UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K








(Mark One)





S

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For  the fiscal year ended May 31, 2009








£

TRANSITION REPORT UNDER 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, P.R. China

N/A(Address of principal executive offices)

(Zip Code)





Registrant’s telephone number, including area code +86  (411) 8289-7752





Securities registered under Section 12(b) of the Exchange Act:





Title of each class

Name of each exchange on which registeredN/A

N/A





Securities registered pursuant to section 12(g) of the Act





Common Stock, par value $0.001 per share


(Title of Class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.£ Yes SNo





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.SYes £ No





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Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.





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. S Yes    £No





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





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. S





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 S





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





£ Yes                                SNo








State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.





Note – If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable
under the circumstances, provided that the assumptions are set forth in this Form.





The aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates as of August 24, 2009 was approximately $33,495,565.20 based upon the closing price of the common stock as quoted by Nasdaq OTC Bulletin Board on such date.







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APPLICABLE ONLY TO REGISTRANTS 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 Section 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 REGISTRANTS)





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





As of August 27, 2009, there were 53,422,971 issued and outstanding shares of the issuer’s common stock.





DOCUMENTS INCORPORATED BY REFERENCE





List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g. Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The
listed documents should be clearly described for identification purposes (e.g. annual report to security holders for fiscal years ended December 24, 1980).








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PART I





Item 1.
Business





History





We were incorporated in North Carolina on February 2, 2004 to engage in the business of commercial finance brokerage and consulting. Prior to the Exchange, we were engaged in the commercial finance brokerage and consulting business.





Dalian Xinyang High-Tech Development Co. Ltd (“DLXY”) was registered as a limited liability company in the People’s Republic of China on August 16, 2000 with its principal place of business in Dalian City, Liaoning Province, the People’s Republic of China. Its initial registered capital was Renminbi Yuan (“RMB”)
5,500,000 (equivalent to US$665,037), contributed by Sun Group High Technology Development Co., Ltd, a limited liability company registered in Dalian City, Liaoning Province, the People’s Republic of China, and Ms. Li Zhi, a citizen of the People’s Republic of China. Prior to April 2006, DLXY’s principal activity was acting as a research center to develop technologically feasible nanometers to be used in lithium batteries and generated no revenue. It was considered as a development stage company.
In April 2006, DLXY began production and sales of cobaltosic oxide which is used as the anode of high capacity lithium ion rechargeable batteries. Sales are made primarily to battery manufacturers. Currently, all of DLXY’s operations and customers are located in the People’s Republic of China.





On July 6, 2005, $13,126,609 (RMB 100,500,000) in capital was contributed by its two existing investors and one new investor, Ms. Wang Jiao, in the forms of cash and property that included the production facilities located in Dalian City. On May 10, 2006, these three shareholders transferred all of their ownership interests in DLXY to Ms
Feng Guimei, Mr. Li Gang and Mr. Kan Yang who are all citizens of the People’s Republic of China.





On February 28, 2007, we completed the Exchange pursuant to the Plan of Exchange, by and among us, DLXY, the DLXY Shareholders, and David Koran. Under the Agreement, (1) Mr. Wang Bin received 9,500,000 shares of our common stock from Mr. Koran for $600,000 in cash, paid for by DLXY and (2) the DLXY Shareholders received (a) 30,000,000
shares of our newly issued common stock in exchange for a 70% ownership interest in DLXY and (b) a two year non-transferable option to purchase 10,000,000 shares of our common stock for an aggregate purchase price of RMB 31,800,000. As a result, we under went a change in control, whereby the DLXY Shareholders now own an aggregate of 39,500,000 shares, representing 93% of our common stock issued and outstanding.





On August 24, 2007, DLXY was reincorporated from North Carolina to Delaware and changed its name to China Sun Group High-Tech Co. The par value of common stock of China Sun Group High-Tech Co. is $0.001 per share.





Business





DLXY is a large producer of cobaltosic oxide and lithium cobalt oxide, both anode materials for lithium ion batteries. According to the China Battery Industry Association, which conducts research of and puts forth reports on the battery industry,
we have the second largest cobalt series production capacity in the People’s Republic of China. This sizable production capacity will allow DLXY to help meet the growing demand for anode materials as the demand for lithium batteries increases. Lithium batteries are becoming widely used due to its 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 DLXY a business opportunity for
increasing revenue and growth potential. In addition, DLXY’s current operations are solely in the People’s Republic of China, which provides us with 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.







4





4 3 4 2 4 4 4 4





Industry





The lithium ion battery market is a green energy resource. Lithium ion batteries are versatile, compact and light weight, and have high energy density and capacity, high voltage, and excellent energy retention characteristics. These attributes
make lithium ion batteries suitable for use in portable devices in particular. Commercially, lithium ion batteries are used in various gadgets, such as mobile phones, PDAs, laptops, and digital cameras and other uses such as electric automobiles and solar and wind energy storage units. It is also used by governments, mainly for military use in submarines, underwater robots, unpiloted airplanes, and space satellites. As the cost/power ratio of lithium-based batteries continues to improve, it is expected that its
usage will also extend into other applications.





With the development of other technologies, we foresee that lithium ion batteries will also be widely used in electric bicycles and scooters. The progress in the manufacturing technology of lithium ion batteries, in conjunction with the constant
demand for enhanced battery performance and the falling costs of batteries cost will greatly accelerate the use of lithium ion batteries in modern mobile communications, home appliances, electric automobiles, and various government uses. According to the Battery Industry Association of China, the lithium ion battery will become one of the most important sources of chemical power in 21st century. Research and development on the lithium ion battery has been added as a third objective to the People’s Republic
of China’s 11th five-year-development project.





The Battery Industry Association of China forecasts that the growing demand for portable products like mobile phones and laptops, will stimulate the lithium ion battery industry in the People’s Republic of China, which is expected to
grow at an annual rate of over 30% of annual output, based on units (Source: www.any17.com/newscenter/new/dianchi/2006102405483822.html).  Lithium ion batteries used in such portable products apply lithium cobalt oxide (LiCoO2) as an anode material. The China Battery Industry Association also reports that the aggregate global demand for lithium cobalt oxide is approximately 40,000 to 50,000 tons (Source: www.any17.com/newscenter/new/dianchi/2006102405483822.html). Currently, the People’s Republic
of China’s lithium cobalt oxide demand is mainly supplied by overseas suppliers. The China Battery Industry Association writes that from September 2004 to late 2005, the demand for lithium cobalt oxide in China exceeded 10,000 tons, which led to a significant rise in the price of cobalt, a major component in the manufacture of lithium cobalt oxide. As a result of high demand, it is reported that the price of industrial lithium carbonate and battery lithium carbonate also increased in tandem by approximately
50% from September 2004 to late 2005.





Cobalt ore is for anode materials of lithium ion batteries is currently in short supply in the People’s Republic of China (Source:http://www.xiangmu.com/project/109/1943.html).  In addition, cobaltosic oxide and lithium cobalt
oxide continue to develop their presence, thus, presenting DLXY with noteworthy growth potential.







5





Products





3 3 4 2 3 3 4 2





According to the Battery Industry Association of China, DLXY is the second largest non-governmental manufacturer of hi-tech cobalt salt products in Asia based on tons produced. DLXY’s products and processing capabilities include the
production of cobalt ore, cobalt carbonate, nanometer-sized cobaltosic oxide and high-crystalline spherical lithium cobalt oxide which is used lithium batteries. In addition, we specialize in:





•
Hi-pressure leaching technology of raw materials,





•
Hi-performance extraction technology of soluble cobalt salts,





•
Chemical precipitation technology of soluble cobalt salts,





•
Mesh-belt metallurgical powder calcinations,





•
Multilevel selecting technology, and





•
Stable sol and gel technology.





DLXY provides a comprehensive selection of cobalt products such as battery anode cobaltous (cobalt) carbonate, nano-level cobalto cobaltic (cobaltosic) oxide, and high-crystallinity ball lithium cobalt oxide. DLXY also provides substitute
products, including ternary anode material (which is composed of lithium cobalt oxide, lithium nickel oxide and lithium manganese oxide) developed through our research and development efforts.





Our series No. is 0/81626 products have awarded the “Top Ten Brand in National Battery Material” by the China Enterprise Brand Development Committee in July, 2008. Additionally, our series No. icp31508-B2306 products were awarded
the title of “International Famous Brand” by the China International Quality Assessment and Research Center and China Council for the Promotion of Joint Development of Brand Enterprises in July, 2008.





In September 2008, we announced that we had completed trial production of lithium iron phosphate and successfully met the technical requirements of application after being tested by a PRC state authority. In November 2008, the China Brand Promoting Authority accredited DLXY’s “Tong Tong” branded lithium iron phosphate
with the titles “Priority Choice of Government Procurement” and “Key Promoting Product of High-Tech Industry.”  Three battery manufacturers used our lithium iron phosphate (LiFePO4) to make their trial production of automotive power battery. They are Beijing Shuangsheng Sci-Tech Co., Ltd., Shangdong Shengong Battery New Technology Co., Ltd. and Hi-Power New Energy Group. From June of 2009, they have been
testing the performance of the power batteries made of our lithium iron phosphate (LiFePO4). At the same time, these manufacturers also invited Dalian JiaoTong University and Dalian University of Technology to test these batteries. The testing is anticipated to be finished in late September 2009. The three manufacturers have sought, on a preliminary basis, to establish long-term procurement relationships with DLXY if the testing is successful.





In May 2009, we announced that a next generation “green” power source, lithium iron phosphate,  had been developed by DLXY for use in batteries that power eco-friendly vehicles, like electric cars, hybrids and scooters. The first batch of lithium iron phosphate energy products came out of DLXY's production line
in April 2009. The product successfully completed testing by two leading enterprises in the domestic power battery production industry, Shenzhen Shanshu Power Battery Technology Co., Ltd. and Zhangzhou Youke Energy Co., Ltd. These companies are now performing natural decay testing to determine the charge quality of batteries made with DLXY's lithium iron phosphate product.





Currently, DLXY distributes its products directly to customers or through its sales agents.





6





Customers





Our target market includes lithium ion battery manufacturers, end product users, and lithium series product manufacturers throughout the world. Our initial focus however, is the development of a domestic market in the People’s Republic
of China. Once we have gained a sizable share of the Chinese market, we will focus our attention on exporting our products internationally.





In the People’s Republic of China, we have six main customers of our Co3O4, which comprises
the bulk of our sales for financial year 2008.. These include Hunan Shanshan Advanced Material, CITIC Guoan Mengguli Corporation, Hunan Reshine New Material Co., Ltd., Changzhou PowerGenie Materials Co., Ltd., Xiamen Tungsten Co., Ltd, Beijing Easpring Material Technology Co., Ltd, Shaanxi Applied Physical Chemical Research Institute and ALT Cobalt and Nickel Products (Dalian). Co. Ltd. These companies are all the leading battery producers
at the lithium ion battery market in the People’s Republic of China. Their combined total purchase capacity is 1000T/month. Our current production capacity is 50T/month. As Co3O4has a seller’s market in the People’s Republic of China, we believe that these customers will purchase more from us as soon as we increase our production capacity. For the
fiscal year ended May 31, 2008, one out of the six main customers accounted for 39% of our total revenue. However, production only began in April 2006. During 2007, we launched different marketing campaigns based on various strategies. We have added several customers such as Zhejiang Tianhong Energy Technology Co., Ltd., Zhejiang Wanma Battery Co., Ltd., Guangzhou Huaneng Battery Co., Ltd. and Shenzhen Sunristar Electronics Co., Ltd. In the international
market, we have approached potential customers such as Panasonic, Sanyo, Maxell and Sumsung.





Potential of International Market





The major consuming countries in the global market are Japan and Korea. However, with the improvement of the People’s Republic of China’s production and technology and the market advantage, Japan’s Diacelltec, Sanyo, Sony
and Panasonic have successively relocated their production bases to the People’s Republic of China, Korea’s LG, Samsung and SK have also established major procurement centers in the People’s Republic of China.





Korea’s Project Development & Consultation Co., Ltd. (PD&C) has entered into an agentcy agreement with us. Under this agreement, PD&C will find customers in South Korea to buy our products valued at or more than $8 million
per year. The term of the agreement is for 2 years.





The potential customers we have approached and have showed strong interest in our products in the international market include: Tanaka, Honjo, HLST, Sanyo, Sony, Panasonic, Nihonkagakusangyo, Maxell, LG, Samsung, SK, Hanhua and Light &
Future.





Competition





We compete mainly with other manufacturers of battery anode materials located locally in the People’s Republic of China, as well as from Japan and Korea. Based on our own studies and market analysis, our key competitors are Hunan Haina
Advanced Material Co., Ltd., Gansu Jinchuan Group, Henan Guangkuotiandi Cobalt Product Co., Ltd., and Nanjing Hanrui Cobalt Product Co., Ltd.





We believe that we are able to leverage our low-cost advantage to compete favorably with our competitors.  The technological advances made by our research and development group have helped us reduce our costs and increase our productivity.
Compared to Korean and Japanese manufacturers, we believe that we are able to source our needs for skilled labor and raw materials locally and economically. We believe that our significant production capacity should translate into greater purchasing power in the future, thereby helping us negotiate lower purchase prices for our raw materials. Furthermore, our proprietary technologies and use of a combination of manual labor and automation at the key stages of the manufacturing process enable us to enhance our
production efficiency, resulting in further reduction in the cost, while ensuring high-uniformity and high-quality standards.







7





Raw Materials





We obtain our raw materials from only a few suppliers. However, there are an abundance of such suppliers available. For the fiscal year ended May 31, 2009, 47% of our raw materials came from one supplier, Aote Gunie Zhi Pin Co., Ltd. During
the fiscal year ended May 31, 2009, DLXY purchased interests 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.





Currently, the export of crude ore is prohibited in Africa. Therefore, building the primary processing plant of cobalt ore in Africa can avoid the export limitation, save freight and ensure a stable supply of raw material. We plan to start
the construction of such 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.  Once the processing plant is complete, we will benefit from reduced costs of raw materials and expect to be able to ensure a stable supply of raw material, which will provide us with a competitive advantage.





According to an article published by the Information Center of the Ministry of Commerce of PRC on May 13, 2007, the contribution of China-Africa trade to Africa’s economic growth reached as high as 20%. In 2006, the amount of China-Africa
trade reached $55.5 billion. The People’s Republic of China is the third trading partner of Africa. By the end of 2006, the People’s Republic of China’s investments in Africa had amounted to $11.7 billion and for the first 6 months of 2007, the People’s Republic of China's direct investment to Africa was $0.48 billion. (Source: http://www.sdnews.com.cn/finance/2007/11/5/299763.html). The People’s Republic of China’s key investment fields include agricultural development, machining
and manufacture, traffic, communication, water and electricity. In 2006, the People’s Republic of China’s government announced eight measures to promote the development of a China-Africa new strategic partner relationship. Africa has adopted Africa’s Plan to Develop New Partners as its whole development strategy and the People’s Republic of China has signed the bilateral agreement for the promotion and protection of investments with 26 African countries and signed tax treaties to avoid
dual taxation with 8 African countries.





The Democratic Republic of Congo has also signed bilateral economic and trading agreements with 44 countries in the world, including the People’s Republic of China, joined 9 regional organizations including the Economic Community of
Central African States, and joined in 14 international and multilateral economic and trading organizations including the International Tin Association and African, Caribbean, & Pacific Countries (ACP). The Democratic Republic of Congo entered into the General Agreement of Tariffs and Trade in 1971 and became a member of WTO in 1995. In 2002, it created a body of investment law which included a policy favorable toward foreign invested enterprise which stipulated that such enterprises with over USD 20,000 in
capital can be exempted from taxes for 5 years and such enterprises with USD 1 million in capital are eligible for certain favorable policy treatments. The investment law is currently in the progress of revision.





Intellectual Property





We have filed for a patent on our process of manufacturing active lithium cobalt oxide from the People’s Republic of China’s Patent Bureau and are currently in the review stage of the patent-procurement process.





On August 20, 2004, DLXY applied for the patent of its method of processing active lithium cobalt dioxide at the State Intellectual Property Office of the People’s Republic of China. Upon the preliminary examination, the application
conformed to the patent law and the implementation rules.





On April 1, 2005, the State Intellectual Property Office announced this patent application in the official journal of invention and patent according to the patent law.








8





On September 16, 2005, upon the applicant’s request for substantive examination, the State Intellectual Property Office examined the application in accordance with the patent rights. This patent application has been in the process of
substantive examination.





On July20, 2008, we finally received notification of approval from the State Intellectual Property Office for our patent application pursuant to term 54 of the Patent Law and No. 75 Announcement of Patent Bureau. The patent number and certificate will be formally granted to us on August 27, 2008.





In November 2008, we announced that the China Brand Promoting Authority accredited DLX’s “Tong Tong” branded lithium iron phosphate with the titles “Priority Choice of Government Procurement” and “Key Promoting Product of High-Tech Industry.”





Government Regulation





The major environmental regulations applicable to us include the PRC Environmental Protection Law, the PRC Law on the Prevention and Control of Water Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Air
Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution. As we conduct our manufacturing activities in the People’s Republic of China, we are subject to the requirements of these environmental laws and regulations on air emission, waste water discharge, solid wastes and noise. We plan to comply with environmental laws and regulations. We are not subject to any admonition, penalty, investigations
or inquiries imposed by the environmental regulators, nor are we subject to any claims or legal proceedings to which we are named as defendant for violation of any environmental laws and regulations. We do not have any reasonable basis to believe that there is any threatened claim, action or legal proceedings against us that would have a material adverse effect on our business, financial condition or results of operations.





The People’s Republic of China’s intellectual property protection regime is consistent with those of other modern industrialized countries. The PRC has domestic laws for the protection of copyright, patents, trademarks and trade
secrets. The PRC is also a signatory to most of the world’s major intellectual property conventions, including:





•

Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);•

Paris Convention for the Protection of Industrial Property (March 19, 1985);•

Patent Cooperation Treaty (January 1, 1991); and•

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).





Patents in the PRC are governed by the China Patent Law and its Implementing Regulations, each of which went into effect in 1985. Amended versions of the China Patent Law and its Implementing Regulations came into effect in 2001 and 2003,
respectively.





The PRC is signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in
the other countries, a right of priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).





The Patent Law covers three kinds of patents, i.e., patents for inventions, utility models and designs respectively. The Chinese patent system adopts the principle of first to file. This means that, where more than one person has filed patent
applications for the same invention, a patent can only be granted to the person who first filed the application. Consistent with international practice, the PRC only allows the patenting of inventions or utility models that possess the characteristics of novelty, inventiveness and practical applicability. For a design to be patentable, it should not be identical with or similar to any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly
used in the country, and should not be in conflict with any prior right of another.







9





PRC law provides that anyone wishing to exploit the patent of another must conclude a written licensing contract with the patent holder and pay the patent holder a fee. One rather broad exception to this, however, is that, where a party possesses
the means to exploit a patent but cannot obtain a license from the patent holder on reasonable terms and in reasonable period of time, the PRC State Intellectual Property Office, or SIPO, is authorized to grant a compulsory license. A compulsory license can also be granted where a national emergency or any extraordinary state of affairs occurs or where the public interest so requires. SIPO, however, has not granted any compulsory license up to now. The patent holder may appeal such decision within three months
from receiving notification by filing a suit in a People’s Court.





PRC law defines patent infringement as the exploitation of a patent without the authorization of the patent holder. A patent holder who believes his patent is being infringed may file a civil suit or file a complaint with a PRC local Intellectual
Property Administrative Authority, which may order the infringer to stop the infringing acts. Preliminary injunction may be issued by the People’s Court upon the patentee’s or the interested parties’ request before instituting any legal proceedings or during the proceedings. Evidence preservation and property preservation measures are also available both before and during the litigation. Damages in the case of patent infringement is calculated as either the loss suffered by the patent holder
arising from the infringement or the benefit gained by the infringer from the infringement. If it is difficult to ascertain damages in this manner, damages may be reasonably determined in an amount ranging from one to more times of the license fee under a contractual license. The infringing party may be also fined by Administration of Patent Management in an amount of up to three times the unlawful income earned by such infringing party. If there is no unlawful income so earned, the infringing party may be fined
in an amount of up to RMB 500,000 or approximately $62,500.





Research and Development





We spent $102,069 and $87,607 on research and development for the fiscal years ended May 31, 2009 and 2008, respectively. These research and development (R&D) costs were not added to the purchase price of our products and thus, were not
passed along to our customers.





As represented by the foregoing amounts, DLXY has already invested material funds into research and development efforts. We have completed construction of a R&D test and detection center, equipped with detection and test apparatus and
instruments. The center is being used to conduct quality controls reviews to provide assurance regarding the quality of our products. In addition, the center conducts research and development to keep abreast of technology and the changing needs of our customers.





With the efforts of our R&D group, we have successfully developed the following three series of nanometer metal products:





1.

Nanometer Simple Metal Substance: Cu, Fe, Ni, Ag, Al, Zn, Co. The sizes of these substances vary between 10-100nm. Being even, spherical, high-crystallization and high-dispersion, they are mainly applied to martial, chem-industrial, pharmaceutical, and electronic industries. They can be used as efficient catalyst, antiseptic, combustion-supporting
agent and electrode materials.





2.

Nanometer Compound Metal Substance: ZnO, TiO2, NiO, SnO, WO3. The sizes of these substances vary between 10-70nm; mainly applied to such industries as airplane manufacture and auto manufacture
industries; have the function of sterilization, energy-saving and extend the durability of rubber.





3.

Nanometer Metal Alloy: Fe-Ni, Sn-Ag, Ti-Al. Used in plastic and lubricant oil industries; have high tensile strength, high abrasion resistance, good sturdiness, good oil-resistance and chemical-resistance.





Our R&D group has also made technological improvements to our production line by increasing the lifetime and performance of mixing bowls used during anode material production. We have developed a new material that enables the mixing bowl to achieve uniform heat conduction and increase the stability of anode materials. As a result of our
new innovation, the life cycle of the bowl’s use has been extended from 30 uses per bowl to 180 uses per bowl. At the same time, the working temperature inside the bowl can be raised from 900 degrees C to 1280 degrees C, shortening the calcining time (thermal treatment process) from 6.5 hours to 5 hours.  As a result, we are able to increase production of anode materials while significant lowering our costs.







10





In September 2008, we announced that it had completed trial production of lithium iron phosphate and successfully met the technical requirements of application after being tested by a PRC state authority.





In March 2009, we announced that its in-house R&D, engineering and technical team had successfully completed testing on DLXY's latest energy power battery anode material, lithium iron phosphate.





In April 2009, we announced that the first samplings of DLXY's lithium iron phosphate product had been sent to Shenzhen Shanshu Power Battery Technology Co., Ltd., and Zhangzhou Youke Energy Co., Ltd., both based in Shenzhen, to conduct tests on the material's performance and battery life.





New Material Development





Our R&D team led by the General Technical Supervisor Cheng Yijing has 14 members in total. The team started the research of the new battery anode material (i.e. ternary anode material) in October 2005. The laboratory test was conducted in May 2006 to examine whether the ternary anode material conformed to industry standards. The test
has proved that various technical parameters conformed to the industry standard. After about ten months, the commercial test on the ternary anode material was completed. As a result, in terms of technology, the conditions for mass production of the ternary anode material have matured.  We are currently looking for customers for this product.





The ternary material is composed of lithium cobalt dioxide, lithium manganate and lithium nickelate. This material has the following characteristics: high specific capacity, high safety, superior performance of cycling and rate, stability performance at low and high temperatures, charge and discharge duration, high performance price ratio, etc. The material can be applied as the main anodes
of small-sized communication and power instruments, such as portable power tool, electronic apparatus, laptop, video camera, and is replacing the lithium cobalt oxide gradually. It also has a good prospect of application in electric autos and electric bicycle.





In April 2004, we established a strategic relationship with Northeastern University, located in the People’s Republic of China. Northeastern University is an institution which has research development capabilities that complement ours. Through our collaborative efforts, we will conduct research and development activities to improve on the currently available anode materials which are
components of lithium ion batteries. Currently, we are looking into improvements on the latest lithium cobalt oxide technology and are conducting trials of new ternary materials, which are combinations of source anode materials as an alternative to the sole use of cobalt.





DLXY plans to continue to align itself with many industry experts and enter into agreements with various research teams at institutes and universities.





Employees





As of May 31, 2009, we have 258 employees, comprising 90 full-time employees and 168 part-time employees. Our full-time employees  include 41 people in marketing, 27 in manufacturing, 13 in research and development and quality control, 4 in financial and accounting, and 5 in general management..





Item 1A.
Risk Factors.





Not Applicable.





Item 1B.
Unresolved Staff Comments.





Not Applicable.








11





Item 2.
Properties.





All land in the People’s Republic of China is owned by the State. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for commercial purposes, the land use rights
are granted for a period of 50 years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.





Corporate Headquarters





Our corporate headquarters are located on leased premises at 1 Hutan Street, Zhongshan District, Dalian, the People’s Republic of China. These offices encompass approximately 1,987 square meters. The lease term ends on 2046. The land use agreement
has a 50-year term which expires in May 2049. The annual lease payment is 50,000 RMB/year.





Operating Facility





All of our operations are located on premises at Gan Jing Zi Hi-Tech Park, Dalian, the People’s Republic of China. This facility consists of approximately 258,240 square feet. The land use agreement has a 50-year term which expires in May 2046.
In return for the use of the premises, we pay an annual property tax of $62,500. The operating facility is used as office space, manufacturing plants, research and development, and as employees’ living quarters which can house up to 320 individuals. There is also an eatery and hotel that is used by visitors to the operating facility which has an occupancy rate of up to 50 people.





As of August 15, 2009 and May 31, 2009, we did not incur any construction costs.





Pursuant to a written agreement, DLXY has acquired the prospecting and mining rights of a cobalt mine in Congo, and plans to construct a processing plant in Congo. Construction will begin in the second quarter of the fiscal year 2010.  We anticipate that the construction of the plant will cost approximately $2,000,000 to $3,000,000.  For
additional details on the purchase of the interests in the cobalt mine in Congo, see





Item 7.
Management’s Discussion and Analysis or Plan of Operation.





We believe that all our properties and equipment have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.





Our facilities are not covered by insurance.





Item 3.
Legal Proceedings.





Currently, we are not a party to any ongoing or pending legal proceeding.





Item 4.
Submission of Matters to a Vote of Security Holders.





None.





PART II





Item 5.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.










12


The Market for Our Common Stock





Our shares of common stock, par value $0.001 per share, are quoted on the Nasdaq OTC Bulletin Board under the trading symbol “CSGH” where they have traded since September 2006. The following table sets forth the high and low bid prices
for our common stock for the last two fiscal years as reported on the OTC Bulletin Board. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.





BidQuarter Ending

High


LowAugust 31, 2008

$
1.51


$
0.90November 30, 2008

$
1.09


$
0.26February 28, 2009

$
0.53


$
0.20May 31, 2009

$
0.76


$
0.19August 31, 2007

$
1.09


$
0.26November 30, 2007

$
2.50


$
0.26February 29, 2008

$
0.99


$
0.51May 31, 2008

$
1.36


$
0.30





On August 27, 2009, there were 679 shareholders of our common stock of record. However, we believe that there are additional beneficial owners of our common stock who own their shares in “street name.”





Dividend Policy





We have not paid any cash dividends since our inception and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We expect to retain our earnings, if any, to provide funds for the expansion of our business. Future dividend policy will be determined periodically by the Board of Directors based upon conditions
then existing, including our earnings and financial condition, capital requirements, and other relevant factors.





Equity Compensation Plans





There were no equity compensation plans effective as of May 31, 2009.





Item 6.
Selected Financial Data.





The following tables summarize our consolidated financial data for the periods presented. You should read the following financial information together with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related
notes to these consolidated financial statements appearing elsewhere herein. The selected consolidated statements of operations data for the three financial years ended May 31, 2009; and the selected consolidated balance sheet data as of May 31, 2009 are derived from our consolidated financial statements, which are included elsewhere herein.


YEARS ENDED MAY 31,2009



2008



2007Statement of Income:Revenue, net


37,033,483



25,294,221



8,275,066Cost of revenue


23,444,655



15,664,692



4,875,078Gross profit


13,588,828



9,629,529



3,399,988


Total operating expenses


2,099,753



426,384



1,999,803Income (loss) from operations


11,489,075



9,203,145



1,400,185Other income


35,449



27,800



-Income tax expense


(2,943,786
)


(2,490,819
)


(804,189
)Net income (loss)


8,580,738



6,740,126



595,996Other comprehensive income:Foreign currency translation gain:


479,361



2,362,380



111,889Comprehensive income (loss):


9,060,099



9,102,506



707,885Basic earnings per share


0.16



0.13



0.01Shares used in the calculation of basic earnings per share


53,422,971



53,422,971



49,478,020Diluted earnings per share


0.16



0.13



0.01Shares used in the calculation of diluted earnings per share


53,422,971



53,422,971



49,478,020







13





Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCautionary Notice Regarding Forward-Looking Statements





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 the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions 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:







14








•

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.





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 Form
10-K.





Overview





Currently, our only operations are conducted through DLXY, which engages in the business of manufacturing and selling cobaltosic oxide products. These products are primarily manufactured, marketed, and sold in the People’s
Republic of China.





According to the Battery Industry Association of China, DLXY is the second largest non-governmental manufacturer of hi-tech cobalt salt products in Asia based on tons produced. DLXY’s products and processing capabilities include
the production of cobalt ore, cobalt carbonate, nanometer-sized cobaltosic oxide and high-crystalline spherical lithium cobalt oxide which is used lithium batteries. In April 2006, DLXY commenced production and quickly amassed sales of over $1.5 million.





Results of Operations





Comparison of Year Ended May 31, 2009 to Year Ended May 31, 2008





Revenue





Revenue for the year ended May 31, 2009 totaled $37,033,483 compared to $25,294,221 for the year ended May 31, 2008, an increase of $11,739,262 or 46%. The increase resulted from new sources of sales channels and sales to our new
customers.





Cost of Revenue





Cost of revenue for the year ended May 31, 2009 totaled $23,444,655 compared to $15,664,692 for the year ended May 31, 2008, an increase of $7,779,963 or 50 %.  The increase resulted directly from increased production
of our products which is in tandem with increased demand for them.







15





Gross Profit





Gross profit for the year ended May 31, 2009 was $13,588,828, an increase of $3,959,299 or 41% from $9,629,529 for the year ended May 31, 2008. The increase in gross profit was primarily due to revenue generated by increased customer demand and production, and consequently increased sales of our products.





General and Administrative Expense





General and administrative expense for the year ended May 31, 2009 totaled $1,423,013 compared to $1,111,777 for the year ended May 31, 2008, an increase of $311,236 or 27%. The increase resulted from the recent increase in the scale of the Company.





Recovery of allowance for doubtful accounts





Recovery of Allowance for doubtful accounts for the year ended May 31, 2009 totaled Nil compared to $806,400 for the year ended May 31, 2008, a decrease of $806,400 or 100%. The decrease resulted from recovery from the allowance for doubtful accounts as the doubtful accounts aged over 1 year were subsequently collected from a customer in
July 2007. There is no such recovery for the year ended May 31, 2009.





Sales and marketing





Sales and marketing expense for the year ended May 31, 2009 totaled $574,671 compared to $ 33,400 for the year ended May 31, 2008, an increase of $541,271 or 1621%. The increase resulted from addition in sales channels.





Research and Development Expense





Research and development expense for the year ended May 31, 2009 totaled $102,069 compared to $87,607 for the year ended May 31, 2008, an increase of $14,462 or 16 %. The increase was primarily attributable to the hiring of additional research and development
personnel.





Income From Operations





Income from operations for the year ended May 31, 2009 totaled $11,489,075 compared to income from operation of $9,203,145 for the year ended May 31, 2008, an increase of $2,285,930 or 25%.  The increase resulted primarily from the increased
customer demand for our products and consequently, increased sales.





Other Income





Interest income for the year ended May 31, 2009 was $35,449, an increase of $7,649 or 28% as compared to $27,800 for the year ended May 31, 2008.   The increase resulted primarily from interest income derived from cash in our bank accounts.





Income Taxes





Provision for income tax expenses was $2,943,786 for the year ended May 31, 2009, an increase of $452,967 or 18% as compared to $2,490,819 for the year ended May 31, 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 year ended May 31, 2009 was $479,361, an decrease of $1,883,019 or 80% as compared to $2,362,380 for the year ended May 31, 2008.  The decreases resulted from the slowdown in revaluation of the Renminbi against the U.S. dollar. This updated Renminbi valuation of DLXY’s assets
and liabilities resulted in this gain.








16





Net Income





Net income for the year ended May 31, 2009 was $8,580,738, an increase of $1,840,612 or 27% as compared to $6,740,126 for the year ended May 31, 2008.





LIQUIDITY AND CAPITAL RESOURCES





Cash and Cash Equivalent





Our cash and cash equivalent were $3,879,114 at the beginning of the year ended May 31, 2009 and increased to $9,209,953 by the end of the year ended May 31, 2009, an increase of $5,330,839 or 137%. This net change in cash and cash equivalents represented an increase of 74% or $2,264,888 from $3,065,951 for the year ended May 31, 2008.





Net cash provided by operating activities





During the years ended May 31, 2009 and 2008, net cash provided by (used for) operating activities was $12,751,124 and $5,151,693, respectively, an increase of $7,599,431 or 147%.  This increase was due primarily to the growth in sales revenue with the
decrease in inventory by $3,121,272, the increase in value-added tax payable by $329,511 and the increase in other payable and accrued liabilities by $93,496, the increase in income tax payable by $475,318 and the increase in accounts payable by $100,064, partially offset by the decrease in customer deposits by $363,191 and the increase in account receivable by $252,398 for the year ended May 31, 2008.





Net cash used in investing activities





Net cash used for investing activities was $7,524,373 and $2,471,927, for the years ended May 31, 2009 and 2008, respectively, an increase of $5,052,446 or 204%. The increase was primarily attributable to the purchase of equipment.





Effect of exchanges rates changes on cash and cash equivalent





Effect of exchanges rate changes on cash and cash equivalentresulted in $104,088 for the year ended May 31, 2009, a decrease of $282,097 or 73% compared to $386,185 for the year ended May 31, 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.







17





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 ten years, due July 25, 2010. The annual lease payment is $7,291.





On June 9, 2007, our subsidiary, DLXY entered into an African Mining Project Contract of Cooperation (the “Purchase Agreement”) with Shengbao Group and South African Shengbao Mining Enterprises (“Shengbao”). Pursuant to the Purchase Agreement, DLXY is obliged to purchase the prospecting and mining rights of a cobalt
ore mine for a purchase price of $2 million over a term of 15 years.  As of May 31, 2009, DLXY had the capital commitment of $2 million in the purchase of the prospecting and mining rights which was contracted for but not provided in the financial statements.





Off Balance Sheet Arrangements





None.





Critical accounting policies and estimates





Revenue recognition





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.





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





Account receivables and allowance for doubtful accounts





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







18





New Financial Accounting Pronouncements





In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141(R), “Business Combinations” ("FAS 141R"), which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. FAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R becomes effective for fiscal periods beginning after December 15, 2008. This accounting standard will be applied to acquisitions occurring
after May 31, 2009, and will also require the Company to expense any costs related to such acquisitions.





In December 2007, the FASB released SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51” ("FAS 160"), which establishes accounting and reporting standards for the ownership interests in subsidiaries held by parties other
than the parent and for the deconsolidation of a subsidiary. FAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interest of the parent and the interests of the non-controlling owners. FAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. FAS 160 will apply to the Company with respect to any acquisitions, that the Company complete on or after January 1, 2009, which will result in a noncontrolling interest.





In May, 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," ("FAS 162"). FAS 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). FAS 162 will be effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The FASB has stated that it does not expect FAS 162 will result in a change in current
practice. The application of FAS 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" ("FAS 163"). FAS 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. FAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. The application of FAS 163 will have no effect on the Company's financial position, results of operations or cash flows.





In June 2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "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 adoption of this FSP did not have a material impact on the Company’s financial condition, results of operations or cash flows.





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. Although EITF 07-5 is effective for fiscal years beginning after December 15, 2008, any outstanding instrument at the date of adoption will require a retrospective application of the accounting through a cumulative effect adjustment to retained earnings upon adoption. The Company’s adoption of EITF 07-5 did not have a significant impact on the Company’s financial statements.








19





In May 2009, the FASB issued SFAS 165, “Subsequent Events” ("FAS 165") which provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. FAS 165 distinguishes events requiring recognition in the financial statements
and those that may require disclosure in the financial statements. Furthermore, FAS 165 requires disclosure of the date through which subsequent events were evaluated. FAS 165 is effective for interim and annual periods ending after June 15, 2009.





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





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





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





Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.





Foreign Exchange Risk





While our reporting currency is the US dollar, all of our consolidated revenue, consolidated costs and expenses are denominated in RMB except for some overseas related revenues and expenses. All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange
risk as our revenue and results of operations may be affected by fluctuations in the exchange rate between the US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenue, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.





Inflation





Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to
maintain current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase to cope with these increased costs.





Item 8.
Financial Statements and Supplementary Data.


















20








CHINA SUN GROUP HIGH-TECH CO.





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS











PageReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets


F-3Consolidated Statements of Operations And Comprehensive Income


F-4Consolidated Statements of Cash Flows


F-5Consolidated Statements of Stockholders’ Equity


F-6Notes to Consolidated Financial Statements


F-7 – F-19











F-1







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








The Board of Directors and Stockholders of


China Sun Group High-Tech Co.








We have audited the accompanying consolidated balance sheets of China Sun Group High-Tech Co. and its subsidiaries (“the Company”) as of May 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive income, cash flows and stockholders’ equity for the years ended May 31, 2009 and 2008. The
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2009 and 2008, and the results of operations and cash flows for the years ended May 31, 2009 and 2008 and in conformity with accounting principles generally accepted in the United
States of America.








/s/ ZYCPA Company Limited





ZYCPA Company Limited


(Formerly Zhong Yi (Hong Kong) C.P.A. Company Limited)


Certified Public Accountants





Hong Kong, China


August 28, 2009













F-2










CHINA SUN GROUP HIGH-TECH CO.


CONSOLIDATED BALANCE SHEETS


AS OF MAY 31, 2009 AND 2008


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





As of May 31,2009


2008ASSETSCurrent assets:Cash and cash equivalents

$
9,209,953


$
3,879,114Accounts receivable, trade


1,580,220



1,302,176Inventories


1,657,023



4,705,189Value-added tax receivable


124,627



447,346Deposits and prepayments


439,560



73,235Total current assets


13,011,383



10,407,060Non-current assets:Technical know-how


2,608,059



-Property, plant and equipment, net


19,630,119



14,598,684TOTAL ASSETS

$
35,249,561


$
25,005,744LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable, trade

$
847,796


$
733,490Customer deposits


-



338Income tax payable


1,476,030



980,027Other payables and accrued liabilities


1,022,303



448,556Total liabilities


3,346,129



2,162,411Commitments and contingenciesStockholders’ equity:Convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; none of shares issued and outstanding as of May 31, 2009 and 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 May 31, 2009 and 2008


53,423



53,423Additional paid-in capital


9,585,204



9,585,204Accumulated other comprehensive income


3,067,549



2,588,188Statutory reserve


1,387,775



899,819Retained earnings


17,809,481



9,716,699Total stockholders’ equity


31,903,432



22,843,333TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
35,249,561


$
25,005,744





See accompanying notes to consolidated financial statements.










F-3








CHINA SUN GROUP HIGH-TECH CO.


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


FOR THE YEARS ENDED MAY 31, 2009 AND 2008


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





Years ended May 31,2009


2008Revenues, net

$
37,033,483


$
25,294,221Cost of revenue(inclusive of depreciation)


23,444,655



15,664,692Gross profit


13,588,828



9,629,529Operating expenses:Sales and marketing


574,671



33,400Recovery of allowance for doubtful accounts


-



(806,400
)Research and development


102,069



87,607General and administrative


1,423,013



1,111,777Total operating expenses


2,099,753



426,384INCOME FROM OPERATIONS


11,489,075



9,203,145Other income:Interest income


35,449



27,800INCOME BEFORE INCOME TAXES


11,524,524



9,230,945Income tax expense


(2,943,786
)


(2,490,819
)NET INCOME

$
8,580,738


$
6,740,126Other comprehensive income:- Foreign currency translation gain


479,361



2,362,380COMPREHENSIVE INCOME

$
9,060,099


$
9,102,506Net income per share – Basic and diluted

$
0.16


$
0.13Weighted average number of shares outstanding during the year – Basic and diluted


53,422,971



53,422,971














See accompanying notes to consolidated financial statements.







F-4








CHINA SUN GROUP HIGH-TECH CO.


CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED MAY 31, 2009 AND 2008


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





Years ended May 31,2009


2008Cash flows from operating activities:Net income

$
8,580,738


$
6,740,126Adjustments to reconcile net income to net cash provided by operating activities:Depreciation


666,657



423,781Recovery of allowance for doubtful accounts


-



(806,400
)Changes in operating assets and liabilities:Accounts receivable, trade


(252,398
)


4,504,302Inventories


3,121,272



(4,448,436
)Value-added tax receivable


329,511



(661,467
)Deposits and prepayments


(363,191
)


(69,268
)Accounts payable, trade


100,064



75,948Customer deposits


(343
)


(713,415
)Income tax payable


475,318



86,788Other payables and accrued liabilities


93,496



19,734Net cash provided by operating activities


12,751,124



5,151,693Cash flows from investing activities:Payment on technical know-how


(2,206,150
)


-Purchase of plant and equipment


(3,785,437
)


(2,471,927
)Payment on construction in progress


(1,532,786
)


-Net cash used in investing activities


(7,524,373
)


(2,471,927
)Effect of exchange rate changes on cash and cash equivalents


104,088



386,185NET CHANGE IN CASH AND CASH EQUIVALENTS


5,330,839



3,065,951CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


3,879,114



813,163CASH AND CASH EQUIVALENTS, END OF YEAR

$
9,209,953


$
3,879,114SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for income taxes

$
2,468,468


$
2,390,636Cash paid for interest

$
-


$
-











See accompanying notes to consolidated financial statements.







F-5








CHINA SUN GROUP HIGH-TECH CO.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR THE YEARS ENDED MAY 31, 2009 AND 2008


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




Convertible
preferred stock


Common stock


Additional
paid-in


Accumulated
other
comprehensive


Statutory


Retained


Total
stockholders’No. of share


Amount


No. of share


Amount


capital


income


reserve


earnings


equityBalance as of June 1, 2007


-


$
-



53,422,971


$
53,423


$
9,585,204


$
225,808


$
-


$
3,876,392


$
13,740,827Net income for the year


-



-



-



-



-



-



-



6,740,126



6,740,126Appropriation to statutory reserve


-



-



-



-



-



-



899,819



(899,819



-Foreign currency translation adjustment


-



-



-



-



-



2,362,380



-



-



2,362,380Balance as of May 31, 2008


-



-



53,422,971


$
53,423


$
9,585,204


$
2,588,188


$
899,819


$
9,716,699


$
22,843,333Net income for the year


-



-



-



-



-



-



-



8,580,738



8,580,738Appropriation to statutory reserve


-



-



-



-



-



-



487,956



(487,956
)


-Foreign currency translation adjustment


-



-



-



-



-



479,361



-



-



479,361Balance as of May 31, 2009


-


$
-



53,422,971


$
53,423


$
9,585,204


$
3,067,549


$
1,387,775


$
17,809,481


$
31,903,432





See accompanying notes to consolidated financial statements.








F-6





CHINA SUN GROUP HIGH-TECH CO.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEARS ENDED MAY 31, 2009 AND 2008


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








1.         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 16, 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”).




2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





l
Basis of presentation





These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.





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 years reported. Actual results may differ from these estimates.





l
Basis of consolidation





The 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.










F-7





CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))








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 May 31, 2009, the Company has VAT receivable of $124,627 in the consolidated
financial statements.





l
Cost of revenue





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





l
Advertising cost





The Company expenses advertising costs as incurred in accordance with SOP 93-7 “Reporting for Advertising Costs”. Advertising expenses of $554,205 and $114 were incurred for the years ended May 31, 2009 and 2008, respectively.





l
Research and development costs





Research and development costs mainly related to labor cost incurred in the development of new products and manufacturing methods and are charged to expense as incurred. The Company incurred $102,069 and $87,607 for the years ended May 31, 2009 and 2008, respectively.





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 May 31, 2009, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.







F-8


CHINA SUN GROUP HIGH-TECH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”))


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 local government agency.





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 valueBuilding
40 years

5%Plant and machinery
5-40 years

5%Office equipment
5 years

5%Motor vehicle
5 years

5%





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





l
Construction in progress





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





l
Valuation of long-lived assets





Long-lived assets primarily include technical know-how and property, plant and equipment. In accordance with 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 May 31, 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.




F-9




CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))




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”). 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. 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 years ended May 31, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions. As of May 31, 2009, the Company did not have any significant unrecognized uncertain tax positions.





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





l
Net income per share





The Company calculates net income per share in accordance with 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.







F-10




CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))






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 year:


May 31, 2009


May 31, 2008Year end RMB: US$1 exchange rate


6.825



6.953Average yearly RMB: US$1 exchange rate


6.858



7.351





l
Retirement plan costs





Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the consolidated statements of operation and comprehensive income as and when the related employee service is provided.





l
Related parties





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





l
Segment reporting





SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical
areas, business segments and major customers in the financial statements. The Company operates one reportable business segment in the PRC.





l
Fair value measurement





The Company has adopted SFAS No. 157, “Fair Value Measurements” ("FAS 157"), for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and for all non-financial instruments accounted for at fair value on a non-recurring basis.
FAS 157 establishes a new framework for measuring fair value and expands related disclosures. The Company has also adopted FASB FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. Adoption of the FSP had an insignificant effect on the Company’s financial statements.





FAS 157 establishes a new framework for measuring fair value and expands related disclosures. Broadly, FAS 157 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. FAS 157 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own
assumptions.








F-11


CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))




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





l
Recent accounting pronouncements





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





In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141(R), “Business Combinations” ("FAS 141R"), which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. FAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R becomes effective for fiscal periods beginning after December 15, 2008. This accounting standard will be applied to acquisitions occurring
after May 31, 2009, and will also require the Company to expense any costs related to such acquisitions.





In December 2007, the FASB released SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51” ("FAS 160"), which establishes accounting and reporting standards for the ownership interests in subsidiaries held by parties other
than the parent and for the deconsolidation of a subsidiary. FAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interest of the parent and the interests of the non-controlling owners. FAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. FAS 160 will apply to the Company with respect to any acquisitions, that the Company complete on or after January 1, 2009, which will result in a noncontrolling interest.





In May, 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," ("FAS 162"). FAS 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). FAS 162 will be effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The FASB has stated that it does not expect FAS 162 will result in a change in current
practice. The application of FAS 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" ("FAS 163"). FAS 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. FAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. The application of FAS 163 will have no effect on the Company's financial position, results of operations or cash flows.







F-12


CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))




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 adoption of this FSP did not have a material impact on the Company’s financial condition, results of operations or cash flows.





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. Although EITF 07-5 is effective for fiscal years beginning after December 15, 2008, any outstanding instrument at the date of adoption will require a retrospective application of the accounting through a cumulative effect adjustment to retained earnings upon adoption. The Company’s adoption of EITF 07-5 did not have a significant impact on the Company’s financial statements.





In May 2009, the FASB issued SFAS 165, “Subsequent Events” ("FAS 165") which provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. FAS 165 distinguishes events requiring recognition in the financial statements
and those that may require disclosure in the financial statements. Furthermore, FAS 165 requires disclosure of the date through which subsequent events were evaluated. FAS 165 is effective for interim and annual periods ending after June 15, 2009.





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





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





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








F-13





CHINA SUN GROUP HIGH-TECH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2009 AND 2008
(Currency expressed in United States Dollars (“US$”))




3.         ACCOUNTS RECEIVABLE, NET





The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience
changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the Company has determined that no allowance for doubtful accounts is required for the years ended May 31, 2009 and 2008.








4.         TECHNICAL KNOW-HOW





In March 2009, the Company’s subsidiary, DLX entered into an agreement (the “Agreement”) with an independent third party, Mr. Wang Ka Gui to acquire the technology to develop a new product, lithium iron phosphate, which is used as anode material for the new generation of lithium ion batteries. Pursuant to the Agreement, Mr.
Wang Ka Gui agreed not to re-sell or disclose to third party under the confidentiality covenant. The total purchase price of the technology was approximately $2,608,059 (equivalent to RMB17,800,000). The Company has determined that the technology has an estimated useful life of 15 years and is being amortized on a straight-line method over its useful life when its products are approved by the local government agency. The Company expects that the approval will be granted in the coming third or fourth quarter.





To make use of this technology, the Company has been developing a production facility for the manufacturing purpose of lithium ion batteries under this technology during the fourth quarter of 2009. The development is scheduled to be fully completed in September 2009 and will begin depreciating at the time when the assets are substantially
complete and ready for their intended use.





As of May 31, 2009, the Company incurred and capitalized $1,540,220 as “construction in progress” under the caption of “Property, plant and equipment” in Note 5.








5.         PROPERTY, PLANT AND EQUIPMENT





Property, plant and equipment, net, consisted of:





As of May 31,2009


2008Building

$
6,308,373


$
6,308,373Plant and machinery


11,181,025



7,358,776Office equipment


205,467



159,109Motor vehicle


34,816



34,816Construction in progress


1,540,220



-Foreign translation difference


2,187,536



1,873,73121,457,437



15,734,805Less: accumulated depreciation


(1,696,209
)


(1,029,552
)Less: foreign translation difference


(131,109
)


(106,569
)Property, plant and equipment, net

$
19,630,119


$
14,598,684





Depreciation expenses for the years ended May 31, 2009 and 2008 were $666,657 and $423,781, which included $409,514 and $187,684 in cost of revenue, respectively.







F-14




CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))




6.         OTHER PAYABLES AND ACCRUED LIABILITIES





Other payables and accrued liabilities consisted of:





As of May 31,2009


2008Welfare payable

$
293,262


$
216,527Accrued operating expenses


126,209



57,529Payable to equipment vendor


83,623



-Purchase price payable for technical know-how


391,209



-Other payable


128,000



174,500Other payables and accrued liabilities

$
1,022,303


$
448,556




7.         INCOME TAXES





For the years ended May 31, 2009 and 2008, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:





Years ended May 31,2009


2008Tax jurisdiction from:– Local

$
(251,544
)

$
(180,403
)– Foreign


11,776,068



9,411,348Income before income taxes

$
11,524,524


$
9,230,945





The provision for income taxes consisted of the following:





Years ended May 31,2009


2008Current tax:– Local

$
-


$
-– Foreign


2,943,786



2,490,819Deferred tax:– Local


-



-– Foreign


-



-Income tax expense

$
2,943,786


$
2,490,819







F-15




CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))





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 May 31, 2009, the operation in the United States of America incurred $962,859 of cumulative net operating losses carryforwards 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.





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 unified 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 years ended May 31, 2009 and 2008 are as follows:





Years ended May 31,2009


2008Income before income taxes

$
11,776,068


$
9,411,348Income statutory tax rate


25
%


25
%Income tax calculated at statutory income tax rate


2,944,017



2,352,837Effect of tax rate differential


-



439,196Add: items not taxable or deductible to taxes-  Recovery from allowance for doubtful accounts


-



(239,232
)- Provision for employees’ benefits


-



18,375- Pre-operating expenses and others


(231
)


(80,357
)Income tax expense

$
2,943,786


$
2,490,819





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





As of May 31,2009


2008Deferred tax assets:- Net operating loss carryforwards

$
327,372


$
211,024Less: valuation allowance


(327,372
)


(211,024
)Deferred tax assets

$
-


$
-










F-16





CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))






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 $327,372 as of May 31, 2009. During the year ended May 31, 2009, the valuation allowance increased by $116,348, primarily
relating to net operating loss carryforwards from the local tax regime.




8.         CHINA CONTRIBUTION PLAN





Under the PRC Law, full-time employees of the subsidiaries in the PRC are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a China government-mandated multi-employer defined contribution plan. The Company’s subsidiary in the PRC is required to accrue for
these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $136,916 and $91,890 for the years ended May 31, 2009 and 2008, respectively.




9.         STATUTORY RESERVE





Under the PRC Law, the Company’s subsidiaries are required to make appropriations to the statutory reserve based on after-tax net earnings and determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should be at
least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.





For the years ended May 31, 2009 and 2008, the Company’s PRC subsidiaries contributed $487,956 and $899,819 to statutory reserve, respectively.




10.         CONCENTRATIONS OF RISK





The Company is exposed to the following concentrations of risk:





(a)         Major customers





For the years ended May 31, 2009 and 2008, the customers who account for 10% or more of revenues of the Company are presented as follows:




Year ended May 31, 2009


May 31, 2009Revenues


Percentage
of revenues


Trade accounts receivableCustomer A

$
8,019,714



22%


$
-Customer B


8,835,640



24%



293,040Customer D


4,869,282



13%



439,560Customer F


7,250,297



19%



293,040Total:

$
28,974,933



78%



1,025,640








F-17


CHINA SUN GROUP HIGH-TECH CO.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))
  Year ended May 31, 2008


May 31, 2008Revenues


Percentage
of revenues


Trade accounts receivableCustomer A

$
9,882,800



39%


$
1,100,824Customer B


3,596,383



14%



-Customer C


3,233,339



13%



129,441Customer D


2,861,287



12%



71,911Customer E


2,588,322



10%



-Total:

$
22,162,131



88%


$
1,302,176


For the years ended May 31, 2009 and 2008, 100% of the Company’s revenues were derived from customers located in the PRC.





(b)
Major vendors





For the years ended May 31, 2009 and 2008, the vendors who account for 10% or more of purchases of the Company are presented as follows:





Year ended May 31, 2009


May 31, 2009Purchases


Percentage
of purchase


Accounts
payableVendor A

$
8,860,612



47
%

$
-Vendor B


6,312,345



34
%


385,348Vendor C


3,493,115



19
%


462,448Total:

$
18,666,072



100
%

$
847,796





Year ended May 31, 2008


May 31, 2008Purchases


Percentage
of purchase


Accounts
PayableVendor A

$
7,980,980



41
%

$
733,490Vendor B


6,129,853



31
%


-Vendor C


5,560,048



28
%


-Total:

$
19,670,881



100
%

$
733,490





For the years ended May 31, 2009 and 2008, 100% of the Company’s purchases were derived from vendors located in the PRC.





(c)         Credit risk





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 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MAY 31, 2009 AND 2008
 (Currency expressed in United States Dollars (“US$”))




(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.





11.
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 $7,291 and $6,802 for the years ended May 31, 2009 and 2008.





As of May 31, 2009, the Company has the future minimum rental payments of $7,326 under the operating lease agreement within the next 12 months.





(b)         Capital commitment





On June 9, 2007, the Company’s subsidiary, DLX entered into an African Mining Project Contract of Cooperation (the “Purchase Agreement”) with Shengbao Group and South African Shengbao Mining Enterprises (“Shengbao”). Pursuant to the Purchase Agreement, DLX is obliged to purchase the prospecting and mining rights
of a cobalt ore mine for a purchase price of $2 million over a term of 15 years. As of May 31, 2009, the Company had the capital commitment of $2 million in the purchase of the prospecting and mining rights which was contracted for but not provided in the financial statements.










F-19








Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.





None of the principal accountant’s reports on the financial statements for either of the past two years contains an adverse opinion or disclaimer of opinion, or was modified as to uncertainty, audit scope or accounting principles. There were no disagreements with ZYCPA Company Limited on any matter of accounting principles or practices, financial statement disclosure or auditing scope
or procedure.





Item 9A.
Controls and Procedures





(a)           Evaluation of disclosure controls and procedures.





The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded,
processed, summarized and reported within required time periods. The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date,
such controls and procedures were effective.





(b)           Changes in internal controls.





The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.





(c)           Management’s Report on Internal Control over Financial Reporting.





Our management, with the participation of our Certifying Officers, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





Under the supervision and with the participation of our management, with the participation of our Certifying Officers, we have conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31, 2009, based upon the framework in Internal Control――
Integrated Frameworkissued bythe Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of May 31, 2009. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Our management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.





Item 9B.
Other Information.





None.











21





PART III





Item 10.
Directors, Executive Officers and Corporate Governance





(a)               Directors and Executive Officers





Each director is elected for a one year term until the next annual meeting of shareholders and their successors are elected and qualified.





The following is a list of the names and ages of our directors and executive officers:





Name
Age
Position
Date of IncumbencyMr. Wang, Bin

44

President, Chief Executive Officer, and Chairman of the Board

September 30, 2006Mr. Wang, Yu Long

45

Vice President

October 30, 2006Ms. Liu, Ming Fen

57

Chief Financial Officer

September 30, 2006Ms. Li, Zhi

38

Director

September 30, 2006Ms. Wang, Jiao

25

Director

September 30, 2006Mr. Sui, Fudong

54

Director

August 17, 2007Mr. Li, Gang

30

Director

August 17, 2007Ms. Liu, Yefei

32

Director

August 17, 2007Mr. Ren, Fuqiu

44

Director

August 17, 2007





Mr. Bin Wangserves as our President, Chief Executive Officer, and the Chairman of the Board. Since 2000, Mr. Wang has served as the President of DLXY. He received his Bachelor degree from Harbin
University of Science and Technology with a major in Business Management. Mr. Wang is an economist with a strong background in business management. He is the founder of Dalian Xinyang High-Tech Development Co., Ltd., our majority owned subsidiary, which is dedicated to industrial investment, high technology, utilities, real estate, and education.





Mr. Yu-long Wang serves as our Vice President. Since 1999, Mr. Wang has served in various capacities at DLXY. In 2002, Mr. Wang began has serving as the Vice President where he was in charge of production,
Research and Development, and sales management. From 2000 to 2002, he acted as the assistant to the Chairman and from 1999 to 2000, he was the director of marketing. He obtained his bachelors degree in Business Administration from Heilongjiang University.





Ms. Ming Fen Liu serves as our Chief Financial Officer. Since 2004, Ms. Liu has been the Chief Financial Officer of DLXY. Prior to that, in 2003, Ms Liu was the financial manager of Sun Group Investment
Company. From 2001 and 2002, Ms. Liu served as the financial supervisor for the Dalian Chemical Industry Group, a chemical fertilizer plant. She is a Certified Public Accountant in China and earned her bachelors degree in finance from Dongbei Finance & Economics University. Ms. Liu has experience in financial regulations, company management, and raising capital.





Ms. Zhi Li serves as a Director of our Board. Since 2000, Ms. Li has also been a Director of DLXY. Prior to that, she worked in the accounting department of a state-owned company. She is a Certified
Public Accountant in China and graduated from the Heilongjiang Commerce College, where she majored in Accounting.








22





Ms. Li is married to Mr. Wang, our President, Chief Executive Officer, and Chairman of the Board.





Ms. Jiao Wang serves as a Director of our Board. Since 2003, Ms. Wang has also been a Director of DLXY. Ms. Wang graduated from Dongbei Finance & Economics University, where she majored in Administrative
Management. Ms. Wang has a background in marketing strategy and management.





Ms. Wang is the daughter of Mr. Wang Bin and Ms Li Zhi.





Mr. Fudong Sui has served as a Vice President at Dalian Household Things Co., Ltd. which since February 2006 produces consumer products such as detergent and air fresheners. From October 1998 to
December 2005, he was the Administrative President at Liaoning North Group, which participates in the chemical industry. Mr. Wang has received undergraduate and graduate degrees in Management Administration from the Heilongjiang University.





Mr. Gang Li has served as an Investment Analyst at Heilongjiang Chenneng Investment Management Co., Ltd., specializing in the energy industry since August 2005. Mr. Li received a master degree in
finance from Liaoning University and attached Shanxi Finance and Economy College for his undergraduate education.





Ms. Yefei Liu has served as an Accounting Supervisor in the Dalian Branch of the Liaoning Decoration Engineering Corporation since September 2006 and as a staff accountant from January 2004 to September
2006. From August 2001 to November 2003 Ms. Liu served as a treasurer at the Dalian Keyang Shoe Co., Ltd. Ms. Liu received Bachelor of Accounting from the Shenyang Agricultural University. She is also a public accountant certified in the People’s Republic of China.





Mr. Ren Fuqiu has served as a Manager in the Overseas Investment Section of Shanghai Anhemeina Investment Co., Ltd. since September 2005, as a Manager in the Financial Department from April 1996
to June 2002, and as a Director in the Financial Department from August 1990 to March 1996. Mr. Ren received Bachelor in Finance from Dongbei University of Finance and Economics, and Master in International Finance from Dongbei University of Finance and Economics.





The directors will serve until our next annual meeting, or until their successors are duly elected and qualified. The officers serve at the pleasure of the Board.





Save as otherwise reported above, none of our directors hold directorships in other reporting companies, and  there are no family relationships among our directors or officers.





To our knowledge, during the last five years, none of our directors and executive officers (including those of our subsidiaries) has:





▪
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.





▪
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.





▪
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.










23








▪
Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.





(b)
Audit Committee




We do not presently have an audit committee. Our board of directors currently acts as our audit committee.  Our Board of Directors has determined that Fudong Sui, Gang Li, Yefei Liu, and. Fuqiu Ren qualifies as an "independent" director as the term is defined in Item 407(a)(1) of Regulation S-K.
Our board of directors has not yet determined whether we have a member who qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K, and is. Our board of directors is in the process of searching for a suitable candidate for this position.





(c)
Compensation Committee





We do not presently have a compensation committee. Our board of directors currently acts as our compensation committee.





(d)
Nominating Committee





We do not presently have a nominating committee. Our board of directors currently acts as our nominating committee.








(e)
Section 16 (a) Compliance





Not applicable.





(f)
Code of Ethics





We have adopted a code of ethics that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (the “Code of Ethics”).
The Code of Ethics is designed to deter wrongdoing, and to promote the following:





•

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.•

Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer.•

Compliance with applicable governmental laws, rules and regulations.•

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code.•

Accountability for adherence to the code.





(g)
Nomination Procedures





There were no material changes to the procedures by which security holders may recommend nominees to our board of directors since filing our last annual report with the SEC on August 22, 2008.





Item 11.
Executive Compensation.





The following table sets forth all compensation awarded to, earned by, or paid by China Sun High-Tech Co. and its subsidiaries to Wang Bin , its Chief Executive Officer, and Ms. Ming Fen Liu, its Chief Financial Officer for services rendered in all capacities to the Company during the years ended May 31, 2009 and 2008.  There were no
other executive officers whose total salary and bonus for the fiscal year ended May 31, 2009 exceeded $100,000.







24








Name and Principal Position
Year

Salary
(cash or non-cash)
($)


Bonus (cash or non-cash)
($)


Stock-Awards
($)


Option Awards
($)


Non-Equity Incentive Plan Compensation
($)


Non-Qualified Deferred Compensation Earnings
($)


All Other Compensation
($)


Total
($)Wang Bin
(Chief
Executive  Officer)
2009


--



--



--



--



--



--



--



--2008


--



--



--



--



--



--



--



--Ming Fen Liu
(Chief Financial Officer)
2009


26,400



--



--



--



--



--



--



26,4002008


26,400



--



--



--



--



--



--



26,400








Compensation Discussion and Analysis





Overview of Compensation Program and Philosophy





The Board of Director’s goal in determining compensation levels is to adequately reward the efforts and achievements of executive officers for the management of the Company. The Company has no pension plan, stock option plan, non-equity incentive plan or deferred compensation arrangement. The Company has not used a compensation consultant
in any capacity but believes that it executive officer compensation package is comparable to similar businesses in its location of its operations.





DLXY entered into Labor Contracts with each of Ms. Ming Fen Liu and Mr. Yu-long Wang on January 15, 2004. Pursuant to such agreements, Ms. Liu was hired as Chief Financial Officer and Mr. Wang was hired as Vice President. The terms of their employment were 5 years and were renewed for another 5 years on January 15, 2009. Their monthly compensation
is RMB 15,000 each. Mr. Bin Wang has no formal employment agreement with DLXY.On January 15, 2009, DLXY entered into another 5-year labor contracts with Ms. Ming Fen Liu and Mr. Yu-long Wang from January 15, 2009. The terms of the new contracts are the same as the original contracts.





From February 2004, inception, through May 31, 2009, we did not issue any stock options.





Compensation of Directors





Persons who are directors and employees are not currently additionally compensated for their services as a director.  Non-executive director compensation is currently set at $1,500 a year. Mr. Bin Wang has received no compensation for his service as a director. Directors do not receive other compensation for attending meetings.







25





No written agreements were entered for the director compensation. The directors orally agreed to be paid $1,500 a year for their services as directors. The term of the oral agreements is one year and will be changed and approved each year at the annual
shareholder meeting.





Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.





The following table sets forth certain information regarding beneficial ownership of our common stock as of August 27, 2009, by (i) each person who “beneficially” owns more than 5% of all outstanding shares of common stock, (ii) each director and the executive officer identified above in Item 10, and (iii) all directors and the executive officers as a group. Unless otherwise
indicated, the address for each beneficial owner is c/o China Sun Group High-Tech Co., 1 Hutan Street, Zhongshan District, Dalian, the People’s Republic of China.





Directors and Executive Officers:

Amount and Nature
of Beneficial Ownership (1)

Percentage of Class (2)Bin Wang

25,500,000
(3)
47.7%(3)Yu Long Wang

0

*Ming Fen Liu

10,000

*Zhi Li

25,500,000
(3)
47.7%(3)Jiao Wang

25,500,000
(3)
47.7%(3)Fudong Sui

0

*Gang Li

0

*Yefei Liu

0

*Fuqiu Ren

-

-Officers and directors as a group (5 persons)

25,510,000

47.8%





*
Represents less than 1%





(1)
As used herein, a person is deemed to be the “beneficial owner” of a security if he or she has voting or investment power with respect to such security or has the right to acquire such ownership within sixty (60) days. As used herein, “voting power” includes the power to vote or to direct the voting of shares, and “investment
power” includes the power to dispose or to direct the disposition of shares, irrespective of any economic interest therein.(2)
Percentage ownership for a given individual or group is calculated on the basis of (i) the amount of outstanding shares owned as of August 27, 2009 plus, (ii) the number of shares that such individual or group has the right to acquire within sixty (60) days pursuant to options, warrants, conversion privileges or other rights, if applicable.(3)
This includes 9,500,000 shares owned by Mr. Bin Wang, our President and Chief Executive Officer, 8,000,000 shares owned by Ms. Zhi Li, Mr. Bin Wang’s spouse, and 8,000,000 shares owned by Ms. Jiao Wang, Mr. Wang’s daughter.





Item 13.
Certain Relationships and Related Transactions, and Director Independence.





There are no related transactions during the reported period.





Independent Directors





Fudong Sui, Gang Li, Yefei Liu, and Fuqiu Ren are independent directors as defined by the Nasdaq Marketplace Rules. Wang Bin, Zhi Li, and Jiao Wang, who are not independent directors, are not members of any Committees of our Board of Directors.







26








Item 14.
Principal Accounting Fees and Services





For the fiscal years ended May 31, 2009 and May 31, 2008, ZYCPA Company Limited has billed us the following fees for services rendered in connection with the audit and other services in respect to these years:





2009


2008Audit Fees (1)


51,000



67,500Tax Fees


-



-All Other Fees


-



-Total


51,000



67,500








(1)
Services rendered for the audit of our annual financial statements included in our report on Form 10-K and the reviews of the financial statements included in our reports on Forms 10-Q filed with the SEC.











27





PART IV





Item 15.                                Exhibits, Financial Statements Schedules





Exhibit
Number
Exhibit Description
Footnote Reference3.1
Articles of Incorporation of Capital Resource Funding, Inc. filed on February 6, 2004
(1)3.2
Amendment to the Articles of Incorporation of Capital Resource Funding, Inc. filed March 21, 2005.
(2)3.3
Bylaws of Capital Resource Funding, Inc.
(1)10.1
Consulting Agreement between Capital Resource Funding, Inc. and Greentree Financial Group, Inc.
(1)10.2
Promissory Note with Greentree Financial Group, Inc.
(1)10.3
Letter of Intent between Capital Resource Funding, Inc. and HairMax International, Inc.
(1)10.4
Plan of Exchange dated September 6, 2006 by and among Capital Resource Funding, Inc., Dalian Xinyang
(4)High-Tech Development Co. Ltd., the shareholders of Sun Group, and David Koran.10.5
Escrow Agreement by and among Capital Resource Funding, Inc., David Koran,
(3)Dalian Xinyang High-Tech Development Co., Ltd., the Shareholders of Dalian Xinyang High-TechDevelopment Co., Ltd., and Greentree Financial Group, Inc.10.6
Lock-up Agreement with David Koran dated September 7, 2006.
(3)10.7
Lock-up Agreement with Laura Koran dated September 7, 2006.
(3)10.8
Lock-up Agreement with Richard Koran dated September 7, 2006.
(3)10.9
Labor Contract between Capital Resource Funding, Inc. and Ming Fen Liu dated January 15, 2004
(6)10.10
Labor Contract between Capital Resource Funding, Inc, and Yu-long Wang dated January 15, 200414
Code of Ethics
(5)23.1
Consent of ZYCPA Company Limited.
*31.1
Rule 13a 14a/15d 14(a) Certification.
*31.2
Rule 13a 14a/15d 14(a) Certification.
*32
Certification of principal executive officer and principal financial and accounting officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*





(1)

Incorporated by reference from the Registration Statement on Form SB-2 of Capital Resource Funding, Inc. filed with the Securities and Exchange Commission on August 16, 2004. File no. 333-118259.(2)

Incorporated by reference from the Amendment No. 4 to the Registration Statement on Form SB-2/A of Capital Resource Funding, Inc. filed with the Securities and Exchange Commission on March 15, 2005. File no. 333-118259.(3)

Incorporated by reference from the Current Report on Form 8-K of Capital Resource Funding, Inc. filed with the Securities and Exchange Commission on March 6, 2007.(4)

Incorporated by reference from the Current Report on Form 8-K of Capital Resource Funding, Inc. filed with the Securities and Exchange Commission on September 7, 2006.(5)

Incorporated by reference from the Annual Report on Form 10-KSB of Capital Resource Funding, Inc. filed with the Securities and Exchange Commission on August 4, 2006.(6)

Incorporated by reference from the Annual Report on Form 10-KSB of China Sun High-Tech Co. filed with the Securities and Exchange Commission on September 6, 2007.








*

Filed herewith.







28











Signatures





In accordance with Section 13 or 15(d) 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.Dated: August 27, 2009
By: /s/ Bin WangName: Bin WangTitle:   Chief Executive Officer(Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


/s/ Bin Wang

Bin Wang
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
August 28, 2009/s/ Ming Fen Liu

Ming Fen Liu
Chief Financial Officer
(Principal Financial and Accounting Officer)
August 28, 2009August 28, 2009/s/ Zhi Li
Zhi Li
Director/s/ Jiao Wang
Jiao Wang
Director
August 28, 2009/s/ Fudong Sui
Fudong Sui
Director
August 28, 2009/s/ Gang Li
Gang Li
Director
August 28, 2009/s/ Yefei Liu
Yefei Liu
Director
August 28, 2009/s/ Fuqiu Ren

Fuqiu Ren
Director
August 28, 2009











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