UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

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

For the fiscal year ended: June 30, 2009

OR

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

For the transition period from __________ to ____________

Commission File Number: 000-51908

SUTOR TECHNOLOGY GROUP LIMITED

(Exact name of registrant as specified in its charter)

Nevada	87-0578370
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
No 8, Huaye Road, Dongbang Industrial Park Changshu, China, 215534
(Address of principal executive office and zip code)
(86) 512-52680988
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Name of Each Exchange on Which Registered:
Common Stock, $.0001 par value	The Nasdaq Stock Market LLC
	(Nasdaq Capital Market)

Securities registered pursuant to Section 12(g) of the Act: None

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

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨ No x

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.                  Yes x 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 x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.   ¨

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

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

At December 31, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of shares held by non-affiliates of the registrant (based upon the closing sale price of such shares as reported on the Nasdaq Capital Market) was approximately $17.6 million. Shares of the registrant’s common stock held by the registrant’s executive officers and directors have been excluded because such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of September 25, 2009, there were 37,955,602 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

SUTOR TECHNOLOGY GROUP LIMITED

FORM 10-K

For the Fiscal Year Ended June 30, 2009

Number		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	35
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	35
Item 11.	Executive Compensation	39
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.	Certain Relationships and Related Transactions, and Director Independence	41
Item 14.	Principal Accounting Fees and Services	42
PART IV
Item 15.	Exhibits, Financial Statement Schedules	44

Use of Terms

Except as otherwise indicated by the context, all references in this annual report to: (i) “Sutor Group,” the “Company,” “we,” “us” or “our” are to Sutor Technology Group Limited, a Nevada corporation, and its direct and indirect subsidiaries; (ii) “Sutor BVI” are to our subsidiary Sutor Steel Technology Co., Ltd., a British Virgin Islands corporation, and/or its operating subsidiaries, as the case may be; (iii) “Changshu Huaye” are to our subsidiary Changshu Huaye Steel Strip Co., Ltd., a corporation incorporated in the People’s Republic of China; (iv) “Jiangsu Cold-Rolled” are to our subsidiary Jiangsu Cold-Rolled Technology Co., Ltd., a corporation incorporated in the People’s Republic of China; (v) “Shanghai Huaye” are to Shanghai Huaye Iron & Steel Group Co., Ltd., a corporation incorporated in the People’s Republic of China of which Lifang Chen, our major shareholder and chief executive officer, and her husband Feng Gao are 100% owners, and its subsidiaries; (vi) “Securities Act” are to the Securities Act of 1933, as amended; (vii) “Exchange Act” means the Securities Exchange Act of 1934, as amended; (viii) “RMB” are to Renminbi, the legal currency of China; (ix) “U.S. dollar,” “$” and “US$” are to the legal currency of the United States; (x) “China” and “PRC” are to the People’s Republic of China; and (xi) “BVI” are to the British Virgin Islands.

Forward-Looking Statements

Statements contained in this annual report include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Forward-looking statements made in this annual report generally are based on our best estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “should,” “project,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “potential,” “opportunity” or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions. Potential risks and uncertainties include, among other things, such factors as:

· Our heavy reliance on a single customer;

· Downturns in the steel industry;

· Competition and competitive factors in the markets in which we compete;

· Increases in our raw material costs;

· General economic and business conditions in China and in the local economies in which we regularly conduct business, which can affect demand for the Company’s products and services; and

· Changes in laws, rules and regulations governing the business community in China in general and the steel industry in particular.

Additional disclosures regarding factors that could cause our results and performance to differ from results or performance anticipated by this annual report are discussed in Item 1A. “Risk Factors.” Readers are urged to carefully review and consider the various disclosures made by us in this annual report and our other filings with the Security and Exchange Commission (the “SEC”). These reports attempt to advise investors and other interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this annual report speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

1

PART I

ITEM 1.   BUSINESS

Overview

We are one of the leading Chinese private manufacturers of fine finished steel products used by steel fabricators and other applications. We utilize a variety of processes and technological methodologies to convert steel manufactured by third parties into finished steel products. Our product offerings are focused on higher margin, value-added finished steel products, specifically, hot-dip galvanized steel (“HDG Steel”) and prepainted galvanized steel (“PPGI”), which comprised approximately 31.7% and 42.4% of our total revenue in fiscal year 2009, respectively. In addition, we produce acid pickled steel (“AP Steel”) and cold-rolled steel, which represent the less processed of our finished products. A large portion of our AP Steel and cold-rolled steel are used for our production of HDG Steel and PPGI products. Our vertical integration has allowed us to maintain more stable margins for our HDG Steel and PPGI products.

We sell most of our products to customers who operate primarily in the solar energy, appliances, automobile, construction, infrastructure, medical equipment and water resource industries. Most of our customers are located in China, with domestic sales accounting for 93.1% of our total revenue in fiscal year 2009. Our primary export markets are Europe, Middle East, South America, the United States, Southeast Asia and Hong Kong.

Through our manufacturing facilities located in Changshu, China, we currently have three HDG Steel production lines, one PPGI production line, one AP Steel production line and one cold-rolled steel line. Our current annual designed production capacity is approximately 700,000 metric tons (“MT”) for HDG Steel, 200,000 MT for PPGI, 500,000 MT for AP Steel and 250,000 MT for cold-rolled steel.

History and Corporate Structure

We were incorporated on May 1, 1997 in the State of Nevada under the name Bronze Marketing, Inc. and changed our name to Sutor Technology Group Limited effective March 6, 2007 as a result of our reverse acquisition of Sutor BVI in February 2007. From inception until December 31, 2002, we engaged in the business of providing inventory financing to facilitate the marketing and sale of bronze sculptures and other artwork. The business was not successful and we discontinued our active business operations as of December 31, 2002. From December 31, 2002 until the reverse acquisition of Sutor BVI on February 1, 2007, we engaged in no active business operations.

On February 1, 2007, we acquired Sutor BVI through a share exchange transaction pursuant to which the stockholders of Sutor BVI transferred all capital stock of Sutor BVI to us in exchange for 85.2% ownership of our Company. Our acquisition of Sutor BVI was accounted for as a recapitalization effected by a share exchange, wherein Sutor BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.

2

The following chart reflects our organizational structure as of the date of this annual report:

Segment Information

Our two operating segments are categorized according to our operating subsidiaries:

· Changshu Huaye which manufactures and sells HDG Steel and PPGI products; and

· Jiangsu Cold-Rolled which manufactures and sells HDG Steel, AP Steel and cold-rolled steel.

Changshu Huaye and Jiangsu Cold-Rolled are located adjacent to each other in Changshu, China and use largely the same management resources. For additional information about each segment, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and Note 11, “Segment Information” to the consolidated financial statements included elsewhere in this annual report.

Our Products

Our current products include HDG Steel, PPGI, AP Steel and cold-rolled steel. HDG of cold-rolled steel and PPGI are primarily manufactured by Changshu Huaye and our AP Steel products, cold-rolled steel are manufactured by Jiangsu Cold-Rolled. Jiangsu Cold-Rolled added two new HDG Steel production lines and has started to manufacture HDG of both cold-rolled steel and hot-rolled steel since the end of September 2008. We were certified ISO 9001:2000 for our quality management system in 2005, ISO 14001:2004 for our environmental management system in 2008, and GD/T28001:2001 for our occupational health and safety management system in 2008.

3

The following table set forth sales and shipping information about our product mix in each of the last three years.

(All amounts, other than percentage, in millions of U.S. dollars)

	YearEndedJune30,
	2007					2008					2009
	Revenue		Percentageof Sales			Revenue		Percentage ofSales			Revenue		Percentageof Sales
HDG Steel	$	150.8		49.7	%	$	118.2		28.3	%	$	108.3		31.7	%
PPGI		96.9		31.9	%		137.3		32.8	%		144.8		42.4	%
AP Steel		41.1		13.5			33.9		8.1	%		49.1		14.4	%
Cold-Rolled Steel		4.6		1.5			104.4		25.0	%		30.3		8.9	%
Other		10.1		3.3	%		24.3		5.8	%		9.0		2.6	%
Total		303.4		100	%		418.0		100	%		341.5		100	%

HDG Steel

Using a technology called hot-dip galvanizing, we manufacture corrosion-resistant and zinc-coated HDG Steel in different dimensions and using different materials and specifications requested by our customers. HDG Steel products are manufactured from steel substrate of cold-rolled or hot-rolled picked coils by applying zinc to the surface of the material to enhance its corrosion protection. HDG Steel products are principally used in the electrical household appliance and construction markets.

We produce not only common industrial specifications, but also extreme specifications that we believe only a few other large PRC state-owned steel manufacturers can produce. The following table compares our technical manufacturing capabilities for most of our products:

	Width (mm)	Thickness (mm)	Galvanized Layer Weight (g/m 2)
Our Specification Scope	700-1250	0.18-1.5	70-280
Industrial Common Specification Scope	700-1250	0.3-1.2	100-180

We also are technologically capable of manufacturing more extreme specifications of up to 1300mm wide and 0.16mm thick HDG of cold-rolled steel. As a result, we maintain a competitive advantage in extreme specification technology in terms of thickness and the weight of the galvanized layer of our products. We have the flexibility to adjust production specifications to meet changes in market demand.

Sales of HDG Steel products to third parties amounted to approximately 116,300 MT in fiscal year 2009, representing approximately 31.7% of our total sales revenue. The remaining HDG Steel products, which represent a majority of our HDG Steel products, were used for our production of PPGI products. Currently, most of our HDG Steel products are manufactured by Changshu Huaye which produces only HDG of cold-rolled steel. Jiangsu Cold-Rolled added two new HDG Steel production lines which are capable of galvanizing both hot-rolled and cold-rolled steel with both zinc and aluminum. These two new production lines became operational at the end of September 2008. The addition of the new production lines significantly expanded our production capacity of HDG Steel, which increased designed production capacity from 200,000 MT per year to 700,000 MT per year.

With the new production lines, we offer HDG of hot-rolled steel, which we believe is more cost-efficient than production of HDG of cold-rolled steel because production of HDG steel products occurs directly on hot-rolled steel and, therefore, avoids the procedure of cold rolling hot-rolled steel. HDG of hot-rolled steel is generally thicker than HDG of cold-rolled steel with a specification range of 1.5mm to 4.5mm in terms of thickness.

4

PPGI Products

PPGI products are typically made to order based on customer specifications. Our PPGI products’ specification generally ranges from 700mm to 1250mm in width and from 0.2mm to 1.2mm in thickness. Our PPGI products are used mostly in solar energy, appliances and construction materials. We produce our PPGI by color-coating on HDG of cold-rolled steel and then coating them in various colors, including ivory white, ocean blue, pink and any other color according to customer requirements. Our PPGI production line is equipped with the latest twice baking and coating technology, which together with indirect heating, enhances the color coated layers adhesion to the galvanized zinc layer.

Sales of PPGI products amounted to approximately 167,700 MT in fiscal year 2009, representing approximately 42.4% of our total sales revenue. Through our vertical integration strategy, we currently self-supply approximately 99.3% of HDG of cold-rolled steel to our PPGI production.

AP Steel

Our AP Steel production line became operative in September 2006. Acid pickling is a process that removes scales and oxides from the steel surface by pickling, cold rolling and annealing. AP Steel products are used mostly as a raw material for cold-rolled steel strip, HDG Steel, as well as components of automobile and manufacturing equipment. AP steel products come in several different dimensions and using different materials and different specifications.

Most of our AP Steel products are used for our own production of HDG Steel and full-hard cold-rolled steel. We also sell a small portion of our AP Steel products to the market. In fiscal year 2009, our sales of AP Steel products to third parties were approximately 92,400 MT, representing approximately 14.4% of our total revenue.

Full-Hard, Cold-rolled Steel Products

Our manufacturing of full-hard, cold-rolled steel products commenced in January 2007. Full-hard cold-rolled steel strips are treated in an annealing process and are used to produce HDG of cold-rolled steel. We produce full-hard cold-rolled steel strips through a reverse cold rolling mill.

We use most of the full-hard cold-rolled steel strips for our production of HDG of cold-rolled steel. The remaining undergoes the annealing process and is sold to the market. Our sales of full-hard cold-rolled steel products to third parties amounted to approximately 44,900 MT in fiscal year 2009, representing approximately 8.9% of our revenue. In addition, approximately 87% of cold-rolled steel products were used for our own production.

Manufacturing

Our manufacturing facilities are located in Changshu, China. We currently have three HDG Steel production lines, one PPGI production line, one AP Steel production line and one cold-rolled steel line. Our current annual designed production capacity is approximately 700,000 MT for HDG Steel, 200,000 MT for PPGI, 500,000 MT for AP Steels and 250,000 MT for cold-rolled steel.

We utilize modern automated production technology which is strictly maintained. There are generally only 15 workers on a continuous cold-rolled galvanizing line and 11 workers on the PPGI production line per shift. The chart below demonstrates our production process.

5

Raw Materials and Suppliers

The principal raw materials used in producing our products are steel coil, zinc, oil paint and acid. We source our raw materials from various suppliers, including our affiliate Shanghai Huaye which supplied approximately 42.0% of our raw materials in fiscal year 2009. We believe that our suppliers are sufficient to meet our present needs.

Steel coil accounted for approximately 90.0% of total production cost in fiscal year 2009. We generally purchase steel coil after receiving orders from customers and are generally able to pass on increased cost to customers. We purchase steel strips from Chinese companies, both state-owned enterprises and private companies. State-owned enterprises can ensure consistent large supply, but do not react quickly to the fluctuations in prevailing market prices. Private companies normally react quickly to price changes, but are not as reliable as state-owned enterprises in terms of consistent supply. By sourcing raw materials from a combination of state-owned enterprises and private companies, we enjoy both a reliable source of raw materials and competitive prices.

Zinc is an important raw material for HDG of cold-rolled steel and accounted for approximately 5.0% of our total production costs of HDG Steel in fiscal year 2009. We have established long-term relationships with several Chinese suppliers. We compare the prevailing domestic prices and choose the lower price and can generally pass price fluctuations onto customers. Zinc prices are closely guided by the London Metal Exchange quotation, are the most volatile among those of all of our raw materials.

Oil paint accounted for approximately 8% of the total production cost of PPGI products in fiscal year 2009. Currently, Nippon Paint (China) Co., Ltd. and Puli Chemical Co., Ltd. at Changzhou are our largest suppliers of oil paint. We are one of their largest customers and obtain what we believe are favorable pricing terms.

Our global sourcing network is designed to ensure the highest quality-to-price ratio of the raw materials we purchase. Our internal specialists collect Chinese domestic and global market information everyday and track domestic and global market price fluctuations closely, which allows us to react rapidly to any price change.

6

Customers

We sell most of our steel products to customers who operate in the solar energy, appliances, automobile, construction, infrastructure, medical equipment and water resource industries.

Approximately 44.2% of our revenue was derived from Shanghai Huaye and its affiliates in fiscal year 2009. We currently do not have a long-term written contract with Shanghai Huaye and plan to negotiate the terms of each transaction based on then current market condition. We believe such arrangement will afford us more flexibility and allow us to obtain more favorable price based on the changing market. We believe we have a good relationship with Shanghai Huaye and expect Shanghai Huaye to remain as our major customer in the foreseeable future.  We plan to further expand our sales channel and increase our direct sale to end customers in the future. Other than Shanghai Huaye, none of our customers accounted for more than 10% of our total revenue in fiscal year 2009.

Sales and Marketing

China is our most important market. Domestic sales represented approximately 93.1% of our total revenue in fiscal year 2009. Within China, the biggest market for our products is eastern China, which includes Shanghai and the Zhejiang and Jiangsu provinces. Since September 2004, we have exported our products to Europe, Middle East, South America, the United States, Southeast Asia and Hong Kong. Our foreign sales accounted for approximately 10.2%, 3.9% and 6.9% of our total revenue in fiscal years 2007, 2008 and 2009, respectively.

Our sales network covers most provinces and regions in China. We are developing a diversified sales network which allows us to effectively market products and services to our customers. We sold approximately 55.8% of our products through our own sales and marketing department in fiscal year 2009. Our sales and marketing department consists of approximately 50 employees as of the date of this annual report.

In addition to direct sales efforts, we have relationships with 67 sales agents to sell our products, 36 of which have a direct contractual arrangement with us and the other 31 agents are affiliates of Shanghai Huaye. We entered into a sales agent cooperation agreement with each of these 36 sales agents. Pursuant to the agreement, we supply our products to each of the sales agents and the sales agents sell and deliver our products for sales commissions ranging from RMB 20 (approximately $2.9) per MT to RMB 120 (approximately $17.7) per MT. The agreement also provides that the sale agent must place an order with the quantity and specification of the products before the 15th of each month for the following month and the parties will enter into a monthly sales contract based on such order. In addition, we may change the price for our products every half of month based on current market pricing and are entitled to a penalty fee of RMB0.5 per MT per day if the agent fails to make the full payment for the purchase before the delivery day.

Competition

Competition within the steel industry, both in China and worldwide, is intense. We compete with both large state-owned enterprises and smaller private companies. In addition, we also face competition from international steel manufacturers.

Even though the demand for fine finished steel products has increased in recent years, due to the over expansion of the total production capacity of HDG Steel and PPGI products, supply for low-end HDG steel and PPGI products has outpaced demand. Due to the high requirements for production technology and equipment, we believe that demand for high-end HDG Steel and PPGI market remains strong. Currently, only our Company and a few large state-owned enterprises are capable of producing high-end HDG Steel and PPGI products in China.

Private steel product manufacturers in China generally focus on low-end products. Many of our competitors are much smaller than us and use older equipment and production techniques. In contrast, our products are aimed at the high-end markets so we attempt to manufacture them with superior quality and broader range of specifications. We use advanced manufacturing equipment that we have purchased from developed countries, such as France and Italy, and employ engineers and researchers who are experienced with different production techniques. This allows us to provide a broad array of products in terms of thickness, zinc layer weight and width of steel coil, which helps us target high-end customers whose manufacturing specifications are extreme.

7

There are several state-owned steel manufacturers that produce comparable products to our products. As compared with those competitors, we differentiate ourselves by the following:

· We satisfy customers’ orders with shorter lead times and guarantee lead times for urgent orders, even very small orders, in as short as one or two days;

· We have flexibility in sales arrangements and can take orders in a variety of sizes;

· We operate more efficiently than our state-owned competitors and have lower total labor costs, therefore, lower product prices; and

· We provide more customer-oriented services.

We also compete with international steel product manufacturers in the global market, such as Mitel Corporation and Posco Steel. As compared to our competitors in Europe, Korea and the United States, we believe we have lower production costs and can offer more competitive pricing. In addition, competitors in developing countries lag behind due to low product quality and limited product specification ranges. We began exporting our products in September 2004 and our products are now sold to Europe, Middle East, South America, the United States, Southeast Asia and Hong Kong. Our export sales accounted for approximately 6.9% of our total sales for fiscal year 2009.

Our operating subsidiaries, Changshu Huaye and Jiangsu Cold-Rolled, are both located in Changshu, which provides us a transportation cost advantage. Changshu is situated in the eastern coastal part of China, the largest market for coated steel products in China. In addition, our affiliate Shanghai Huaye has a logistic center in Changshu port, which provides us convenient and low cost transportation for both raw materials and finished products.

Intellectual Property

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of patents, trademarks and trade secrets, as well as employee and third-party confidentiality agreements, to safeguard our intellectual property. As of June 30, 2009, we held 4 patents and had 47 patent applications pending.

All of our products are sold with the trademark of “,” which is known by Chinese and international clients. In August 2005, Shanghai Huaye agreed to transfer the trademark of “” to us without consideration. Such transfer was approved by the Trademark office of the State Administration for Industry and Commerce of China in August 2006. As a result, we have all the legal rights for the trademark, the term of which expires in July 2015.

All our key employees, especially engineers, have signed confidentiality and non-competition agreements with us. In addition, all our employees are obligated to protect our confidential information. Where appropriate for our business strategy, we will continue to take steps to protect our intellectual property rights.

Employees

As of June 30, 2009, we had approximately 450 employees, 420 of which are full-time employees. Approximately 250 are employees of Changshu Huaye and approximately 200 are employees of Jiangsu Cold-Rolled. We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.

We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the after-tax profit. In addition, we are required by the PRC law to cover employees in China with various type of social insurance. We believe that we are in material compliance with the relevant PRC laws.

8

Backlog

Our backlog at June 30, 2009 was approximately $20 million, compared with backlog of approximately $50 million at June 30, 2008. Backlog includes orders confirmed for products scheduled to be shipped within 90 days to customers with approved credit status. Because of the generally short cycle between order and shipment and occasional customer changes in delivery schedules or cancellation of orders, we do not believe that our backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.

Regulation

As a producer of steel products in China, we are regulated by the national and local laws of the PRC.

There is no private ownership of land in China and all land ownership is held by the government of the PRC, its agencies and collectives. Land use rights can be obtained from the government for a period of up to 70 years, and are typically renewable.  Land use rights can be transferred upon approval by the land administrative authorities of the PRC (State Land Administration Bureau) upon payment of the required land transfer fee. We have received the necessary land use right certificates for the properties described under “Item 2 - Properties.” See “Item 2 - Properties” for more details.

We are also subject to various governmental regulations related to environmental protection. The major environmental regulations applicable to us include: the Environmental Protection Law of the PRC, the Law of PRC on the Prevention and Control of Water Pollution, Implementation Rules of the Law of PRC on the Prevention and Control of Water Pollution, the Law of PRC on the Prevention and Control of Air Pollution, Implementation Rules of the Law of PRC on the Prevention and Control of Air Pollution, the Law of PRC on the Prevention and Control of Solid Waste Pollution, and the Law of PRC on the Prevention and Control of Noise Pollution.

In addition, we are also subject to the PRC’s foreign currency regulations. The PRC government has control over RMB reserves through, among other things, direct regulation of the conversion of RMB into other foreign currencies. Although foreign currencies which are required for “current account” transactions can be bought freely at authorized Chinese banks, the proper procedural requirements prescribed by Chinese law must be met. At the same time, Chinese companies are also required to sell their foreign exchange earnings to authorized Chinese banks and the purchase of foreign currencies for capital account transactions still requires prior approval of the Chinese government.

We believe that we are in material compliance with all registrations and requirements for the issuance and maintenance of all licenses required by the governing bodies, and that all license fees and filings are current.

Environmental Matters

Our manufacturing facilities are subject to various pollution control regulations with respect to noise, water and air pollution and the disposal of waste and hazardous materials. We are also subject to periodic inspections by local environmental protection authorities. Our operating subsidiaries have received certifications from the relevant PRC government agencies in charge of environmental protection indicating that their business operations are in material compliance with the relevant PRC environmental laws and regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Available Information

Our internet website is at www.sutorcn.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available free of charge on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Copies of these reports may also be obtained free of charge by sending written requests to our Secretary, Sutor Technology Group Limited, No 8, Huaye Road, Dongbang Industrial Park Changshu, China, 215534. The information posted on our web site is not part of this or any other report we file with or furnish with the SEC. Investors can also read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room which is located at 100 F Street, NE, Washington, DC 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be accessed at the SEC’s internet website: www.sec.gov.

9

ITEM 1A.   RISK FACTORS

RISKS RELATED TO OUR BUSINESS 

Our revenues are highly concentrated in a single customer, Shanghai Huaye, and our business will be harmed if Shanghai Huaye reduces its orders from us.

Approximately 44.2% of our revenue was derived from Shanghai Huaye and its affiliates in fiscal year 2009, which acts as a distributor of our products as well as one of our suppliers.  We do not have a long term written contract with Shanghai Huaye. If we cease to do business with Shanghai Huaye at current levels and are unable to generate additional sales with new and existing customers that purchase a similar amount of our products, our revenue and net income would decline considerably.

Any decrease in the availability, or increase in the cost, of raw materials could materially affect our earnings.

Our operations depend heavily on the availability of various raw materials and energy resources, including steel coil, zinc, oil paint, electricity and natural gas. Steel coil has historically made up approximately 90% of our total cost of sales. The availability of raw materials and energy resources may decrease and their prices may fluctuate greatly. We purchase a large portion of our raw materials from our affiliate Shanghai Huaye and we have long-term relationships with several other suppliers. However, if Shanghai Huaye or any other important suppliers are unable or unwilling to provide us with raw materials on terms favorable to us, we may be unable to produce certain products. This could result in a decrease in profit and damage to our reputation in our industry. In the event our raw material and energy costs increase, we may not be able to pass these higher costs on to our customers in full or at all. Any increase in the prices for raw materials or energy resources could materially increase our costs and therefore lower our earnings.

Our industry is highly fragmented and competitive, and increased competition could reduce our operating income.

The steel manufacturing and processing business is highly fragmented and competitive. We compete with a number of other steel manufacturers and processors in China, on a region-by-region basis, and with foreign steel manufacturers on a world wide basis. Our goal is to market our products to customers who demand the highest quality products and precision in the end product so we compete primarily on the precision and range of achievable tolerances, the quality of our products and the raw materials used in our products. We compete with companies of various sizes, some of which have more established brand names and relationships in certain markets we serve than we do. Increased competition could force us to lower our prices or offer services at a higher cost to us, which could reduce our margins and operating income.

A downturn or negative changes in the highly volatile steel industry will harm our business and profitability.

The steel industry as a whole is cyclical and pricing can be volatile as a result of general economic conditions, energy costs, labor costs, competition, import duties, tariffs and currency exchange rates. These macroeconomic factors have historically resulted in wide fluctuations in the steel industry both in China and globally. In our case, future economic downturns, stagnant economies or currency fluctuations in China or globally could decrease the demand for products or increase the amount of imports of steel into China, which could negatively impact our sales, margins and profitability.

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The global economic crisis could further impair the steel industry thereby limiting demand for our products and affecting the overall availability and cost of external financing for our operations.

The continuation or intensification of the global economic crisis and turmoil in the global financial markets may adversely impact our business, the businesses of our customers from whom we generate revenues and our potential sources of capital financing.  Our products are primarily sold to customers who operate in the solar energy, appliances, automobile, construction, infrastructure, medical equipment and water resource industries.  The global economic crisis harmed most industries in which our customers operate.  Our sales and business operations are dependent on the financial health of the industries in which our customers operate and could suffer if our customers experience, or continue to experience, a downturn in their business.  In addition, the lack of availability of credit could lead to a further weakening of the Chinese and global economies and make capital financing of our operations more expensive for us or impossible altogether.  Presently, it is unclear whether and to what extent the economic stimulus measures and other actions taken or contemplated by the Chinese government and other governments throughout the world will mitigate the effects of the crisis on the automotive industry and other industries that affect our business.  These conditions have not presently impaired our ability to access credit markets and finance our operations.  However, the impact of the current crisis on our ability to obtain capital financing in the future, and the cost and terms of same, is unclear.  Furthermore, deteriorating economic conditions including business layoffs, downsizing, industry slowdowns and other similar factors that affect our customers could have further negative consequences for the automotive industry and result in lower sales, price reductions in our products and declining profit margins. The economic situation also could harm our current or future lenders or customers, causing them to fail to meet their obligations to us. No assurances can be given that the effects of the current crisis will not damage on our business, financial condition and results of operations.

Management has determined that there is a material weakness in our internal controls over financial reporting which even if quickly remedied, could weaken the market’s confidence in our financial statements and lead to fluctuations in our stock price.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on the operating effectiveness of our internal controls. We became subject to the requirement to provide management report on the company’s controls over financial reporting commencing with our fiscal year ending June 30, 2008 and a report of our management for the 2009 fiscal year is included under Item 9A of this annual report. The auditor attestation is not required until our annual report for the fiscal year ending June 30, 2010 assuming our filing status remains as a smaller reporting company. This process will be expensive and time consuming, and will require significant attention of management. The portion of this process completed thus far has revealed material weaknesses in internal controls that will require remediation. See “Item 9A. Control and Procedures.” The remediation process may also be expensive and time consuming, and even though the management is committed to improving its internal controls, management can give no assurance that the remediation effort will be completed on time or be effective. In addition, management can give no assurance that additional material weaknesses in internal controls will not be discovered. Management also can give no assurance that the process of evaluation and the auditor’s attestation will be completed on time. The disclosure of a material weakness, even if quickly remedied, could weaken the market’s confidence in our financial statements and lead to fluctuations in our stock price, especially if a restatement of financial statements for past periods is required. In addition, if we are unable to adequately design our internal control systems, or prepare an “internal control report” to the satisfaction of our auditors, our auditors may issue a qualified opinion on our financial statements.

We may be unable to fund the substantial ongoing capital and maintenance expenditures that our operations require.

Our operations are capital intensive and our business strategy may require additional substantial capital investment. We require capital for building new production lines, acquiring new equipment, maintaining the condition of our existing equipment and complying with environmental laws and regulations. We plan to fund our capital expenditures from operating cash flow and our credit facilities and may require additional debt or equity financing. We cannot assure you, however, that financing will be available or, if financing is available, it may result in increased interest and amortization expense, increased leverage, dilution and decreased income available to fund further expansion. In addition, future debt financings may limit our ability to withstand competitive pressures and render us more vulnerable to economic downturns. If we are unable to fund our capital requirements, we may be unable to implement our business plan, and our financial performance may suffer.

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Our level of indebtedness may make it more difficult for us to fulfill all of our debt obligations and may reduce the amount of cash available for maintaining and growing our operations, which could have an adverse effect on our revenues.

Our total debt under existing loans to the Company as of June 30, 2009 was $117.3 million. This substantial indebtedness could impair our financial condition and our ability to fulfill all of our debt obligations, especially during a downturn in our business, in the industry in which we operate or in the general economy. Our indebtedness and the incurrence of any new indebtedness could (i) make it more difficult for us to satisfy our existing obligations, which could in turn result in an event of default on such obligations, (ii) require us to seek other sources of capital to finance cash used in operating activities, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iii) impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; (iv) diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally, (v) limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, or (vi) place us at a competitive disadvantage compared to competitors that have proportionately less debt. If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets.

We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations and be subject to foreclosure on such loans. Additionally, we could incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify.

Unexpected equipment failures may damage our business due to production curtailments or shutdowns.

Our manufacturing processes are extremely specialized and depend on critical pieces of equipment, such as air knife machines, welding tools and apparatus, color-coating machines, roll mills, ABB roll and tension knives. This machinery is highly specialized and cannot be repaired or replaced without significant expense and time delay. On occasion, our equipment may be out of service as a result of unanticipated failures which may result in material plant shutdowns or periods of reduced production. Interruptions in production capabilities will inevitably increase production costs and reduce our sales and earnings. In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or adverse weather conditions. Furthermore, any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative effect on our profitability and cash flows. Although we have business interruption insurance, we cannot provide any assurance that the insurance will cover all losses that we experience as a result of the equipment failures. In addition, longer-term business disruption could result in a loss of customers. If this were to occur, our future sales levels, and therefore our profitability, could be adversely affected.

Our revenue will decrease if there is less demand for construction materials or electrical household appliances.

Our products often serve as key components in construction materials and electrical household appliances. Therefore, we are subject to the general changes in economic conditions affecting the construction and household appliance segments of the economy. Demand for our products is typically affected by a number of economic factors, including, but not limited to, consumer interest rates, consumer confidence, retail trends, sales of existing homes, and the level of mortgage financing. If there is a decline in economic activity in China and the other markets in which we operate or a decrease of sales of construction materials and electrical household appliances, demand for our products and our revenue will likewise decrease.

Environmental regulations impose substantial costs and limitations on our operations.

We are subject to various national and local environmental laws and regulations in China concerning issues such as air emissions, wastewater discharges, and solid waste management and disposal. These laws and regulations can restrict or limit our operations and expose us to liability and penalties for non-compliance. While we believe that our facilities are in material compliance with all applicable environmental laws and regulations, the risks of substantial unanticipated costs and liabilities related to compliance with these laws and regulations are an inherent part of our business. It is possible that future conditions may develop, arise or be discovered that create new environmental compliance or remediation liabilities and costs. While we believe that we can comply with existing environmental legislation and regulatory requirements and that the costs of compliance have been included within budgeted cost estimates, compliance may prove to be more limiting and costly than anticipated.

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If our customers and/or the ultimate consumers of products that use our products successfully assert product liability claims against us due to defects in our products, our operating results may suffer and our reputation may be harmed.

Our products are widely applied in the manufacturing of many products, including electrical household appliances, medical instruments and large industrial equipment. Significant property damage, personal injuries and even death can result from malfunctioning products. If our products are not properly manufactured or installed and/or if people are injured as a result of our products, we could be subject to claims for damages based on theories of product liability and other legal theories in some jurisdictions in which our products are sold. The costs and resources to defend such claims could be substantial and, if such claims are successful, we could be responsible for paying some or all of the damages. We do not have product liability insurance. The publicity surrounding these sorts of claims is also likely to damage our reputation, regardless of whether such claims are successful. Any of these consequences resulting from defects in our products would hurt our operating results and stockholder value.

We might fail to adequately protect our intellectual property and third parties may claim that our products infringe upon their intellectual property.

As part of our business strategy, we intend to accelerate our investment in new technologies in an effort to strengthen and differentiate our product portfolio and make our manufacturing processes more efficient. As a result, we believe that the protection of our intellectual property will become increasingly important to our business. Currently, we have one patent application pending. We expect to rely on a combination of patents, trade secrets, trademarks and copyrights to provide protection in this regard, but this protection might be inadequate. For example, our pending or future patent applications might not be approved or, if allowed, they might not be of sufficient strength or scope. Conversely, third parties might assert that our technologies infringe their proprietary rights. In either case, litigation could result in substantial costs and diversion of our resources, and whether or not we are ultimately successful, the litigation could hurt our business and financial condition.

Expansion of our business may strain our management and operational infrastructure and impede our ability to meet any increased demand for our fine finished steel products.

Our business plan is to grow our operations by meeting the anticipated growth in demand for existing products and by introducing new product offerings. Our subsidiary, Jiangsu Cold-Rolled, has recently completed construction of several new production lines and has been put into operation, but lacks a proven operational history. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. Our business growth also presents numerous risks and challenges, including:

· our ability to successfully and rapidly expand sales to potential customers in response to potentially increasing demand;

· the costs associated with such growth, which are difficult to quantify, but could be significant; and

· rapid technological change.

To accommodate this growth and compete effectively, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage existing and additional employees. Funding may not be available in a sufficient amount or on favorable terms, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.

Our current Chief Executive Officer and Chief Technology Officer have limited experience in their positions and may not perform at the level which we demand and expect.

Our current Chief Executive Officer, Lifang Chen, and our current Chief Technology Officer, Xun Zhang, have recently been appointed to such positions. Ms. Chen was appointed as our Chief Executive Officer in May 2008 and Mr. Zhang was appointed as our Chief Technology Officer in July 2007. While we believe Ms. Chen and Mr. Zhang will provide excellent management and leadership for our company, neither Ms. Chen nor Mr. Zhang has served in these positions in the past for a company comparable to ours, so their experience is limited and they may not perform to the standards we expect and demand.

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We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Lifang Chen, our Chief Executive Officer, Yongfei Jiang, our Chief Financial Officer and Xun Zhang, our Chief Technology Officer. They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. If we lose a key employee, if a key employee fails to perform in his or her current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing the manufacturing, technical, marketing and sales aspects of our business, any part of which could be harmed by turnover in the future.

Ms. Lifang Chen’s association with Shanghai Huaye could pose a conflict of interest.

Ms. Lifang Chen, our chairman and beneficial owner of 79.93% of our common stock, also beneficially owns 100% of Shanghai Huaye, which is a major distributor of our products and provider of our raw materials. As a result, conflicts of interest may arise from time to time. We will attempt to resolve any such conflicts of interest in our favor. Our officers and directors are accountable to us and our shareholders as fiduciaries, which requires that such officers and directors exercise good faith and integrity in handling our affairs.

We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We have operations, agreements with third parties and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors of our company, because these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. Also, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business.

We conduct substantially all of our operations and generate most of our revenue in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:

· a higher level of government involvement;

· a early stage of development of the market-oriented sector of the economy;

· a rapid growth rate;

· a higher level of control over foreign exchange; and

· the allocation of resources.

As the PRC economy has been transitioning from a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative effect on us.

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Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

Any adverse change in economic conditions or government policies in China could have a material adverse effect on the overall economic growth in China, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our business and prospects.

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

We conduct substantially all of our business through our operating subsidiary in the PRC. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, all of our executive officers and all of our directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and subsidiaries.

If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties.

Our operations are subject to PRC laws and regulations applicable to us. However, many PRC laws and regulations are uncertain in their scope, and the implementation of such laws and regulations in different localities could have significant differences. In certain instances, local implementation rules and/or the actual implementation are not necessarily consistent with the regulations at the national level. Although we strive to comply with all the applicable PRC laws and regulations, we cannot assure you that the relevant PRC government authorities will not later determine that we have not been in compliance with certain laws or regulations.

In addition, our facilities and products are subject to many laws and regulations. Our failure to comply with these and other applicable laws and regulations in China could subject us to administrative penalties and injunctive relief, as well as civil remedies, including fines, injunctions and recalls of our products. It is possible that changes to such laws or more rigorous enforcement of such laws or with respect to our current or past practices could have a material adverse effect on our business, operating results and financial condition. Further, additional environmental, health or safety issues relating to matters that are not currently known to management may result in unanticipated liabilities and expenditures.

The PRC government exerts substantial influence over the manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

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Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively.

All our sales revenue and expenses are denominated in RMB. Under PRC law, RMB is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC operating subsidiary may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside China that are denominated in foreign currencies.

Foreign exchange transactions by PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if our PRC operating subsidiaries borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or MOFCOM, or their respective local counterparts. These limitations could affect their ability to obtain foreign exchange through debt or equity financing.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be denominated. In addition, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Currently, some of our raw materials and major equipment are imported. In the event that the U.S. dollars appreciate against RMB, our costs will increase. If we cannot pass the resulting cost increases on to our customers, our profitability and operating results will suffer. In addition, since our sales to international customers are growing rapidly, we are increasingly subject to the risk of foreign currency depreciation.

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Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

Substantially all of our revenues are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividend by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Each of our PRC subsidiaries is also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Under the New EIT Law, we may be classified as “resident enterprises” of China, which may subject us to PRC income tax on our taxable global income.

China passed a new Enterprise Income Tax Law (the “New EIT Law”), and its implementation regulations, both of which became effective on January 1, 2008. Under the New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the New EIT Law and its implementation with respect to non-Chinese enterprises or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be generally subject to the uniform 25% enterprise income tax rate as to its worldwide income. Substantially all of our management is currently based in China. Therefore, we may be treated as a Chinese resident enterprise for enterprise income tax purposes. The tax consequences of such treatment are currently unclear, as they will depend on how local tax authorities apply or enforce the New EIT Law or the implementation regulations.

In addition, under the New EIT Law and implementation regulations, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent that such dividends have their source within the PRC unless there is an applicable tax treaty between the PRC and the jurisdiction in which an overseas holder resides which reduces or exempts the relevant tax. Similarly, any gain realized on the transfer of shares by such investors is also subject to the 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. If we are considered a PRC “resident enterprise”, it is unclear whether the dividends we pay with respect to our shares, or the gain you may realize from the transfer of our shares, would be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if you are required to pay PRC income tax on the transfer of your shares, the value of your investment in our shares may be materially and adversely affected.

You may have difficulty enforcing judgments against us.

We are a Nevada holding company and most of our assets are located outside of the United States. Almost all of our operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Although the recognition and enforcement of foreign judgments are generally provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

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RISKS RELATED TO THE MARKET FOR OUR STOCK

Certain of our stockholders hold a significant percentage of our outstanding voting securities.

Ms. Lifang Chen, our Chairman, is the beneficial owner of approximately 79.93% of our outstanding voting securities. As a result, she possesses significant influence and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. Her ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

Although publicly traded, the trading market in our common stock has been substantially less liquid than the average trading market for a stock quoted on the Nasdaq Stock Market and this low trading volume may adversely affect the price of our common stock.

Our common stock started trading on the Nasdaq Capital Market under the symbol “SUTR” in February 2008. The trading volume of our common stock has been comparatively low to other companies listed on Nasdaq. Limited trading volume will subject our shares of common stock to greater price volatility and may make it difficult for you to sell your shares of common stock at a price that is attractive to you.

Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change- in-control.

Our articles of incorporation authorize the board of directors to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights and redemption rights provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent the stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:

· our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;

· changes in financial estimates by us or by any securities analysts who might cover our stock;

· speculation about our business in the press or the investment community;

· significant developments relating to our relationships with our customers or suppliers;

· stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the steel industries;

· customer demand for our products;

· investor perceptions of the steel industries in general and our company in particular;

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· the operating and stock performance of comparable companies;

· general economic conditions and trends;

· major catastrophic events;

· announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;

· changes in accounting standards, policies, guidance, interpretation or principles;

· loss of external funding sources;

· sales of our common stock, including sales by our directors, officers or significant stockholders; and

· additions or departures of key personnel.

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, in July 2008, the securities markets in the United States, China and other jurisdictions experienced the largest decline in share prices since September 2001. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our Facilities

We have two principal facilities: Changshu Huaye and Jiangsu Cold-Rolled. Both are located in Dongbang Industrial park, Changshu, China. Changshu Huaye was established in January 2003 and started operation in June 2004, with a designed annual production capacity of 300,000 MT of HDG of cold-rolled steel and 200,000 MT of PPGI. Changshu Huaye operated at full capacity in fiscal year 2009. Jiangsu Cold-Rolled was established in August 2003 and its AP Steel production line started operation in September 2006 with a designed annual production capacity of 500,000 MT. The cold-rolled steel production line started operation in January 2007 and has a designed annual production capacity of 250,000 MT. In fiscal year 2009, the capacity utilization rates for the AP Steel production line and cold-rolled steel production line were approximately 65% and 100%, respectively. Jiangsu Cold-Rolled constructed two new HDG Steel production lines with designed annual manufacturing capacity of 400,000 MT which became operational at the end of September 2008. Up to June 2009, their capacity utilization rate is 45.9%. The new HDG Steel production lines are capable of galvanizing both hot-rolled and cold-rolled steel with both zinc and aluminum, allowing us to better meet the needs of our customers and minimizing any excess capacity strains on our current HDG Steel production lines.

There is no private land ownership in China. Individuals and companies are permitted to acquire land use right for special purposes. Changshu Huaye and Jiangsu Cold-rolled currently have land use rights to six parcels of land with approximately 356,152 square meters in aggregate, consisting of manufacturing facilities, office buildings and land reserved for future expansion. The land use rights for these properties will expire in 2054. 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. All six parcels are located in Dongbang Town, Changshu, China. We have fully paid the land use fees.

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Changshu Huaye and Jiangsu Cold-Rolled also own 31 buildings with approximately 356,152 square meters. We are in the process of obtaining ownership certificates for eight other buildings with approximately 21,000 square meters. Some of our real property is subject to lien to secure certain bank loans.

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

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 16, 2009, the Company held an annual meeting at which a majority of the Company’s shareholders elected five directors, approved the Sutor Technology Group Limited 2009 Equity Incentive Plan and the ratification of Hansen Barnett & Maxwell, P.C. as the Company’s independent accountants for fiscal year ended June 30, 2009.

The following table sets forth the matters voted upon at the annual meeting and the results of the voting on each matter voted upon:

Matter Voted Upon	Votes For		Withheld		Votes Against		Abstentions		Broker Non-Votes
Election of Lifang Chen to the Company’s Board of Directors		30,366,410		0		0		0		0
Election of Yongfei Jiang to the Company’s Board of Directors		30,366,410		0		0		0		0
Election of A. Carl Mudd to the Company’s Board of Directors		30,366,410		0		0		0		0
Election of Guoyou Shao to the Company’s Board of Directors		30,366,410		0		0		0		0
Election of Xinchuang Li to the Company’s Board of Directors		30,366,410		0		0		0		0
Approval of the Company’s 2009 Equity Incentive Plan		30,366,410		0		0		0		0
Ratification of the appointment of Hansen Barnett & Maxwell, P.C. as the Company’s independent accountants for fiscal year ended June 30, 2009		30,366,410		0		0		0		0

Each of the above matters was approved by the stockholders at the annual meeting.

PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market for Our Common Stock

Our common stock is traded on the Nasdaq Capital Market under the symbol “SUTR”. The CUSIP number is 869362 10 3.

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The following table sets forth, for the periods indicated, the high and low closing prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

	Closing Prices (1)
	High		Low
Fiscal Year Ended June 30, 2009
1st Fiscal Quarter (7/1/08-9/30/08)	$	7.27	$	2.90
2nd Fiscal Quarter (10/1/08-12/31/08)		3.30		1.31
3rd Fiscal Quarter (1/1/09-3/31/09)		2.64		0.91
4th Fiscal Quarter (4/1/09-6/30/09)		4.89		1.41
Fiscal Year Ended June 30, 2008
1st Fiscal Quarter (7/1/07-9/30/07)	$	6.20	$	3.00
2nd Fiscal Quarter (10/1/07-12/31/07)		7.00		3.95
3rd Fiscal Quarter (1/1/08-3/31/08)		5.70		3.62
4th Fiscal Quarter (4/1/08 -6/30/08)		9.00		4.88

(1)  The above tables set forth the range of high and low closing prices per share of our common stock as reported bywww.quotemedia.com for the periods indicated.

Approximate Number of Holders of Our Common Stock

On September 24, 2009 there were approximately 17 stockholders of record of our common stock.  This number excludes the shares of our common stock owned by stockholders holding stock under nominee security position listings.

Dividend Policy

We have never declared dividends or paid cash dividends. Our board of directors will make any future decisions regarding dividends. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future.

Securities Authorized for Issuance Under Equity Compensation Plans

Our shareholders approved the Company’s 2009 Equity Incentive Plan in the Annual Meeting held on June 16, 2009. No awards have been made under the 2009 Equity Incentive Plan as of September 25, 2009.

ITEM 6. SELECTED FINANCIAL DATA

Not Applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We are a leading private manufacturer of fine finished steel products in China. We utilize a variety of processes and technological methodologies to convert steel manufactured by third parties into fine finished products. We focus predominantly on two high-end, value-added finished steel product categories: HDG Steel products and PPGI products which comprised 31.7% and 42.4% of our total revenue in fiscal year 2009, respectively. We also produce AP Steel products and cold-rolled steel, which are our less processed finished products. We use our own AP Steel Products and cold-rolled steel in the production of our HDG Steel and PPGI products. This vertical integration of our operations has allowed us to maintain more stable margins for our HDG Steel and PPGI products.

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We operate in the highly competitive steel industry and face strong competition from numerous PRC and international companies. Our business is affected by a number of factors, including, but not limited to, cost to manufacture products, financial stability of our customers and suppliers, economic conditions, ability to develop new products, political climate, local and national laws and regulations and foreign currency exchange fluctuations. As part of our growing strategy, we continually seek to broaden our market reach by introducing new production lines and improve our profit margin by vertical integration. In fiscal year 2009, our subsidiary Jiangsu Cold-Rolled added two new HDG Steel production lines which are capable of galvanizing both hot-rolled and cold-rolled steel with both zinc and aluminum. We expect the addition of the new production lines will help our revenue growth in the future.

We have several strategic priorities designed to create long-term sustainable growth for our company and value for our shareholders, including vertical integration, developing new products, increasing production capacity, and strengthening of our research and development capabilities.

Revenue

Our revenue is generated from sales of our HDG Steel, PPGI, AP Steel and cold-rolled steel products. Our revenue has historically been affected by sales volume, sales price of our products and our product mix.

Our operations consist of two business segments: Changshu Huaye and Jiangsu Cold-rolled, which are our two principal manufacturing facilities. Changshu Huaye currently manufactures HDG Steel and PPGI products. In fiscal years 2009 and 2008, Changshu Huaye generated revenue of $237.8 million and $260.5 million which represented 69.6% and 62.3% of our total revenue, respectively. Jiangsu Cold-rolled currently manufactures AP Steel, cold-rolled steel, and HDG Steel. Jiangsu Cold-Rolled generated revenue of $103.7 million and $157.5 million in fiscal years 2009 and 2008, representing 30.4% and 37.7% of our total revenue, respectively.

A substantial portion of our products are sold through our affiliate Shanghai Huaye. Approximately 44.2% of our revenue was derived from Shanghai Huaye and its affiliates in fiscal year 2009. We plan to further diversify our customer base to enhance profitability.

Cost of Revenue

Cost of revenue includes direct costs to manufacture products, including the cost of raw materials, labor, overhead, energy cost, handling charges, and other expenses associated with the manufacture and delivery of product.

Direct costs of manufacturing are generally highest when we first introduce a new product due to higher start-up costs associated and higher raw material costs. As production volume increases, we typically improve manufacturing efficiencies and are able to strengthen our purchasing power by buying raw materials in greater quantities. Our new HDG production lines, which started operation at the end of September 2008, had a relatively high cost of production in fiscal year 2009. As these two production lines start to operate at normal levels, we expect our manufacturing efficiency will improve in the future.

Gross Profit and Gross Margin

Gross profit is equal to the difference between our revenue and the cost of revenue. Gross margin is equal to gross profit divided by revenue. In fiscal year 2009, the gross margins of Changshu Huaye and Jiangsu Cold-Rolled were 12.1% and 4.0%, respectively. Gross margins for domestic and international sales were approximately 9.3% and 13.9%, respectively. Changes in our gross margins are primarily driven by changes in our product mix, economies of scale, and our vertical integration strategy.

　

To gain market penetration, we price our products at levels that we believe are competitive. We continually strive to improve manufacturing efficiencies and reduce our production costs in order to offer products of comparable quality to our Chinese state-owned competitors and international competitors at lower prices. General economic conditions, the cost of raw materials and supply and demand of fine finished steel products within our markets influence sales prices. Our high-end, value-added products, such as the PPGI products, generally tend to have higher profit margins.

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In January 2007, we implemented a vertical integration strategy where we use our own AP Steel and cold-rolled steel products as raw materials for HDG Steel products and HDG Steel products as raw materials for PPGI products. We believe this vertical integration of our operations will allow us to maintain more stable margins for our HDG Steel and PPGI products.

Operating Expenses

Our operating expenses consist of selling expense and general and administrative expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and benefits for our general management, finance and administrative staff, professional and advisory fees, bad debts reserves, and other expenses incurred in connection with general corporate purposes. We expect most components of our general and administrative expenses will increase as our business grows and as we incur increased costs as a public company.

Selling Expenses

Selling expenses consist primarily of compensation and benefits for our sales and marketing staff, sales commissions, the cost of advertising, promotional and travel activities, transportation expenses, after-sales support services and other sales related costs.

Our selling expenses are largely affected by the amount of international sales and sales to unrelated parties. The transportation costs for international sales are generally higher than domestic sales. Our export sales accounted for 6.9% of our revenue in fiscal year 2009 as compared to 3.9% in fiscal year 2008. In addition, when we sell products to Shanghai Huaye and its affiliates, Shanghai Huaye generally arranges and bears the cost of the transportation. In contrast, when we sell products to customers other than Shanghai Huaye, we generally bear the transportation costs, but we are able to charge a higher price.

Provision for Income Taxes

United States

Sutor Technology Group Limited is subject to United States federal income tax at a tax rate of 34%. No provision for income taxes in the United States has been made as Sutor Technology Group Limited had no U.S. taxable income in fiscal year 2009.

BVI

Sutor BVI was incorporated in the BVI and, under the current laws of the BVI, is not subject to income taxes.

PRC

On March 16, 2007, the National People’s Congress of China passed the New EIT Law, and on December 6, 2007, the State Council of China passed the Implementing Rules for the EIT Law (“Implementing Rules”) which took effect on January 1, 2008. The New EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the old FIE tax laws, and its associated preferential tax treatments, beginning January 1, 2008.

Despite these changes, the EIT Law gives the FIEs established before March 16, 2007 (“Old FIEs”) a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT Law shall gradually increase their EIT rate by 2% per year until the tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT Law, are allowed to remain to enjoy their preference until these holidays expire. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse effect on any organization’s business, fiscal condition and current operations in China.

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In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25.0% on its global income. The Implementing Rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that the Company should be classified as a resident enterprise, then the organization’s global income will be subject to PRC income tax of 25.0%.

Our subsidiary Changshu Huaye was subject to an EIT rate of 12.5% for calendar year 2008 and is and will be subject to an EIT rate of 25% for calendar year 2009 and beyond. Our subsidiary Jiangsu Cold-Rolled is subject to an EIT rate of 12.5% for 2009, 2010 and 2011.

Reportable Operating Segments

We have two reportable operating segments which are categorized based on manufacturing facility – Changshu Huaye and Jiangsu Cold-Rolled. Changshu Huaye manufactures and sells HDG Steel and PPGI products. Jiangsu Cold-Rolled manufactures and sells AP Steel, Cold-Rolled Steel and HDG Steel.

Changshu Huaye and Jiangsu Cold-Rolled are adjacent to each other and use largely the same management resources. See Note 11, “Segment Information” to the consolidated financial statements included elsewhere in this annual report.

Results of Operations

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our revenue.

(All amounts, other than percentages, in thousand of U.S. dollars)

	2009						2008
	Amount			As a Percentage of Revenue			Amount			As a Percentage of Revenue
Revenue:
Revenue from unrelated parties	$	190,507			55.8	%	$	237,494			56.8	%
Revenue from related parties		150,978			44.2	%		180,536			43.2	%
Total		341,485			100.0	%		418,030			100.0	%
Cost of Revenue:
Cost of revenue:		142,559			52.5	%		266,149			63.7	%
Purchases from related parties		166,119			37.9	%		106,961			25.6	%
Total		308,678			90.4	%		373,110			89.3	%
Gross Profit		32,807			9.6	%		44,920			10.7	%
Operating Expenses
Selling expense		3,129			0.9	%		2,238			0.5	%
General and administrative expense		3,959			1.2	%		3,750			0.9	%
Total Operating Expenses		7,088			2.1	%		5,988			1.4	%
Income from Operations		25,719			7.5	%		38,932			9.3	%
Other Income (Expense)
Interest income		1,386			0.4	%		943			0.2	%
Other income		149			0	%		188			0.1	%
Interest expense		(5,886	)		(1.7	) %		(6,253	)		(1.5	) %
Other expense		(403	)		(0.1	) %		(756	)		(0.2	) %
Total Other Expense		(4,754	)		(1.4	) %		(5,878	)		(1.4	) %
Income Before Taxes and Minority Interest		20,965			6.1	%		33,054			7.9	%
Provision for income taxes		(2,331	)		(0.6	) %		(1,918	)		(0.4	) %
Net Income	$	18,634			5.5	%	$	31,136			7.5	%

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The following table sets forth revenue by geography and the percentage of our total revenue and total revenue by business segments for fiscal years 2009 and 2008.

(All amounts, other than percentages, in thousand of U.S. dollars)

	2009					2008
	Revenue		As a Percentage of Revenue			Revenue		As a Percentage of Revenue
Geographic Data:
China	$	318,000		93.1	%	$	401,872		96.1	%
Hong Kong		2,135		0.6	%		471		0.1	%
Other Countries		21,350		6.3	%		15,687		3.8	%
Total revenue		341,485		100	%		418,030		100	%
Segment Data:
Changshu Huaye	$	237,800		69.6	%		260,528		62.3	%
Jiangsu Cold-Rolled		103,685		30.4	%		157,502		37.7	%
Total revenue		341,485		100	%		418,030		100	%

Comparison of Years ended June 30, 2009 and June 30, 2008.

Revenue. Our revenue decreased $76.5 million, or 18.3%, to $341.5 million in fiscal year 2009 from $418.0 million in fiscal year 2008. The global economic crisis had a negative impact on the steel industry generally, leading to a decline of the price of our main raw material steel which caused the per unit sales price of our products and our revenue to decrease. In response to the global economic crisis, we also made a strategic decision to further reduce our per unit sales price in certain instances to both maintain our market share and attract new customers.

On a geographic basis, revenue generated from outside of China was $23.5 million, or 6.9% of total revenue for fiscal year 2009, as compared to $16.2 million, or 3.9% of total revenue for fiscal year 2008. The percentage increase was mainly due to increased sales into the Middle East market and sales of our newly developed anti-septic and fingerprint resistant steel products, which were well received by the international market.

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On a segment basis, our subsidiary Jiangsu Cold-Rolled experienced a decline in revenue for fiscal year 2009. After eliminating inter-company sales, Jiangsu Cold-Rolled’s revenues were $103.7 million in fiscal year 2009. As part of our vertical integration strategy, we used most of Jiangsu Cold-Rolled’s products as raw materials in the operations of our subsidiary, Changshu Huaye. Changshu Huaye’s revenues were $237.8 million in fiscal year 2009, a decrease of $22.7 million, or 8.7%, from $260.5 million in fiscal year 2008. Changshu Huaye sold less HDG Steel products to third parties in fiscal year 2009 as compared to 2008 as more of our own HDG Steel products was used in the production of PPGI products in fiscal year 2009 to reduce production costs.

In terms of sales to related parties as compared with sales to unrelated parties, our direct sales to unrelated parties in fiscal year 2009 decreased $47 million, or 19.8% to $190.5 million from $237.5 million in fiscal year 2008. Our Sales to Shanghai Huaye and its affiliates in fiscal year 2009 were $151.0 million, a decrease of $29.6 million, or 16.4% as compared to $180.5 in fiscal year 2008. Through our relationship with Shanghai Huaye, we gained access to Shanghai Huaye’s sales network and expanded our market share and brand value.

Cost of Revenue.  Our cost of revenue decreased $64.4 million, or 17.3% to $308.7 million in fiscal year 2009 from $373.1 million in fiscal year 2008. As a percentage of revenue, the cost of revenue increased to 90.4% in fiscal year 2009 from 89.3% in fiscal year 2008. Even though our cost of revenue decreased on a dollar basis, we implemented a strategic decision to reduce the per unit sale price which led to the modest increase in cost as a percentage of revenue. We believe the successful implementation of such strategy allowed us to remain profitable in fiscal year 2009 despite the challenging economy. In addition, we received a larger proportion of smaller orders in fiscal year 2009 as compared to fiscal year 2008 which impaired our ability to realize economies of scale.

Gross Profit . Our gross profit decreased $12.1 million to $32.8 million in fiscal year 2009 from $44.9 million in fiscal year 2008. Gross profit as a percentage of revenue (gross margin) was 9.6% in fiscal year 2009, as compared to 10.8% in fiscal year 2008. Such decrease in our gross margin was mainly due to lower per unit sales price and higher production costs for the reasons as stated in the paragraph immediately above.

Gross margins for Changshu Huaye decreased to 12.1% in fiscal year 2009 from 14.7% in fiscal year 2008. Gross margins for Jiangsu Cold-Rolled decreased to 4.0% in fiscal year 2009 from 4.3% in fiscal year 2008. Such decrease was mainly due to the reasons stated above.

Total Operating Expenses. Our total operating expenses increased $1.1 million to $7.1 million in fiscal year 2009 from $6.0 million in fiscal year 2008. As a percentage of revenue, our total operating expenses increased to 2.1% in fiscal year 2009 from 1.4% in fiscal year 2008.

General and Administrative Expenses.  Our general and administrative expenses increased $0.2 million to $3.9 million in fiscal year 2009 from $3.7 million in fiscal year 2008. As a percentage of revenue, general and administrative expenses increased to 1.2% in fiscal year 2009 from 0.9% in fiscal year 2008. We incurred more general and administrative expenses in fiscal year 2009 in connection with the two new HDG Steel production lines which became operative at the end of September, 2008.

Selling Expenses. Our selling expenses increased $0.9 million to $3.1 million in fiscal year 2009 from $2.2 million in fiscal year 2008. As a percentage of revenue, our selling expenses increased to 0.9% in fiscal year 2009 from 0.5% in fiscal year 2008. As part of our sales promotion efforts, we agreed to pay transportation costs for some of our customers. In addition, our international sales increased in fiscal year 2009 as compared to last year which also contributed to higher transportation expenses.

Interest Expense. Our interest expense decreased $0.4 million to $5.9 million in fiscal year 2009, from $6.3 million in fiscal year 2008. As a percentage of revenue, our interest expenses increased to 1.7% in fiscal year 2009, from 1.5% in fiscal year 2008. The amount decrease was mainly due to the lower interest rate. In December 2008, the People’s Bank of China reduced the interest rate for one-year loan by 0.27% to 5.31% from 5.58%.

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Provision for Income Taxes. We incurred income tax expense of $2.3 million and $1.9 million in fiscal years 2009 and 2008, respectively.  Such increase was primarily attributable to the increased tax rate applicable to Changshu Huaye. Changshu Huaye’s tax holiday expired at the end of calendar year 2008, and as a result, it became subject to an EIT rate of 25% in calendar year 2009, as compared to 12.5% in calendar year 2008.

Net Income. Net income, without including the foreign currency translation adjustment, decreased $12.5 million, or 40.2%, to $18.6 million in fiscal year 2009 from $31.1 million in fiscal year 2008, as a result of the factors described above.

Liquidity and Capital Resources

Our major sources of liquidity for the 2009 and 2008 financial years were borrowings through short-term bank and private loans. Our operating activities provided $28.0 million of cash in fiscal year 2009. External sources of cash flows have been required and will likely continue to be required. At June 30, 2009, our total indebtedness to non-related parties under existing short-term loans was $104.3 million, our short-term notes payable to related parties was $9.9 million, and our long-term notes payable to non-related parties was $2.9 million, our long-term notes payable to related parties totaled $0.2 million.

Short-term bank and private loans are likely to continue to be our key sources of liquidity for the foreseeable future, although in the future we may decide to raise additional capital by issuing shares of our capital stock in an equity financing.

Our liquidity and working capital may be affected by a material decrease in cash flow due to factors such as the continued use of cash in operating activities resulting from a decrease in sales due to the current global economic crisis, increased competition, decreases in the availability, or increases in the cost, of raw materials, unexpected equipment failures, or regulatory changes. Please see section entitled “ Risk Factors ” for a more complete description of risks affecting our business, liquidity, working capital and financial results.

A portion of our operations is funded through short-term bank loans. As these loans become due, we may repay them in full at maturity or elect to refinance them. We are exposed to a variety of risks associated with short-term borrowings including adverse fluctuations in fixed interest rates for short-term borrowings and unfavorable increases in variable interest rates, potential inability to service our short term indebtedness through cash flow from operations and the overall reduction of credit in the current economic environment.

Our liquidity and working capital may also be affected by the substantial amount of our outstanding short-term loans, which represent our primary source of financing in China. Depending on the level of cash used in our operating activities and the level of our indebtedness, (i) it may become more difficult for us to satisfy our existing or future liabilities or obligations, which could in turn result in an event of default on such obligations, (ii) we may have to dedicate a substantial portion of our cash flows from borrowings to our operating activities and to debt service payments, thereby reducing the availability of cash for working capital and capital expenditures, acquisitions, general corporate purposes or other purposes, (iii) our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may become impaired, (iv) our ability to withstand a downturn in our business, the industry in which we operate or the economy generally may be diminished, (v) we may experience limited flexibility in planning for, or reacting to, changes in our business and the industry in which we operate (vi) we may find ourselves at a competitive disadvantage compared to competitors that have proportionately less debt. If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations and be subject to foreclosure on such loans. Additionally, we could incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify.

As some of our loans become due, we may elect to refinance, rather than repay, the indebtedness. However, there is no assurance that additional financing will become available on terms acceptable to us. We believe that we will have the ability to refinance our indebtedness when and if we elect to do so. While we currently are not in a position to know the terms of such refinancing, we expect to refinance our indebtedness at prevailing market rates and on prevailing market terms.

As of June 30, 2009, we had cash and cash equivalents (excluding restricted cash) of $10.5 million and restricted cash of $51.8 million. The following table provides detailed information about our net cash flow for all financial statement periods presented in this annual report.

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Cash Flow

(all amounts in thousands of U.S. dollars)

	For the Fiscal Year Ended June 30,
	2009			2008
Net cash provided by (used in) operating activities	$	28,032		$	(34,969	)
Net cash (used in) investing activities		(7,681	)		(37,770	)
Net cash (used in) provided by financing activities		(21,685	)		74,572
Net cash flow	$	(1,295	)	$	2,973

Operating Activities:

Net cash provided by operating activities was $28.0 million in fiscal year 2009, an increase of $63.0 million from the $35.0 million net cash used in operating activities in fiscal year 2008. Such increase of net cash provided by operating activities was primarily attributable to having $53.8 million less of an increase in the net related party receivables and payables, a decrease in the change of inventory of $37.6 million off-set by a decline in net income of $12.5 million and an increase of trade receivables compared to a decrease in the prior year amounting to $11.6 million.

Investing Activities:

Our main uses of cash for investing activities are payments relating to the acquisition of property, plant and equipment and restricted cash pledged as deposits for bankers’ acceptance bills.

Net cash used in investing activities in fiscal year 2009 was $7.7 million, which is a decrease of $30.1 million from net cash used in investing activities of $37.8 million in fiscal year 2008. Such decrease of net cash used in investing activities was mainly due to a $34.9 million decrease in the change of restricted cash compared to the prior year which resulted from our payment of $117.4 million notes payables upon their maturities.

Financing Activities:

Net cash used in financing activities in fiscal year 2009 totaled $21.7 million as compared to $74.6 million provided by financing activities in fiscal year 2008. The decrease of cash provided by financing activities was mainly attributable to the net change of proceeds from new loans and payments on those notes of $90.9 million.

We believe we currently maintain a good business relationship with many banks. As of June 30, 2009, the amount, maturity date and term of each of our bank loans were as follows.

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(All amounts in million of U.S. dollars)

Banks	Amounts*		Starting Date	Maturity Date	Guarantor**
Changshu Rural Commercial Bank	$	1.75	February 11, 2009	August 6, 2009	none
Bank of China, Changshu Branch		1.75	February 13, 2009	August 13, 2009	Shanghai Huaye
Changshu Rural Commercial Bank		3.36	March 25, 2009	September 23, 2009	None
China Industry and Commerce Bank, Changshu Branch		1.46	April 15, 2009	April 13, 2010	None
Changshu Rural Commercial Bank		3.21	May 7, 2009	November 6, 2009	None
China Industry and Commerce Bank, Changshu Branch		1.46	May 18, 2009	May 18, 2010	None
China Industry and Commerce Bank, Changshu Branch		1.46	May 27, 2009	May 24, 2010	None
The Agricultural Bank of China, Changshu Branch		7.30	May 31, 2009	May 27, 2010	Shanghai Huaye/Jiangsu Cold Rolled
Communication Bank, changshu Branch		2.92	June 29, 2009	June 25, 2010	Shanghai Huaye
China Industry and Commerce Bank, Changshu Branch		1.46	December 29, 2008	December 28, 2009	Changshu Huaye
The Agricultural Bank of China, Changshu Branch		1.90	February 5, 2009	August 4, 2009	none
The Agricultural Bank of China, Changshu Branch		7.30	February 23, 2009	August 22, 2009	Shanghai Huaye/Changshu Huaye
China Industry and Commerce Bank, Changshu Branch		2.92	February 27, 2009	February 26, 2010	Changshu Huaye
The Agricultural Bank of China, Changshu Branch		4.53	March 3, 2009	July 16, 2009	Shanghai Huaye/Changshu Huaye
The Agricultural Bank of China, Changshu Branch		5.84	March 27, 2009	September 26, 2009	Shanghai Huaye/Changshu Huaye
The Agricultural Bank of China, Changshu Branch		5.84	March 28, 2009	September 27, 2009	Shanghai Huaye/Changshu Huaye
The Agricultural Bank of China, Changshu Branch		5.84	April 2, 2009	September 30, 2009	Shanghai Huaye/Changshu Huaye
The Agricultural Bank of China, Changshu Branch		9.64	May 15, 2009	November 14, 2009	None
The Agricultural Bank of China, Changshu Branch		1.46	May 19, 2009	November 18, 2009	None
The Agricultural Bank of China, Changshu Branch		1.46	May 21, 2009	November 20, 2009	None
The Agricultural Bank of China, Changshu Branch		4.38	May 27, 2009	November 26, 2009	None
China Industry and Commerce Bank, Changshu Branch		2.92	May 25, 2009	April 29, 2010	Changshu Huaye
The Agricultural Bank of China, Changshu Branch		2.63	May 27, 2009	August 27, 2009	None
The Agricultural Bank of China, Changshu Branch		2.05	February 17, 2009	August 17, 2009	Shanghai Huaye
Bank of China, Changshu Branch		5.26	February 17, 2009	August 17, 2009	Shanghai Huaye
The Agricultural Bank of China, Changshu Branch		3.80	February 26, 2009	August 26, 2009	Shanghai Huaye
Changshu Rural Commercial Bank		2.34	March 3, 2009	September 3, 2009	None
The Agricultural Bank of China, Changshu Branch		1.46	February 23, 2009	August 23, 2009	None
Bank of China, Changshu Branch		2.19	February 24, 2009	August 24, 2009	None
The Agricultural Bank of China, Changshu Branch		4.38	May 12, 2009	November 12, 2009	Shanghai Huaye/Jiangsu Cold Rolled
Chen Lifang		1.57	May 15, 2008	Non fixed Date	None
Chen Lifang		7.20	December 20, 2007	December 20, 2009	None
Lin Guihua		2.86	November 20, 2008	November 20, 2011	None
Chen Lifang		0.10	March 11, 2009	March 11, 2012	None
Chen Lifang		0.15	April 29, 2009	April 29, 2012	None
Chen Lifang		0.05	March 28, 2007	Non fixed Date	None
Chen Lifang		0.10	May 8, 2007	Non fixed Date	None
Chen Lifang		0.03	June 15, 2007	Non fixed Date	None
Chen Lifang		0.05	August 7, 2007	Non fixed Date	None
Chen Lifang		0.07	September 17, 2007	Non fixed Date	None
Chen Lifang		0.10	September 27, 2007	Non fixed Date	None
Chen Lifang		0.10	December 10, 2007	Non fixed Date	None
Chen Lifang		0.20	February 25, 2007	Non fixed Date	None
Chen Lifang		0.10	April 9, 2008	Non fixed Date	None
Chen Lifang		0.10	April 18, 2008	Non fixed Date	None
Chen Lifang		0.10	August 28, 2008	Non fixed Date	None
Chen Lifang		0.05	September 12, 2008	Non fixed Date	None
Chen Lifang		0.08	October 20, 2008	Non fixed Date	None
Total	$	117.32

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*  Calculated on the basis that $1 = RMB 6.8448

** We do not pay any consideration to Shanghai Huaye or its affiliated companies, which are controlled by our CEO and her spouse, for the guarantees of our loans.

The loan agreements with banks contain debt covenants that require the Company to maintain certain inventory levels. The Company was in compliance with these debt covenants at June 30, 2009.

Our material capital expenditure requirements for fiscal year 2010 are expected to be approximately $20.0 million, which will be used for updating and expansion of our production lines, equipment and facilities. In addition, we expect that an additional $20.0 million of working capital will be needed to maintain our business operations in the next twelve months which will be raised through bank loans. In the coming 12 months, we have approximately $104.3 million in bank loans that will mature. Among $9.9 million related party loans, only $7.20 million will mature in the following 12 months. We plan to replace these loans with new bank loans in approximately the same aggregate amounts.

We believe that our currently available working capital after receiving the credit facilities referred to above and the expected additional credit facility should be adequate to sustain our operations at our current levels through at least the next twelve months. However, depending on our future needs and changes and trends in the capital markets affecting our shares and the Company, we may determine to seek additional equity or debt financing in the private or public markets.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

· Functional Currency and Translating Financial Statements - The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The functional currency of the Company is the Chinese Yuan Renminbi (“RMB”); however, the consolidated financial statements have been expressed in United States Dollars (“USD”). The consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The consolidated statements of operations and cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. Transactions in the Company’s equity securities have been recorded at the exchange rate existing at the time of the transaction.

· Principles of Consolidation - The operations of Changshu Huaye and Jiangsu Cold-Rolled have been included in the accompanying consolidated financial statements for all periods presented. The accounts and transactions of Sutor Steel Technology Co., Ltd. have been included from its formation on August 15, 2006. The accounts and transactions of Sutor Technology Group Limited have been included from February 1, 2007. All significant intercompany accounts and transactions have been eliminated in consolidation.

· Restricted Cash - The Company has entered into agreements to pay suppliers, which require the Company to maintain cash balances as security for notes payable to the suppliers. These secured cash balances are presented in the consolidated balance sheets as restricted cash.

· Advances to Suppliers and from Customers - The Company, as is common practice in the PRC, will often make advance payments to its suppliers for materials, or receive advance payments from its customers. The Company had net advances to suppliers of $23,955,493 and $28,035,815 at June 30, 2009 and 2008, respectively. The Company also had advances from its customers in the amount of $17,845,426 and $16,871,618 at June 30, 2009 and 2008, respectively.

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· Revenue Recognition - The Company recognizes revenues from the sale of products when they are realized and earned. The Company considers revenue realized or realizable and earned when (1) it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the sales price is fixed or determinable, and (4) collectibility is reasonably assured. Revenues are not recognized until products have been shipped to the client, risk of loss has transferred to the client and client acceptance has been obtained, client acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in client acceptance provisions have been satisfied.

As discussed in Note 7, the Company sells product to affiliates, who in turn sell the product to various other third party customers. The price, terms and conditions on the sales to affiliates are the same as those to third parties. Revenue is considered realized or realizable and earned when the affiliates ship the product to third party customers. A fee of 0.5% of the sale is paid to the affiliate for handling the product. These handling fees have been classified as selling expenses in the statement of operations.

· Cost of Revenue - Cost of products sold includes wages, materials, handling charges, and other expenses associated with the manufacture and delivery of product.

· Basic and Diluted Earnings per Common Share - The computation of basic earnings per common share is based on income divided by the weighted-average number of common shares outstanding after giving effect of using the if-converted method for qualified participating securities during each period presented where the qualified participating securities are dilutive. Diluted earnings per common share are calculated by dividing income assuming dilution by the weighted-average number of common shares and potential dilutive shares of common stock issuable upon conversion of non-participating shares. The Company does not have any non-participating potentially dilutive securities. The calculations of basic and diluted income per share were as follows:

	For the Years Ended June 30,
	2009		2008		2007
Net income	$	18,634,225	$	31,135,970	$	20,520,391
Weighted-average common shares outstanding		37,955,602		37,955,602		4,181,750
Effect of participating convertible Series B Preferred Stock		-		-		30,418,273
Weighted-Average Basic and Dilutive Common Shares Outstanding		37,955,602		37,955,602		34,600,023
Basic and Diluted Earnings per Common Share	$	0.49	$	0.82	$	0.59

The following table discloses the metrics by which we determine our allowance for doubtful accounts in respect of our accounts receivable:

Term of Outstanding Accounts Receivable	Percentage of Account Receivable Included in Allowance for Doubtful Accounts
1-30 days		0.0
31-90 days		7.5
91-180 days		15.0
181-360 days		30.0
1-2 years		60.0
Over 2 years		100.0

Recently issued accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.  The adoption of the portions of SFAS No. 157 that were not postponed by (FSP FIN) No. 157-2 did not have an effect on our consolidated financial statements. The Company does not expect the adoption of the postponed portions of SFAS No. 157 to have a material impact on our consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS No. 141(R) and SFAS No. 160 are not expected to have a material impact on our results of operations or financial position.

In December 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of EITF 07-1 to have a material impact on our consolidated financial statements.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSB FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. The Company does not expect the adoption of FSP FAS 142-3 to have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles.  SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP.  The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process.  The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  The adoption of FASB 162 is not expected to have a material impact on the Company’s financial statements.

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP FAS 133-1 and FIN 45-4). FSP FAS 133-1 and FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies that the disclosure requirements of SFAS No. 161 are effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. FSP FAS 133-1 and FIN 45-4 is effective for fiscal years ending after November 15, 2008. The adoption of FSP FAS 133-1 and FIN 45-4 has not had a material impact on the Company’s financial statements.

In December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities ("FSP FAS 140-4 and FIN 46(R)-8"). FSP FAS 140-4 and FIN 46(R)-8 amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and FIN 46(R), FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, to require public entities to provide additional disclosures about transfers of financial assets and their involvement with variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for fiscal years ending after December 15, 2008. The adoption of FSP FAS 140-4 and FIN 46(R)-8 has not had a material impact on the Company’s financial statements.

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In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value.  FSP FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The adoption of FSP FAS 107-1 and APB 28-1 is not expected to have a material impact on the Company’s financial statements.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (SFAS 165). Under SFAS 165, requires companies to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. SFAS 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. SFAS 165, also requires entities to disclose the date through which subsequent events have been evaluated. SFAS 165 is effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of SFAS 165 for the year ended June 30, 2009, as required, the adoption did not have a material impact on the Company’s financial statements.  The Company evaluated events subsequent to the balance sheet date through September 23, 2009.

On January 1, 2009 the Company adopted EITF Issue No. 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement (such as a guarantee) should not include the effect of the credit enhancement in the fair value measurement of the liability. There was no effect on the Company’s consolidated financial statements upon adoption of EITF 08-5.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles or SFAS No. 168. SFAS No. 168 will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant SEC guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods ending after September 15, 2009. This will have an impact on the Company’s financial disclosures since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The full text of our audited consolidated financial statements as of June 30, 2009 and 2008 begins on page F-1 of this report.

33

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

(a)   Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, Ms. Lifang Chen and Yongfei Jiang, respectively, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Ms. Chen and Mr. Jiang concluded that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2009.

 (b) Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our chief executive officer and chief financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2009 based on the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management concluded that our internal control over financial reporting as of June 30, 2009 was not effective. Management identified the following material weaknesses as of June 30, 2009:

· Weakness relating to the Company’s ability to correctly make necessary adjustments to its financial statements in accordance with U.S. GAAP in order to avoid the need for further adjustments. 

Material audit adjustments, which resulted from the difference between Chinese generally accepted accounting principles and U.S. GAAP, were made to adjust the allowance for bad debts for advances to suppliers and other receivables, adjust the timing of revenue recognition and record unrecorded liabilities.  The audit adjustments were material to the financial statements.

Although our accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP. Since December 31, 2008, the Company has hired an individual with U.S. GAAP experience, however, the Company is still actively searching for additional personnel who are experienced in U.S. GAAP and can assist the Company in remediating the aforementioned weakness.

34

Our management is not aware that the material weakness in our internal control over financial reporting causes them to believe that any material inaccuracies or errors existed in our financial statement as of June 30, 2009.  The reportable conditions and other areas of our internal control over financial reporting identified by us as needing improvement have not resulted in a material restatement of our financial statements. Nor are we aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement of omission in any report we have filed with or submitted to the Commission.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 and procedures may deteriorate.

Management remains committed to improving its internal control over financial reporting and will continue to work to put effective controls in place. The Company, under the supervision of the Audit Committee, has implemented annual budgets for the Company. The Company plans to improve its annual budget process in an effort to maximize revenues and potentially reduce operating expenses.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

(c) Changes in internal control over financial reporting

There were no changes in our internal controls over financial reporting during the fourth quarter of our fiscal year ended June 30, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION.

None.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors and Executive Officers

The following sets forth the name and position of each of our current executive officers and directors.

Name	Age	Position
Lifang Chen	38	Chairman of the Board of Directors, Chief Executive Officer and President
Yongfei Jiang	32	Director, Chief Financial Officer, Treasurer and Secretary
Xun Zhang	39	Chief Technology Officer
A. Carl Mudd	65	Director
Guoyou Shao	60	Director
Xinchuang Li	46	Director

35

Lifang Chen.  Ms. Chen became our Chairman on February 1, 2007 and our Chief Executive Officer and President in May 2008. She has been the Chairman of our subsidiary Sutor BVI since August 2007. Since June 2001, Ms. Chen has served as the Vice President of Shanghai Huaye. From September 1993 to May 2001, Ms. Chen served as the director of the civil administrative bureau of Xiaoshan District, Hangzhou City. She has extensive experience in enterprise management and fine finished steel industry and received a doctorate degree in Business Management from Century University of America in 2004.

Yongfei Jiang.  Mr. Jiang became a Director in June 2009 and has been our Chief Financial Officer, Treasurer and Secretary since February 1, 2007. He also has been the Chief Financial Officer of Changshu Huaye since 2005. From 2002 to 2005, Mr. Jiang served as the finance manager of Guangzhou Huaye Trading Co., Ltd., a subsidiary of Shanghai Huaye, where he was responsible for the financial and capital management. From 1999 to 2002, Mr. Jiang was the finance manager at Zhejiang Guotai Seal Material Co. Ltd., an equipment manufacturer. Mr. Jiang has nine years of experience in corporate accounting and finance. He has a MBA from Hong Kong Industrial and Commercial College.

Xun Zhang.  Mr. Zhang became our Chief Technology Officer on June 18, 2007. Prior to his appointment as our Chief Technology Officer, Mr. Zhang had worked as our Chief Project Engineer since April 2005. He was responsible for the bidding, design examination, assembling and testing of the acid pickling, acid regeneration and cold-rolled steel production lines of our subsidiary Jiangsu Cold-Rolled. He was also responsible for the drafting of technical procedure of various production lines and staff training. From 1995 to 2005, he worked as the Deputy Chief Engineer at the project department of Baoshan Iron & Steel Co., Ltd. Mr. Zhang has a bachelor’s degree in engineering from Huanzhong University of Science and Technology.

A. Carl Mudd.  Mr. Mudd has been a Director since February 2008. Mr. Mudd has extensive operational and financial management experience in domestic and international, multi-location, manufacturing, distribution and retail businesses, both publicly held and privately owned. He has spent the past 15 years consulting with and mentoring CEOs and Boards of Directors of major companies on global strategy, business processes and international operations, including six years based in Hong Kong with clients in the PRC, Hong Kong, Sri Lanka and Singapore. Mr. Mudd is currently the Chairman of the Audit Committee of Shengda Tech, Inc., a NASDAQ listed publicly traded manufacturer and supplier of nano precipitated carbonated calcium for tires, plastics, paints and papers in China. He is also a Statutory Director of the National Association of Corporate Directors-North Texas Chapter. Mr. Mudd is a Certified Public Accountant, holds a Bachelor’s of Business Administration - Accounting, from St. Edward’s University and holds a Certificate of Director Education by The NACD Corporate Directors Institute.

Guoyou Shao.  Mr. Shao has been a Director since February 2008. Since April 2003, Mr. Shao has served as Board Chairman of Fortis Haitong Investment Management Co., Ltd., one of the first sino-foreign joint ventures specializing in fund management to gain approval in China Prior to this, Mr. Shao served as Manager of the Investor Relations Department of Haitong Securities Co. Ltd. since July 1998. Mr. Shao has extensive securities investment and asset management experience and holds a Master’s degree in Business Administration from Hong Kong Science Management Institute.

Xinchuang Li.  Mr. Li has been a Director in February 2008. Since 2008, Mr. Li has served as the Executive Director of China Metallurgical Industry Planning & Research Institute (CMIPRI) in Beijing. From 2002 to 2008, Mr. Li served as the Vice Director and Chief Engineer of CMIPRI. From 1998 to 2002, Mr. Li served as the Vice-Chief Engineer of CMIPRI. Mr. Li has significant experience in the operations of companies engaged in steel production with a particular focus and specialization in the operations, planning and strategic focus of companies operating in the Chinese steel industry. Mr. Li holds a Master’s degree in Business Administration from Fordham University and Beijing University.

There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

Directors are elected until their successors are duly elected and qualified.

36

Board Composition and Committees

Our board of directors is comprised of Lifang Chen, Yongfei Jiang, A. Carl Mudd, Guoyou Shao and Xinchuang Li.

Messrs. A. Carl Mudd, Guoyou Shao, and Xinchuang Li each serves on our board of directors as an “independent director” as defined by Rule 4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc., or the “Nasdaq Marketplace Rules.” The board of directors has determined that A. Carl Mudd possesses the accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

Our board of directors currently has three standing committees which perform various duties on behalf of and report to the board of directors: (i) audit committee, (ii) compensation committee and (iii) governance and nominating committee. Each of the three standing committees is comprised entirely of independent directors. From time to time, the board of directors may establish other committees.

Audit Committee

Our board of directors established an audit committee in February 2008. Our audit committee consists of three members: A. Carl Mudd, Guoyou Shao, and Xinchuang Li, each of whom is “independent” as that term is defined under the Nasdaq Marketplace Rules. Our audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. Mr. Mudd serves as our audit committee chairman and financial expert as that term is defined by the applicable SEC rules.

Our audit committee is responsible for, among other things:

· selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;

· reviewing with our independent auditors any audit problems or difficulties and management’s response;

· reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act of 1933, as amended;

· discussing the annual audited financial statements with management and our independent auditors;

· reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies;

· annually reviewing and reassessing the adequacy of our audit committee charter;

· such other matters that are specifically delegated to our audit committee by our board of directors from time to time;

· meeting separately and periodically with management and our internal and independent auditors; and

· reporting regularly to the full board of directors.

Compensation Committee

Our board of directors established a compensation committee in February 2008. Our compensation committee consists of three members: A. Carl Mudd, Guoyou Shao, and Xinchuang Li, each of whom is “independent” as that term is defined under the Nasdaq Marketplace Rules. Mr. Shao serves as the chairman of our compensation committee. Our compensation committee assists the board of directors in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Our Chief Executive Officer may not be present at any meeting of our compensation committee during which her compensation is deliberated.

Our compensation committee is responsible for, among other things:

· approving and overseeing the compensation package for our executive officers;

· reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer;

· evaluating the performance of our Chief Executive Officer in light of those goals and objectives, and setting the compensation level of our Chief Executive Officer based on this evaluation; and

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· reviewing periodically and making recommendations to the board of directors regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Governance and Nominating Committee

Our board of directors established a governance and nominating committee in February 2008. Our governance and nominating committee consists of three members: A. Carl Mudd, Guoyou Shao, and Xinchuang Li, each of whom is “independent” as that term is defined under the Nasdaq Marketplace Rules. Mr. Li serves as the chairman to our governance and nominating committee. The governance and nominating committee assists the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board of directors and its committees.

· Our governance and nominating committee is responsible for, among other things:

· identifying and recommending to the board of directors nominees for election or re-election to the board of directors, or for appointment to fill any vacancy;

· reviewing annually with the board of directors the current composition of the board of directors in light of the characteristics of independence, age, skills, experience and availability of service to us; and

· identifying and recommending to the board of directors the directors to serve as members of the committees.

We recognize that transactions between us and any of our directors or executive officers can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our stockholders.

Family Relationships

There are no family relationships among our directors or officers.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

Section 16(A) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC.  The SEC has designated specific due dates for these reports. In fiscal year 2009, the Form 3 for Xun Zhang was filed late due to administrative oversight.

Code of Ethics

On January 31, 2007, our board of directors adopted a new code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. The new code replaces our prior code of ethics that applied only to our principal executive officer, principal financial officer, principal accounting officer or controller and any person who performed similar functions, and addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code.  A copy of the Code of Ethics has been filed as Exhibit 14 to our current report on Form 8-K, filed on February 2, 2007.

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ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth information concerning all compensation awarded to, earned by or paid to our Chief Executive Officer for services during the last two fiscal years in all capacities to us, our subsidiaries and predecessors. No other executive officer received compensation of $100,000 or more for the year ended June 30, 2009.

Name and Principal Position	Year	Salary ($)		Bonus ($)	Stock Awards ($)		Total ($)
Lifang Chen, CEO	2009		100,000	-		-	100,000
	2008		-	-		-	-

Employment Contracts

Currently, we do not have an employment agreement with our CEO, Ms. Lifang Chen.

Retirement Benefits

 Currently, we do not provide any employees, including our named executive officers any company sponsored retirement benefits other than a state pension scheme in which all of our employees in China participate.

Payment Upon Termination or Change-in Control

The Company does not have change-in-control arrangements with any of its executive officers, and the Company is not obligated to pay severance or other enhanced benefits to executive officers upon termination of their employment.

Director Compensation – 2009

The following table sets forth information concerning all compensation paid to our non-employee directors for services rendered in all capacities for the year ended June 30, 2009.

Name	Fees Earned or Paid in Cash ($)		Total Compensation ($)
A. Carl Mudd		69,000	69,000
Guoyou Shao		15,384	15,384
Xinchuang Li		15,384	15,384

We have entered into agreements with each of the independent directors. Under the terms of the agreements, Mr. Mudd is entitled to $65,000, Mr. Shao is entitled to RMB 120,000 (approximately $17,143) and Mr. Li is entitled to RMB 120,000 (approximately $17,143) as annual compensation for their service as independent directors, and as chairpersons of various board committees, as applicable. Mr. Mudd’s compensation is greater because he has greater responsibilities as the Audit Committee Chairman. Under the terms of the agreements, the independent directors are entitled to indemnification for expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by the independent directors in connection with any proceeding if the independent director acted in good faith and in our best interests. The Company also reimburses our directors for reasonable travel expenses related to attendance at board and committee meetings.

Additionally, we entered into Indemnification Agreements with each of Messrs. Mudd, Shao and Li.  Under the terms of these Indemnification Agreements, the Company agreed to indemnify the independent directors against expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by the independent directors in connection with any proceeding (other than a Proceeding by or in the right of the Company) if the independent director acted in good faith and in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the independent director’s conduct was unlawful.  The Company also agreed to pay any such expenses to an independent director in advance of the final disposition of any such proceeding if the director agrees to repay such amount to the extent it is ultimately determined they are not entitled to indemnification; provided, however, that the Company is not obligated to make any such advance payment if the board of directors determines, in its sole discretion, that it does not appear that such director has met the standards of conduct which make it permissible under applicable law to indemnify such director, and that the advancement of expenses would not be in the best interests of the Company and its stockholders.

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Limitation of Liability and Indemnification of Officers and Directors

Our bylaws provide for the indemnification of our present and prior directors and officers or any person who may have served at our request as a director or officer of another corporation in which we own shares of capital stock or of which we are a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any actions, suits or proceedings in which they, or any of them, are made parties, or a party, by reason of being or having been director(s) or officer(s) of us or of such other corporation, in the absence of negligence or misconduct in the performance of their duties. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.

Insofar as indemnification by us for liabilities arising under the Securities Exchange Act of 1934, as amended, may be permitted to our directors, officers and controlling persons pursuant to provisions of the Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Additionally, we entered into Indemnification Agreements with each of Messrs. Mudd, Shao and Li, our independent directors. Under the terms of these Indemnification Agreements, the Company agreed to indemnify the independent directors against expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by the independent directors in connection with any proceeding if the independent director acted in good faith and in the best interests of the Company as permitted under applicable state law.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth information regarding beneficial ownership of our common stock as of September 25, 2009 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.

Unless otherwise specified, the address of each of the persons set forth below is in care of Sutor Technology Group Limited, No. 8, Huaye Road, Dongbang Industrial Park Changshu, China, 215534.

Title of Class	Name & Address of Beneficial Owner	Office, If Any	Amount & Nature ofBeneficial Ownership1			Percent of Class2
Common Stock	Lifang Chen	Chairman and CEO		30,338,050	3		79.9	%
Common Stock	Yongfei Jiang	CFO		0			*
Common Stock	Xun Zhang	CTO		0			*
Common Stock	A. Carl Mudd	Director		9,450			*
Common Stock	Guoyou Shao	Director		0			*
Common Stock	Xinchuang Li	Director		0			*
All Officers and Directors as a group (6 persons named above)				30,347,500			80	%
Common Stock	Total Raise Investments Ltd.	5% Security Holder		30,338,050	4		79.9	%
Common Stock	Total Shares Owned by Persons Named above			30,347,500			80	%

* Less than 1%

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1. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.

2. A total of 37,955,602 shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of September 25, 2009. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator.

3. Includes 30,338,050 shares of common stock owned by Total Raise Investments Ltd., a British Virgin Islands company wholly owned by Ms. Chen. Ms. Chen disclaims beneficial ownership of such shares except to the extent of her pecuniary interest therein.

4. Ms. Chen is the sole owner and director of Total Raise Investments Ltd.

Changes in Control

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The following includes a summary of transactions since the beginning of fiscal year 2009, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at the end of the fiscal years ended June 30, 2008 and 2009 ($2,994,719), and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm's-length transactions.

· We sell our products to and buy raw materials from various companies which are beneficially owned or controlled by our CEO and President Ms. Lifang Chen. The amounts charged for products to our Company by such related party are under the same pricing, terms and conditions as those charged to third parties. These transactions are set forth below:

		Amount of Transaction
Related Party	Nature of Transaction	Fiscal 2009		Fiscal 2008
Changshu Diemate Steel Processing Co. Ltd.	Sale of products by Sutor	$	70,168	$	1,453,409
Guangzhou Huaye Steel Processing Co. Ltd.	Sale of products by Sutor		264,410		3,022,387
Hangzhou Nanye Material Co. Ltd.	Sale of products by Sutor		-		668,702
Hangzhou Xiaoshan Southern Industry Co., Ltd.	Sale of products by Sutor		397,727		-
Ningbo Huaye Steel Processing Co., Ltd.	Sale of products by Sutor		15,631		1,690,847
Shanghai Huaye Steel Processing Co., Ltd.	Sale of products by Sutor		6,457,867		12,477,142
Shanghai Huaye Steel Group Co., Ltd.	Sale of products by Sutor		142,092,727		159,050,906
Wuxi Haide Steel Processing Co., Ltd.	Sale of products by Sutor		177,459		997,836
Shanghai Pukesheng Steel Trade Co., Ltd	Sale of products by Sutor		1,487,213		-
Zhejiang Nanye Metal Cutting & Delivery Co., Ltd.	Sale of products by Sutor		15,719		1,492,766

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· On December 20, 2007, Ms. Chen loaned our Company $7.1 million which has a term of 24 months and carries an annual interest rate of 5%. On May 15, 2008, Ms. Chen loaned our Company $1.3 million which had a term of one year and carried no interest. On July 1, 2008, Ms. Chen loaned our Company $2.59 million which had a term of one year and carried no interest. On March 11, 2009, Ms. Chen loaned our Company $0.10 million which has a term of 36 months and carries an annual interest rate of 3.6%. On April 29, 2009, Ms. Chen loaned our Company $0.15 million which has a term of 36 months and carry an annual interest rate of 5.0%. In addition, from 2007 and 2009, Ms. Chen made several other loans in the aggregate amount of $1.13 million to our Company. These loans are due on demand and bear no interest.  All loans mentioned above are used for working capital purpose. Please see details under the section “Liquidity and Capital Resources” under Item 7.

· Some of our notes payables are guaranteed by Shanghai Huaye and its affiliates, as disclosed under the section “Liquidity and Capital Resources” under Item 7. We did not pay any stated or unstated consideration to Shanghai Huaye or its affiliates for their guarantees of our note payables.

· On November 8, 2008, Ms. Chen and our Company entered into a lease agreement under which our Company rented 12F, Building B, World Trade Center, NO.45, North Haiyu Road, Changshu City from Ms. Chen as our Company’s office. The size of the premise is approximately 1,200 square meters. The lease has a three year term and the monthly rent is RMB 120,000 (approximately $17,500).

Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

Director Independence

A. Carl Mudd, Guoyou Shao, and Xinchuang Li each serves on our board of directors as an “independent director” as defined by Rule 4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc., or the “Nasdaq Marketplace Rules.” Our board of directors currently has three standing committees which perform various duties on behalf of and report to the board of directors: (i) audit committee, (ii) compensation committee and (iii) governance and nominating committee. Each of the three standing committees is comprised entirely of these three independent directors.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following is a summary of the fees billed to the Company by Hansen Barnett & Maxwell, P.C. for professional services rendered for the fiscal years ended June 30, 2009 and 2008:

(in thousands of U.S. dollars)

	June 30, 2009		June 30,  2008
Audit fees (1)	$	268.6	$	202.0
Audit-related fees (2)		39.6		32.7
Tax fees				-
All other fees				-
Total		308.2		234.7

(1) Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

(2) Consists of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees” in this table. The services provided by our accountants within this category consisted of advice relating to SEC matters and employee benefit matters.

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Pre-Approval Policies and Procedures

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our Board to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our Board pre-approved the audit service performed by Hansen Barnett & Maxwell, P.C. for our consolidated financial statements as of and for the year ended June 30, 2009.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.

(a)    The following documents are filed as part of this report:

(1)    Financial Statement are set forth beginning on page F-1 of the Report

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statement of Operations and Comprehensive Income	F-4
Consolidated Statement of Stockholders’ Equity	F-5
Consolidated Statement of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

(2)    Financial Statement Schedules: All Schedules are omitted because the information called for is not applicable, is not required, or because the financial information is set forth in the financial statements or notes thereto.

(3)    Exhibits: See the Exhibits immediately following the signature page of this Annual Report on Form 10-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SUTOR TECHNOLOGY GROUP LIMITED
By:	/s/ Lifang Chen
	Lifang Chen
	Chief Executive Officer
	Date: September 25, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.

Each person whose signature appears below hereby authorizes Lifang Chen and Yongfei Jiang as attorneys-in-fact to sign on his behalf, individually, and in each capacity stated below, and to file all amendments and/or supplements to this annual report on Form 10-K.

Signature	Capacity	Date
/s/ Lifang Chen	Chief Executive Officer (Principal Executive	September 25, 2009,
Lifang Chen	Officer)
/s/ Yongfei Jiang	Chief Financial Officer and director (Principal	September 25, 2009
Yongfei Jiang	Financial Officer and Principal Accounting Officer)
/s/ A. Carl Mudd
A. Carl Mudd	Director	September 25, 2009
/s/ Guoyou Shao
Guoyou Shao	Director	September 25, 2009
/s/ Xinchuang Li
Xinchuang Li	Director	September 25, 2009

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EXHIBITS

Exhibit No.	Description
2.1	Share Exchange Agreement, dated September 3, 2007, among BTHC III, Inc., Sutor Steel Technology Co., Ltd. and its stockholders. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on November 8, 2007]
2.2	Amendment No. 1 to Share Exchange Agreement, dated February 1, 2007, among the registrant, Sutor Steel Technology Co., Ltd. and its stockholders. [Incorporated by reference to Exhibit 2.2 to the registrant’s current report on Form 8-K filed on February 2, 2007]
3.1	Articles of Incorporation of the registrant as filed with the Secretary of State of Nevada, as amended to date. [Incorporated by reference to Exhibit 3.1 to the registrant’s quarterly report on Form 10Q-SB filed on November 3, 2007, in commission file number 333-83351]
3.2	Amended and Restated Bylaws of the registrant. [Incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form SB-2 filed on July 21, 1999, in commission file number 333-83351].
4.1	Certificate of Designation of Series B Voting Convertible Preferred Stock. [Incorporated by reference to Exhibit 4.1 to the registrant’s current report on Form 8-K filed on February 2, 2007]
4.2	Form of Registration Rights Agreement, dated February 1, 2007. [Incorporated by reference to Exhibit 4.2 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.1	Assignment Agreement, dated November 7, 2007, by and among the registrant, BTHC III, Inc., Sutor Steel Technology Co., Ltd. and its stockholders. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on November 8, 2007]
10.2	Form of the Securities Purchase Agreement, dated February 1, 2007. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.3	Make Good Escrow Agreement, dated February 1, 2007, by and among the registrant, Roth Capital Partners, LLC, Ms. Lifang Chen and Wells Fargo Bank, National Association. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.4	Closing Escrow Agreement, dated January 25, 2007, by and among the registrant, Roth Capital Partners, LLC and Thelen Reid Brown Raysman & Steiner LLP. [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.5	Equity Transfer Agreement, dated August 18, 2006, by and among Shanghai Huaye Iron & Steel Group Co., Ltd., Huaye (Hong Kong) International Group Limited and Sutor Steel Technology Co., Ltd. regarding the acquisition of Changshu Huaye Steel Strip Co., Ltd. [Incorporated by reference to Exhibit 10.6 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.6	Equity Transfer Agreement, dated August 18, 2006, by and among Shanghai Huaye Iron & Steel Group Co., Ltd., Huaye (Hong Kong) International Group Limited and Sutor Steel Technology Co., Ltd. regarding the acquisition of Jiangsu Cold-Rolled Technology Co., Ltd. [Incorporated by reference to Exhibit 10.5 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.7	Procurement Cooperation Frame Agreement, dated December 7, 2006, by and between Changshu Huaye Steel Strip Co., Ltd. and Shanghai Huaye Iron & Steel Group Co., Ltd. [Incorporated by reference to Exhibit 10.7 to the registrant’s current report on Form 8-K filed on February 2, 2007]

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10.8	Sales Cooperation Frame Agreement, dated December 7, 2006, by and between Changshu Huaye Steel Strip Co., Ltd. and Shanghai Huaye Iron & Steel Group Co., Ltd. [Incorporated by reference to Exhibit 10.8 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.9	Notification Concerning Licensing the Brand Name of “Huaye” to Changshu Huaye Steel Strip Co., Ltd., dated August 15, 2005, from Shanghai Huaye Iron & Steel Group Co., Ltd. to Changshu Huaye Steel Strip Co., Ltd. [Incorporated by reference to Exhibit 10.9 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.10	Employment Agreement, dated December 26, 2006, by and between Sutor Steel Technology Co., Ltd. and Guoxiang Ni. [Incorporated by reference to Exhibit 10.10 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.11	Employment Agreement, dated December 26, 2006, by and between Sutor Steel Technology Co., Ltd. and Yongfei Jiang. [Incorporated by reference to Exhibit 10.11 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.12	Employment Agreement, dated December 26, 2006, by and between Sutor Steel Technology Co., Ltd. and Liuhua Guo. [Incorporated by reference to Exhibit 10.12 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.13	Consulting Agreement, dated November 1, 2006, by and among Heritage Management Consultants, Inc., Sutor Steel Technology Co., Ltd. and HFG International, Limited. [Incorporated by reference to Exhibit 10.13 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.14	Financial Advisory Agreement, dated July 3, 2006, by and among HFG International, Limited, Changshu Huaye Steel Strip Co., Ltd and Jiangsu Cold-Rolled Technology Co., Ltd. [Incorporated by reference to Exhibit 10.14 to the registrant’s current report on Form 8-K filed on February 2, 2007]
10.15	Consulting Agreement, dated January 8, 2007, by and between the registrant and Heritage Management Consultants, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on January 9, 2007]
10.16	Consulting Agreement, dated January 8, 2007, by and between the registrant and Ye Zong. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on January 9, 2007]
10.17	Consulting Agreement, dated January 8, 2007, by and between the registrant and Jingshi Cai. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on January 9, 2007]
10.18	Form of Sales Agent Cooperation Agreement. [Incorporated by reference to Exhibit 10.18 to the registrant’s Amendment No. 1 to registration statement on Form S-1 filed on June 4, 2007]
10.19	Employment Agreement, dated July 10, 2007, by and between Sutor Steel Technology Co., Ltd. and Liuhua Guo. [Incorporated by reference to Exhibit 10.21 to the registrant’s registration statement on Form S-1 filed on July 13, 2007]
10.20	Employment Agreement, dated July 10, 2007, by and between Sutor Steel Technology Co., Ltd. and Xun Zhang. [Incorporated by reference to Exhibit 10.22 to the registrant’s registration statement on Form S-1 filed on July 13, 2007]
10.21	Loan Agreement, dated December 20, 2007, by and between Sutor Steel Technology Co., Ltd. and Lifang Chen. [Incorporated by reference to Exhibit 10.23 to the registrant’s registration statement on Form S-1, filed January 28, 2008, in Commission file no. 333-148898.]
10.22	Loan Agreement, dated May 15, 2008, by and between Lifang Chen and Jiangsu Cold-Rolled (English Translation) [Incorporated by reference to Exhibit 99.1 to the registrant’s periodic report on Form 10-Q for the quarter ended September 30, 2008.]

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10.23	Loan Agreement, dated July 1, 2008, by and between Lifang Chen and Jiangsu Cold-Rolled (English Translation) [Incorporated by reference to Exhibit 99.2 to the registrant’s periodic report on Form 10-Q for the quarter ended September 30, 2008.]
10.24*	Loan Agreement, dated March 11, 2009, by and between Sutor Steel Technology Co., Ltd. and Lifang Chen.
10.25*	Loan Agreement, dated April 29, 2009, by and between Sutor Steel Technology Co., Ltd. and Lifang Chen.
10.26*	Loan Agreement, dated November 20, 2008, by and between Guihua Ling and Sutor Steel Technology Co., Ltd. (English Translation)
10.27	Sutor Technology Group Limited Independent Director’s Contract, dated as of February 4, 2008, by and between Sutor Technology Group Limited and A. Carl Mudd [Incorporated by reference to Exhibit 10.1 to the registrant current report on Form 8-K filed on February 8, 2008]
10.28	Sutor Technology Group Limited Independent Director’s Contract, dated as of February 4, 2008, by and between Sutor Technology Group Limited and Guoyou Shao [Incorporated by reference to Exhibit 10.2 to the registrant current report on Form 8-K filed on February 8, 2008]
10.29	Sutor Technology Group Limited Independent Director’s Contract, dated as of February 4, 2008, by and between Sutor Technology Group Limited and Xinchuang Li [Incorporated by reference to Exhibit 10.3 to the registrant current report on Form 8-K filed on February 8, 2008]
10.30	Indemnification Agreement, dated as of February 4, 2008, by and between Sutor Technology Group Limited and A. Carl Mudd [Incorporated by reference to Exhibit 10.4 to the registrant current report on Form 8-K filed on February 8, 2008]
10.31	Indemnification Agreement, dated as of February 4, 2008, by and between Sutor Technology Group Limited and Guoyou Shao [Incorporated by reference to Exhibit 10.5 to the registrant current report on Form 8-K filed on February 8, 2008]
10.32	Indemnification Agreement, dated as of February 4, 2008, by and between Sutor Technology Group Limited and Xinchuang Li [Incorporated by reference to Exhibit 10.6 to the registrant current report on Form 8-K filed on February 8, 2008]
10.33*	Lease Agreement, dated November 8, 2008, by and between Lifang Chen and Changshu Huaye Steel Strip Co., Ltd. (English Translation)
14	Amended and Restated Business Ethics Policy and Code of Conduct. [Incorporated by reference to Exhibit 14 to the registrant’s current report on Form 8-K filed on February 2, 2007]
21*	List of subsidiaries of the registrant.
24	Power of Attorney (included on the signature page of this annual report).
31.1*	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certifications Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

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SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of June 30, 2009 and 2008	F-3
Consolidated Statements of Operations and Comprehensive Income for the Years Ended June 30, 2009, 2008 and 2007	F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2007, 2008 and 2009	F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 2009, 2008 and 2007	F-6
Notes to Consolidated Financial Statements	F-7

F-1

HANSEN, BARNETT & MAXWELL, P.C.
A Professional Corporation	Registered with the Public Company
CERTIFIED PUBLIC ACCOUNTANTS	Accounting Oversight Board
5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128
Phone: (801) 532-2200
Fax: (801) 532-7944
www.hbmcpas.com	A Member of the Forum of Firms

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Stockholders

Sutor Technology Group Limited

We have audited the accompanying consolidated balance sheets of Sutor Technology Group Limited and subsidiaries as of June 30, 2009 and 2008, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2009. These 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 audit included consideration of internal control over financial reporting as a basis of 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 Sutor Technology Group Limited and subsidiaries as of June 30, 2009 and 2008 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

HANSEN, BARNETT & MAXWELL, P.C.

Salt Lake City, Utah

September 23, 2009

F-2

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,		June 30,
	2009		2008
ASSETS
Current Assets:
Cash and cash equivalents	$	10,511,028	$	11,806,101
Restricted cash		51,809,170		59,489,508
Trade accounts receivable, net of allowance for
doubtful accounts of $389,765 and $70,653, respectively		8,355,361		6,268,858
Other receivables		326,848		100,271
Advances to suppliers, related parties		95,810,109		76,118,544
Advances to suppliers, net of allowance
of $817,159 and $1,472,828, respectively		23,955,493		28,035,815
Inventory		38,548,418		51,315,521
Notes receivable		17,532		130,970
Deferred taxes		266,110		288,976
Total Current Assets		229,600,069		233,554,564
Property and Equipment, net of accumulated depreciation of
$17,484,268 and $12,019,445, respectively		69,766,127		59,736,612
Intangible Assets, net of accumulated amortization of
$345,130 and $285,888, respectively		3,047,498		3,238,931
TOTAL ASSETS	$	302,413,694	$	296,530,107
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	12,129,003	$	6,003,898
Advances from customers		17,845,426		16,871,618
Other payables and accrued expenses		3,176,493		3,265,860
Short-term notes payable		104,312,763		129,192,870
Short-term notes payable - related parties		9,900,727		1,311,510
Total Current Liabilities		147,364,412		156,645,756
Long-Term Notes Payable		2,859,995		-
Long-Term Notes Payable - Related Parties		249,996		7,099,998
Total Liabilites		150,474,403		163,745,754
Minority Interest in Assets of Subsidiary		-		34,697
Stockholders' Equity
Undesignated preferred stock - $0.001 par value;
1,000,000 shares authorized; no shares outstanding		-		-
Common stock - $0.001 par value; 500,000,000 shares authorized;
37,955,602 shares outstanding		37,955		37,955
Additional paid-in capital		37,170,164		37,170,164
Statutory reserves		12,586,995		12,586,995
Retained earnings		84,407,200		65,772,975
Accumulated other comprehensive income		17,736,977		17,181,567
Total Stockholders' Equity		151,939,291		132,749,656
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	302,413,694	$	296,530,107

The accompanying notes are an integral part of the consolidated financial statements.

F-3

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

	For the Years Ended June 30,
	2009			2008			2007
Revenue:
Revenue	$	190,506,892		$	237,494,371		$	147,466,726
Revenue from related parties		150,978,922			180,535,469			155,972,011
		341,485,814			418,029,840			303,438,737
Cost of Revenue
Other cost of revenue		142,559,158			266,149,352			115,285,842
Purchases from related parties		166,119,456			106,960,453			157,615,325
		308,678,614			373,109,805			272,901,167
Gross Profit		32,807,200			44,920,035			30,537,570
Operating Expenses:
Selling expense		3,128,676			2,237,957			2,319,728
General and administrative expense		3,959,258			3,749,453			4,735,973
Total Operating Expenses		7,087,934			5,987,410			7,055,701
Income from Operations		25,719,266			38,932,625			23,481,869
Other Income (Expense):
Interest income		1,386,466			943,466			566,469
Other income		149,007			188,273			298,488
Interest expense		(5,886,727	)		(6,253,098	)		(2,258,425	)
Other expense		(402,936	)		(756,943	)		(874,651	)
Total Other Income (Expense)		(4,754,190	)		(5,878,302	)		(2,268,119	)
Income Before Taxes and Minority Interest		20,965,076			33,054,323			21,213,750
Provision for income taxes		(2,330,851	)		(1,916,468	)		(696,754	)
Minority interest in loss of consolidated subsidiary		-			(1,885	)		3,395
Net Income	$	18,634,225		$	31,135,970		$	20,520,391
Basic and Diluted Earnings per Common Share	$	0.49		$	0.82		$	0.59
Net Income	$	18,634,225		$	31,135,970		$	20,520,391
Foreign currency translation adjustment		555,410			12,261,597			3,488,320
Comprehensive Income	$	19,189,635		$	43,397,567		$	24,008,711

The accompanying notes are an integral part of the consolidated financial statements.

F-4

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JUNE 30, 2007, 2008 AND 2009

																								Accumulated
	Series A Voting Convertible						Series B Voting Convertible										Additional							Other		Total
	Preferred Stock						Preferred Stock						Common Stock				Paid in			Statutory		Retained		Comprehensive		Stockholders'
	Shares			Amount			Shares			Amount			Shares		Amount		Capital			Reserves		Earnings		Income (Loss)		Equity
Balance, June 30, 2006		-		$	-			304,182.73		$	24,586,097			-	$	-	$	-		$	5,664,889	$	21,038,720	$	1,431,650	$	52,721,356
Issuance for cash, July		-			-			18,578.48			1,500,000			-		-		-			-		-		-		1,500,000
Issuance for cash, November		-			-			619.29			21,059,950			-		-		-			-		-		-		21,059,950
Capital distributions		-			-			-			(21,036,767	)		-		-		-			-		-		-		(21,036,767	)
Issuance for cash, February		-			-			39,473.56			10,570,762			-		-		-			-		-		-		10,570,762
Issuance to acquire Bronze
Marketing, Inc.		135,000			-			-			-			150,000		150		(150	)		-		-		-		-
Issuance for services		20,122			528,077			-			-			-		-		-			-		-		-		528,077
Conversion of Series A Preferred
Stock into common stock		(155,122	)		(528,077	)		-			-			1,520,196		1,520		526,557			-		-		-		-
Conversion of Series B Preferred
Stock into common stock		-			-			(362,854.06	)		(36,680,042	)		36,285,406		36,285		36,643,757			-		-		-		-
Net income for the year		-			-			-			-			-		-		-			2,083,380		18,437,011		-		20,520,391
Foreign currency translation
adjustment		-			-			-			-			-		-		-			-		-		3,488,320		3,488,320
Balance, June 30, 2007		-			-			-			-			37,955,602		37,955		37,170,164			7,748,269		39,475,731		4,919,970		89,352,089
Net income for the year		-			-			-			-			-		-		-			4,838,726		26,297,244		-		31,135,970
Foreign currency translation
adjustment		-			-			-			-			-		-		-			-		-		12,261,597		12,261,597
Balance, June 30, 2008		-			-			-			-			37,955,602		37,955		37,170,164			12,586,995		65,772,975		17,181,567		132,749,656
Net income for the year																							18,634,225				18,634,225
Foreign currency translation
adjustment		-			-			-			-			-		-		-			-		-		555,410		555,410
Balance, June 30, 2009		-		$	-			-		$	-			37,955,602	$	37,955	$	37,170,164		$	12,586,995	$	84,407,200	$	17,736,977	$	151,939,291

The accompanying notes are an integral part of the consolidated financial statements.

F-5

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended June 30,
	2009			2008			2007
Cash Flows from Operating Activities:
Net income	$	18,634,225		$	31,135,970		$	20,520,391
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation and amortization		5,746,392			4,384,418			2,708,805
Minority interest in loss of consolidated subsidiary		-			1,885			(3,395	)
Deferred income taxes		23,994			(272,375	)		-
Stock based compensation		-			-			528,077
Gain on sale of assets		(161,458	)		(2,844	)		-
Changes in current assets and liabilities:
Trade accounts receivable, net		(2,111,269	)		9,537,171			(13,596,643	)
Other receivables, net		(226,140	)		(48,258	)		(41,539	)
Advances to suppliers		4,139,480			7,869,743			(20,747,998	)
Inventories		12,959,033			(24,623,639	)		(9,075,799	)
Accounts payable		6,202,723			1,562,872			395,630
Advances from customers		906,806			7,102,064			490,208
Other payables and accrued expenses		(24,798	)		257,455			802,466
Advances to suppliers - related parties		(18,057,041	)		(71,873,877	)		(10,536,690	)
Net Cash Provided by (Used in) Operating Activities		28,031,947			(34,969,415	)		(28,556,487	)
Cash Flows from Investing Activities:
Changes in notes receivable		99,296			89,430			(126,402	)
Purchase of property and equipment, net of value
added tax refunds received		(16,473,995	)		(10,872,302	)		(8,850,305	)
Proceeds from sale of assets		783,033			10,369			-
Purchase of land use rights		-			-			(198,301	)
Net change in restricted cash		7,911,082			(26,998,292	)		5,607,772
Net Cash Used in Investing Activities		(7,680,584	)		(37,770,795	)		(3,567,236	)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable		186,704,193			160,238,315			136,558,731
Payments on notes payable		(209,223,167	)		(91,833,084	)		(112,004,593	)
Proceeds from issuance of Series B preferred stock		-			-			33,130,712
Proceeds from issuance of notes payable - related parties		3,354,441			8,411,508			-
Payments on notes payable - related parties		(2,520,812	)		(2,244,164	)		-
Payments on long-term debt		-			-			(2,554,598	)
Capital distribution to shareholders		-			-			(21,036,767	)
Net Cash Provided by (Used in) Financing Activities		(21,685,345	)		74,572,575			34,093,485
Effect of Exchange Rate Changes on Cash		38,909			1,140,794			328,687
Net Change in Cash		(1,295,073	)		2,973,159			2,298,449
Cash and Cash Equivalents at Beginning of Year		11,806,101			8,832,942			6,534,493
Cash and Cash Equivalents at End of Year	$	10,511,028		$	11,806,101		$	8,832,942
Supplemental Cash Flow Information
Cash paid during the period for interest	$	4,204,006		$	5,952,002		$	2,258,425
Cash paid during the period for taxes	$	3,061,596		$	3,746,316		$	2,436,656

The accompanying notes are an integral part of the consolidated financial statements.

F-6

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND OPERATIONS

Organization and Basis of Presentation - On January 17, 2003, Changshu Huaye Steel Strip Co., Ltd. (“Changshu Huaye”) was organized under the laws of the People’s Republic of China (the “PRC”) and on August 28, 2003, Jiangsu Cold-Rolled Technology Co., Ltd. (“Jiangsu Cold-Rolled”) was organized under the laws of the PRC. Both were organized by Huaye (H.K.) International Group Company Limited (“Hong Kong Huaye”) and Shanghai Huaye Iron & Steel Co., Ltd., (“Shanghai Huaye”). Hong Kong Huaye and Shanghai Huaye are each owned 41% and 59%, respectively, by two individuals (the “Principal Shareholders”).

On August 15, 2006, the Principal Shareholders formed Sutor Steel Technology Co., Ltd. (“Sutor Steel”) under the laws of the British Virgin Islands and agreed to purchase and were issued 50,000 shares of Sutor Steel’s common stock (before the recapitalization described below) for $50,000. However, by November 13, 2006, the Principal Shareholders had made capital contributions of cash in the amount of $21,059,950 instead of the $50,000 previously agreed upon. By November 13, 2006, Sutor Steel had received a business license from the government of the PRC permitting the acquisition of Changshu Huaye and Jiangsu Cold-Rolled, and on November 13, 2006, Sutor Steel acquired all of the outstanding ownership interest in Changshu Huaye and Jiangsu Cold-Rolled from Shanghai Huaye and Hong Kong Huaye in exchange for cash payments of $21,036,767.

The acquisition of Changshu Huaye and Jiangsu Cold-Rolled by Sutor Steel was the transfer of net assets in exchange for common stock between entities under common control and the assets and liabilities transferred remained at their historical carrying amounts at the date of transfer. The reorganization of Changshu Huaye and Jiangsu Cold-Rolled into Sutor Steel was accounted for as a recapitalization of Changshu Huaye and Jiangsu Cold-Rolled in a manner similar to a stock split and the accompanying consolidated financial statements have been restated to reflect the 50,000 shares of common stock issued to the Principal Shareholders as outstanding for all periods presented (before the recapitalization described below). The $21,059,950 received from the Principal Shareholders and the $21,036,767 cash payments made to Shanghai Huaye and Hong Kong Huaye were recognized as capital contributions and capital distributions, respectively, on the date they occurred.

On November 7, 2006, Bronze Marketing, Inc., a Nevada corporation, (“Bronze”) entered into an assignment agreement with BTHC III, Inc., an unrelated third-party, Sutor Steel and Sutor Steel’s shareholders (the Principal Shareholders), whereby Bronze assumed all rights and obligations of BTHC III, Inc. pursuant to a Share Exchange Agreement dated September 7, 2006. On February 1, 2007, the Share Exchange Agreement, as amended, (the “Exchange Agreement”) was consummated and Bronze acquired 100% of the equity interest of Sutor Steel from the Principal Shareholders in exchange for the issuance of 323,380.50 shares of Series B voting convertible preferred stock (the “Series B Preferred Stock”) and the Principal Shareholders received a majority of the voting equity interests of Bronze. The reorganization of Sutor Steel into Bronze under the Exchange Agreement was accounted for as the recapitalization of Sutor Steel at historical cost. The accompanying consolidated financial statements have been restated on a retroactive basis to reflect the 323,380.50 shares of Series B Preferred Stock issued to the Principal Shareholders as outstanding for all periods presented.

On January 31, 2007, a majority of the Bronze shareholders approved an amendment to the Bronze articles of incorporation to change its name to Sutor Technology Group Limited and to increase the authorized common stock from 100,000,000 shares to 500,000,000 shares. The amendment to the articles of incorporation became effective on March 6, 2007.

F-7

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

References herein to the “Company” or “Sutor Steel” refer both to Sutor Steel Technology Co., Ltd., a private company, and its subsidiaries for the periods prior to February 1, 2007, and to Sutor Technology Group Limited (formerly Bronze Marketing, Inc.), a public company, and its subsidiaries for the periods following February 1, 2007.  References to “Bronze” refer solely to the corporate entity for the periods prior to February 1, 2007.

Nature of Operations - The operations of Changshu Huaye are located in the PRC. Changshu Huaye manufactures hot-dip galvanized steel (“HDG Steel”) and pre-painted galvanized steel (“PPGI”). In addition, Changshu Huaye owned a 90% interest in a consolidated subsidiary, Changshu Dongbang Sewage Treatment Co., Ltd. which is also located in the PRC. This subsidiary was sold during 2009. For the year ended June 30, 2009, approximately 93% of Changshu Huaye revenue is derived from sales within the PRC of steel products. A significant portion of the purchases and revenues of Changshu Huaye consist of transactions between Shanghai Huaye, which is owned by the Principal Stockholders, and its subsidiaries.

The operations of Jiangsu Cold-Rolled are also located in the PRC. Jiangsu Cold-Rolled operates several production lines that refines products such as cold-rolled steel and acid pickled steel through the use of various high-technology machines. For the year ended June 30, 2009 all of Jiangsu Cold-Rolled revenue is derived from sales of steel products within the PRC.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Functional Currency and Translating Financial Statements - The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The functional currency of the Company is the Chinese Yuan Renminbi (“RMB”); however, the accompanying consolidated financial statements have been expressed in United States Dollars (“USD”). The accompanying consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The accompanying consolidated statements of operations and cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. Transactions in the Company’s equity securities have been recorded at the exchange rate existing at the time of the transaction.

Principles of Consolidation - The operations of Changshu Huaye and Jiangsu Cold-Rolled have been included in the accompanying consolidated financial statements for all periods presented. The accounts and transactions of Sutor Steel Technology Co., Ltd. have been included from its formation on August 15, 2006. The accounts and transactions of Sutor Technology Group Limited have been included from February 1, 2007. All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Estimates - The preparation of financial statements in conformity with Generally Accepted Accounting Principals in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

F-8

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents - Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term certificates of deposit with original maturities of three months or less.

Restricted Cash - The Company has entered into agreements to pay suppliers, which require the Company to maintain cash balances as security for notes payable to the suppliers. These secured cash balances are presented in the consolidated balance sheets as restricted cash.

Fair Values of Financial Instruments - The carrying amounts reported in the consolidated balance sheets for trade accounts receivable, other receivables, advances to suppliers, notes receivable, receivable from related parties, accounts payable, short-term notes payable, other payables and accrued expenses, advances from customers, and amounts due to related parties approximate fair value because of the immediate or short-term maturity of these financial instruments.

Credit Risk - The carrying amounts of trade accounts receivable and other non-trade receivables included in the consolidated balance sheets represent the Company’s exposure to credit risk in relation to its financial assets. The Company performs ongoing credit evaluations of each customer’s financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate did not exceeded management’s estimations.

Trade Accounts, Other Receivables and Allowance for Doubtful Accounts - Trade accounts receivables and other receivables are carried at original invoiced amounts less an allowance for doubtful accounts. Other receivables consist of amounts advanced to suppliers, but subsequently not used, resulting in a receivable.

Inventory - Inventory is valued at the lower of cost or market, with cost computed on a first-in-first-out basis.

Valuation of Long-lived Assets - The carrying values of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that they may not be recoverable. When such an event occurs, the Company projects the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset. If projections were to indicate that the carrying value of the long-lived asset will not be recovered, the carrying value is reduced by the estimated excess of the carrying value over the projected discounted cash flows.

Property and Equipment - Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on a straight line basis over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred and major improvements are capitalized. Gains or losses on sales, trade-ins, or retirements are recognized in income. Interest is capitalized on significant construction projects.

Intangible Assets - Acquisition costs of land use rights are capitalized and amortized using the straight-line method over their estimated useful lives.

Advances to Suppliers and from Customers - The Company, as is common practice in the PRC, will often make advance payments to its suppliers for materials, or receive advance payments from its customers. The Company had net advances to suppliers of $23,955,493 and $28,035,815 at June 30, 2009 and 2008, respectively. The Company also had advances from its customers in the amount of $17,845,426 and $16,871,618 at June 30, 2009 and 2008, respectively.

F-9

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition - The Company recognizes revenues from the sale of products when they are realized and earned. The Company considers revenue realized or realizable and earned when (1) it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the sales price is fixed or determinable, and (4) collectibility is reasonably assured. Revenues are not recognized until products have been shipped to the client, risk of loss has transferred to the client and client acceptance has been obtained, client acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in client acceptance provisions have been satisfied.

As discussed in Note 7, the Company sells product to affiliates, who in turn sell the product to various other third party customers. The price, terms and conditions on the sales to affiliates are the same as those to third parties. Revenue is considered realized or realizable and earned when the affiliates ship the product to third party customers. A fee of 0.5% of the sale is paid to the affiliate for handling the product. These handling fees have been classified as selling expenses in the statement of operations.

Cost of Revenue - Cost of products sold includes wages, materials, handling charges, and other expenses associated with the manufacture and delivery of product.

Shipping and Handling Costs - Shipping and handling costs are billed to customers and are recorded as revenue and the associated costs are included in cost of revenues.

Retirement Benefit Plans - Full time employees of subsidiaries of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, employee housing fund, and other welfare benefits are provided to employees. Chinese labor regulations require that the subsidiaries of the company make contributions to the government for these benefits based on a certain percentages of employees’ salaries. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $327,362, $492,804 and $315,821 for the years ended June 30, 2009, 2008 and 2007, respectively.

Share Based Payments – The Company accounts for share-based compensation expense in accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment” (SFAS 123R). Under SFAS 123R, share-based compensation expense reflects the fair value of share-based awards measured at the grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. We estimate the fair value of each share-based award on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options, a risk-free interest rate and dividend yield.  A total of 2,000,000 shares of common stock were authorized for issuance under the plan.  The plan was approved by the board of directors on April 15, 2009 and approved by the stockholders on June 16, 2009.

Basic and Diluted Earnings per Common Share - The computation of basic earnings per common share is based on income divided by the weighted-average number of common shares outstanding after giving effect of using the if-converted method for qualified participating securities during each period presented where the qualified participating securities are dilutive. Diluted earnings per common share are calculated by dividing income assuming dilution by the weighted-average number of common shares and potential dilutive shares of common stock issuable upon conversion of non-participating shares. The Company does not have any non-participating potentially dilutive securities. The calculations of basic and diluted income per share were as follows:

F-10

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	For the Years Ended June 30,
	2009		2008		2007
Net income	$	18,634,225	$	31,135,970	$	20,520,391
Weighted-average common shares outstanding		37,955,602		37,955,602		4,181,750
Effect of participating convertible Series B Preferred Stock		-		-		30,418,273
Weighted-Average Basic and Dilutive Common Shares Outstanding		37,955,602		37,955,602		34,600,023
Basic and Diluted Earnings per Common Share	$	0.49	$	0.82	$	0.59

Accumulated Other Comprehensive Income - Accumulated other comprehensive income presented in the accompanying consolidated financial statements consists of foreign currency translation adjustments.

Recently Enacted Accounting Standards - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.  The adoption of the portions of SFAS No. 157 that were not postponed by (FSP FIN) No. 157-2 did not have an effect on our consolidated financial statements. The Company does not expect the adoption of the postponed portions of SFAS No. 157 to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS No. 141(R) and SFAS No. 160 are not expected to have a material impact on our results of operations or financial position.

In December 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of EITF 07-1 to have a material impact on our consolidated financial statements.

F-11

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSB FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. The Company does not expect the adoption of FSP FAS 142-3 to have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles.  SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP.  The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process.  The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  The adoption of FASB 162 is not expected to have a material impact on the Company’s financial statements.

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP FAS 133-1 and FIN 45-4). FSP FAS 133-1 and FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies that the disclosure requirements of SFAS No. 161 are effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. FSP FAS 133-1 and FIN 45-4 is effective for fiscal years ending after November 15, 2008. The adoption of FSP FAS 133-1 and FIN 45-4 has not had a material impact on the Company’s financial statements.

In December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities ("FSP FAS 140-4 and FIN 46(R)-8"). FSP FAS 140-4 and FIN 46(R)-8 amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and FIN 46(R), FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, to require public entities to provide additional disclosures about transfers of financial assets and their involvement with variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for fiscal years ending after December 15, 2008. The adoption of FSP FAS 140-4 and FIN 46(R)-8 has not had a material impact on the Company’s financial statements.

F-12

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value.  FSP FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The adoption of FSP FAS 107-1 and APB 28-1 is not expected to have a material impact on the Company’s financial statements.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (SFAS 165). Under SFAS 165, requires companies to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. SFAS 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. SFAS 165, also requires entities to disclose the date through which subsequent events have been evaluated. SFAS 165 is effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of SFAS 165 for the year ended June 30, 2009, as required, the adoption did not have a material impact on the Company’s financial statements.  The Company evaluated events subsequent to the balance sheet date through September 23, 2009.

On January 1, 2009 the Company adopted EITF Issue No. 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement (such as a guarantee) should not include the effect of the credit enhancement in the fair value measurement of the liability. There was no effect on the Company’s consolidated financial statements upon adoption of EITF 08-5.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles or SFAS No. 168. SFAS No. 168 will become the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant SEC guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods ending after September 15, 2009. This will have an impact on the Company’s financial disclosures since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

NOTE 3 – INVENTORY

Inventory consisted of the following:

	June 30,
	2009		2008
Raw materials	$	18,266,080	$	32,840,857
Finished goods		20,282,338		18,474,664
Total Inventory	$	38,548,418	$	51,315,521

F-13

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment includes value-added tax paid. Foreign invested enterprises and foreign enterprises doing business in the PRC are generally able to receive a refund of the value-added tax paid on property and equipment purchased and manufactured within the PRC. The Company recognizes refunds of value-added tax as a reduction of property and equipment when the refunds are collected. The refunds are a long-term asset as it can take up to three years to collect them from the PRC government. Investment tax credits are realized upon collection from the government. For further discussion regarding the investment tax credit, see Note 8.

Property and equipment consisted of the following:

	June 30,
	2009			2008
Buildings and plant	$	26,121,807		$	17,525,800
Machinery		57,126,473			40,119,643
Office and other equipment		878,692			789,968
Vehicles		217,961			217,883
Construction in process		2,905,462			13,102,763
Total		87,250,395			71,756,057
Less accumulated depreciation		(17,484,268	)		(12,019,445	)
Net property, plant and equipment	$	69,766,127		$	59,736,612

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, as follows:

	Life
Buildings and plant	20 years
Machine	10 years
Office and other equipment	5 years
Vehicles	5 years

Depreciation expense for the years ended June 30, 2009, 2008 and 2007 was $5,677,843, $4,311,708 and $2,653,422, respectively.

NOTE 5 - INTANGIBLE ASSETS

The Company’s intangible assets consist of several land use rights, which are amortized over the 50-year life of those rights. Amortization expense for the years ended June 30, 2009, 2008, and 2007 was $68,549, $72,710 and $55,383, respectively. Intangible information by segment is presented below:

	Steel Coating			Cold Rolled
As of June 30, 2009	and Plating			Steel Production			Total
Gross Carrying Amount	$	2,158,704		$	1,233,924		$	3,392,628
Accumulated Amortization		(239,439	)		(105,691	)		(345,130	)
	$	1,919,265		$	1,128,233		$	3,047,498

	Steel Coating			Cold Rolled
As of June 30, 2008	and Plating			Steel Production			Total
Gross Carrying Amount	$	2,150,222		$	1,374,597		$	3,524,819
Accumulated Amortization		(195,493	)		(90,395	)		(285,888	)
	$	1,954,729		$	1,284,202		$	3,238,931

F-14

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following schedule sets forth the estimated amortization expense for the periods presented:

Estimated Amortization Expense
For the year ending June 30, 2010	$	67,819
For the year ending June 30, 2011		67,819
For the year ending June 30, 2012		67,819
For the year ending June 30, 2013		67,819
For the year ending June 30, 2014		67,819

NOTE 6 - NOTES PAYABLE

The Company’s notes payable consist of short and long-term debt.  All non related party short-term notes payable were due to banks. The following schedules sets forth the Company’s notes payable and notes payable – related party as of the dates presented:

Non related party short-term notes were comprised of the following:

	Maturity	June 30,		June 30,
	Date	2009		2008
Short-term notes payable, no interest rate, secured by cash deposits, guaranteed by related parties	various dates	$	24,105,891	$	65,455,921
Note payable at 4.86% interest, secured by land use right	8/4/2009		1,899,252		-
Note payable at 4.86% interest, secured by property	8/6/2009		8,327,489		-
Note payable at 5.31% interest, guaranteed by related party	8/13/2009		1,753,156		-
Note payable at 5.37% interest, guaranteed by related party	12/28/2009		1,460,963		-
Note payable at 5.31% interest, guaranteed by related party	2/26/2010		2,921,926		-
Note payable at 5.31% interest, secured by land use right	4/13/2010		4,382,889		-
Note payable at 6.03% interest, guaranteed by related party	4/29/2010		2,921,926		-
Note payable at 6.03% interest, guaranteed by related party	5/27/2010		7,304,815		-
Note payable at 5.31% interest, guaranteed by related party	6/25/2010		2,921,926		-
Note payable at 4.86% interest, guaranteed by related party	various dates		46,312,530		-
Note payable at 6.84% interest	matured		-		2,910,446
Note payable at 7.52% interest	matured		-		2,910,446
Note payable at 6.57% interest	matured		-		1,746,267
Note payable at 6.57% interest	matured		-		3,347,012
Note payable at 6.57% interest	matured		-		11,787,305
Note payable at 8.22% interest	matured		-		4,509,381
Note payable at 6.90% interest	matured		-		1,746,267
Note payable at 6.57% interest	matured		-		2,910,446
Note payable at 6.57% interest	matured		-		1,891,790
Note payable at 6.57% interest	matured		-		18,917,896
Note payable at 6.90% interest	matured		-		11,059,693
Total Short-Term Notes Payable		$	104,312,763	$	129,192,870

F-15

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes due to related parties were comprised of the following:

Short-term note payable to related party
Note payable to Principal Shareholder, no interest rate, unsecured	On demand	$	1,568,636	$	1,311,510
Note payable to Principal Shareholder, no interest rate, unsecured	On demand		1,052,099		-
Note payable to Principal Shareholder, no interest rate, unsecured	On demand		79,997		-
Note payable to Principal Shareholder, no interest rate, unsecured	On demand		99,997		-
Note payable to related party, at 5.00%, unsecured	12/20/2009		7,099,998		-
Total short-term notes payable - related parties		$	9,900,727	$	1,311,510
Long-term note payable to related party at 5.00% interest, unsecured	12/20/2009	$	-	$	7,099,998
Note payable to Principal Shareholder,  3.6% interest, unsecured	3/11/2012		99,998	$	-
Note payable to Principal Shareholder,  5.0% interest, unsecured	4/29/2012		149,998	$	-
Total long-term notes payable - related parties		$	249,996	$	7,099,998
Long-term note payable at 6.00% interest, unsecured	11/20/2011		2,859,995		-
Total long-term notes payable		$	2,859,995	$	-

The Company has certain notes payable that indicate that they have a zero interest rate.  The Company intends to repay these notes as they mature.  Interest-free loans are common in China; therefore, the Company does not impute interest on these loans.

The Company’s debt agreements contain debt covenants which require the Company to maintain certain inventory levels. The Company was in compliance with these debt covenants at June 30, 2009.

NOTE 7 - RELATED PARTIES

The Company sells it products to and buys raw materials from various companies which are owned or controlled by the Principal Shareholders. These other companies are composed of 20 sister companies with which the Company conducts significant transactions. Revenues related to these transactions are shown separately in the accompanying consolidated statements of operations. For the years ended June 30, 2009, 2008, and 2007, costs of revenue include purchases from these related parties of $166,119,456, $106,960,453 and $157,615,325, respectively.

The amounts due to related parties are non-interest bearing and were incurred in the normal course of business. Receivables from, advances to suppliers, sales to, payables from advanced sales deposits, and payables from purchases from related parties have been netted due to the right of offset. At June 30, 2009 and 2008, the net amounts due from related parties were $95,810,109 and $76,118,544, respectively. The amounts charged for products to the Company by the related parties are under the same pricing, terms and conditions as those charged to third parties, and are due upon receipt. It is not uncommon for the Company with its related parties to accommodate an extension of 90 to 180 days. Amounts receivable from related parties are also due upon delivery. Advances to suppliers to related parties are relieved once the goods are received.

At June 30, 2009, the Company had unused letters of credit totaling $54,347,826 in the form of banker’s acceptance notes that are held by related parties in connection with purchases from related parties. The banker’s acceptance notes carry a 0% interest rate, can be presented to the respective banks in 90 to 180 days from the dates they were written, are secured by cash on deposit with the respective banks and are guaranteed by related parties.

F-16

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 20, 2007, Ms. Chen loaned the Company $7.1 million. The loan is for a period of 24 months, carries an interest rate of 5% and is included in the accompanying balance sheet at June 30, 2009 under the caption short term notes payable – related parties.

On various dates from February 25, 2007 to June 30, 2009, Ms. Chen loaned the Company a total of $5.3 million.  The Company during that same period paid Ms. Chen $2.5 million.  The notes are due on demand and bear no interest and are included in the accompanying balance sheet under the caption short-term notes payable – related parties in the net amount of $2.8 million and $1.3 million at June 30, 2009 and 2008, respectively.

On November 8, 2008, the Company entered into an agreement with the Principal Shareholder for the lease of 1,200 square meters of property in the Dongbang Industrial Park, in Changhsu, China.  The terms of the agreement state that the Company will lease the property for three years, and pay the Principal Shareholder approximately $17,500 per month.

On March 11, 2009, Ms. Chen loaned the Company $99,998.  The loan is for a period of 36 months, carries an interest rate of 3.60% and is included in the accompanying balance sheet at June 30, 2009 under the caption long-term notes payable – related parties.

On April 29, 2009, Ms. Chen loaned the Company $149,998.  The loan is for a period of 36 months, carries an interest rate of 5.00% and is included in the accompanying balance sheet at June 30, 2009 under the caption long-term notes payable – related parties.

Some of the Company’s notes payables are guaranteed by related parties as described in Note 6.

NOTE 8 - INCOME TAXES

Before the implementation of the new Enterprise Income Tax Law (“EIT Law”) as discussed below, Foreign Invested Entities (“FIE”) established in the PRC were generally subject to an enterprise income tax (“EIT”) rate of 33.0%, which includes a 30.0% state income tax and a 3.0% local income tax. FIEs established in Coastal Open Economic Zones, Special Economic Zones or Economic and Technical Development Zones, such as the Company’s PRC subsidiaries Changshu Huaye and Jiangsu Cold-Rolled, are subject to an EIT rate of 24.0% of the assessable profits. As approved by the local tax authority in the PRC, Changshu Huaye was entitled to a two-year exemption from EIT followed by 50% tax exemption for the next three calendar years, commencing from the first cumulative profit-making year in the calendar of 2004. Accordingly, Changshu Huaye was exempt from EIT for the calendar year of 2004 and 2005 and was and would be subject to a tax rate of 12% for the calendar years 2006, 2007 and 2008. The Company’s other subsidiary, Jiangsu Cold-Rolled had the same two-year full tax exemption for the calendar years 2006 and 2007, followed by 50% tax exemption for the next three years.

In addition, Changshu Huaye, being a FIE, was entitled to a special tax concession that allows an amount up to 40% of the qualifying domestic capital expenditures (as defined and approved under the relevant PRC income tax rule) to be used as an offset against the excess of the current year’s EIT over the prior year’s EIT.

F-17

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 16, 2007, the National People’s Congress of China passed the new EIT Law, and on December 6, 2007, the State Council of China passed the Implementing Rules for the EIT Law (“Implementing Rules”) which took effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the old FIE tax laws, and its associated preferential tax treatments, beginning January 1, 2008.

The EIT Law gives existing FIEs a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. Changshu Huaye is subject to an EIT rate of 12.5% for the calendar year of 2008 and will be subject to EIT rate of 25% for 2009 and beyond. Jiangsu Cold-Rolled is exempt from EIT for the calendar year 2008 and will be subject to EIT of 12.5% for the calendar years 2009, 2010 and 2011. Jiangsu Cold-Rolled will be subject to an EIT of 25% for the calendar year 2012 and beyond. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse affect on the Company’s business, fiscal condition and current operations in China.

During the years ended June 30, 2008 and 2007, the PRC tax authorities approved the application of Changshu Huaye for a tax credit on certain domestic purchases of machinery in the PRC.  The credit is based upon 40% of certain eligible assets for specific industries in the PRC, and is payable at the government’s discretion.  The credit is recorded when the refund for the tax credit is collected. As a result of being granted the credit, the Company recorded a reduction in its income tax provision in the amount of $1,385,711 and $1,889,992 for the years ended June 30, 2008 and 2007.

Taxes payable are a component of other payables and accrued expenses in the accompanying consolidated balance sheets and consisted of:

	June 30,
	2009		2008
Value added tax	$	813,789	$	339,849
Income tax		337,646		1,035,182
Surtax, insurance, other		23,675		115,046
Total Taxes	$	1,175,110	$	1,490,077

The statutory tax rate for 2009 is 25%. Due to the change in tax rate during fiscal 2008, the statutory tax rate for June 30, 2008 is a blended rate of approximately 30%, which was calculated as 33% during the six months ended December 31, 2007 and 25% during the six months ended June 30, 2008. For the year ended June 30, 2007 the statutory rate was 33%.

F-18

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Following is a reconciliation of income taxes at the calculated statutory rates:

	For the Years Ended June 30,
	2009			2008			2007
Income tax calculated at statutory rates	$	5,241,269		$	10,003,860		$	7,000,538
Investment tax credit		-			(1,385,711	)		(1,889,992	)
Benefit of favorable rates		(573,128	)		(1,640,703	)		(1,886,627	)
Benefit of tax holiday		(2,641,149	)		(5,008,137	)		(2,615,685	)
Tax effect of change in tax rates		-			165,585			-
Tax effect of parent and sewer losses		303,859			(218,426	)		88,520
Provision for income taxes	$	2,330,851		$	1,916,468		$	696,754

Deferred taxes are comprised of the following:

	June 30,
	2009		2008
Allowance for doubtful trade receivables	$	75,637	$	16,105
Allowance for doubtful other receivables		20,979		-
Allowance for doubtful advances to suppliers		169,494		272,871
Total deferred income tax assets	$	266,110	$	288,976

The provision for income taxes is comprised of the following:

	For the Years Ended June 30,
	2009		2008			2007
Current	$	2,307,985	$	2,205,444		$	696,754
Deferred		22,866		(288,976	)		-
Provision for income taxes	$	2,330,851	$	1,916,468		$	696,754

If the Company had not been granted a “tax holiday” during the years ended June 30, 2009, 2008, and 2007, the provision for income taxes would have been $4,972,000, $6,924,605, and $3,312,439, respectively. Net income after income tax for the years ended June 30, 2009, 2008, and 2007 would have been $15,993,076, $26,127,833, and $17,904,706, respectively. Basic and diluted earnings per common share for the years ended June 30, 2009, 2008, and 2007 diluted earnings per common share would have been $0.42, $0.69, and $0.52, respectively.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Economic environment - Since most of the Company’s operations are conducted in the PRC, the Company is subject to special considerations and significant risks. These risks include, among others, the political, economic and legal environments and foreign currency exchange rates. The Company’s results from operations may, among other things, 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 conversions and remittances abroad, and rates and methods of taxation.

F-19

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign currency remittance - The Company’s revenue is either earned in the PRC or remitted to banks within the PRC and is denominated in the PRC’s currency of RMB. The transfer of currencies outside of the PRC must be converted into other currencies. Both the conversion of RMB into foreign currencies and the remittance of those currencies outside the PRC require approval of the PRC government.

Commitment under Make Good Agreement - On February 1, 2007, the Company issued 39,473.56 shares of Series B Preferred Stock in a private placement offering for $10,570,762 of cash, net of $720,000 of commissions and other costs of $709,238. In connection with the private placement offering, a Principal Shareholder delivered 39,473.68 shares of Series B voting convertible preferred stock into an escrow pursuant to the terms of a Make Good Agreement. Upon conversion, as described below, the Series B Preferred Stock held in the escrow was exchanged for 3,947,368 shares of common stock. Under the terms of the Make Good Agreement, the escrow agent would have released a portion of the escrowed shares to the investors under the private placement offering if the Company’s net income was not at least $18,900,000 and $23,500,000 for the years ending June 30, 2007 and 2008, respectively. The Company achieved the net income requirements above for the year ended June 30, 2008 and 2007. On December 7, 2007, the escrow agent returned 1,973,684 shares to the Principal Shareholder and on October 23, 2008 the escrow agent returned the remaining 1,973,684 shares to the Principal Shareholder and no contingent obligation remains under the Make Good Agreement.

NOTE 10 - STOCKHOLDERS’ EQUITY

Preferred Stock - On February 3, 2006, the articles of incorporation were amended to authorize 1,000,000 shares of preferred stock with a par value of $0.001 per share. The Company may issue the preferred stock in one or more series with such rights, preferences and designations as determined by its Board of Directors. On November 3, 2006, and amended on January 24, and January 25, 2007, the Board of Directors designated 185,000 shares of Series A voting convertible preferred stock and 500,000 shares of Series B preferred stock. All shares of Series A preferred stock and Series B preferred stock have been converted into common shares. Since the Series A and Series B shares have been converted, there are 1,000,000 shares of preferred stock that remain undesignated.

Series A Voting Convertible Preferred Stock - The shares of Series A Preferred Stock ranked equal to all outstanding shares of common stock with respect to rights on liquidation, dissolution and winding up and are treated as though the shares of Series A Preferred Stock had been converted into common stock. Shares of Series A Preferred Stock were not entitled to any preferential dividends but were treated as though the shares of Series A Preferred Stock had been converted into common stock and shared equally in any dividend granted to shareholders of common stock, unless the holders of Series A Preferred Stock waived such rights in writing. The holders of Series A Preferred Stock were entitled to 9.8 votes per share and voted together with the common shareholders as one class on all matters submitted to a vote of common stockholders of the Company. The Series A Preferred Stock was convertible into common stock on the basis of one share of Series A Preferred Stock for 9.8 shares of common stock.

On January 8, 2007, the Company entered into a consulting agreement through Bronze with three parties for the purpose of obtaining assistance in completing the obligations assumed in the Exchange Agreement described in Note 1, and in consideration for those services, the Company issued 20,122 shares of Series A Preferred Stock to the three parties, which shares were valued at $528,077, or $26.24 per share, based on the equivalent value the Company received in net proceeds on February 1, 2007 as described below. The related consulting expense was recognized upon issuance and was charged to general and administrative expense.

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SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As further described in Note 1, Sutor Steel consummated a share exchange agreement with Bronze Marketing, Inc. on February 1, 2007. As of February 1, 2007, Bronze had no assets, liabilities or operations. Bronze had 155,122 shares of Series A Preferred Stock outstanding (including the 20,122 shares described in the preceding paragraph) and 150,000 shares of common stock outstanding, and was a shell corporation. The reverse acquisition of Bronze was recognized by Sutor Steel as the constructive issuance of 135,000 shares of Series A Preferred Stock and 150,000 shares of common stock that remained outstanding for no consideration. Since there were no proceeds received from the constructive issuance of the Series A Preferred Stock, no value was assigned to the beneficial conversion option received by the Series A Preferred Stock stockholders.

On March 9, 2007, the 155,122 shares of Series A Preferred Stock outstanding were converted into 1,520,196 shares of common stock on the basis of 9.8 shares of common stock for one share of Series A Preferred Stock.

Series B Voting Convertible Preferred Stock - Shares of Series B Preferred Stock were entitled to vote on an as-converted basis along with the common stock on all matters presented to a vote of the security holders. Shares of Series B Preferred Stock had anti-dilution protection in the event of any restructuring of the Company. Upon liquidation of the net assets of the Company, each share of Series B Preferred Stock was entitled to receive an amount equal to the stated value per share of the Series B Preferred Stock, subject to any adjustments in the stated value, outstanding prior to any distribution or payment to holders of any junior securities. With respect to rights on liquidation, dissolution and winding up, the shares of Series B Preferred Stock ranked equal to all outstanding shares of common stock. Holders of Series B Preferred Stock were not entitled to any preferential dividends but the shares were treated as though they had been converted into common stock and shared equally in any dividend granted to shareholders of common stock. Each share of Series B Preferred Stock was convertible into 100 shares of common stock.

On February 1, 2007, the Company issued 39,473.56 shares of Series B Preferred Stock in a private placement offering for $10,570,762 of cash, net of $720,000 of commissions and other costs of $709,238.

On March 9, 2007, the 362,854.06 shares of Series B Preferred Stock outstanding were converted into 36,285,406 shares of common stock on the basis of 100 shares of common stock for one share of Series B Preferred Stock.

Statutory Reserves - According to the articles of association of Changshu Huaye and Jiangsu Cold-Rolled, the Company is required to transfer a certain portion of its net profits, as determined under PRC accounting regulations, from net income to both the surplus reserve fund and the public welfare fund.

2009 Equity Incentive Plan - During 2009 the Company created the 2009 Equity Incentive Plan and reserved 2,000,000 shares of the Company’s common stock to be included as part of the plan.  There were no issuances under the plan during fiscal 2009.

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SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - SEGMENT INFORMATION

The Company has two reportable segments represented by its two subsidiaries Changshu Huaye and Jiangsu Cold-Rolled, as described in Note 1. Changshu Dongbang Sewage Treatment Co., Ltd. has been included with Changshu Huaye as its operations are insignificant and do not meet any of the quantitative thresholds for discrete presentation.

Factors Management Used to Identify the Enterprise’s Reportable Segments - The Company’s reportable segments are business units that offer different products and are managed separately and require reporting to the various regulatory jurisdictions. Changshu Huaye mainly produces HDG products and PPGI products, while Cold-Rolled offers cold-rolled steel strips and acid pickled steel products.

Certain segment information is presented below:

At June 30, 2009 and for the year then ended	Changshu Huaye		Jiangsu Cold- Rolled		Inter-Segment and   Reconciling Items			Total
Revenue	$	237,800,296	$	103,685,518	$	-		$	341,485,814
Total operating expenses		5,215,809		1,271,239		600,886			7,087,934
Interest income		1,304,032		82,434		-			1,386,466
Interest expense		1,303,045		4,125,061		458,621			5,886,727
Depreciation and amortization expense		2,184,553		3,561,839		-			5,746,392
Provision for income taxes		1,785,647		545,204		-			2,330,851
Net income		11,829,839		7,863,893		(1,059,507	)		18,634,225
Capital expenditures, net of VAT refunds		1,680,613		14,793,382		-			16,473,995
Total assets		232,770,219		129,016,250		(59,372,775	)		302,413,694

At June 30, 2008 and for the year then ended	Changshu Huaye		Jiangsu Cold- Rolled		Inter-Segment and   Reconciling Items			Total
Revenue	$	260,528,089	$	157,501,751	$	-		$	418,029,840
Total operating expenses		4,635,428		665,992		685,990			5,987,410
Interest income		832,179		111,287		-			943,466
Interest expense		1,944,739		4,120,647		187,712			6,253,098
Depreciation and amortization expense		2,024,644		2,359,774		-			4,384,418
Provision for income taxes		1,916,468		-		-			1,916,468
Net income		26,169,281		5,840,391		(873,702	)		31,135,970
Capital expenditures, net of VAT refunds		455,198		10,417,104		-			10,872,302
Total assets		196,192,239		101,176,306		(838,438	)		296,530,107

At June 30, 2007 and for the year then ended	Changshu Huaye			Jiangsu Cold-Rolled		Inter-Segment and   Reconciling Items			Total
Revenue	$	257,707,856		$	45,730,881	$	-		$	303,438,737
Total operating expenses		4,424,360			1,293,103		1,338,238			7,055,701
Interest income		544,467			5,104		16,898			566,469
Interest expense		2,093,320			165,105		-			2,258,425
Depreciation and amortization expense		1,793,356			915,449		-			2,708,805
Provision for income taxes		696,754			-		-			696,754
Net income		21,286,961			834,850		(1,601,420	)		20,520,391
Capital expenditures, net of VAT refunds		(498,378	)		9,348,683		-			8,850,305
Total assets		99,195,391			59,362,560		(853,634	)		157,704,317

F-22

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - GEOGRAPHIC INFORMATION

The following schedule summarizes the sources of the Company’s revenue by geographic regions for the years ended June 30, 2009, 2008, and 2007:

	Years Ended June 30,
Geographic Area	2009		2008		2007
People's Republic of China	$	318,000,791	$	401,872,120	$	272,460,649
Hong Kong		2,135,061		470,456		24,968,006
Other Countries		21,349,962		15,687,264		6,010,082
Total	$	341,485,814	$	418,029,840	$	303,438,737

NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables are a summary of unaudited quarterly financial information for the years ended June 30, 2009, 2008 and 2007.

	Three Months Ended
	September 30,		December 31,		March 31,		June 30,
	2008		2008		2009		2009
Revenues	$	101,777,689	$	70,836,277	$	76,456,937	$	92,414,911
Income from Operations		12,312,783		6,155,081		4,643,152		2,608,250
Net Income		10,121,197		4,426,239		3,064,698		1,022,091
Basic and Diluted Earnings Per Common Share		0.27		0.11		0.08		0.03

	Three Months Ended
	September 30,		December 31,		March 31,		June 30,
	2007		2007		2008		2008
Revenues	$	99,490,092	$	114,892,021	$	98,101,235	$	105,546,492
Income from Operations		8,320,903		8,658,641		10,179,585		11,773,496
Net Income		6,619,990		6,687,792		7,792,258		10,035,930
Basic and Diluted Earnings Per Common Share		0.17		0.18		0.21		0.26

	Three Months Ended
	September 30,		December 31,		March 31,		June 30,
	2006		2006		2007		2007
Revenues	$	61,397,183	$	78,610,889	$	71,283,941	$	92,146,724
Income from Operations		3,437,274		5,134,447		4,978,618		9,931,530
Net Income		3,032,156		4,464,447		3,885,959		9,137,829
Basic and Diluted Earnings Per Common Share		0.09		0.14		0.11		0.25

NOTE 14 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Basis of presentation

For the purpose of presenting parent company only condensed financial information, the basis used in this presentation assumes the reorganization and the change of the reporting entity had taken place for all periods presented. The investment in the unconsolidated subsidiaries, which occurred on February 1, 2007, is recorded under the equity method of accounting as prescribed in APB opinion No. 18, The Equity Method of Accounting for Investments in Common Stock . Under PRC laws and regulations, there are restrictions on the Company’s ability to transfer substantially all of its assets out of the PRC, regardless of the form of such transfer (dividends, loans, advances) (See Note 9).

F-23

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUTOR TECHNOLOGY GROUP LIMITED

CONDENSED BALANCE SHEETS

	June 30,
	2009		2008
ASSETS
Current Assets:
Cash and cash equivalents	$	42,657	$	63,666
Total Current Assets		42,657		63,666
Investment in unconsolidated subsidiaries		163,985,051		139,973,700
TOTAL ASSETS	$	164,027,708	$	140,037,366
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued liabilities	$	646,335	$	187,712
Notes Payable - related parties		8,332,091		-
Total Current Liabilities		8,978,426		187,712
Long-Term Liabilities
Notes Payable		2,859,995		-
Notes Payable - Related Parties		249,996		7,099,998
Total Long-Term Liabilities		3,109,991		7,099,998
Stockholders' Equity
Undesignated preferred stock - $0.001 par value;
1,000,000 shares authorized; no shares outstanding		-		-
Common stock - $0.001 par value; 500,000,000 shares authorized; 37,955,602 shares outstanding		37,955		37,955
Additional paid-in capital		37,170,164		37,170,164
Statutory reserves		12,586,995		12,586,995
Retained earnings		84,407,200		65,772,975
Accumulated other comprehensive income		17,736,977		17,181,567
Total Stockholders' Equity		151,939,291		132,749,656
TOTAL LIABILITES AND STOCKHOLDERS' EQUITY	$	164,027,708	$	140,037,366

F-24

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUTOR TECHNOLOGY GROUP LIMITED

CONDENSED STATEMENTS OF OPERATIONS

	For the Years Ended June 30,
	2009			2008			2007
General and Administrative expenses	$	(600,886	)	$	(685,990	)	$	(1,321,340	)
Interest expense		(458,621	)		(187,712	)		-
Equity in earnings of unconsolidated subsidiaries		19,693,732			32,009,672			21,841,731
Net Income	$	18,634,225		$	31,135,970		$	20,520,391

SUTOR TECHNOLOGY GROUP LIMITED

CONDENSED STATEMENTS OF CASH FLOWS

	For the Years Ended June 30,
	2009			2008			2007
Cash Flows from Operating Activities:
Net income	$	18,634,225		$	31,135,970		$	20,520,391
Stock based compensation		-			-			528,077
Adjustments to reconcile net income to net cash  used in operating activitites:
Undistributed equity in earnings of unconsolidated subsidiaries		(19,693,732	)		(32,009,672	)		(21,841,731	)
Changes in current assets and liabilities:
Other payables and accrued expenses		458,623			187,712			-
Net Cash Used in Operating Activities		(600,884	)		(685,990	)		(793,263	)
Cash Flows from Investing Activities
Investment in subsidiaries		(2,860,104	)		(6,377,953	)		(9,953,064	)
Net Cash Used in Investing Activities		(2,860,104	)		(6,377,953	)		(9,953,064	)
Cash Flows from Financing Activities:
Proceeds from issuance of related party notes payable		3,439,979			7,099,998			179,993
Proceeds from issuance of Series B preferred stock		-			-			10,570,762
Cash contributed by shareholders		-			-			21,059,950
Cash distributed to shareholders		-			-			(21,036,767	)
Net Cash Provided by Financing Activities:		3,439,979			7,099,998			10,773,938
Net increase in cash and cash equivalents		(21,009	)		36,055			27,611
Cash at beginning of period		63,666			27,611			-
Cash and Cash Equivalents at End of Period	$	42,657		$	63,666		$	27,611

F-25