithium iron phosphate. Sales of lithium iron phosphate for the three months ended ~~November~~February 3028, ~~2010~~2011 was ~~180~~205 tons, an increase of ~~143.1~~131 tons or ~~388~~177% from ~~36.9~~74 tons for the comparable period in ~~2009~~2010, while there was no significant fluctuation in sales of cobaltosic oxide.

Cost of Revenue

Cost of revenue for the three months ended ~~November~~February 3028, ~~2010~~2011 was $8,~~568~~753,~~216~~182, an increase of $1,~~489~~326,~~485~~038 or 2118% from $7,~~078~~427,~~731~~144 for the comparable period in ~~2009~~2010. This increase in cost of revenue resulted from the increase in sales.

Gross Profit

Gross profit for the three months ended ~~November~~February 3028, ~~2010~~ 2011 was $4,~~071~~606,~~612~~748, an increase of $1,~~040~~225,~~323~~190 or 3436% from $3,~~031~~381,~~289~~558 for the comparable period in ~~2009~~2010. The increase in gross profit was primarily due to increased sales of our new higher profit margin product, lithium iron phosphate. One hundred percent (100%) of the gross margin increase was attributed to an increase in sales of our new product, lithium iron phosphate.

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended ~~November~~February 3028, ~~2010~~2011 were $3747,~~447~~493, compared to $2930,~~844~~057 for the three months ended ~~November~~February 3028, ~~2009~~2010. This represents an increase of $717,~~603~~436 or 2558% compared to the same period in ~~2009~~2010. The increase was primarily attributable to increased sales asto ameet ~~result of increased~~ customer demand.

General and Administrative Expenses

General and administrative expenses for the three months ended ~~November~~February 28, ~~2010~~2011 were $2858,~~195~~580,~~429,~~ an increase of $1482,~~918,951~~036 or ~~694~~128% from $~~276~~376,~~478~~544 for the comparable period in ~~2009~~2010. The increase was primarily attributable to the payment of ~~a share-based consultancy~~director ~~fee~~fees in the amount of $14,~~783,~~500, ~~during~~ the ~~three~~salary ~~months~~to ~~ended~~CEO ~~November~~and ~~30,~~CFO ~~2010.~~in ~~The~~the ~~share-based~~amounts ~~consultancy fee consisted~~ of 2$30,~~050,~~000 ~~shares~~and of$18,000 ~~common~~respectively, ~~stock~~an ~~issued~~increase toin ~~certain~~average ~~consultants~~wages, ~~for~~higher ~~advisory~~legal and other professional ~~services~~expenses atand the ~~current~~share-based ~~fair~~executive ~~value~~compensation of $~~0.87~~280,625 ~~per~~during ~~share~~the three months ended February 28, 2011.

Research and Development Expenses

Research and development expenses for the three months ended ~~November~~February 3028, ~~2010~~2011 were $3233,~~514~~838, an increase of $67,~~919~~510 or 2728% compared to $2526,~~598~~328 for the comparable period in ~~2009~~2010. The increase was primarily attributable to an increase in average wages.

Income from Operations

Income from operations for the three months ended ~~November~~February 3028, ~~2010~~2011 ~~were~~was $13,~~806~~666,~~222~~837, compared to $2,~~699~~948,~~369~~629 for the ~~three~~corresponding ~~months~~period ~~ended~~in ~~November 30, 2009~~2010. This represents aan ~~decrease~~increase of $~~893~~718,~~147~~208 or 3324% from the comparable period in ~~2009~~ 2010. The ~~decrease~~increase resulted primarily from the ~~share-based~~increase ~~consultancy~~in ~~fee~~sales ofand gross ~~$1,783,500~~profit ~~paid~~in ~~during~~ the ~~three~~Company’s ~~months~~PRC ~~ended November 30, 2010~~subsidiaries.

Income Taxes

Provision for income tax expense was $~~923~~1,~~867~~021,688 for the three months ended ~~November~~February 3028, ~~2010~~2011, an increase of $~~233~~264,~~425~~768 or 3435% as compared to $~~690~~756,~~442~~920 for the corresponding period in ~~2009~~2010. The increase resulted primarily from the increase in sales and ~~hence~~ profit before taxation in the Company’s PRC subsidiaries while the net operating loss of the Company in the United States of America increased primarily from the share-based consultancy fee of $1,783,500 incurred during the three months ended November 30, 2010.

Net Income

Net income for the three months ended ~~November~~February 3028, ~~2010~~2011 was $~~939~~2,~~999~~659,680, aan ~~decrease~~increase of $1458,~~077,684~~557 or 5321% as compared to the net income of $2,~~017~~201,~~683~~123 for the corresponding period in ~~2009~~2010. The ~~decrease~~increase ~~was~~resulted primarily ~~attributable~~from to the ~~share-based~~increase ~~consultancy~~in ~~fee~~sales ofin ~~$1,783,500 incurred during~~ the ~~three~~Company’s ~~months~~PRC ~~ended November 30, 2010~~subsidiaries.

~~Six Months Ended November 30, 2010 and November 30, 2009~~16

Nine months ended February 28, 2011 and 2010

Net Revenue

Net revenue for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 was $2437,~~393~~753,~~287~~217, an increase of $47,~~969~~521,~~931~~159 or 2625% from net revenue of $1930,~~423~~232,~~356~~058 for the comparable period in ~~2009~~2010. The increase in net revenue primarily resulted from an increase in sales of our new product, lithium iron phosphate. Ninety-nine percent (99%) of the net revenue increase is attributed to an increase in sales of our new product, lithium iron phosphate. Sales of lithium iron phosphate for the ~~six~~ nine months ended ~~November~~February 3028, ~~2010~~2011 ~~was 312~~were 517.88 tons, an increase of ~~275~~ 406.9888 tons or ~~748~~ 366% from ~~36.9~~111 tons for the comparable period in ~~2009~~2010, while there was no significant fluctuation in sales of cobaltosic oxide.

Cost of Revenue

Cost of revenue for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 was $1625,~~614~~367,~~672~~854, an increase of $34,~~281~~607,~~375~~413 or 2522% from $1320,~~333~~760,~~297~~441 for the comparable period in ~~2009~~2010. This increase in cost of revenue resulted from the increase in sales.

Gross Profit

Gross profit for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~ 2011 was $712,~~778~~385,~~615~~363, an increase of $12,~~688~~913,~~556~~746 or 2831% from $69,~~090~~471,~~059~~617 for the comparable period in ~~2009~~2010. The increase in gross profit was primarily due to increased sales of our new higher margin product, lithium iron phosphate.

Sales and Marketing Expenses

Sales and marketing expenses for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 were $68116,~~773~~266, compared to $5383,~~138~~195 for the ~~six~~nine months ended ~~November~~February 3028, ~~2009~~2010. This represents an increase of $1533,~~635~~071 or 2940% compared to the same period in ~~2009~~2010. The increase was primarily attributable to increased sales as a result of increased customer demand.

General and Administrative Expenses

General and administrative expenses for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 were $23,~~595~~454,~~814~~394, an increase of $2,~~077~~559,~~658~~694 or ~~400~~286% from $~~518~~894,~~156~~700 for the comparable period in ~~2009~~2010. The increase in general and administrative expenses was primarily due to the share-based consultancy fee of $1,783,500 paid in September 2010, share-based executive compensation of $280,625 paid in December 2010 and higher legal and other professional expenses incurred during the ~~six~~nine months period ended ~~November~~February 3028, ~~2010~~2011 compared to the corresponding period in ~~2009~~2010.

Research and Development Expenses

Research and development expenses for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 were $5387,~~447~~285, an increase of $29,~~274~~784 or 413% compared to $5177,~~173~~501 for the comparable period in ~~2009~~2010. The increase was primarily attributable to an increase in average wages.

Income from Operations

Income from operations for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 was $58,~~060~~727,~~581~~418 compared to $58,~~467~~416,~~592~~221 for the ~~six~~nine months ended ~~November~~February 3028, ~~2009~~2010. This represents aan ~~decrease~~increase of $~~407~~311,~~011~~197 or 74% compared to the same period in ~~2009~~2010. The ~~decrease~~increase resulted primarily from the ~~share-based~~increase ~~consultancy~~in ~~fee~~sales asin ~~of $1,783,500 paid during~~ the ~~six~~Company’s ~~months~~PRC ~~ended November 30, 2010~~subsidiaries.

Income Taxes

Provision for income tax expense was $12,~~758~~779,~~130~~817 for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011, an increase of $~~354~~619,~~750~~517 or 2528 % as compared to $12,~~403~~160,~~380~~300 for the corresponding period in ~~2009~~2010. The increase resulted primarily from the increase in sales and hence profit before taxation in the Company’s PRC subsidiaries while the net operating loss of the Company in the United States of America increased primarily from the share-based consultancy fee as of $1,783,500 paid during the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011.

Net Income

Net income for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 was $36,~~370~~030,~~734~~414, a decrease of $~~710~~251,~~292~~735 or 174% as compared to the net income of $46,~~081~~282,~~026~~149 for the corresponding period in ~~2009~~2010. The decrease in net income was primarily ~~attributable~~due to the share-based consultancy fee of $1,783,500 ~~paid~~and ~~during~~ the ~~six~~share-based ~~months~~executive ~~ended~~compensation ~~November~~of 30$280,625 ~~2010~~paid during the period.

Liquidity and Capital Resources

Cash and Cash Equivalents

Our cash and cash equivalents were $18,017,266 at the beginning of the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011 and increased to $1925,~~797~~400,~~412~~563 at the end of the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011, representing an increase of $17,~~780~~383,~~146~~297 or ~~9.8~~41%. This net change in cash and cash equivalents represented the combined effects of cash generated in the total amount of $16,~~367~~616,~~563~~317 from operating activities, cash used in the total amount of $4952,~~852~~513 from investing activities and effects of exchange rate changes of $~~462~~819,~~435~~493 in ~~2010~~2011.

Net cash provided by operating activities

Net cash provided by operating activities was $16,~~367~~616,~~563~~317 for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011, aan ~~decrease~~increase of $31,~~408~~008,~~832~~279 or 7118% as compared to ~~the cash~~ of $45,~~776~~608,~~395~~038 provided by operating activities for the same period in ~~2009~~2010. This ~~decrease~~increase was primarily due to the decrease in inventories of $586,798 and the increase in customer deposits of $187,520 offset by an increase in accounts receivable of $2125,~~537~~965,~~625,~~ the decrease in income tax payable of $~~900~~892,~~803~~542, the increase in deposits and prepayments of $~~323~~536,~~736~~805, ~~and~~ the decrease in accounts payable of $1,~~745~~999,~~030~~474 ~~offset~~and by the decrease in ~~inventories of $816,781, and the increase in~~ other payables and accrued liabilities of $554,~~717~~348 during the period. The increase in accounts receivables resulted from credit extended in connection with sales to new customers. The Company extends credit to customers in the ordinary course of business. As of the date of this report, the Company has received all of the accounts receivable outstanding on November 30, 2010.

Net cash used in investing activities

Net cash used in investing activities was $4952,~~852~~513 for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011. The cash outflow was primarily attributable to the purchase of plant and equipment during the period.

Net cash used in financing activities

There was no net cash generated or used for financing activities for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011.

Income Taxes

Cash paid for income tax expense was $23,~~658~~742,~~933~~036 for the ~~six~~nine months ended ~~November~~February 3028, ~~2010~~2011.

Inflation

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

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 needs. Such sources may include debt financing, issuance of equity securities and entrance into some financing arrangements. There can be no assurance, however, that any of the financing arrangements described herein will be available and, if available, can be obtained on terms favorable to us.

Contractual Obligations and Commitments

We are committed under several non-cancelable operating lease agreements, with terms from five to ten years, due through July 25, 2020. Annual lease ~~payment~~ payments are $16,~~488~~710 over the next four years, $1514,~~739~~431 for the fifth year and $4748,~~967~~609 for period thereafter until 2020. The Company has a minimum rental payment obligation totaling $129,~~658~~880.

During the fiscal year ended May 31, 2008, our subsidiary Dalian Xinyang High-Tech Development Co., Ltd. (DLXY) entered into an agreement to purchase an interest in a cobalt ore mine in the Congo, with the anticipation that such interests would provide us with an additional supply of raw material and would also enable us to sell these materials to other enterprises in this industry. No payments were made under this agreement and the Company has abandoned this project.

On November 30, 2010, DLXY entered into a 2011 Supply Agreement for Dynamic Lithium Battery Materials, with Henan Huanyu Sai Er New Energy Technology Co., Ltd (“Huanyu”). Pursuant to the terms of the Supply Agreement, we agreed to supply a minimum of 470 tons of lithium iron phosphate materials to Huanyu during the 2011 calendar year. As of ~~December~~February ~~2010~~28, 2011, we have supplied 146.96 45 tons of lithium iron phosphate materials to Huanyu ~~and will begin supplying a minimum of 470 tons of lithium iron phosphate pursuant to the Supply Agreement in the 2011 calendar year~~. The purchase price of the lithium iron phosphate materials and other relevant commercial terms and conditions will be determined by the parties on a monthly basis.

Critical Accounting Policies

Revenue recognition

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

Accounts receivables and allowance for doubtful accounts

Stock based compensation

Foreign currencies translation

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

New Financial Accounting Pronouncements

In April 2010, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and is not expected to have a significant impact on the Company’s consolidated financial statements.

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 the fiscal quarter ended ~~November~~February 3028, ~~2010~~2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

719

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We know of 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~~On December 31, 2010, we issued 250,000 shares of our common stock, at the current fair value of $1.1225 per share, totaling $280,625 in the aggregate, to our Chief Executive Officer and Chief Financial Officer as compensation. These transactions were not registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to the exemption from registration provided by Regulation D, Rule 506.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved.)

Item 5. Other Information.

None.

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.		Title of Document
3.1		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 22, 2010)
10.1		2011 Supply Agreement for Dynamic Lithium Battery Materials dated November 2010, by and between Dalian Xinyaug High-Tech Development Co. Ltd. and Henan Huanyu Sai Er New Energy Technology Co. Ltd. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 3, 2010)
31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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.

820

SIGNATURES

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

	CHINA SUN GROUP HIGH-TECH CO.
Date: January 13, 2011	By:	/s/ Guosheng Fu
Date: April 14, 2011	By:	/s/ Guosheng Fu
		Name: Guosheng Fu
		Title: Chief Executive Officer
		(Principle Executive Officer)
		(Principal Executive Officer)

	.
Date: January 13, 2011	By:	/s/ Ming Fen Liu
Date: April 14, 2011	By:	/s/ Ming Fen Liu
		Name: Ming Fen Liu
		Title: Chief Financial Officer
		(Principle Executive Officer)
		(Principal Financial Officer)

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