**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**




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




For
      the
      fiscal year ended: June 30, 2007




**OR**




o
            **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: None




Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, par value
      $0.001




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




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. x




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




Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer x


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




Yes o  No x




As
      of
      December 31, 2006, the aggregate market value of the shares of the Registrant’s
      common stock held by non-affiliates (based upon the average bid and asked price
      of such shares as reported on the Over-the-Counter Bulletin Board) was
      approximately $4.13 million. Shares of the Registrant’s common stock held by
      each executive officer and director have been excluded in that 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 28, 2007, 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, 2007**


**Number**
              
              **Page****PART
                  I**Item
                  1.
              Business
              1Item
                      1A. Risk
                      Factors
              9Item
                      1B. Unresolved
                      Staff Comments
              17Item
                  2.
              Properties
              17Item
                  3.
              Legal
                  Proceedings
              18Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              18**PART
                  II**Item
                  5.
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              19Item
                  6.
              Selected
                  Financial Data
              20Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              21Item
                      7A. Quantitative
                      and Qualitative Disclosures about Market Risk
              33Item
                  8.
              Financial
                  Statements and Supplementary Data
              34Item
                  9.
              Changes
                  in and Disagreements With Accountants on Accounting and Financial
                  Disclosure
              34Item
                      9A. Controls
                      and
                      Procedures
              34Item
                      9B. Other
                      Information
              34**PART
                  III**Item
                  10.
              Directors,
                  Executive Officers and Corporate Governance
              34Item
                  11.
              Executive
                  Compensation
              36Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              39Item
                  13.
              Certain
                  Relationships and Related Transactions and Director
                  Independence
              40Item
                  14.
              Principal
                  Accountant Fees and Services
              42**PART
                  IV**Item
                  15.
              Exhibits,
                  Financial Statements Schedules
              42









**Use
      of Term**




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, 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 “USD” 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;


·
            strong
                competition in our industry;


·
            downturns
                in the steel industry;


·
            increases
                in our raw material costs; and


·
            an
                inability to fund our capital
                requirements.





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 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.







**PART
      I**




**ITEM
              1.**
            **BUSINESS**




***Overview***




We
      are
      one of the leading private manufacturers of steel finishing fabrication products
      in China. We utilize a variety of processes and technological methodologies
      to
      convert steel manufactured by third parties into steel finishing fabrication
      products. Our product offerings are focused predominantly on higher value-added
      finished steel products: hot-dip galvanized steel (“HDG Steel”), and prepainted
      galvanized steel (“PPGI”), which comprised approximately 49.68% and 31.94% of
      our total revenue in fiscal year 2007, respectively. In addition, we produce
      acid picked steel (“AP Steel”) and cold-rolled steel, which represent the less
      processed of our finished products and a large portion of both are used for
      our
      production of HDG Steel and PPGI products. Our vertical integration has allowed
      us to benefit from the higher and more stable margins for our HDG Steel and
      PPGI
      products.





We
      sell
      most of our products to customers who operate primarily in the construction,
      appliances, infrastructure and manufacturing industries. Our principal market
      is
      the Chinese market, with domestic sales accounting for 89.79% of our total
      revenue in fiscal year 2007. Our major export markets are Hong Kong, Europe,
      the
      United States, Southeast Asia and South Asia.





Through
      our manufacturing facilities located in Changshu, China, we currently have
      one
      HDG Steel production line, one PPGI production line, one AP Steel production
      line and one cold-rolled steel line. Our current annual designed production
      capacity is approximately 200,000 metric tons (“MT”) for HDG Steel, 120,000 MT
      for PPGI, 500,000 MT for AP Steels and 250,000 MT for cold-rolled steel. We
      are
      constructing another HDG Steel production line which is expected to become
      operative by approximately February 2008. With this additional production line,
      our annual designed production capacity of HDG Steel will reach 600,000
      MT.





***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 on 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.





The
      following charter reflects our organization structure as of the date of this
      annual report:




1











(1)
            The
                other 10% of Changshu Dongbang Sewage Treatment Co., Ltd.
                (“Dongbang Sewage”) is owned by Dongbang Asset Management Company, a
                company owned by Dongbang Town. Changshu Dongbang Sewage Treatment
                Co.,
                Ltd. provides sewage treatment services to Changshu Huaye and Jiangsu
                Cold-Rolled and had a revenue of approximately $0.18 million in the
                fiscal
                year of 2007.





***Segment
      Information***





Our
      operating segments are organized by our manufacturing facilities and include
      two
      reportable segments:





·
            Changshu
                Huaye manufactures and sells HDG Steel and PPGI.


·
            Jiangsu
                Cold-Rolled manufactures and sells AP Steel and cold-rolled steel.
                Jiangsu
                Cold-Rolled is currently constructing a HDG Steel production line
                which
                will become operative in approximately February
                2008.





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.





***Business
      Strategy***





Our
      goal
      is to become the leading manufacturer of high-end HDG Steel and PPGI products
      in
      China. We are committed to providing high quality products, responsive service
      and competitive prices in the niche market of HDG Steel and PPGI products.
      We
      intend to profitably grow our business by pursuing the following strategies:




·
            *Increase
                production capacity*.
                We added AP Steels and launched the full-hard, cold-rolled steel
                strips
                production in fiscal year 2007. We expect to add another production
                line
                which can produce both HDG of cold-rolled steel and hot-rolled steel
                by
                February 2008. We plan to use a portion of the net proceeds raised
                in a
                private placement transaction closed in February 2007 to expand our
                designed total production capacity from the 320,000 MT per year in
                2006 to
                approximately 1.47 million MT per year by February 2008.




·
            *Improve
                production cost-efficiency through vertical integration*.
                We build relationships with our suppliers and distributors to secure
                competitive prices and a stable supply of raw materials. In addition,
                we
                intend to continue to vertically integrate our business further to
                upstream industries, such as the production of cold-rolled steel
                strip and
                AP Steel products, so as to decrease the costs for our HDG Steel
                and PPGI
                products and achieve a higher profit margin.




·
            *Continued
                focus on higher margin and high-end products offerings*.
                In the steel industry distribution chain, companies whose direct
                customers
                are the end users of products enjoy the highest profit margins. We
                operate
                in a relatively high margin, high-end segment of the steel industry
                chain
                of distribution, especially for our HDG Steel and PPGI products.
                In fiscal
                year 2007, sales of HDG Steel and PPGI products constituted approximately
                81.62% of our total revenue. We plan to continue to focus on the
                production of HDG Steel and PPGI products as our primary end product
                offerings.




2


·
            *Expand
                direct sales to existing customers and actively market to new
                customers*.
                We believe that we have the opportunity to gain additional share
                in our
                current market. We plan to expand our sales network and strengthen
                the
                direct sales channel to enlarge our market share in both China and
                the
                international market.




·
            *Strengthen
                our research and development efforts.*We
                intend to continue to strengthen our research and development capacities
                and to provide high-quality products and a wide spectrum of value-added
                services to further build up our brand in both the Chinese and the
                international markets.




***Our
      Products***




Our
      current products include HDG of cold-rolled 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 and cold-rolled steel are new
      product lines of Jiangsu Cold-Rolled. We were certified ISO 9001:2000 for our
      quality management system in 2005.




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




(All
                  amounts, other than percentage, in millions of U.S.
                  dollars)
                Year Ended June 30,**2005**
            
            **2006**
            
            **2007****Percent of**
            
            
            
            **Percent of**
            
            
            
            **Percent of****Product**
            
            **Revenue**
            
            **Revenue**
            
            **Revenue**
            
            **Revenue**
            
            **Revenue**
            
            **Revenue**HDG
                Steel
            
            
            131.82
            
            
            79.71
            %
            
            141.34
            
            
            74.16
            %
            
            150.75
            
            
            49.68
            %PPGI
            
            
            32.33
            
            
            19.55
            %
            
            44.62
            
            
            23.41
            %
            
            96.91
            
            
            31.94
            %AP
                Steel
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            41.06
            
            
            13.53
            %Cold-Rolled
                Steel
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4.61
            
            
            1.52
            %Other
            
            
            1.23
            
            
            0.74
            %
            
            4.63
            
            
            2.43
            %
            
            10.11
            
            
            3.33
            %**Total**
            
            
            165.38
            
            
            100
            %
            
            190.59
            
            
            100
            %
            
            303.44
            
            
            100
            %




*HDG
      Steel*




Using
      a
      modern, progressive 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. The 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. Our sales of 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/m2)Our
                Specification Scope
            
            
            700-1250
            
            
            0.18-1.5
            
            
            70-280Industrial
                Common Specification Scope
            
            
            700-1250
            
            
            0.3-1.2
            
            
            100-180




3


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 our production specifications to meet changes in market
      demand.





Our
      deliveries of HDG Steel products amounted to approximately 227,400 MT in fiscal
      year 2007, representing approximately 49.68% of our total sales revenue.
      Currently, our HDG Steel products are manufactured by Changshu Huaye which
      produces HDG of cold-rolled steel only. Jiangsu Cold-Rolled plans to install
      a
      new HDG Steel production line which can produce both HDG of cold-rolled steel
      and HDG of hot-rolled steel. This new production line is expected to be
      operational by approximately February 2008. The addition of the new production
      line will significantly expand our production capacity of HDG Steel, which
      will
      increase our designed production capacity from 200,000 MT per year to 600,000
      MT
      per year.





Once
      the
      new production line is completed, we expect to 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.




*PPGI
      Products*




Our
      PPGI
      products are primarily manufactured by Changshu Huaye and 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 construction materials, and
      the
      parts and casing of electronic household appliances. 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.





Our
      deliveries of PPGI products amounted to approximately 121,300 MT in fiscal
      year
      2007, representing approximately 49.68% of our total sales revenue. We currently
      self-supply approximately 50% of HDG of cold-rolled steel to our PPGI
      production.





*AP
      Steel*




Our
      AP
      Steel products are manufactured by Jiangsu Cold-Rolled. The AP Steel product
      line went into operation in September 2006. Acid pickling is a process that
      removes scales and oxides from the steel strip 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, etc. Our AP Steel products come in several different
      dimensions using different materials and different specifications.





A
      large
      portion of our AP Steel products are used for our own production of HDG Steel
      and full-hard cold-rolled steel. We also sell a part of our AP Steel products
      to
      the market. In fiscal year 2007, our sales of AP Steel products was
      approximately 92,800 MT, representing approximately 13.53% of our total revenue.
      Among which, approximately 55,500 MT of AP Steel products were used for our
      own
      production.





*Full-Hard
      Cold-rolled Steel Products*




Our
      manufacturing of full-hard cold-rolled steel products commenced in January
      2007.
      Cold-rolled steel strip is full-hard cold-rolled steel strip treated by an
      annealing process and is a raw material used to produce HDG of cold-rolled
      steel. We produce full-hard cold-rolled steel strips through a reverse cold
      rolling mill.





We
      use a
      portion 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 8,600 MT in fiscal year 2007, representing
      approximately 1.52% of our revenue. In addition, approximately 47,500 MT of
      full-hard cold-rolled products were used for our own
      production.


4





***Manufacturing***




Our
      manufacturing facilities are located in Changshu, China. We currently have
      one
      HDG Steel production line, one PPGI production line, one AP Steel production
      line and one cold-rolled steel line. Our current annual designed production
      capacity is approximately 200,000 MT for HDG Steel, 120,000 MT for PPGI, 500,000
      MT for AP Steels and 250,000 MT for cold-rolled steel. We are constructing
      another HDG Steel production line which can produce both HDG of cold-rolled
      steel and hot-rolled steel and is expected to become operative by approximately
      February 2008. With this additional production line, our annual designed
      production capacity of HDG Steel will reach 600,000 MT.





We
      utilize modern, progressive and automated production technology and our
      equipment setting combinations are 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.










***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 and believe
      that our suppliers are sufficient to meet our present needs.




Steel
      coil accounted for approximately 90% of our total production cost in fiscal
      year
      2007. 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 our raw materials from a combination of state-owned enterprises and
      private companies, we enjoy both a reliable source of raw materials and
      competitive prices. At this time, we use partially our own produced HDG of
      cold-rolled steel, and purchase parts of HDG of cold-rolled steel, for our
      production of PPGI.




5


Zinc
      is
      an important raw material for HDG of cold-rolled steel and accounts for
      approximately 6% of our total production costs of HDG Steel in fiscal year
      2007
      and we generally are able to pass on increased cost to our customers. We have
      established long-term relationships with several Chinese and Korean suppliers.
      We compare the prevailing domestic and Korean prices and choose the lower price.
      Zinc prices are closely guided by the London Metal Exchange quotation, and
      are the most volatile among all of our raw materials.




Oil
      paint
      accounted for approximately 8.42% of the total production cost of PPGI products
      in fiscal year 2007. Currently, Nippon Paint Co., Ltd. and Lanling Paint Co.,
      Ltd. 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.




In
      fiscal
      year 2007, approximately 57.75% of our procurement was conducted through our
      affiliate, Shanghai Huaye. We have entered into a one-year agreement with
      Shanghai Huaye and appointed Shanghai Huaye as our procurement agent. Shanghai
      Huaye agreed to use its resources and best efforts to purchase raw materials
      for
      us at the lowest price possible. Under the agreement, Shanghai Huaye must inform
      us of the price, specifications and other material terms of the procurement
      agreement and must obtain our approval before signing a procurement agreement.
      Our arrangement with Shanghai Huaye helps us in receiving relatively lower
      purchase prices from suppliers due to the bargaining power of Shanghai Huaye.





***Customers***





Our
      products can be applied to various industries, including the construction
      materials, electrical household appliances, equipment and medical instrument
      manufacturing and others. Our main customers are manufacturers of electrical
      household appliances, construction steel suppliers and manufacturers of
      automobiles, ships, and other large equipment. The estimated sales to
      manufacturers of electrical household appliances accounted for approximately
      40%
      of our total sales of our HDG Steel products and 20% of our total sales of
      PPGI
      products in fiscal year 2007. The estimated sales to manufacturers of
      construction materials accounted for approximately 30% of our total sales of
      HDG
      Steel products and 60% of our total sales of PPGI products in fiscal year 2007.
      We are often designated by end users as their primary supplier for their parts
      and outer casing manufacturers. For example, Meidi Electronics has designated
      us
      as the primary supplier of HDG Steel and PPGI for their products.




Approximately
      51.40% of our revenue was derived from Shanghai Huaye and its affiliates in
      fiscal year 2007. Our subsidiary Changshu Huaye has a one-year sales cooperation
      frame agreement with Shanghai Huaye which will expire on December 31, 2007.
      Under the agreement, Shanghai Huaye agreed to act as Changshu Huaye’s sales
      agent to sell products manufactured by Changshu Huaye in exchange for a sales
      commission equal to 0.5% of the unit sales price. The agreement also provides
      that Shanghai Huaye may negotiate and execute sales contracts with clients
      for
      Changshu Huaye, but must notify Changshu Huaye of all major contractual terms
      and receive the approval of Changshu Huaye before the execution of the final
      contracts. We expect that this agreement will be renewed upon its expiration
      by
      the parties on substantially similar terms or prevailing market terms at the
      time. We also plan to further expand our customized processing services and
      increase our direct sale to end customers, which will result in higher margins.
      Other than Shanghai Huaye, none of our customers accounted for more than 10%
      of
      our total revenue in fiscal year 2007.




***Sales
      and Marketing***





China
      is
      our most important market. Domestic sales represented approximately 89.79%
      of
      our total revenue in fiscal year 2007. 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 Hong Kong,
      Europe, the United States, South Africa, South Asia and Southeastern Asia.
      Our
      foreign sales accounted for approximately 0.01%, 4.10% and 10.21% of our total
      revenue in fiscal years 2005, 2006 and 2007, respectively.




6


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 48.60% of our products through
      our own sales and marketing department in fiscal year 2007. Our sales and
      marketing department currently consists of approximately 40 employees as of
      the
      date of this annual report.




In
      addition to sales efforts conducted directly by our internal sales team and
      other employees, we also use sales agents. We have relationships with 39 sales
      agents to sell our products, eight of which have a direct contractual
      arrangement with us and the other 31 agents are affiliates of Shanghai Huaye.
      We
      entered into a sales agreement with each of these eight 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 $2.62) per MT to RMB 80 (approximately $10.48) per
      MT.




***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.




We
      estimate our current market share in China for HDG Steel and PPGI products
      to be
      approximately 1.2% and 0.8%, respectively, based on our total sales revenue
      in
      fiscal year 2007. Eastern China is our biggest market in China and accounted
      for
      approximately 60% of our total sales in fiscal year 2007. The
      estimated demand of Eastern China accounts for approximately 50% of China’s
      total demand for HDG Steel and PPGI products and we estimate that we have
      approximately 3% of the market share in Eastern China.




Even
      though the demand for steel finishing fabrication products has increased in
      recent years, due to the over expansion of the total production capacity of
      HDG
      Steel and PPGI products, the increase of 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 .




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 for very small ones, 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 Hong Kong, Europe, the United States, Southeast Asia,
      and South Asia. Our export sales accounted for approximately 10.21% of our
      total
      sales for fiscal year 2007.




7


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***




We
      have
      filed a patent application for our production technique of 0.18mm-0.20mm HDG
      of
      cold-rolled steel with the Patent Office of the State Intellectual Property
      Office of China which is pending approval. The common specification range for
      HDG of cold-rolled steel is 0.23mm-1.5mm in thickness. 0.20mm is considered
      extremely thin for HDG Steel. With our technique, we are capable of producing
      0.18mm thick HDG Steel through the general continuous galvanizing production
      line. We expect the patent application will be granted in the second half of
      2007.




All
      of
      our products are sold with the trademark of  “  ,”
which
      is widely known by Chinese and international clients. In August 2005, Shanghai
      Huaye agreed to transfer the trademark of “Sutor ”
to
      Changshu Huaye 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.




In
      addition, we have registered the following domain names: www.cshuaye.net ,
Sutor .com, www.cshuaye.com , www.changshuhuaye.com , www.cshuaye.cn ,
      and www.cshuaye.com.cn .
      www.cshuaye.com is the main domain we use.




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, 2007, we had approximately 418 full-time
      employees of which approximately 291 are
      employees of Changshu Huaye and approximately 127 are
      employees of Jiangsu Cold-Rolled. We believe that we maintain a satisfactory
      working relationship with our employees and we have not experienced any
      significant labor disputes or any difficulty in recruiting staff for our
      operations.





As
      required by applicable Chinese law, we have entered into employment contracts
      with all of our officers, managers and employees. We are required by Chinese
      law
      to make several mandatory contributions for our employees, including social
      pension, medical insurance, unemployment insurance, work-related injury
      insurance and maternity insurance, at an aggregated rate of 16.7 %
      of the
      average monthly salary each month. As of the date of this annual report, we
      are
      in material compliance with the applicable PRC employee law and regulations
      and
      have made the contribution as required by the applicable laws.





***Backlog***





Our backlog
      at June 30, 2007 was approximately $30 million, compared with backlog
      of approximately $20 million at June 30, 2006. 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.




8


***Regulation***





Because
      our operating subsidiaries Changshu Huaye and Jiangsu Cold-Rolled are located
      in
      China, we are regulated by the national and local laws of PRC.





We
      must
      adhere to PRC’s environmental laws. Under the relevant PRC environmental laws,
      all manufacturing enterprises must submit an environmental impact report to
      the relevant
      environmental protection authority before starting production operations. In
      addition, manufacturing enterprises must engage professional environmental
      organizations to monitor and report on pollutants emission regularly. The main
      pollutants generated by Changshu Huaye and Jiangsu Cold-Rolled are sewage,
      waste
      gas, noise and solid waste. We have taken the necessary measures to control
      the
      discharge of these pollutants. In 2002, Changshu Environment Monitor Station
      issued a report that we have met the emission standards provided by the relevant
      PRC laws and regulations. As a result, the Changshu Environmental Protection
      Bureau granted us the certificate of legal emission in 2006. We believe we
      are
      in material compliance with the PRC environmental laws and regulations as of
      the
      date of this annual report.





In
      addition, all our products exported to the E.U. that are used as parts or
      components for certain electrical products must obtain a SGS Test report
      according to the EU ROHS Directive. We obtained the report in 2005.
      T he
      SGS
      Test report does not need to be renewed annually.





**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
      51.40% of our revenue was derived from Shanghai Huaye in fiscal year 2007,
      which
      acts as a distributor of our products as well as one of our suppliers. 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. Additionally, certain of our supply contracts
      are for fixed prices. Although we currently benefit from favorable pricing
      in
      some of these supply contracts, if market prices for these raw materials
      decline, we may not be able to take advantage of decreasing market prices,
      and
      our profit margins may suffer.





***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.


9





***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, 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.





***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 will 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.





***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 mainly 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 ofsales
      of
      construction materials and electrical householder appliances, demand for our
      products and our revenue will likewise decrease.





***A
      decrease of any export subsidy from the Chinese government will adversely affect
      our profitability.***





Our
      international sales have grown since we started exporting our products in 2004.
      Our products are now sold in Hong Kong, Europe, the United States, South
      America, South Asia and Southeast Asia. Our foreign sales accounted for about
      4.1% and 10.21% of our total revenue in fiscal years 2006 and 2007,
      respectively. Currently, we receive export subsidies from the PRC government
      at
      a rate of 8%. It is possible that the Chinese government may lower or eliminate
      the subsidy in the future following the PRC’s entry into the WTO. Any reduction
      or elimination of export subsidies for our products may harm our revenue and
      profitability.


10





***Environmental
      regulations may 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.





***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 steel finishing
      fabrication 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.


11






***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 Liuhua Guo, our Chief Executive Officer, Yongfei Jiang, our Chief
      Financial Officer and Xun Zhang, our Chief Technology O fficer.
      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.




***We
      do not have any independent directors and may be unable to appoint any qualified
      independent directors.***




We
      currently do not have any independent directors. We plan to appoint a number
      of
      independent directors which will constitute a majority of our board of directors
      before our common stock is listed on a national securities exchange or NASDAQ,
      but we may not be able to identify independent directors qualified to be on
      our
      board.





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





Ms.
      Lifang Chen, our chairman of the board of directors and beneficial owner of
      85.20% 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 potential risks relating to our internal controls over
      financial reporting and our ability to have those controls attested to by our
      independent auditors.***





As
      directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), 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 management’s assessment of the effectiveness of the Company’s
      internal controls over financial reporting as well as the operating
      effectiveness of the Company’s internal controls. We were not subject to these
      requirements for the fiscal year ended June 30, 2007. Accordingly, we have
      not
      evaluated our internal control systems in order to allow our management to
      report on, and our independent auditors to attest to, our internal controls
      as
      required by these requirements of SOX 404. Under current law, we may be subject
      to these requirements beginning with our annual report for the fiscal year
      ending June 30, 2008. We can provide no assurance that we will comply with
      all
      of the requirements imposed thereby. There can be no assurance that we will
      receive a positive attestation from our independent auditors. In the event
      we
      identify significant deficiencies or material weaknesses in our internal
      controls that we cannot remediate in a timely manner or we are unable to receive
      a positive attestation from our independent auditors with respect to our
      internal controls, investors and others may lose confidence in the reliability
      of our financial statements.


12





***Our
      holding company structure may limit the payment of dividends to our
      stockholders.***





We
      have
      no direct business operations, other than our ownership of our subsidiaries.
      While we have no current intention of paying dividends, should we decide in
      the
      future to do so, as a holding company, our ability to pay dividends and meet
      other obligations depends upon the receipt of dividends or other payments from
      our operating subsidiaries and other holdings and investments. In addition,
      our
      operating subsidiaries, from time to time, may be subject to restrictions on
      their ability to make distributions to us, including as a result of restrictive
      covenants in loan agreements, restrictions on the conversion of local currency
      into U.S. dollars or other hard currency and other regulatory restrictions
      as
      discussed below. If future dividends are paid in RMB, fluctuations in the
      exchange rate for the conversion of RMB into U.S. dollars may reduce the amount
      received by U.S. stockholders upon conversion of the dividend payment into
      U.S.
      dollars.





Chinese
      regulations currently permit the payment of dividends only out of accumulated
      profits as determined in accordance with Chinese accounting standards and
      regulations. Our subsidiaries in China are also required to set aside a portion
      of their after tax profits according to Chinese accounting standards and
      regulations to fund certain reserve funds. Currently, our subsidiaries in China
      are the only sources of revenues or investment holdings for the payment of
      dividends. If they do not accumulate sufficient profits under Chinese accounting
      standards and regulations to first fund certain reserve funds as required by
      Chinese accounting standards, we will be
      unable
      to pay any dividends.





**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:




·
            the
                higher level of government
                involvement;


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


·
            the
                rapid growth rate;


·
            the
                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.





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 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 the economic conditions or government policies in China could
      have a material adverse effect on the overall economic growth and the level
      of
      automotive investments and expenditures in China, which in turn could lead
      to a
      reduction in demand for our products and harm our business and prospects.




13




***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 subsidiaries
      in
      China. 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 director 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 effect
      service of process in the United States or to enforce a judgment obtained in
      the
      United States against our Chinese officers, directors and subsidiaries.




***The
      PRC government exerts substantial influence over the manner in which we 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.





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





Most
      of
      our sales revenue and expenses are denominated in Renminbi. Under PRC law,
      the
      Renminbi 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 subsidiaries 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
      (“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 Renminbi, any existing and future
      restrictions on currency exchange may limit our ability to utilize revenue
      generated in Renminbi 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 their respective
      local counterparts. These limitations could affect our PRC operating
      subsidiaries’ ability to obtain foreign exchange through debt or equity
      financing.





14




***Failure
      to comply with PRC regulations relating to the establishment of offshore special
      purpose companies by PRC residents may subject our PRC resident stockholders
      to
      personal liability, limit our ability to acquire PRC companies or to inject
      capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
      distribute profits to us or otherwise materially adversely affect us.***




In
      October 2005, SAFE issued a public notice, the Notice on Relevant Issues in
      the
      Foreign Exchange Control over Financing and Return Investment Through Special
      Purpose Companies by Residents Inside China (the “SAFE Notice”), which requires
      PRC residents to register with the competent local SAFE branch before using
      onshore assets or equity interests held by them to establish offshore special
      purpose companies (“SPVs”), for the purpose of overseas equity financing. Under
      the SAFE Notice, such PRC residents must also file amendments to their
      registration in connection with any increase or decrease of capital, transfer
      of
      shares, mergers and acquisitions, equity investment or creation of any security
      interest in any assets located in China to guarantee offshore obligations.
      Moreover, if the SPVs were established and owned the onshore assets or equity
      interests before the implementation date of the SAFE Notice, a retroactive
      SAFE
      registration is required to have been completed before March 31, 2006. If any
      PRC resident stockholder of any SPV fails to make the required SAFE registration
      and amended registration, the PRC subsidiaries of that SPV may be prohibited
      from distributing their profits and the proceeds from any reduction in capital,
      share transfer or liquidation to the SPV. Failure to comply with the SAFE
      registration and amendment requirements described above could also result in
      liability under PRC laws for evasion of applicable foreign exchange
      restrictions.





We
      believe our stockholders who are PRC residents as defined in the SAFE Notice
      have registered with the relevant branch of SAFE, as currently required, in
      connection with their equity interests in us and our acquisitions of equity
      interests in our PRC subsidiaries. However, we cannot provide any assurances
      that their existing registrations have fully complied with, and they have made
      all necessary amendments to their registration to fully comply with, all
      applicable registrations or approvals required by the SAFE Notice. Moreover,
      because of uncertainty over how the SAFE Notice will be interpreted and
      implemented, and how or whether SAFE will apply it to us, we cannot predict
      how
      it will affect our business operations or future strategies. For example, our
      present and prospective PRC subsidiaries’ ability to conduct foreign exchange
      activities, such as the remittance of dividends and foreign currency-denominated
      borrowings, may be subject to compliance with the SAFE Notice by our PRC
      resident beneficial holders. In addition, such PRC residents may not always
      be
      able to complete the necessary registration procedures required by the SAFE
      Notice. We also have little control over either our present or prospective
      direct or indirect stockholders or the outcome of such registration procedures.
      A failure by our PRC resident beneficial holders or future PRC resident
      stockholders to comply with the SAFE Notice, if SAFE requires it, could subject
      these PRC resident beneficial holders to fines or legal sanctions, restrict
      our
      overseas or cross-border investment activities, limit our subsidiaries’ ability
      to make distributions or pay dividends or affect our ownership structure, which
      could adversely affect our business and prospects.





***We
      may be unable to complete a business combination transaction efficiently or
      on
      favorable terms due to complicated merger and acquisition regulations which
      became effective on September 8, 2006.***





On
      August 8, 2006, six PRC regulatory agencies, including the CSRC,
      promulgated the Regulation on Mergers and Acquisitions of Domestic Companies
      by
      Foreign Investors, which became effective on September 8, 2006. This new
      regulation, among other things, governs the approval process by which a PRC
      company may participate in an acquisition of assets or equity interests.
      Depending on the structure of the transaction, the new regulation will require
      the PRC parties to make a series of applications and supplemental applications
      to the government agencies. In some instances, the application process may
      require the presentation of economic data concerning a transaction, including
      appraisals of the target business and evaluations of the acquirer, which are
      designed to allow the government to assess the transaction. Government approvals
      will have expiration dates by which a transaction must be completed and reported
      to the government agencies. Compliance with the new regulations is likely to
      be
      more time consuming and expensive than in the past and the government can now
      exert more control over the combination of two businesses. Accordingly, due
      to
      the new regulation, our ability to engage in business combination transactions
      has become significantly more complicated, time consuming and expensive, and
      we
      may not be able to negotiate a transaction that is acceptable to our
      stockholders or sufficiently protect their interests in a transaction.





The
      new
      regulation allows PRC government agencies to assess the economic terms of a
      business combination transaction. Parties to a business combination transaction
      may have to submit to the Ministry of Commerce and other relevant government
      agencies an appraisal report, an evaluation report and the acquisition
      agreement, all of which form part of the application for approval, depending
      on
      the structure of the transaction. The regulations also prohibit a transaction
      at
      an acquisition price obviously lower than the appraised value of the PRC
      business or assets and in certain transaction structures, require that
      consideration must be paid within defined periods, generally not in excess
      of a
      year. The regulation also limits our ability to negotiate various terms of
      the
      acquisition, including aspects of the initial consideration, contingent
      consideration, holdback provisions, indemnification provisions and provisions
      relating to the assumption and allocation of assets and liabilities. Transaction
      structures involving trusts, nominees and similar entities are prohibited.
      Therefore, such regulation may impede our ability to negotiate and complete
      a
      business combination transaction on financial terms that satisfy our investors
      and protect our stockholders’ economic interests.


15





***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 the Renminbi and between those currencies and other
      currencies in which our sales may be denominated. Because substantially all
      of
      our earnings and cash assets are denominated in Renminbi and the net proceeds
      from this offering will be denominated in U.S. dollars, fluctuations in the
      exchange rate between the U.S. dollar and the Renminbi will affect the relative
      purchasing power of these proceeds, our balance sheet and our earnings per
      share
      in U.S. dollars following this offering. In addition, appreciation or
      depreciation in the value of the Renminbi 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 after this offering that will be exchanged into U.S. dollars and earnings
      from, and the value of, any U.S. dollar-denominated investments we make in
      the
      future.




Since
      July 2005, the Renminbi 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
      Renminbi 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
      the PRC authorities may lift restrictions on fluctuations in the Renminbi
      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 in an effort to reduce our exposure to foreign currency exchange
      risk. 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 Renminbi into foreign currencies.





Currently,
      some of our raw materials, components and major equipment are imported. In
      the
      event that the U.S. dollars appreciate against Renminbi, 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.





**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 85.2% 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.




***Our
      common stock is quoted on the OTC Bulletin Board which may have an unfavorable
      impact on our stock price and liquidity.***





Our
      common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is
      a
      significantly more limited market than the New York Stock Exchange or NASDAQ
      system. The quotation of our shares on the OTC Bulletin Board may result in
      a
      less liquid market available for existing and potential stockholders to trade
      shares of our common stock, could depress the trading price of our common stock
      and could have a long-term adverse impact on our ability to raise capital in
      the
      future.


16





***We
      may be subject to penny stock regulations and restrictions and*** ***you
      may have difficulty selling shares of our common stock*** ***.***





The
      SEC
      has adopted regulations which generally define so-called “penny stocks” to be an
      equity security that has a market price less than $5.00 per share or an exercise
      price of less than $5.00 per share, subject to certain exemptions. If our common
      stock becomes a “penny stock”, we may become subject to Rule 15g-9 under the
      Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales
      practice requirements on broker-dealers that sell such securities to persons
      other than established customers and “accredited investors” (generally,
      individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
      $200,000, or $300,000 together with their spouses). For transactions covered
      by
      Rule 15g-9, a broker-dealer must make a special suitability determination for
      the purchaser and have received the purchaser’s written consent to the
      transaction prior to sale. As a result, this rule may affect the ability of
      broker-dealers to sell our securities and may affect the ability of purchasers
      to sell any of our securities in the secondary market.





For
      any
      transaction involving a penny stock, unless exempt, the rules require delivery,
      prior to any transaction in a penny stock, of a disclosure schedule prepared
      by
      the SEC relating to the penny stock market. Disclosure is also required to be
      made about sales commissions payable to both the broker-dealer and the
      registered representative and current quotations for the securities. Finally,
      monthly statements are required to be sent disclosing recent price information
      for the penny stock held in the account and information on the limited market
      in
      penny stock.





There
      can
      be no assurance that our common stock will qualify for exemption from the Penny
      Stock Rule. In any event, even if our common stock were exempt from the Penny
      Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
      which gives the SEC the authority to restrict any person from participating
      in a
      distribution of penny stock, if the SEC finds that such a restriction would
      be
      in the public interest.




***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.





**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. Changshu Huaye
      was designed to have a production capacity of 200,000 MT of HDG of
      cold-rolled steel and
      120,000 MT of PPGI. Both HDG Steel and PPGI production lines operated in excess
      of their respective designed manufacturing capacities in fiscal year 2007.
      Jiangsu Cold-Rolled was established in August 2003 and is still under
      construction. Its AP Steel production line started operation in September
      2006 and has 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. The remaining production
      lines are still under construction. In fiscal year 2007, the capacity
      utilization rate for the AP Steel production line and cold-rolled
      steel production line was approximately 70% and 60%,
      respectively.


17





Currently,
      due to high market demand, our HDG Steel production line operated in excess
      of
      its designed manufacturing capacity. Even though our HDG Steel production line
      is operating in excess of designed capacity, we do not believe that our capital
      expenditures related to, or the cost of our future maintenance on this
      production line will increase significantly. We had already budgeted for and
      taken into account the possibility of future excessive operation into account
      when the production line was constructed. In addition, our maintenance team
      provides routine and preventative maintenance to ensure that all of our
      production lines remain in good working order, which also reduces the risk
      of
      incurring substantial capital expenditures in the future. We have a new HDG
      Steel production line with designed annual manufacturing capacity of 400,000
      MT
      under construction. This production line is expected to become operational
      by
      approximately February 2008, which will significantly expand our production
      capacity of HDG Steel products, and minimize any excess capacity strains on
      our
      current HDG Steel production lines. Until February 2008, we expect to continue
      to operate Changshu Huaye’s HDG Steel production line in excess of its designed
      manufacturing capacity.





In
      addition, our subsidiary Dongbang Sewage also owns a sewage treatment facility
      that provides sewage treatment services to our subsidiaries, as well as other
      manufacturing plants and households in Dong Bang, Jiangsu.





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.





Changshu
      Huaye and Jiangsu Cold-Rolled also own six buildings with approximately 53,301
      square meters. We are in the process of obtaining ownership certificates for
      eight other buildings with approximately 32,201square 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**




No
      matters were submitted to a vote of our security holders during the fourth
      quarter of 2007.




18




**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 quoted on the Over-the-Counter Bulletin Board maintained by
      the National Association of Securities Dealers, Inc. under the symbol “SUOT.OB”.
      The CUSIP number is 869362 10 3.





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, 2007***1stFiscal Quarter (7/1/06-9/30/06)
            
            $
            0.60
            
            $
            0.602ndFiscal Quarter (10/1/06-12/31/06)
            
            
            2.75
            
            
            1.153rdFiscal Quarter (1/1/07-3/31/07)
            
            
            8.05
            
            
            0.604thFiscal Quarter (4/1/07 -6/30/07)
            
            
            8.07
            
            
            3.53***Fiscal
                Year Ended June 30, 2006***1stFiscal Quarter (7/1/05-9/30/05)
            
            
            1.15
            
            
            1.152ndFiscal Quarter (10/1/05-12/31/05)
            
            
            1.15
            
            
            1.153rdFiscal Quarter (1/1/06-3/31/06)
            
            
            1.15
            
            
            1.154thFiscal Quarter (4/1/06-6/30/06)
            
            
            1.15
            
            
            0.60





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




***Approximate
      Number of Holders of Our Common Stock***




On
      September 28,
      2007 ,
      there
      were approximately 65 stockholders
      of record of our common stock.




***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***




We
      currently do not have any equity compensation plans.




19




**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA**




The
      selected consolidated statement of income and comprehensive income data for
      the
      years ended June 30, 2005, 2006 and 2007 and the selected balance sheet data
      as
      of June 30, 2005, 2006 and 2007 are derived from our audited consolidated
      financial statements included elsewhere in this annual report. The selected
      consolidated financial data for the year ended June 30, 2004 is derived from
      our
      audited consolidated financial statements not included in this annual report.
      The selected consolidated financial data for the year ended June 30, 2003 is
      derived from our unaudited consolidated financial statements that are not
      included in this annual report.




The
      following selected historical financial information should be read in
      conjunction with our consolidated financial statements and related notes and
      the
      information contained in Item 7. “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations.”




(All
      amounts, other than per share data, in thousands of U.S. dollars)





**For
                the years ended June 30,********2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
              **(Unaudited)****Statement
                of Operations Data:****Revenue:**Revenue
            
            $
            147,467
            
            $
            45,942
            
            $
            6,880
            
            $
            -
            
            $
            -Revenue
                from related parties
            
            
            155,972
            
            
            144,652
            
            
            158,503
            
            
            10,547
            
            
            -303,439
            
            
            190,594
            
            
            165,383
            
            
            10,547
            
            
            -**Cost
                of Revenue:**Cost
                of revenue
            
            
            135,308
            
            
            57,220
            
            
            2,351
            
            
            -
            
            
            -Purchases
                from related parties
            
            
            137,594
            
            
            117,436
            
            
            144,501
            
            
            10,041
            
            
            -272,901
            
            
            174,656
            
            
            146,852
            
            
            10,041
            
            
            -**Gross
                Profit**
            
            
            30,538
            
            
            15,938
            
            
            18,531
            
            
            506
            
            
            -**Operating
                Expenses:**Selling
            
            
            2,320
            
            
            1,894
            
            
            788
            
            
            1
            
            
            -General
                and administrative
            
            
            4,736
            
            
            1,255
            
            
            1,199
            
            
            629
            
            
            39**Total
                Operating Expenses**
            
            
            7,056
            
            
            3,149
            
            
            1,987
            
            
            630
            
            
            39**Income
                (Loss) from Operations**
            
            
            23,482
            
            
            12,789
            
            
            16,544
            
            
            (124
            )
            
            (39
            )**Other
                Income and (Expense)**Interest
                income
            
            
            566
            
            
            467
            
            
            134
            
            
            20
            
            
            5Other
                income
            
            
            298
            
            
            186
            
            
            83
            
            
            16
            
            
            -Interest
                expense
            
            
            (2,258
            )
            
            (924
            )
            
            (993
            )
            
            (375
            )
            
            -Other
                expense
            
            
            (875
            )
            
            (155
            )
            
            (87
            )
            
            (12
            )
            
            -**Total
                Other Income (Expense)**
            
            
            (2,269
            )
            
            (426
            )
            
            (863
            )
            
            (351
            )
            
            5**Income
                (Loss) Before Taxes and Minority Interest**
            
            
            21,214
            
            
            12,363
            
            
            15,681
            
            
            (475
            )
            
            (34
            )Provision
                for income taxes
            
            
            (697
            )
            
            (859
            )
            
            -
            
            
            -
            
            
            -Minority
                interest in loss of consolidated subsidiary
            
            
            3
            
            
            24
            
            
            2
            
            
            -
            
            
            -**Net
                Income (Loss)**
            
            $
            20,520
            
            $
            11,528
            
            $
            15,683
            
            $
            (475
            )
            $
            (34
            )Foreign
                currency translation adjustment
            
            
            3,488
            
            
            1,440
            
            
            4
            
            
            (16
            )
            
            4**Comprehensive
                Income (Loss)**
            
            $
            24,009
            
            $
            12,968
            
            $
            15,687
            
            $
            (491
            )
            $
            (30
            )**Basic
                and Diluted Earnings (Loss) Per Share**
            
            $
            0.59
            
            $
            0.39
            
            $
            0.86
            
            $
            (0.03
            )
            $
            0.00**Cash
                Flows Data:**Net
                cash flows provided by (used in) operating activities
            
            
            (28,556
            )
            
            30,494
            
            
            10,291
            
            
            (2,080
            )
            
            -Net
                cash flows used in investing activities
            
            
            (3,567
            )
            
            (28,439
            )
            
            (23,238
            )
            
            (24,277
            )
            
            -Net
                cash flows provided by financing activities
            
            
            34,093
            
            
            2,986
            
            
            10,855
            
            
            28,445
            
            
            -




20





**As
                of June 30,********2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
              **(Unaudited)****Current
                Assets**
            
            $
            107,144
            
            $
            63,020
            
            $
            50,592
            
            $
            29,706
            
            $
            14,962**Total
                Assets**
            
            
            157,704
            
            
            104,964
            
            
            74,586
            
            
            52,540
            
            
            15,057**Current
                Liabilities**
            
            
            68,319
            
            
            52.207
            
            
            34,361
            
            
            28,860
            
            
            6,637**Total
                Liabilities**
            
            
            68,319
            
            
            52,207
            
            
            36,775
            
            
            38,844
            
            
            6,637**Minority
                Interest**
            
            
            33
            
            
            36
            
            
            58
            
            
            0
            
            
            0**Stockholders’
                Equity**
            
            
            89,352
            
            
            52,721
            
            
            37,753
            
            
            13,697
            
            
            8,420





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




**Overview**





We
      are
      one of the leading private manufacturers of steel finishing fabrication products
      in China. We utilize a variety of processes and technological methodologies
      to
      convert steel manufactured by third party into steel finishing fabrication
      products. Our product offerings are focused predominantly on high end,
      value-added finished steel products: HDG Steel products and PPGI products which
      comprised 49.68% and 31.94% of our total revenue in fiscal year 2007,
      respectively. We also produce AP Steel products and cold-rolled steel, which
      are
      our less processed finished products. Our AP Steel Products and cold-rolled
      steel are mainly used for our production of HDG Steel and PPGI products. The
      vertical integration of our operations has allowed us to benefit from the higher
      and more stable margins for our HDG Steel and PPGI products.





Our
      revenue increased from $165.38 million in fiscal year 2005 to $190.59 million
      in
      fiscal year 2006 and $303.44 million in fiscal year 2007, representing a
      compounded growth rate of approximately 59.21%. These significant increases
      reflect our success in expanding our production lines and our increasing market
      penetration. We continually seek to broaden our market reach by introducing
      new
      production lines and improve our profit margin by vertical integration. Our
      AP
      Steel production line and cold-rolled steel production line went into operation
      on October 2006 and January 2007, respectively. Jiangsu Cold-Rolled is
      constructing a HDG Steel production line which can produce both HDG of
      cold-rolled steel and hot-rolled steel and is expected to become operative
      by
      approximately February 2008. The addition of this new production will help
      the
      further growth of revenue in 2008. A big portion of our AP Steel products and
      cold-rolled steel were used for the production of our HDG Steel and PPGI
      products which helps to improve our profit margin.


21





***Revenue***





Our
      revenue is primarily 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 ability to improve 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 2007,
      2006 and 2005, Changshu Huaye generated revenue of $257.53 million, $190.59
      million and $165.38 million which represented 84.87%, 100% and 100% of our
      total
      revenue, respectively. Jiangsu Cold-Rolled currently manufactures AP Steel
      and
      cold-rolled steel. Since Jiangsu Cold-Rolled’s AP Steel production line and
      cold-rolled steel production lines become operative in October 2006 and
      January 2007, respectively, Jiangsu Cold-Rolled had no revenue until fiscal
      year
      2007. Jiangsu Cold-Rolled generated revenue of $45.91 million in fiscal year
      2007, representing 15.13% of our total revenue. We expect that Jiangsu
      Cold-Rolled’s revenue will increase significantly after its new HDG Steel
      production line starts operation in 2008.





Currently,
      a substantial portion of our products are sold through our affiliate Shanghai
      Huaye with which we have a one year sale agent agreement expiring on December
      31, 2007. Approximately 51.40% of our revenue was derived from Shanghai Huaye
      and its affiliates in fiscal year 2007, decreased from 75.89% in fiscal year
      2006. We expect to continue to maintain the relationship with Shanghai Huaye
      in
      the future, but plan to further increase our direct sale to end customers
      in order to increase our margins.





***Cost
      of Revenue***





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





Our
      direct cost of revenue is generally highest when we first introduce a new
      product due to higher start-up costs associated and higher raw material costs.
      As production volumes increase, we typically improve our manufacturing
      efficiencies and are able to strengthen our purchasing power by buying raw
      materials in greater quantities. Our AP Steel production line and cold-rolled
      steel production line, which started operation in fiscal year 2007, have a
      relatively high cost of production. We expect the production efficiency of
      both
      production lines will improve in the future.





In
      fiscal
      year 2007, approximately 57.75% of our procurement was conducted through
      Shanghai Huaye. Due to the size of Shanghai Huaye, it has stronger bargaining
      power than us and our arrangement with Shanghai Huaye helps us in receiving
      relatively lower purchase prices from suppliers.





***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. Between fiscal years
      2005 and 2007, we were able to maintain gross margins between approximately
      8%
      to 11%. In fiscal year 2007, Changshu Huaye and Jiangsu Cold-Rolled’s gross
      margins were 11.39% and 3.94%, respectively. Gross margins for domestic and
      international sales were approximately 9.49% and 14.68%, respectively. Changes
      in our gross margins are primarily driven by changes in our product mix and
      our
      pricing policy.


22


To
      gain
      market penetration, we price our products at levels that we believe are
      competitive with our competitors. Through our continuous efforts to improve
      manufacturing efficiencies and reduce our production costs, we believe that
      we
      offer products of comparable quality to our Chinese state-owned competitors
      and
      international competitors at lower prices. General economic conditions, cost
      of
      raw materials as well as supply and demand of steel finishing fabrication
      products within our markets influence sales prices. Our high-end, value-added
      products generally tend to have higher profit margins.





We
      changed our pricing policy in 2006. Prior to 2006, most of our product prices
      were determined at the time of the delivery of products to our customers, so
      our
      pricing was determined based on the then current raw material price rather
      than
      our actual raw material production cost. Such pricing policy allows us to make
      a
      profit when the market price of raw materials exceeds our actual costs, but
      subject us to loss when the price of raw materials is lower than our actual
      costs. In order to achieve a more table gross margin, after 2006, a greater
      percentage of our product price was determined at the time when the order was
      placed which allows us to determine our product prices based on the actual
      raw
      material purchase price.





In
      fiscal
      year 2007, our AP Steel production line and cold-rolled steel production line
      went into operation. We use part of the AP Steel and cold-rolled steel products
      for our production of HDG Steel and PPGI products. In addition, part of our
      HDG
      Steel products are used for our production of PPGI products. This vertical
      integration will help us to achieve a higher gross margin.





***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 advisor
      fees 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 related to being
      a public company.





***Selling
      Expenses***





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





From
      fiscal years 2005 to 2007, our selling expenses increased primarily as a result
      of increased headcount and international sales and our increased sales to
      unrelated parties. The transportation costs for our international sales are
      generally higher than domestic sales. Our export sales accounted for 10.21%
      of
      our revenue in fiscal year 2007 as compared to 4.10% in fiscal year 2006 and
      0.01% in fiscal year 2005 and our transportation costs for international sales
      accounted for 48.9%, 22% and 19.4% of the total transportation costs during
      these years. In addition, when we sell products to Shanghai Huaye and its
      affiliates, Shanghai Huaye generally arrange the transportation. In contrast,
      when we sell products to unrelated parties, 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 taxable income in fiscal year 2007.


23


*BVI*





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





*PRC*





Foreign
      Invested Entities (“FIE”) established in the PRC are 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 our 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 is 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 will be subject to a tax rate of 12% for the calendar
      years
      2006, 2007 and 2008. Our other subsidiary, Jiangsu Cold-Rolled has the same
      two
      year full tax exemption, followed by 50% tax exemption for the next three years
      as discussed above.





In
      addition, Changshu Huaye, being a FIE, are 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.





On
      March 16, 2007, the National People’s Congress of China passed the new EIT
      Law, which will take effect as of 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 and will normally be subject
      to
      EIT at the rate of 25.0% on its global income. The new EIT Law, however, does
      not define the term “de facto management bodies.” If the PRC tax authorities
      subsequently determine that we should be classified as a resident enterprise,
      then our global income will be subject to PRC income tax at a tax rate of 25.0%.
      In addition, under the new EIT Law, dividends from our PRC subsidiaries to
      us
      will be subject to a withholding tax. The rate of the withholding tax has not
      yet been finalized, pending promulgation of implementing regulations.
      Furthermore, the ultimate tax rate will be determined by treaty between China
      and the tax residence of the holder of the PRC subsidiaries. We are actively
      monitoring the proposed withholding tax and are evaluating appropriate
      organizational changes to minimize the corresponding tax impact. The new EIT
      Law
      imposes a unified income tax rate of 25.0% on all domestic-invested enterprises
      and FIEs, such as our PRC operating subsidiaries, unless they qualify under
      certain limited exceptions, but the EIT Law permits companies to continue to
      enjoy their existing preferential tax treatments until such treatments expire
      in
      accordance with their current terms. We expect details of the transitional
      arrangement for the five-year period from January 1, 2008 to
      December 31, 2012 applicable to enterprises approved for establishment
      prior to March 16, 2007 to be set out in more detailed implementing rules
      to be adopted in the future. Any increase in our effective tax rate as a result
      of the above may adversely affect our operating results. However, details
      regarding implementation of this new law are expected to be provided in the
      form
      of one or more implementing regulations to be promulgated by the PRC government,
      and the timing of the issuance of such implementing regulations is currently
      unclear.





***Reportable
      Operating Segments***





We
      have
      two reportable operating segments which are organized by our manufacturing
      facilities - Changshu Huaye and Jiangsu Cold-Rolled. Changshu Huaye manufactures
      and sells HDG Steel and PPGI products. Jiangsu Cold-Rolled started operation
      in
      fiscal year 2007 and currently manufactures and sells AP Steel and cold-rolled
      Steel. Jiangsu Cold-Rolled is currently constructing a HDG Steel production
      line
      which will become operative in approximately February 2008. 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 tables set forth key components of our results of operations for
      the
      periods indicated, both in dollars and as a percentage of our revenue.


24


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





**2007**
            
            **2006**
            
            **2005****Revenue:**
            
            **Amount**
            
            **As a**
              **Percentage of**
              **Revenue**
            
            **Amount**
            
            **As a**
              **Percentage of**
              **Revenue**
            
            **Amount**
            
            **As a**
              **Percentage**
              **of****Revenue**Revenue
                from unrelated parties
            
            $
            147,467
            
            
            48.6
            %
            $
            45,942
            
            
            24.10
            %
            $
            6,880
            
            
            4.16
            %Revenue
                from related parties
            
            
            155,972
            
            
            51.4
            %
            
            144,652
            
            
            75.90
            %
            
            158,503
            
            
            95.84
            %Total
            
            
            303,439
            
            
            100
            %
            
            190,594
            
            
            100
            %
            
            165,383
            
            
            100
            %**Cost
                of Revenue**Cost
                of revenue
            
            
            115,286
            
            
            38.00
            %
            
            57,220
            
            
            30.02
            %
            
            2,351
            
            
            1.42
            %Purchases
                from related parties
            
            
            157,615
            
            
            51.94
            %
            
            117,436
            
            
            61.62
            %
            
            144,501
            
            
            87.37
            %272,901
            
            
            89.94
            %
            
            174,656
            
            
            91.64
            %
            
            146,852
            
            
            88.79
            %**Gross
                Profit**
            
            
            30,538
            
            
            10.06
            %
            
            15,938
            
            
            8.36
            %
            
            18,531
            
            
            11.21
            %**Operating
                Expenses**Selling
            
            
            2,320
            
            
            0.76
            %
            
            1,894
            
            
            0.99
            %
            
            788
            
            
            0.48
            %General
                and administrative
            
            
            4,736
            
            
            1.56
            %
            
            1,255
            
            
            0.66
            %
            
            1,199
            
            
            0.73
            %**Total
                Operating Expenses**
            
            
            7,056
            
            
            2.33
            %
            
            3,149
            
            
            1.65
            %
            
            1,987
            
            
            1.20
            %**Income
                from Operations**
            
            
            23,482
            
            
            7.74
            %
            
            12,789
            
            
            6.71
            %
            
            16,544
            
            
            10
            %**Other
                Income (Expense)**Interest
                income
            
            
            566
            
            
            0.19
            %
            
            467
            
            
            0.25
            %
            
            134
            
            
            0.08
            %Other
                income
            
            
            298
            
            
            0.10
            %
            
            186
            
            
            0.10
            %
            
            83
            
            
            0.05
            %Interest
                expense
            
            
            (2,258
            )
            
            (0.74
            )%
            
            (924
            )
            
            (0.48
            %)
            
            (993
            )
            
            (0.60
            )%Other
                expense
            
            
            (874
            )
            
            (0.29
            )%
            
            (155
            )
            
            (0.08
            %)
            
            (87
            )
            
            (0.05
            )%**Total
                Other Expense******
            
            
            (2,268
            )
            
            (0.75
            )%
            
            (426
            )
            
            (0.22
            %)
            
            (863
            )
            
            (0.52
            )%**Income
                Before Taxes and Minority Interest**
            
            
            21,214
            
            
            6.99
            %
            
            12,363
            
            
            6.49
            %
            
            15,681
            
            
            9.48
            %Provision
                for income taxes
            
            
            (697
            )
            
            (0.23
            )%
            
            (859
            )
            
            (0.45
            )%
            
            -Minority
                interest in loss of consolidated subsidiary
            
            
            3
            
            
            0.01
            %
            
            24
            
            
            0.01
            %
            
            2
            
            
            0
            %**Net
                Income**
            
            $
            20,520
            
            
            6.76
            %
            
            11,528
            
            
            6.05
            %
            
            15,683
            
            
            9.48
            %





The
      following table set forth revenue by geography and the percentage of our total
      revenue and total revenue by business segments for fiscal years 2005, 2006
      and
      2007.


25




**Year
                  Ended June 30,****2007**
              
              **2006**
              
              **2005****%
                  of Total**
              
              
              
              **%
                  of Total**
              
              
              
              **%
                  of Total****Revenue**
              
              **Revenue**
              
              **Revenue**
              
              **Revenue**
              
              **Revenue**
              
              **Revenue****(in
                  thousands of U.S. dollar, except percentages)****Geographic
                  Data:**China
              
              $
              272,461
              
              
              89.79
              %
              $
              182,796
              
              
              95.91
              %
              $
              165,359
              
              
              99.99
              %Hong
                  Kong
              
              
              24,968
              
              
              8.23
              %
              
              7,423
              
              
              3.89
              %
              
              -
              
              
              -Other
                  Countries
              
              
              6,010
              
              
              1.98
              %
              
              375
              
              
              0.20
              %
              
              24
              
              
              0.01
              %Total
                  revenue
              
              
              303,439
              
              
              100
              %
              $
              190,594
              
              
              100
              %
              
              165,383
              
              
              100
              %**Segment
                  Data:**Changshu
                  Huaye
              
              
              257,531
              
              
              84.87
              %
              
              190,594
              
              
              100
              %
              $
              165,383
              
              
              100
              %Jiangsu
                  Cold-Rolled
              
              
              45,908
              
              
              15.13
              %
              
              -
              
              
              -
              
              
              -
              
              
              -Total
                  revenue
              
              
              303,439
              
              
              100
              %
              $
              190,594
              
              
              100
              %
              $
              165,383
              
              
              100
              %


**Comparison
        of Years ended June 30, 2007 and June 30, 2006.**





***Revenue*** .
      Our
      revenue increased $112.84 million, or 59.21% to $303.44 million in fiscal year
      2007 from $190.59 million in fiscal year 2006. This increase was mainly
      attributable to the increased market demand for our HDG Steel products and
      PPGI
      products, increase average selling price of our HDG Steel product, our increased
      marketing efforts and an expansion of our production capacity of AP Steel
      products and cold-rolled steel products.





On
      a
      geographic basis, revenue generated from outside of the China grew even faster
      than revenue generated in China, increasing from $7.80 million in fiscal year
      2006 to $30.98 million in fiscal year 2007, a 297.25% growth. These increases
      reflect our improved penetration in international markets, with sales to 39
      countries in fiscal year 2006 and approximately 69 countries in fiscal year
      2007.





Each
      of
      our business segments experienced significant revenue growth in fiscal year
      2007. Revenue contributed by Changshu Huaye increased to $257.53 million in
      fiscal year 2007 from $190.59 million in fiscal year 2006, an increase of $66.94
      million, or 35%, mainly due to an approximately 16.74% increase in sales volume
      from fiscal year 2006 to fiscal year 2007 and an approximately $67.94/MT
      increase in the average selling price of Changshu Huaye’s HDG Steel products.
      The increase in the sales of HDG Steel products was attributable to the higher
      market demand in both PRC and overseas HDG Steel market.





After
      eliminating the inter-company sale, revenues contributed by Jiangsu Cold-Rolled
      were $45.91 million in fiscal year 2007. Revenue from the sales of our AP Steel
      and cold-rolled steel products to outside customers were approximately $41.04
      million and $ 4.87 million in fiscal year 2007, respectively. Jiangsu
      Cold-Rolled had minimal revenue in fiscal year 2006 because Jiangsu
      Cold-Rolled’s AP Steel production line and cold-rolled steel production line did
      not start operation until October 2006 and January 2007, respectively. Since
      we
      have implemented the vertical integration strategy commencing January 2007,
      a
      large portion of Jiangsu Cold-Rolled’s products were used internally as raw
      materials for our subsidiary Changshu Huaye.





In
      terms
      of sales to related parties as compared with sales to unrelated parties, our
      direct sales to unrelated parties in fiscal year 2007 increased $101.53 million,
      or 220.99% to $147.47 million from $45.94 million in fiscal year 2006. Such
      increase was mainly due to our increased efforts on direct marketing and sales.
      In December 2006, we started to transfer the market channels from our related
      parties to our Company, which resulted in the increase of our direct sales
      to
      unrelated parties in fiscal year 2007. We expect our sales to unrelated parties
      as compared with sales to related parties will continue to increase in the
      next
      few quarters.





***Cost
      of Revenue*** .
      Our
      cost of revenue increased $98.24 million, or 56.25% to $272.90 million in fiscal
      year 2007 from $174.66 million in fiscal year 2006. This dollar increase was
      mainly due to increased production and sales volume. As a percentage of
      revenue, the cost of revenue decreased to 89.94% in fiscal year 2007 from
      91.63% in fiscal year 2006. Such percentage decrease was mainly attributable
      to
      our vertical integration. In fiscal year 2007, our AP Steel production line
      and
      cold-rolled steel production line went into production. We used a large portion
      of the AP Steel and cold-rolled steel production produced by Jiangsu Cold-Rolled
      for Changshu Huaye’s production of HDG Steel and PPGI products, which decreased
      our cost of revenue. In addition, the large sales volume in fiscal year 2007
      allowed us to achieve economies of scale, which also contributed to the decrease
      of cost of revenue.


26





***Gross
      Profit*** .
      Our
      gross profit increased $14.60 million to $30.54 million in fiscal year 2007
      from
      $15.94 million in fiscal year 2006. Gross profit as a percentage of revenue
      (gross margin) was 10.06% in fiscal year 2007, as compared to 8.36% in fiscal
      year 2006. Such gross margin increase was mainly due to the above-mentioned
      vertical integration and a products category shift from relatively lower-end
      products to higher-end higher value-added products. In addition, our sales
      of
      PPGI products accounted for approximately 31.94% of the total revenue in fiscal
      year 2007, as compared to 23.41% in fiscal year 2006. Because our PPGI products
      generally have a higher gross margin than our HDG Steel products, the increased
      percentage of our PPGI products also contributed to the increase of our gross
      profits in fiscal year 2007.





Gross
      margins for Changshu Huaye increased to 10.06% in fiscal year 2007 from 8.36%
      in
      fiscal year 2006, which was primarily attributable to the reasons stated above.





Gross
      margins for Jiangsu Cold-Rolled were low in fiscal year 2007 due to limited
      production volume for these two products. This prevented us from achieving
      economies of scale. Since the AP Steel production line and the cold-rolled
      steel
      production line were put into business operation on October 2006 and on January
      2007 respectively, the production volumes have increased significantly. As
      the
      production volumes of these two products increase going forward, we expect
      that
      the gross margin will improve.




***Total
      Operating Expenses*** .
      Our
      total operating expenses increased $3.91 million to $7.05 million in fiscal
      year
      2007 from $3.15 million in fiscal year 2006. As a percentage of revenue, our
      total operating expenses increased to 2.33% in fiscal year 2007 from 1.65%
      in
      fiscal year 2006.





*General
      and Administrative Expenses* .
      Our
      general and administrative expenses increased $3.48 million to $4.74 million
      in
      fiscal year 2007 from $1.25 million in fiscal year 2006. As a percentage of
      revenue, general and administrative expenses increased to 1.56% in fiscal year
      2007 from 0.66% in fiscal year 2006. The percentage increase was mainly
      attributable to the preliminary expenses incurred by our subsidiary Jiangsu
      Cold-Rolled, the costs incurred in connection with the reverse acquisition
      closed in February 2007 and the expenses for being a U.S. public
      company.





*Selling
      Expenses* .
      Our
      selling expenses increased $0.43 million to $2.32 million in fiscal year
      2007 from $1.89 million in fiscal year 2006. As a percentage of revenue,
      our selling expenses decreased to 0.76% in fiscal year 2007 from 0.99% in fiscal
      year 2006. Such decrease was mainly due to the more efficient control of selling
      expenses.





***Interest
      Income*** *.* Our
      interest income increased $0.10 million to $0.57 million in fiscal year 2007
      from $0.47 million in fiscal year 2006. The interest income was mainly generated
      by our restricted cash deposited in the bank. As of June 30, 2007, the amount
      of
      effective restricted cash deposited in the bank was more than that for the
      same
      period in 2006. Therefore, our interest income increased in fiscal year 2007
      as
      compared with that in fiscal year 2006.





***Provision
      for Income Taxes*** .
      We
      incurred income tax expense of $0.70 million and $0.86 million in fiscal years
      2007 and 2006, respectively. All those tax expenses resulted from the operations
      of our subsidiary Changshu Huaye. As discussed above, Changshu Huaye is entitled
      to a special tax concession for qualifying domestic capital expenditures.
      Changshu Huaye received a tax refund of $1.89 million in fiscal year 2007
      resulting from its purchase of qualifying domestic equipments.




***Net
      Income*** Net
      income, without including the foreign currency translation adjustment, increased
      $8.99 million, or 77.97%, to $20.52 million in fiscal year 2007 from $11.53
      million in fiscal year 2006, as a result of the factors described
      above.


27




**Comparison
      of Years Ended June 30, 2006 and June 30, 2005**





***Revenue.*** Revenue
      increased $25.2 million, or 15.2% to $190.6 million in fiscal year 2006 from
      $165.4 million in fiscal year 2005. This increase was mainly attributable to
      the
      increased market demands for our HDG Steel and PPGI products and the increase
      in
      export sales. Due to the high market demand, our HDG Steel production line
      operated in excess of its designed manufacturing capacity in fiscal year 2006.
      Although the market prices declined in fiscal year 2006, the increase of our
      total sales volume more than offset the decrease of market prices. ** Since
      Jiangsu Cold-Rolled did not have business operations in fiscal years 2005 and
      2006, all our revenue during these periods were solely contributed by Changshu
      Huaye.





***Cost
      of Revenue*** .
      Our
      cost of revenue increased $27.8 million to $174.7 million in fiscal year 2006
      from $146.9 million in fiscal year 2005. As a percentage of revenue, the cost
      of
      revenue increased to 91.6% in fiscal year 2006 from 88.8% in fiscal year 2005.
      The decrease of gross margin was mainly due to a change in our pricing policy
      as
      discussed above. In fiscal year 2005, most of our product prices were determined
      at the time of the delivery of products, that is, our product prices were based
      on the then current raw material price rather than our actual raw material
      purchase prices. Such pricing policy allows us to make a profit when price
      of
      raw materials is in an increasing trend, but subjects us to loss when the price
      of raw materials is in a decreasing trend. The price of our raw materials
      increased throughout fiscal year 2005; as a result, we made an unusual
      additional profit from such upward raw material price change in fiscal year
      2005. In order to mitigate the risk of raw material price fluctuation, in fiscal
      year 2006, a greater percentage of our product prices were determined at the
      time when the order was placed, that is, our product prices were based on the
      actual raw material purchase price.





***Gross
      Profit*** *.* Our
      gross profit decreased $2.6 million, or 14% to $15.9 million in fiscal year
      2006
      from $18.5 million in fiscal year 2005. Gross margin was 8.4% in fiscal year
      2006, as compared to 11.2% in fiscal year 2005. Such decrease was due to the
      reasons described above.





***Total
      Operating Expenses*** .
      Our
      total operating expenses increased $1.16 million to $3.15 million in fiscal
      year
      2006 from $1.99 million in fiscal year 2005. As a percentage of revenue, our
      total operating expenses increased to 0.17% in fiscal year 2006 from 0.12%
      in
      fiscal year 2005.





*General
      and Administrative Expenses.* Our
      general and administrative expenses increased $0.1 million, or 4.6%, to $1.3
      million in fiscal year 2006 from $1.2 million in fiscal year 2005. As a
      percentage of revenue, the general and administrative expenses decreased to
      0.66% in fiscal year 2006 from 0.73% in fiscal year 2005. This percentage
      decrease was primarily attributable to more efficient controls of our general
      and administrative expenses. As of June 30, 2006, Jiangsu Cold-Rolled had not
      contributed to the business operations, thus, all the general and administrative
      expenses incurred by Jiangsu Cold-Rolled in fiscal years 2005 and 2006 were
      preliminary expenses associated with its construction.





*Selling
      Expenses* .
      Our
      selling expenses increased $1.1 million, or 140% to $1.9 million in fiscal
      year
      2006 from $0.79 million in fiscal year 2005. As a percentage of revenue, our
      selling expenses increased to 0.99% in fiscal year 2006 from 0.48% in fiscal
      year 2005. This increase was primarily attributable to the increase of
      transportation fees resulted from the increased sales to non-related parties.





***Interest
      Income*** *.* Our
      interest income increased $0.33 million to $0.47 million in fiscal year 2006
      from $0.13 million in fiscal year 2005. As a percentage of revenue, the interest
      income increased to 0.25% for fiscal year 2006 from 0.08% for fiscal year 2005.
      The interest income generated by the discount deposit increased resulting from
      the increase in bankers’ acceptance bills. The interest expenses decreased $0.07
      million to $0.92 million in fiscal year 2006 from $0.99 million in fiscal year
      2005. As a percentage of revenue, the interest expense decreased to 0.48% for
      fiscal year 2006 from 0.6% for fiscal year 2005. The decreased interest expense
      was mainly attributable to the fact that there was a smaller amount of long
      term
      debt incurred for the fiscal year 2006, compared to the long term debt in fiscal
      year 2005.




28




***Provision
      for Income Taxes*** *.* We
      incurred income taxes of $0.86 million in fiscal year 2006, all of which
      resulted from the operations of our subsidiary, Changshu Huaye. Changshu Huaye
      was 100% exempt from EIT in fiscal year 2005 and the first half of fiscal year
      2006. For the second half of fiscal year 2006, Changshu Huaye was
      granted a 50% tax exemption and was subject to a tax rate of 12%.





***Net
      Income*** .
      Net
      income decreased $4.2 million, or 26.5%, to $11.5 million in fiscal year 2006
      from $15.7 million in fiscal year 2005, as a result of the factors described
      above. Jiangsu Cold-Rolled incurred a net loss of $0.22 million and $0.06
      million in fiscal years 2006 and 2005, respectively. The net loss was mainly
      due
      to the preliminary costs associated with its construction.




***Liquidity
      and Capital Resources***





As
      of
      June 30, 2007, we had cash and cash equivalents (excluding restricted cash)
      of
      $8.83 million and restricted cash of $27.80 million. The following table
      provides detailed information about our net cash flow for all financial
      statement periods presented in this annual report.




**Cash
      Flow**


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




**For
                  the Fiscal Year Ended June 30,****2007**
              
              **2006**
              
              **2005**Net
                  cash provided by (used in) operating activities
              
              $
              (28,556
              )
              $
              30,494
              
              $
              10,291Net
                  cash used in investing activities
              
              
              (3,567
              )
              
              (28,439
              )
              
              (23,238
              )Net
                  cash provided by financing activities
              
              
              34,093
              
              
              2,986
              
              
              10,855Net
                  cash flow
              
              $
              2,298
              
              $
              4,976
              
              $
              (2,090
              )





***Operating
      Activities:***





Net
      cash
      used in operating activities was $28.56 million in fiscal year 2007, a decrease
      of $59.05 million from the $30.49 million net cash provided by operating
      activities in fiscal year 2006. Such decrease of net cash provided by operating
      activities was primarily attributable to a $13.60 million increase of account
      receivable, a $20.75 million increase of advances to suppliers and a $9.08
      million increase in inventory.





Net
      cash
      provided by operating activities was $30.5 million in fiscal year 2006, and
      the
      net cash provided by operating activities was $10.3 million in fiscal year
      2005.
      The improvement by $20.2 million in operating activities was mainly attributable
      to the increased sales, more efficient control of advances from customers and
      related party payables and efficient inventory management. During fiscal year
      2006, the accounts payable decreased by $5.4 million, which was more than offset
      by the increase in related party payables of $10.6 million. During this period,
      we requested more favorable terms on our advances from customers, which resulted
      in an increase in advances from customers of $7.1 million. In addition, we
      have
      strengthened our inventory management in the fiscal year 2006, which resulted
      in
      a decrease in inventories of $4.2 million and partially contributed to our
      net
      cash provided by operating activities in fiscal year 2006.





***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.




29




Net
      cash
      used in investing activities in fiscal year 2007 was $3.57 million, which is
      a
      decrease of $24.87 million from net cash used in investing activities of $28.44
      million in fiscal year 2006. Such decrease of net cash used in investing
      activities was mainly due to a $5.61 million decrease in the bank deposits
      used
      to pledge the issuance of bills payable in fiscal year 2007. We raised money
      to
      maintain our working capital through more short-term loans, less issuance of
      bill payables in fiscal year 2007, which resulted in a large amount of
      restricted cash being released. In fiscal year 2007, we spent $7.10 million
      on
      equipment and facilities and $0.20 million on land use rights, which was fully
      offset by the decrease in restricted cash of $5.61 million mentioned above.
      We
      spent $11.86 million on equipment and facilities in fiscal year 2006. The
      equipment and facilities purchased during these two periods were mainly used
      to
      build our two new production lines: the AP Steel production line and cold-rolled
      steel production line.





Net
      cash
      used in investing activities in fiscal year 2006 was $28.4 million, while the
      net cash used in investing activities in fiscal year 2005 was $23.2 million.
      The
      net cash in fiscal year 2006 was primarily used in the acquisition of property,
      plant and equipment, and restricted cash pledged as deposit for bankers’
acceptance bills. During the fiscal year 2006, $19.0 million was used in the
      purchase of equipment for Jiangsu Cold-Rolled and $9.6 million was used as
      deposit for bankers’ acceptance bills.





***Financing
      Activities:***





Net
      cash
      provided by financing activities in fiscal year 2007 totaled $34.09 million
      as
      compared to $2.99 million provided by financing activities in fiscal year 2006.
      The increase of cash provided by financing activities was mainly attributable
      to
      an increase of $136.56 million in issuance of notes payable to supply working
      capital and the proceeds of $33.13 million from issuance of Series B Preferred
      Stock in fiscal year 2007, which includes approximately $10.57 million in net
      proceeds received in connection with a private placement transaction closed
      in
      February 2007 where we raised $12 million in gross proceeds. Such increase
      of
      cash provided by financing activities was partially offset by a $112.00 million
      increase in payment on notes payable. In addition, we paid $21.04 million to
      acquire the 100% equity of our subsidiaries Changshu Huaye and Jiangsu
      Cold-Rolled in the first fiscal quarter of 2007.





Net
      cash
      provided by financing activities in fiscal year 2006 totaled $3 million, while
      the net cash provided by financing activities in fiscal year 2005 was $10.9
      million. The net cash in fiscal year 2006 was provided by an increase in net
      notes payable of $7.2 million and this was offset by the payment on long-term
      debt of $6.2 million.





We
      believe we currently maintain a good business relationship with many banks.
      As
      of June 30, 2007, the maturities for our bank loans are as follows.




30


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




Banks
              
              Amounts*
              
              Starting
                  Date
              
              Maturity
                  DateChangshu
                  Rural Commercial Bank
              
              $
              0.38
              
              March
                29, 2007
              
              Sept
                19, 2007Changshu
                  Rural Commercial Bank
              
              
              0.59
              
              April
                26, 2007
              
              July
                26, 2007Changshu
                  Rural Commercial Bank
              
              
              2.15
              
              May
                24, 2007
              
              August
                24, 2007Changshu
                  Rural Commercial Bank
              
              
              1.31
              
              May
                9, 2007
              
              August
                9, 2007Changshu
                  Rural Commercial Bank
              
              
              1.26
              
              June
                11, 2007
              
              Sept.
                11, 2007Changshu
                  Rural Commercial Bank
              
              
              1.57
              
              March
                25, 07
              
              Sept.
                24, 2007Changshu
                  Rural Commercial Bank
              
              
              2.23
              
              April
                16, 2007
              
              October
                15, 2007Changshu
                  Rural Commercial Bank
              
              
              1.44
              
              April
                16, 2007
              
              October
                15, 2007China
                  Industry and Commerce Bank Changshu Branch
              
              
              2.62
              
              May
                15, 2007
              
              August
                15, 2007China
                  Industry and Commerce Bank Changshu Branch
              
              
              1.11
              
              May
                9, 2007
              
              August
                9, 2007China
                  Industry and Commerce Bank Changshu Branch
              
              
              1.31
              
              March
                16, 2007
              
              March
                14, 2008China
                  Industry and Commerce Bank Changshu Branch
              
              
              2.62
              
              April
                2, 2007
              
              April
                1, 2008China
                  Industry and Commerce Bank Changshu Branch
              
              
              1.31
              
              May
                17, 2007
              
              May
                16, 2008China
                  Industry and Commerce Bank Changshu Branch
              
              
              1.31
              
              May
                18, 2007
              
              May
                17, 2008Ever
                  Growing Bank Nanjing Branch
              
              
              6.56
              
              May
                9, 2007
              
              Nov.
                9, 2007Ever
                  Growing Bank Nanjing Branch
              
              
              3.93
              
              April
                26, 2007
              
              October
                26, 2007Ever
                  Growing Bank Nanjing Branch
              
              
              2.62
              
              April
                29, 2007
              
              October
                29, 2007China
                  Construction Bank Changshu Branch
              
              
              6.75
              
              January
                17, 2007
              
              July
                17, 2007Bank
                  of Jiangsu Nantong Branch
              
              
              2.62
              
              January
                29, 2007
              
              July
                28, 2007China
                  Citic Bank Wuxi Branch
              
              
              2.62
              
              August
                3, 2007
              
              August
                3, 2008China
                  Citic Bank Changshu Branch
              
              
              1.40
              
              May
                10, 2007
              
              August
                10, 2007Bank
                  of China Changshu Branch
              
              
              0.59
              
              June
                11, 2007
              
              Sept.
                11, 2007Bank
                  of China Changshu Branch
              
              
              2.62
              
              March
                12, 2007
              
              March
                11, 2008******Total**
              
              $
              50.95


*
      Calculated on the basis that $1 = RMB 7.6248





On
      February 1, 2007, through a private placement, we raised $12 million in gross
      proceeds, which left us with approximately $10.57 million in net proceeds after
      the deduction of offering expenses of approximately $1.43 million. We used
      the
      proceeds to build new production lines and purchase new equipment for the
      expansion of our production capacity. This financing resulted in an increase
      of
      our net cash flow and a decrease of our asset/liability ratio and financial
      risks.





Our
      material capital expenditure requirements for fiscal year 2008 are approximately
      $30 million, which will be used for updating and expansion of our production
      lines, equipment and facilities. In addition, we expect that an additional
      $30
      million of working capital will be needed to maintain our business operations
      in
      the next twelve months which will be raised through bank loans. We repaid three
      bank loans in the total amount of $5.97 million in July 2007 and borrowed new
      loans in the total amount of $ 31.48 million after August 2007. In the coming
      12 months,
      we have approximately $50.95 million in bank loans that will mature. We plan
      to
      replace these loans with new bank loans in approximately the same aggregate
      amounts.




31




We
      believe that our currently available working capital after receiving the
      aggregate proceeds of Sutor Group’s capital raising activities, 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.





***Obligations*** ***Under Material Contracts***





We
      had no
      outstanding contractual obligations as of June 30, 2007.





***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 RMB; however,
                the
                accompanying consolidated financial statements have been expressed
                in 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 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 $32,791,928
                and $10,940,577 at June 30, 2007 and 2006, respectively. The Company
                also
                had advances from its customers in the amount of $8,414,629 and $7,534,159
                at June 30, 2007 and 2006,
                respectively.





·
            *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:




32




**For
                  the Years Ended June 30,****2007**
              
              **2006**
              
              **2005**Net
                  income
              
              $
              20,520,391
              
              $
              11,528,200
              
              $
              15,683,353Weighted-average
                  common sharesoutstanding
              
              
              4,181,750
              
              
              -
              
              
              -Effect
                  of participating convertible Series A andSeries
                  B preferred stock
              
              
              30,418,273
              
              
              29,373,303
              
              
              18,310,093Weighted-average
                  basic and dilutive common sharesOutstanding
              
              
              34,600,023
              
              
              29,373,303
              
              
              18,310,093**Basic
                  and Diluted Earnings per Common Share**
              
              $
              0.59
              
              $
              0.39
              
              $
              0.86




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





***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.**




***Interest
      Rate Risk***





We
      are
      exposed to interest rate risk due primarily to our short-term bank loans.
      Although the interest rates are fixed for the terms of the loans, the terms
      are
      typically twelve months and interest rates are subject to change upon renewal.
      Since July 20, 2007, the People’s Bank of China has increased the interest rate
      of Renminbi bank loans with a term of six months or less by approximately 0.2%
      and loans with a term of six to 12 months by approximately 0.3%. The new
      interest rates are approximately 6.0% and 6.8% for Renminbi bank loans with
      a
      term six months or less and loans with a term of six to 12 months, respectively.
      The change in interest rates has no impact on our bank loans secured before
      July 28, 2007. A hypothetical 1.0% increase in the annual interest rates
      for all of our credit facilities at June 30, 2007 would decrease net income
      before income taxes by approximately $66,000 for the three months ended June
      30,
      2007. We monitor interest rates in conjunction with our cash requirements to
      determine the appropriate level of debt balances relative to other sources
      of
      funds. We have not entered into any hedging transactions in an effort to reduce
      our exposure to interest rate risk.





***Foreign
      Exchange Risk***





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





***Inflation***





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




33




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




The
      full
      text of our audited consolidated financial statements as of June 30, 2007,
      2006
      and 2005 begins on page F-1 of this annual report.




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




None.




**ITEM
      9A. CONTROLS AND PROCEDURES.**




Our
      management, with the participation of our chief executive officer and chief
      financial officer, Messrs. Liuhua Guo 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. Management recognizes that any controls and procedures, no matter
      how well designed and operated, can provide only reasonable assurance of
      achieving their objectives and management necessarily applies its judgment
      in
      evaluating the cost-benefit relationship of possible controls and procedures.
      Based on that evaluation, Messrs. Guo and Jiang concluded that as of June 30,
      2007, and as of the date that the evaluation of the effectiveness of our
      disclosure controls and procedures was completed, our disclosure controls and
      procedures were effective to satisfy the objectives for which they are
      intended.




There
      were no changes in our internal control over financial reporting identified
      in
      connection with the evaluation performed that occurred during the fiscal year
      covered by this report that has materially affected or is 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
              
              PositionLifang
                  Chen
              
              34
              
              Chairman
                  of the board of directorsLiuhua
                  Guo
              
              37
              
              Chief
                  Executive Officer and PresidentYongfei
                  Jiang
              
              28
              
              Chief
                  Financial Officer, Treasurer and SecretaryXun
                  Zhang
              
              35
              
              Chief
                  Technology Officer




34


**Lifang
      Chen** .
      Ms.
      Chen became our Chairman on February 1, 2007. She has been the Chairman of
      our
      subsidiary Sutor BVI since August 2006. Since June 2001, Ms. Chen has also
      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 received a doctorate degree in Business Management from Century University
      of America in 2004.





**Liuhua
      Guo.** Mr. Guo
      was appointed as our Chief Executive Officer on June 18, 2007. Prior to his
      appointment as the successor to Mr. Ni, our former Chief Executive officer,
      Mr.
      Guo had served as our Chief Technology Officer since February 1, 2007 and the
      Chief Technology Officer of Changshu Huaye since 2002, where he was responsible
      for the management of production and supervision of the construction of the
      production lines in Changshu Huaye. From 1998 to 2002, Mr. Guo worked as the
      deputy CTO at Bao Steel Huangshi Galvanized Steel Strip Co., Ltd. where he
      was
      responsible for construction of production lines and technology development.
      Mr.
      Guo has worked as technical engineer of galvanized steel strip manufacturing
      companies since 1995. Mr. Guo published several articles in major academic
      periodicals in coating industry. He has a bachelor’s degree in engineering from
      Wuhan University of Science and Technology.





**Yongfei
      Jiang** .
      Mr.
      Jiang became our Chief Financial Officer, Treasurer and Secretary on February
      1,
      2007, and 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 worked as
      the
      finance manager at Zhejiang Guotai Seal Material Co. Ltd., an equipment
      manufacturer. Mr. Jiang has 8 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.





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.





***Board
      Composition and Committees***




The
      board
      of directors is currently composed of one person, Lifang Chen. All board action
      requires the approval of a majority of the directors in attendance at a meeting
      at which a quorum is present. We intend to increase the size of our board of
      directors in fiscal year 2008.




We
      currently do not have standing audit, nominating or compensation committees.
      Our
      entire board of directors handles the functions that would otherwise be handled
      by each of the committees. We intend, however, to establish an audit committee,
      a nominating committee and a compensation committee of the board of directors
      as
      soon as practicable. We envision that the audit committee will be primarily
      responsible for reviewing the services performed by our independent auditors,
      evaluating our accounting policies and our system of internal controls. The
      nominating committee would be primarily responsible for nominating directors
      and
      setting policies and procedures for the nomination of directors. The nominating
      committee would also be responsible for overseeing the creation and
      implementation of our corporate governance policies and procedures. The
      compensation committee will be primarily
      responsible for reviewing and approving our salary and benefit policies
      (including equity plans), including compensation of executive officers.




35




Our
      sole
      director, Ms. Chen is not an audit committee financial expert. Upon the
      establishment of an audit committee, the board will determine whether any of
      the
      directors qualify as an audit committee financial expert.





***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 this annual report, 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. Based solely on our review
        of
        copies of such reports filed with the SEC and written representations of
        our
        directors and executive officers, we believe that all persons subject to
        reporting filed the required reports on time in 2007 fiscal year except for
        the
        late Form 3 report filed by Mr. Guoxiang Ni on February 13, 2007 to report
        his
        appointment as our Chief Executive Officer and President on February 1, 2007.


***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.





**ITEM
      11.** **EXECUTIVE
      COMPENSATION**




***Compensation
      Discussion and Analysis***





Background
      and Compensation Philosophy





Our
      compensation philosophy and objectives are simple and straightforward: our
      goal
      is to compensate our executives fairly for the services they provide. In fiscal
      year 2007, we accomplished our goal by providing a base salary to our named
      executive officers. As disclosed below, each of the currently named executive
      officers entered into an employment agreement with our subsidiary Sutor BVI,
      and
      their employment agreements govern the amount of base salary the executives
      are
      paid.





In
      fiscal
      year 2007, we had six named executive officers, Liuhua Guo, our Chief Executive
      Officer and President; Yongfei Jiang, our Chief Financial Officer; Guoxiang
      Ni,
      our former Chief Executive Officer who resigned on June 17, 2007; Timothy P.
      Halter our former President, Chief Executive Officer, and Chief Financial
      Officer who resigned on February 1, 2007; Thomas G. Kimble, our former
      President, Chief Executive Officer and Chief Financial Officer who resigned
      on
      November 3, 2006; Heather Hamby our former President, Chief Executive Officer
      and Chief Financial Officer who resigned on October 26, 2006. Since February
      1,
      2007, Ms. Lifang Chen has been our sole director and a majority stockholder.
      Ms.
      Chen approved the 2007 fiscal year compensation of our named executive officers,
      Mr. Liuhua Guo, Mr. Guoxiang Ni and Mr. Yongfei Jiang, in her capacity as our
      sole director.




36




As
      the
      membership of our board of directors increases, our board of directors may
      form
      a compensation committee charged with the oversight of our executive
      compensation plans, policies and programs and the authority to determine and
      approve the compensation of our chief executive officer and make recommendations
      with respect to the compensation of our other executive officers.





Elements
      of Compensation





*Base
      Salary.* In
      fiscal
      year 2007, we provided our executive officers with a base salary to compensate
      them for services rendered during the year. The base salary we provide is
      intended to equitably compensate the named executive officers based upon their
      level of responsibility, complexity and importance of role, leadership and
      growth potential, and experience. Our named executive officers are
      employees-at-will and received an annual salary as provided in their employment
      agreements, **** which
      are
      reflected in the Summary Compensation Table below.





*Discretionary
      Bonus* .
      In
      fiscal year 2007, we did not provide bonus compensation to our executive
      officers; however, the executives are eligible to receive a discretionary bonus
      pursuant to the terms of their respective employment agreements. If our board
      of
      directors determines to do so in the future, bonuses may be paid on an ad hoc
      basis to recognize superior performance. If our board of directors decides
      to
      provide bonus compensation as a regular part of our executive compensation
      package, our compensation committee or our board of directors if we do not
      yet
      have a compensation committee, will establish performance goals for each of
      the
      executive officers and maximum bonuses that may be earned upon attainment of
      such performance goals.





*Stock-Based
      Awards and Long-Term Incentive.* We
      presently do not have any equity based or other long-term incentive programs,
      and we did not grant stock based or long-term incentive awards as a component
      of
      compensation in fiscal year 2007. In the future, we may adopt and establish
      an
      equity-based or other long-term incentive plan if our compensation committee
      or
      our board of directors if we do not yet have a compensation committee,
      determines that it is in the best interest of the company and our stockholders
      to do so. **





*Post-Employment
      Compensation* .
      Currently, we do not provide any employees, including our named executive
      officers, post-employment compensation, including company sponsored retirement
      benefits, deferred compensation, severance, termination or change of control
      arrangements (other than a state pension scheme in which all of our employees
      in
      China participate).





*Perquisites.* Historically,
      we have provided our named executive officers with minimal perquisites and
      other
      personal benefits that we believe are reasonable. For fiscal year 2007, the
      aggregate amount of the perquisites and other personal benefits provided to
      any
      named executive officer did not exceed $10,000. We do not view perquisites
      as a
      significant element of compensation, but we do believe they can be useful in
      attracting, motivating and retaining the executive talent for which we compete.
      We believe that these additional benefits assist our named executive officers
      in
      performing their duties and provide time efficiencies for them. It is expected
      that our historical practices regarding perquisites will continue and will
      be
      subject to periodic review by our compensation committee or our board of
      directors if we do not yet have a compensation committee.





***Summary
      Compensation Table***–***2007***





The
      following table sets forth information concerning all compensation awarded
      to,
      earned by or paid to each person serving as a principal executive officer or
      a
      principal financial officer for services rendered in all capacities during
      fiscal year 2007. No other executive officers received compensation in excess
      of
      $100,000 for fiscal year 2007.




37




**Annual
                Compensation****Name
                And Principal Position**
            
            **Salary****($)**
            
            **Total****($)**Heather
                Hamby,Former
                President, CEO and CFO(1)
            
            
            -
            
            
            -Thomas
                Kimble,Former
                President, CEO, CFO(2)
            
            
            -
            
            
            -Timothy
                P. Halter,Former
                President, CEO and director(3)
            
            
            -
            
            
            -Guoxiang
                NiFormer
                President and CEO(4)
            
            $
            87,048
            
            $
            87,048Liuhua
                GuoPresident
                and CEO(5)
            
            $
            70,424
            
            $
            70,424Yongfei
                JiangCFO,
                Treasurer and Secretary(6)
            
            $
            62,885
            
            $
            62,885





* Calculated on the basis that $1 = RMB 8.0.




(1)
            Heather
                Hambyresigned
                from all offices she held with our company onOctober
                26, 2006.
                Ms. Hamby did not receive any compensation for her services because
                we
                were not operating at that time.




(2)
            Thomas
                G. Kimbleresigned
                from all offices he held with our Company onNovember
                3, 2006.
                Mr. Kimble did not receive any compensation for his services because
                we
                were not operating at that time.




(3)
            Timothy
                P. Halterresigned
                from all offices he held with our Company onFebruary
                1, 2007.
                Mr. Halter did not receive any compensation for his services because
                we
                were not operating at that time.




(4)
            On
                February 1, 2007, we acquired Sutor BVI in a reverse acquisition
                transaction that was structured as a share exchange and in connection
                with
                that transaction, Mr. Ni****became
                our Chief Executive Officer. Prior to the effective date of the reverse
                acquisition, Mr. Ni served as the CEO of Changshu Huaye and Jiangsu
                Cold-Rolled. The annual compensation shown in this table includes
                the
                amount Mr. Ni received from Changshu Huaye and Jiangsu
                Cold-Rolled prior to the consummation of the reverse
                acquisition.




(5)
            On
                June 18, 2007, Mr. Ni resigned as our CEO and Mr. Liuhua Guo was
                appointed
                as our new CEO. Prior to his appointment as our CEO, Mr. Guo served
                as our
                CTO since February 1, 2007 and has served as the CTO of Changshu
                Huaye
                since 2002. The annual compensation shown in this table includes
                the
                amount Mr. Guo received from Sutor Group, Sutor BVI, and Changshu
                Huaye prior to his appointment as our CEO on June 18,
                2007.




(6)
            On
                February 1, 2007, Mr. Yongfei Jiang became our Chief Financial Officer,
                Treasurer and Secretary and has been the CFO of Changshu Huaye since
                2005.
                The annual compensation shown in this table includes the amount Mr.
                Jiang
                received from Changshu Huaye prior to his appointment as our CFO on
                February 1, 2007.




***Employment
      Agreements***





Our
      subsidiary Sutor BVI has employment agreements with the following three
      executive officers:





Liuhua
      Guo –our CEO’s employment agreement became effective as of June 18, 2007. Mr.
      Guo is an employee-at-will and is receiving an annual salary of $100,000 under
      the agreement.





Yongfei
      Jiang - our CFO’s employment agreement became effective as of December 26, 2006.
      Mr. Jiang is an employee-at-will and is receiving an annual salary at the range
      of $30,000 to $60,000 under the agreement.




38





Guoxiang
      Ni, our former CEO’s employment agreement became effective as of December 26,
      2006 and was terminated on June 18, 2007. Mr. Ni was an employee-at-will and
      received an annual salary at the range of $100,000 to $200,000 under the
      agreement.





The
      executive officers are eligible to receive a discretionary bonus pursuant to
      the
      terms of their respective employment agreements. The employment agreements
      do
      not provide payments relating to severance or following a change in control.
      The
      executives are subject to the customary non-competition and confidentiality
      covenants.





***Director
      Compensation***





During
      the 2007 fiscal year, we did not pay our directors any compensation for their
      services as our directors. In the future, we may adopt a policy of paying
      independent directors a fee for their attendance at board and committee
      meetings. We do reimburse each director for reasonable travel expenses related
      to such director’s attendance at board of directors and committee meetings.





***Compensation
      Committee Interlocks and Insider Participation***





During
      the last fiscal year, we did not have a standing compensation committee. Our
      board of directors was responsible for the functions that would otherwise be
      handled by the compensation committee.





***Indemnification
      of Directors and Executive Officers and Limitation of
      Liability***





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 Exchange Act 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 Exchange Act and will be governed by the final adjudication
      of
      such issue.





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 28, 2007 (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.




39


Title
                  of Class
              
              Name & Address of
                Beneficial
                  Owner
              
              Office, If Any
              
              Amount & Nature ofBeneficialOwnership1
              
              Percent ofClass2Common
                  Stock
              
              Lifang
                Chen
              
              Chairman
              
              
              32,338,050
              3
              
              85.2
              %Common
                  Stock
              
              Liuhua
                Guo
              
              CEO
                & President
              
              
              0
              
              
              *Common
                  Stock
              
              Yongfei
                Jiang
              
              CFO,
                Treasurer and Secretary
              
              
              0
              
              
              *Common
                  Stock
              
              Xun
                Zhang
              
              CTO
              
              
              0
              
              
              *All
                  Officers and Directors as a group (4 persons named above)
              
              
              
              
              
              
              32,338,050
              
              
              85.2
              %Common
                  Stock
              
              Feng
                Gao
              
              5% Security Holder
              
              
              32,338,050
              4
              
              85.2
              %Common
                  Stock
              
              Total
                Shares Owned by Persons Named above
              
              
              
              
              32,338,050
              
              
              85.2
              %


*
      Less
      than 1%





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 28, 2007. For each beneficial
      owner above, any options exercisable within 60 days have been included in the
      denominator.




3 Includes
      19,079,450 shares of common stock owned by Feng Gao, Ms. Chen’s husband.




4 Includes
      13,258,600 shares of common stock owned by Lifang Chen, Mr. Gao’s wife and our
      Chairman.




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




***Transactions
      with Related Persons***




The
      following includes a summary of transactions since the beginning of the last
      fiscal year, or any currently proposed transaction, in which we were or are
      to
      be a participant and the amount involved exceeded or exceeds $120,000, 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.





·
            On
                February 1, 2007, we consummated the transactions contemplated by
                a share
                exchange agreement with the owners of the issued and outstanding
                capital
                stock of SutorSteel Technology Co., Ltd.,
                including Lifang Chen, our Chairman. Pursuant to the share exchange
                agreement, we acquired 100% of the outstanding capital stock of SutorSteel
                Technology Co., Ltd.in
                exchange for 323,380.52 shares of our Series B Preferred Stock, which
                have
                subsequently been converted into 32,338,052 shares of our common
                stock. As
                a result of this transaction, Ms. Chen became the beneficial owner
                of
                approximately 85.2% of our outstanding capital
                stock.


40





·
            The
                Company sells it products to and buys raw materials from Shanghai
                Huaye
                and its affiliates that are owned by Ms. Lifang Chen, our Chairman
                and an
                85.2% beneficiary owner. Our Chinese subsidiaries conduct significant
                transactions with Shanghai Huaye and its affiliates, including 20
                companies. As of June 30, 2007 and June 30, 2006, the net amounts
                due to
                these related parties were $0 and $12,522,684, respectively.





·
            The
                Company also has a note payable to Shanghai Huaye in the amount of
                $2.33
                million. The note payable was due in August 2007 and we have paid
                off the
                note as of the date of this annual report. The amounts charged for
                products to the Company by such related party are under the same
                pricing,
                terms and conditions as those charged to third parties, and are due
                upon
                receipt.





·
            Some
                of the Company's notes payables are guaranteed by Shanghai Huaye
                and its
                affiliates. Please see Note 6 to the Company’s financial statements
                included elsewhere in this annual
                report.





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.




***Review,
      Approval or Ratification of Transactions with Related
      Persons***




As
      we
      increase the size of our board of directors and gain independent directors,
      we
      expect to prepare and adopt a written related-person transactions policy that
      sets forth our policies and procedures regarding the identification, review,
      consideration and approval or ratification of “related-persons transactions.”
For purposes of our policy only, a “related-person transaction” will be a
      transaction, arrangement or relationship (or any series of similar transactions,
      arrangements or relationships) in which we and any "related person" are
      participants involving an amount that exceeds $120,000. Transactions involving
      compensation for services provided to us as an employee, director, consultant
      or
      similar capacity by a related person will not be covered by this policy. A
      related person will be any executive officer, director or a holder of more
      than
      five percent of our common stock, including any of their immediate family
      members and any entity owned or controlled by such persons.





We
      anticipate that, where a transaction has been identified as a related-person
      transaction, the policy will require management to present information regarding
      the proposed related-person transaction to our audit committee (or, where
      approval by our audit committee would be inappropriate, to another independent
      body of our board of directors) for consideration and approval or ratification.
      Management’s presentation will be expected to include a description of, among
      other things, the material facts, the direct and indirect interests of the
      related persons, the benefits of the transaction to us and whether any
      alternative transactions are available.





To
      identify related-person transactions in advance, we are expected to rely on
      information supplied by our executive officers, directors and certain
      significant stockholders. In considering related-person transactions, our board
      of directors will take into account the relevant available facts and
      circumstances including, but not limited to:





·
            the
                risks, costs and benefits to us;


·
            the
                impact on a director's independence in the event the related person
                is a
                director, immediate family member of a director or an entity with
                which a
                director is affiliated;


·
            the
                terms of the transaction;


·
            the
                availability of other sources for comparable services or products;
                and


·
            the
                terms available to or from, as the case may be, unrelated third parties
                or
                to or from our employees generally.





We
      also
      expect that the policy will require any interested director to excuse himself
      or
      herself from deliberations and approval of the transaction in which the
      interested director is involved.




41




**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, 2007 and
      2006:





(in
      thousands of U.S. dollars)




**2007**
            
            **2006**Audit
                fees(1)
            
            $
            204.40
            
            $
            196.97Audit-related
                fees(2)
            
            
            12.09
            
            
            7.54Tax
                fees
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -Total
            
            
            216.49
            
            
            204.51







(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.





**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, 2007.





**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
              F
–
                  4·
              Consolidated
                  Statement of Stockholders’ Equity
              F
–
                  5·
              Consolidated
                    Statement of Cash Flows
              F
–
                  6·
              Notes
                  to Consolidated Statements
              F
–
                  7




42




2)
            Exhibits




3)
            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.




**Exhibits
      (including those incorporated by reference).**




Exhibit
                No.
            
            **Description**2.1
            
            Share
                Exchange Agreement, dated September 3, 2006, 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, 2006]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,
                2006, 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, 2006, 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, 2006]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]




43




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]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]




44




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.**10.19
            
            Sales
                Agent Agreement for “Huaye” PPGI, dated June 12, 2006, between Changshu
                Huaye Steel Strip Co. Ltd. and Zhengzhou Tianfeng Iron & Steel Trade
                Company Limited.**10.20
            
            Sales
                Agent Agreement for “Huaye” PPGI, dated December 29, 2006, between
                Changshu Huaye Steel Strip Co. Ltd. and Zhang Jia Gang Rui Yu
                International Trade Company Limited.**10.21
            
            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]10.22
            
            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]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. [Incorporated by reference to
                Exhibit
                21 to the registrant’s current report on Form 8-K filed on February 2,
                2007]24
            
            Power
                of Attorney (included on the signature page of this registration
                statement).





** Represents management contract or compensatory plan or arrangement




45




**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/ Liuhua
              GuoLiuhua
                GuoChief
                Executive OfficerDate:
                September 28, 2007




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 Liuhua Guo 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/
                Liuhua Guo
            
            President
                and Chief Executive Officer
            
            September
                28, 2007Liuhua
                Guo
            
            (Principal
              Executive Officer)/s/
                  Yongfei Jiang
            
            Chief
                Financial Officer (Principal Financial
            
            September
                28, 2007Yongfei
                Jiang
            
            Officer
              and Principal Accounting Officer)/s/
                  Lifang Chen
            
            Chairman
                of the board
            
            September
                28, 2007Lifang
                Chen











**EXHIBITS**




Exhibit
                No.
            
            **Description**2.1
            
            Share
                Exchange Agreement, dated September 3, 2006, 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, 2006]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,
                2006, 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, 2006, 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, 2006]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]




1




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]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]




2




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.**10.19
            
            Sales
                Agent Agreement for “Huaye” PPGI, dated June 12, 2006, between Changshu
                Huaye Steel Strip Co. Ltd. and Zhengzhou Tianfeng Iron & Steel Trade
                Company Limited.**10.20
            
            Sales
                Agent Agreement for “Huaye” PPGI, dated December 29, 2006, between
                Changshu Huaye Steel Strip Co. Ltd. and Zhang Jia Gang Rui Yu
                International Trade Company Limited.**10.21
            
            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]10.22
            
            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]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. [Incorporated by reference to
                Exhibit
                21 to the registrant’s current report on Form 8-K filed on February 2,
                2007]24
            
            Power
                of Attorney (included on the signature page of this registration
                statement).




** Represents management contract or compensatory plan or arrangement




3




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Page**Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets as of June 30, 2007 and 2006
            F-3Consolidated
                Statements of Operations and Comprehensive Income for the Years Ended
                June
                30, 2007, 2006 and 2005
            F-4Consolidated
                Statements of Stockholders’ Equity for the Years Ended June 30, 2005, 2006
                and 2007
            F-5Consolidated
                Statements of Cash Flows for the Years Ended June 30, 2007, 2006
                and
                2005
            F-6Notes
                to Consolidated Financial Statements
            F-7


F-1





**H****ANSEN,****B****ARNETT****&
                M****AXWELL, P.C.**A
                Professional Corporation
              CERTIFIED
                PUBLIC ACCOUNTANTS
              5
                Triad Center, Suite 750
              Salt
                Lake City, UT 84180-1128
              Phone:
                (801) 532-2200
              Fax:
                (801) 532-7944
              www.hbmcpas.com
            **Registered
                with the Public Company**
              **Accounting
                Oversight Board**
              Baker Tilly





**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, 2007 and 2006, 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,
      2007. 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. An audit 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, 2007 and 2006 and the results of their
      operations and their cash flows for each of the three years in the period ended
      June 30, 2007, in conformity with accounting principles generally accepted
      in
      the United States of America.





As
      discussed in Note 1, the accompanying consolidated financial statements have
      been restated for the effects of revising the disclosure and presentation of
      earnings per share.








**HANSEN,
      BARNETT &
MAXWELL, P.C.**





Salt
      Lake
      City, Utah


September
      24, 2007




F-2




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**June
                    30,****2007**
                
                **2006****ASSETS****Current
                    Assets**Cash
                    and cash equivalents
                
                $
                8,832,942
                
                $
                6,534,493Restricted
                    cash
                
                
                27,799,475
                
                
                31,957,754Trade
                    accounts receivable, net of allowance for doubtful accounts of
                    $2,947 and
                    $1,327, respectively
                
                
                14,768,954
                
                
                769,619Other
                    receivables
                
                
                44,226
                
                
                1,499Advances
                    to suppliers, net of allowance for doubtful accounts of $499,842
                    and $0,
                    respectively
                
                
                32,791,928
                
                
                10,940,577Inventory
                
                
                22,703,304
                
                
                12,746,384Notes
                    receivable
                
                
                203,546
                
                
                70,243**Total
                    Current Assets**
                
                
                107,144,375
                
                
                63,020,569**Property
                    and Equipment,**net
                    of accumulated depreciation
                
                
                47,571,353
                
                
                39,237,346**Intangible
                    Assets,**net
                    of accumulated amortization
                
                
                2,988,589
                
                
                2,706,372**TOTAL
                    ASSETS**
                
                $
                157,704,317
                
                $
                104,964,287**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****Current
                    Liabilities**Accounts
                    payable
                
                $
                3,916,596
                
                $
                3,343,030Advances
                    from customers
                
                
                8,414,629
                
                
                7,534,159Other
                    payables and accrued expenses
                
                
                2,707,473
                
                
                1,793,726Notes
                    payable
                
                
                50,954,916
                
                
                27,013,928Notes
                    payable - related party
                
                
                2,325,802
                
                
                -Related
                    party payables
                
                
                -
                
                
                12,522,684**Total
                    Current Liabilities**
                
                
                68,319,416
                
                
                52,207,527**Minority
                    Interest in Net Assets of Subsidiary**
                
                
                32,812
                
                
                35,405**Stockholders'
                    Equity**Series
                    A voting convertible preferred stock - $0.001 par value;
                  185,000
                    shares authorized; no shares outstanding
                
                
                -
                
                
                -Series
                    B voting convertible preferred stock - $0.001 par value;
                  500,000
                    shares authorized; no shares outstandingand
                    304,182.73 shares outstanding at June 30, 2006
                
                
                -
                
                
                24,586,097Undesignated
                    preferred stock - $0.001 par value;
                  315,000
                    shares authorized; no shares outstanding
                
                
                -
                
                
                -Common
                    stock - $0.001 par value; 500,000,000 shares authorized;
                  outstanding:
                    37,955,602 and no sharesat
                    June 30, 2007 and June 30, 2006
                
                
                37,955
                
                
                -Additional
                    paid-in capital
                
                
                37,170,164
                
                
                -Statutory
                    reserves
                
                
                7,748,269
                
                
                5,664,889Retained
                    earnings
                
                
                39,475,731
                
                
                21,038,719Accumulated
                    other comprehensive income
                
                
                4,919,970
                
                
                1,431,650**Total
                    Stockholders' Equity**
                
                
                89,352,089
                
                
                52,721,355**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                157,704,317
                
                $
                104,964,287





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,****2007**
            
            **2006**
            
            **2005****Revenue:**Revenue
            
            $
            147,466,726
            
            $
            45,941,894
            
            $
            6,879,559Revenue
                from related parties
            
            
            155,972,011
            
            
            144,652,445
            
            
            158,502,970303,438,737
            
            
            190,594,339
            
            
            165,382,529**Cost
                of Revenue**Cost
                of revenue
            
            
            115,285,842
            
            
            57,220,341
            
            
            2,350,366Purchases
                from related parties
            
            
            157,615,325
            
            
            117,436,244
            
            
            144,500,776272,901,167
            
            
            174,656,585
            
            
            146,851,142**Gross
                Profit**
            
            
            30,537,570
            
            
            15,937,754
            
            
            18,531,387**Operating
                Expenses:**Selling
                expense
            
            
            2,319,728
            
            
            1,894,452
            
            
            787,756General
                and administrative expense
            
            
            4,735,973
            
            
            1,254,613
            
            
            1,199,578**Total
                Operating Expenses**
            
            
            7,055,701
            
            
            3,149,065
            
            
            1,987,334**Income
                from Operations**
            
            
            23,481,869
            
            
            12,788,689
            
            
            16,544,053**Other
                Income (Expense):**Interest
                income
            
            
            566,469
            
            
            467,443
            
            
            133,850Other
                income
            
            
            298,488
            
            
            185,664
            
            
            82,992Interest
                expense
            
            
            (2,258,425
            )
            
            (923,673
            )
            
            (993,192
            )Other
                expense
            
            
            (874,651
            )
            
            (155,497
            )
            
            (86,574
            )**Total
                Other Income (Expense)**
            
            
            (2,268,119
            )
            
            (426,063
            )
            
            (862,924
            )**Income
                  Before Taxes and** **Minority
                  Interest**
            
            
            21,213,750
            
            
            12,362,626
            
            
            15,681,129Provision
                for income taxes
            
            
            (696,754
            )
            
            (858,940
            )
            
            -Minority
                    interest in loss of consolidated
                    subsidiary
            
            
            3,395
            
            
            24,514
            
            
            2,224**Net
                Income**
            
            $
            20,520,391
            
            $
            11,528,200
            
            $
            15,683,353**Basic
                      and Diluted Earnings per Common
                      Share**
            
            $
            0.59
            
            $
            0.39
            
            $
            0.86**Net
                Income**
            
            $
            20,520,391
            
            $
            11,528,200
            
            $
            15,683,353Foreign
                  currency translationadjustment
            
            
            3,488,320
            
            
            1,440,146
            
            
            3,458**Comprehensive
                Income**
            
            $
            24,008,711
            
            $
            12,968,346
            
            $
            15,686,811





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




F-4




**SUTOR
      STEEL TECHNOLOGY CO., LTD.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**


**FOR
      THE YEARS ENDED JUNE 30, 2005, 2006 AND 2007**


**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, 2004**
              
              
              -
              
              $
              -
              
              
              174,788.04
              
              $
              14,138,955
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (507,945
              )
              $
              (11,954
              )
              $
              13,619,056Issuance
                  for cash, June
              
              
              -
              
              
              -
              
              
              104,627.49
              
              
              8,447,474
              
              
              -
              
              
              -
              
              
              -
              
              
              **-**
              
              
              -
              
              
              -
              
              
              8,447,474Net
                  income for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,163,598
              
              
              12,519,755
              
              
              -
              
              
              15,683,353Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,458
              
              
              3,458**Balance,
                  June 30, 2005**
              
              
              -
              
              
              -
              
              
              279,415.53
              
              
              22,586,429
              
              
              -
              
              
              -
              
              
              -
              
              
              3,163,598
              
              
              12,011,810
              
              
              (8,496
              )
              
              37,753,341Issuance
                  for cash, December
              
              
              -
              
              
              -
              
              
              24,767.20
              
              
              1,999,668
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,999,668Net
                  income for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,501,291
              
              
              9,026,909
              
              
              -
              
              
              11,528,200Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,440,146
              
              
              1,440,146**Balance,
                  June 30, 2006**
              
              
              -
              
              
              -
              
              
              304,182.73
              
              
              24,586,097
              
              
              -
              
              
              -
              
              
              -
              
              
              5,664,889
              
              
              21,038,719
              
              
              1,431,650
              
              
              52,721,355Issuance
                  for cash, July
              
              
              -
              
              
              -
              
              
              18,578.48
              
              
              1,500,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,500,000Issuance
                  for cash, November
              
              
              -
              
              
              -
              
              
              619.29
              
              
              21,059,950
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              21,059,950Capital
                  distributions
              
              
              -
              
              
              -
              
              
              -
              
              
              (21,036,767
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (21,036,767
              )Issuance
                  for cash, February
              
              
              -
              
              
              -
              
              
              39,473.56
              
              
              10,570,762
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,570,762Issuance
                  to acquire Bronze Marketing, Inc.
              
              
              135,000
              
              
              -
              
              
              -
              
              
              -
              
              
              150,000
              
              
              150
              
              
              (150
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  for services
              
              
              20,122
              
              
              528,077
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              528,077Conversion
                  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
              
              
              -
              
              
              20,520,391Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,488,320
              
              
              3,488,320**Balance,
                  June 30, 2007**
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              37,955,602
              
              $
              37,955
              
              $
              37,170,164
              
              $
              7,748,269
              
              $
              39,475,730
              
              $
              4,919,970
              
              $
              89,352,088





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,****2007**
              
              **2006**
              
              **2005****Cash
                  Flows from Operating Activities:**Net
                  income
              
              $
              20,520,391
              
              $
              11,528,200
              
              $
              15,683,353Adjustments
                  to reconcile net income to netcash
                  (used in) provided by operating activities:Depreciation
                  and amortization
              
              
              2,708,805
              
              
              1,836,727
              
              
              1,700,014Minority
                  interest in loss of consolidated subsidiary
              
              
              (3,395
              )
              
              (24,514
              )
              
              (2,224
              )Stock
                  based compensation
              
              
              528,077
              
              
              -
              
              
              -Changes
                  in current assets and liabilities:Trade
                  accounts receivable, net
              
              
              (13,596,643
              )
              
              (694,786
              )
              
              (66,031
              )Other
                  receivables, net
              
              
              (41,539
              )
              
              62,895
              
              
              (44,294
              )Advances
                  to suppliers
              
              
              (20,747,998
              )
              
              355,095
              
              
              (10,426,388
              )Inventories
              
              
              (9,075,799
              )
              
              4,236,357
              
              
              (14,280,801
              )Accounts
                  payable
              
              
              395,630
              
              
              (5,429,417
              )
              
              7,046,486Advances
                  from customers
              
              
              490,208
              
              
              7,140,491
              
              
              315,919Other
                  payables and accrued expenses
              
              
              802,466
              
              
              856,622
              
              
              443,324Related
                  party payables and loans
              
              
              (10,536,690
              )
              
              10,625,951
              
              
              9,921,668**Net
                  Cash (Used in) Provided by Operating Activities**
              
              
              (28,556,487
              )
              
              30,493,621
              
              
              10,291,026**Cash
                  Flows from Investing Activities:**Changes
                  in notes receivable
              
              
              (126,402
              )
              
              (69,593
              )
              
              -Purchase
                    of property and equipment, net of value added tax refunds
                    received
              
              
              (8,850,305
              )
              
              (18,963,778
              )
              
              (3,370,366
              )Purchase
                  of land use rights
              
              
              (198,301
              )
              
              167,530
              
              
              (1,104,531
              )Net
                  change in restricted cash
              
              
              5,607,772
              
              
              (9,573,358
              )
              
              (18,763,509
              )**Net
                  Cash Used in Investing Activities**
              
              
              (3,567,236
              )
              
              (28,439,199
              )
              
              (23,238,406
              )**Cash
                  Flows from Financing Activities:**Proceeds
                  from issuance of notes payable
              
              
              136,558,731
              
              
              22,210,230
              
              
              15,347,077Payment
                  on notes payable
              
              
              (112,004,593
              )
              
              (15,037,160
              )
              
              (9,379,365
              )Proceeds
                  from issuance of Series B preferred stock
              
              
              33,130,712
              
              
              1,999,668
              
              
              8,447,474Capital
                  distributions to shareholders
              
              
              (21,036,767
              )
              
              -
              
              
              -Proceeds
                  from issuance of long-term debt
              
              
              -
              
              
              -
              
              
              2,604,104Payments
                  on long-term debt
              
              
              (2,554,598
              )
              
              (6,187,169
              )
              
              (6,224,267
              )Cash
                  contribution from minorityshareholder
                  in subsidiary
              
              
              -
              
              
              -
              
              
              60,336**Net
                  Cash Provided by Financing Activities**
              
              
              34,093,485
              
              
              2,985,569
              
              
              10,855,359Effect
                  of Exchange Rate Changes on Cash
              
              
              328,687
              
              
              (63,894
              )
              
              1,602Net
                  Change in Cash
              
              
              2,298,449
              
              
              4,976,097
              
              
              (2,090,419
              )Cash
                  and Cash Equivalents at Beginning of Period
              
              
              6,534,493
              
              
              1,558,396
              
              
              3,648,815Cash
                  and Cash Equivalents at End of Period
              
              $
              8,832,942
              
              $
              6,534,493
              
              $
              1,558,396**Supplemental
                  Cash Flow Information**Cash
                  paid during the period for interest
              
              $
              2,258,425
              
              $
              923,673
              
              $
              993,192Cash
                  paid during the period for taxes
              
              $
              2,436,656
              
              $
              156,991
              
              $
              -





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 owns a 90% interest in a consolidated
      subsidiary, Changshu Dongbang Sewage Treatment Co., Ltd. which is also located
      in the PRC. As of June 30, 2007, approximately 89.79% 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 refine into products such
      as
      cold-rolled steel and acid pickled steel through the use of various
      high-technology machines. As of June 30, 2007 all of Jiangsu Cold-Rolled revenue
      is derived from sales of steel products within the PRC.





***Restatement
      of Financial Statements***


In
      June
      2007, the Company restated its disclosure and presentation of basic earning
      per share as if the common stock, instead of preferred stock, was outstanding
      for all period presented, using the if-converted method for qualified
      participating securities as described in EITF 03-6, during each period presented
      when the qualified participating securities are dilutive. The effects of the
      restatements were as follows:





As Previously
            
            Effect ofReported
            
            Restatement
            
            As RestatedFor
                the year ended June 30, 2006Basic
                Earnings per Common Share
            
            $
            -
            
            $
            0.39
            
            $
            0.39For
                the year ended June 30, 2005Basic
                Earnings per Common Share
            
            $
            -
            
            $
            0.86
            
            $
            0.86





**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.




F-8




**SUTOR
          TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  ***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.





***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, long- term debt,
      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.




F-9




**SUTOR
          TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  ***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 $32,791,928 and $10,940,577 at June
      30,
      2007 and 2006, respectively. The Company also had advances from its customers
      in
      the amount of $8,414,629 and $7,534,159 at June 30, 2007 and 2006,
      respectively.





***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
      $315,821, $114,211 and $83,194 for the years ended June 30, 2007, 2006 and
      2005,
      respectively.




F-10




**SUTOR
          TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  ***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,****2007**
              
              **2006**
              
              **2005**Net
                  income
              
              $
              20,520,391
              
              $
              11,528,200
              
              $
              15,683,353Weighted-average
                  common sharesoutstanding
              
              
              4,181,750
              
              
              -
              
              
              -Effect
                  of participating convertible Series A andSeries
                  B preferred stock
              
              
              30,418,273
              
              
              29,373,303
              
              
              18,310,093Weighted-average
                  basic and dilutive common sharesOutstanding
              
              
              34,600,023
              
              
              29,373,303
              
              
              18,310,093**Basic
                  and Diluted Earnings per Common Share**
              
              $
              0.59
              
              $
              0.39
              
              $
              0.86




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





***Recent
      Accounting Pronouncements*** - In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 155, *Accounting
      for Certain Hybrid Financial Instruments — an amendment of FASB Statements
      No. 133 and 140* .
      SFAS 155 amends SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* and
      SFAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,* and
      related interpretations. SFAS 155 permits fair value remeasurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation and clarifies which interest-only strips and
      principal-only strips are not subject to recognition as liabilities. SFAS 155
      eliminates the prohibition on a qualifying special-purpose entity from holding
      a
      derivative financial instrument that pertains to a beneficial interest other
      than another derivative financial instrument. SFAS 155 is effective for the
      Company for all financial instruments acquired or issued beginning July 1,
      2007.
      The impact of adoption of this statement on the Company’s consolidated financial
      statements, if any, has not yet been determined.





In
      March
      2006, the FASB issued SFAS No. 156, *Accounting
      for Servicing of Financial Assets - an amendment of FASB Statement No.
      140* (SFAS
      156). SFAS 156 amends SFAS 140 and requires an entity to recognize a servicing
      asset or servicing liability each time it undertakes an obligation to service
      a
      financial asset. It also requires all separately recognized servicing assets
      and
      servicing liabilities to be initially measured at fair value, if practicable.
      SFAS 156 permits an entity to use either the amortization method or the fair
      value measurement method for each class of separately recognized servicing
      assets and servicing liabilities. SFAS 156 is effective for the Company as
      of
      July 1, 2007. The impact of adoption of this statement on the Company’s
      consolidated financial statements, if any, has not yet been
      determined.





In
      June
      2006, the FASB issued Financial Interpretation Number (“FIN”) No. 48, *Accounting
      for Uncertainty in Income Taxes-an interpretation of FASB Statement No
      109* .
      FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. The interpretation is effective for the fiscal
      years
      beginning after December 15, 2006. The impact of adoption of this interpretation
      on the Company’s consolidated financial statements, if any, has not yet been
      determined.




F-11




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS
      157”).  SFAS 157 defines fair value, establishes a framework for measuring
      fair value, and expands disclosures about fair value measurements.  SFAS
      157 will be applied prospectively and is effective for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. 
SFAS 157 is not expected to have a material impact on the Company’s consolidated
      financial statements.





In
      September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
      No. 87, 88, 106, and 132(R) (“SFAS 158”).  Under SFAS 158, companies must
      recognize a net liability or asset to report the funded status of their defined
      benefit pension and other postretirement benefit plans on their balance
      sheets.  The effective date of the recognition and disclosure provisions
      for calendar-year public companies is for calendar years ending after December
      15, 2006.  The Company is currently evaluating the impact of this new
      standard but it is not expected to have a significant effect on the consolidated
      financial statements for the year ending June 30, 2008.





In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities, including an amendment of FASB Statement
      No.
      115 (“SFAS 159”). This pronouncement permits entities to choose to measure many
      financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value and to recognize the resulting
      gains and losses in the results of operations. SFAS 159 is effective as of
      the
      beginning of an entity’s first fiscal year that begins after November 15, 2007.
      The impact of adopting SFAS 159 on the Company’s consolidated financial
      statements, if any, has not yet been determined.





**NOTE
      3 - INVENTORY**





Inventory
      consisted of the following:


**June
                  30,****2007**
              
              **2006**Raw
                  materials
              
              $
              9,719,288
              
              $
              9,374,924Finished
                  goods
              
              
              12,984,016
              
              
              3,371,460Total
                  Inventory
              
              $
              22,703,304
              
              $
              12,746,384




**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
      decrease of office and other equipment is due to the value-added tax refunded
      by
      the government. 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 more description regarding
      the
      investment tax credit see Note 8.




F-12




**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Property
      and equipment consisted of the following:


June
                  30,2007
              
              2006Buildings
                  and plant
              
              $
              27,150,150
              
              $
              10,139,419Machinery
              
              
              25,138,299
              
              
              13,425,924Office
                  and other equipment
              
              
              163,211
              
              
              755,622Vehicles
              
              
              590,023
              
              
              139,784Construction
                  in process
              
              
              1,256,426
              
              
              18,594,805Total
              
              
              54,298,109
              
              
              43,055,554Less
                  accumulated depreciation
              
              
              (6,726,756
              )
              
              (3,818,208
              )Net
                  property, plant and equipment
              
              $
              47,571,353
              
              $
              39,237,346





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




LifeBuildings
                  and plant
              
              20
                  yearsMachine
              
              10
                  yearsOffice
                  and other equipment
              
              5
                  yearsVehicles
              
              5
                  years





Depreciation
      expense for the years ended June 30, 2007, 2006 and 2005 was $2,653,422,
      $1,777,788 and $1,655,692, 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, 2007, 2006, and 2005, was $55,383, $58,939 and $44,322,
      respectively. Intangible information by segment is presented below:




**Steel
                  Coating**
              
              **Cold
                  Rolled****As
                  of June 30, 2007**
              
              **and
                  Plating**
              
              **Steel Production**
              
              **Total**Gross
                  Carrying Amount
              
              $
              1,937,874
              
              $
              1,238,847
              
              $
              3,176,721Accumulated
                  Amortization
              
              
              (131,441
              )
              
              (56,691
              )
              $
              (188,132
              )$
              1,806,433
              
              $
              1,182,156
              
              $
              2,988,589
  **Steel
                  Coating**
              
              
              **Cold
                  Rolled****As
                  of June 30, 2006**
              
              
              **and
                  Plating**
              
              
              **Steel Production**
              
              
              **Total**Gross
                  Carrying Amount
              
              $
              1,970,394
              
              $
              860,986
              
              $
              2,831,380Accumulated
                  Amortization
              
              
              (97,299
              )
              
              (27,709
              )
              
              (125,008
              )$
              1,873,095
              
              $
              833,277
              
              $
              2,706,372




F-13


**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, 2008
              
              $
              61,877For
                  the year ending June 30, 2009
              
              
              61,877For
                  the year ending June 30, 2010
              
              
              61,877For
                  the year ending June 30, 2011
              
              
              61,877For
                  the year ending June 30, 2012
              
              
              61,877




**NOTE
      6 - NOTES PAYABLE**





The
      following schedule sets forth the Company’s short-term notes payable and short
      term notes payable - related party as of the dates presented:




**Maturity**
              
              **June
                  30,****Date**
              
              **2007**
              
              **2006**Short-term
                  notes payable to suppliers, no interest rate, secured by cash
                  deposits, guaranteed by related parties
              
              
              11/09/2007
              
              $
              24,724,720
              
              $
              15,773,018Note
                  payable to bank at 4.8825% interest, guaranteed by related
                  parties
              
              
              matured
              
              
              -
              
              
              2,497,980Note
                  payable to bank at 6.435% interest, secured by inventory
              
              
              7/10/2007
              
              
              2,623,020
              
              
              3,746,970Note
                  payable to bank at interest rates ranging from 4.2% to 4.65%, secured
                  by buildings
              
              
              matured
              
              
              -
              
              
              4,995,960Note
                  payable at 6.23% interest, guaranteed by related party
              
              
              10/15/2007
              
              
              3,672,227
              
              
              -Note
                  payable at 7.25% interest, guaranteed by related party
              
              
              9/24/2007
              
              
              1,573,812
              
              
              -Note
                  payable at 5.58% interest, secured by inventory
              
              
              7/28/2007
              
              
              2,623,020
              
              
              -Note
                  payable at 6.25% interest, guaranteed by related party
              
              
              3/12/2008
              
              
              2,623,020
              
              
              -Note
                  payable at 6.12% interest, secured by inventory
              
              
              3/14/2008
              
              
              1,311,510
              
              
              -Note
                  payable at 6.39% interest, secured by inventory
              
              
              5/17/2008
              
              
              5,246,039
              
              
              -Note
                  payable at 5.75% interest, guaranteed by related party
              
              
              10/29/2006
              
              
              6,557,549
              
              
              -Total
                  Notes Payable
              
              
              
              
              $
              50,954,916
              
              $
              27,013,928Notes
                  payable to related parties no interest rate, secured by cash
                  deposits
              
              
              8/24/2007
              
              $
              2,325,802
              
              $
              -




**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 and costs related to these transactions are shown
      separately in the accompanying consolidated statements of operations. For the
      years ended June 30, 2007, 2006, and 2005, costs of revenue associated with
      purchases from related parties were $157,615,325, $117,436,244 and $144,500,776,
      respectively.





F-14


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Receivables
      from, 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, 2007 and June 30, 2006, the net amounts due to related parties were
      $0
      and $12,522,684, respectively. The Company also has a note payable to a related
      party as disclosed in Note 6. 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. Amounts receivable from
      related parties are also due upon delivery.





Some
      of
      the Companies notes payables are guaranteed by related parties as described
      in
      Note 6. In prior years, the Company guaranteed the debt of related parties
      as
      disclosed in Note 9.




**NOTE
      8 - INCOME TAXES**





Foreign
      invested enterprises and foreign enterprises doing business in the PRC are
      generally subject to national enterprise income tax at a rate of 30% and a
      local
      income tax at a rate of 3%. However, because the operations of the Company
      are
      conducted in a special region of the PRC, the Company has a reduced combined
      tax
      rate of 24%. As approved by local tax authority in the PRC, Changshu Huaye
      and
      Jiangsu Cold-Rolled were granted a “tax holiday” that allows them to be exempt
      from both the national and local income taxes for the first two profitable
      years
      followed by a 50% tax exemption in the next three years. Changshu Huaye’s
      operations produced net income in 2004, and were exempt from the PRC tax in
      both
      2004 and 2005, but are subject to a combined income tax rate of 12% commencing
      January 1, 2006 through December 31, 2008. Jiangsu Cold-Rolled’s operations did
      not produce net income in 2006 and will be exempt from the PRC tax for two
      years
      following becoming profitable and then will be subject to a combined income
      tax
      rate of 12% for the following years.





During
      the year ended June 30, 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 $1,889,992 for the year ended June 30,
      2007.





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




**June
                30,****2007**
            
            **2006**Value
                added tax
            
            $
            698,619
            
            $
            195,631Income
                tax
            
            
            904,377
            
            
            708,752Surtax,
                insurance, other
            
            
            81,345
            
            
            149,061Total
                Taxes
            
            $
            1,684,341
            
            $
            1,053,444




Following
      is a reconciliation of income taxes calculated at the statutory tax rate of
      33%
      to actual income tax expense:




F-15


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




2007
              
              2006
              
              2005Income
                  tax calculated at statutory rates of 33%
              
              $
              7,000,538
              
              $
              4,079,667
              
              $
              5,174,773Investment
                  tax credit
              
              
              (1,889,992
              )
              
              -
              
              
              -Benefit
                  of favorable rates
              
              
              (1,886,627
              )
              
              (1,132,418
              )
              
              (1,411,502
              )Benefit
                  of tax holiday
              
              
              (2,615,685
              )
              
              (2,160,841
              )
              
              (3,763,271
              )Tax
                  effect of parent and sewer losses
              
              
              88,520
              
              
              72,532
              
              
              -Provision
                  for income taxes
              
              $
              696,754
              
              $
              858,940
              
              $
              -





The
      income tax payable consists entirely of taxes currently payable as the Company
      has no material deferred tax assets or liabilities. If the Company had not
      been
      granted a “tax holiday” during the years ended June 30, 2007, 2006, and 2005,
      the provision for income taxes would have been $3,312,439, $3,019,781, and
      $3,763,271 respectively. Net income after income tax for the years ended June
      30, 2007, 2006, and 2005 would have been $17,904,706, $9,367,359 and
      $11,920,082, respectively. Diluted earnings per common share for the years ended
      June 30, 2007, 2006, and 2005 diluted earnings per common share would have
      been
      $0.52, $0.32 and $0.65, 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.





***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.





***Guarantees*** - As of
      June 30, 2007, 2006 and 2005, the Company had guaranteed the debt of related
      parties in the amounts of $0, $18,680,892 and $1,206,782, respectively. As
      of
      June 30, 2007, 2006 and 2005 there were no liabilities recorded in connection
      with guarantees.





**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. There are 315,000 shares of preferred stock that remain
      undesignated.





F-16


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


***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.





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.





F-17


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


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 will release a
      portion of the escrowed shares to the investors under the private placement
      offering if the Company’s net income is not at least $18,900,000 and $23,500,000
      for the years ending June 30, 2007 and 2008, respectively. The number of shares
      to be released at each year end is computed as 50 percent of the escrowed shares
      times the ratio of the deficiency in net income divided by the required net
      income. In accordance with EITF 98-5, “Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios,” the private placement investors received a contingent beneficial
      conversion option that will require the Company to record (upon each release
      of
      shares from the escrow) a dividend to the private placement investors of $3.04
      per share of common stock released.





***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.





**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
      Disposal 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:




Changshu
              
              Jiangsu Cold-
              
              Inter-Segment****and**At June 30, 2007 and for the year then ended**
              
              Huaye
              
              Rolled
              
              Reconciling****Items
              
              TotalRevenue
              
              $
              257,530,550
              
              $
              45,908,187
              
              $
              -
              
              $
              303,438,737Total
                  operating expenses
              
              
              4,381,744
              
              
              1,335,719
              
              
              1,338,238
              
              
              7,055,701Interest
                  revenue
              
              
              544,252
              
              
              5,319
              
              
              16,898
              
              
              566,469Interest
                  expense
              
              
              2,093,320
              
              
              165,105
              
              
              -
              
              
              2,258,425Depreciation
                  and amortization expense
              
              
              1,735,244
              
              
              973,561
              
              
              -
              
              
              2,708,805Provision
                  for income taxes
              
              
              696,754
              
              
              -
              
              
              -
              
              
              696,754Net
                  income (loss)
              
              
              23,211,313
              
              
              800,897
              
              
              (1,601,420
              )
              
              22,410,790Capital
                  expenditures, net of VAT refunds
              
              
              (498,378
              )
              
              9,348,683
              
              
              -
              
              
              8,850,305Total
                  assets
              
              
              98,138,348
              
              
              60,419,603
              
              
              (853,634
              )
              
              157,704,317




F-18


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Changshu
              
              Jiangsu Cold-
              
              Inter-Segment and**At June 30, 2006 and for the year then ended**
              
              Huaye
              
              Rolled
              
              Reconciling Items
              
              TotalRevenue
              
              $
              190,594,339
              
              $
              -
              
              $
              -
              
              $
              190,594,339Total
                  operating expenses
              
              
              2,937,184
              
              
              211,882
              
              
              -
              
              
              3,149,066Interest
                  revenue
              
              
              467,443
              
              
              -
              
              
              -
              
              
              467,443Interest
                  expense
              
              
              920,003
              
              
              3,668
              
              
              -
              
              
              923,671Depreciation
                  and amortization expense
              
              
              1,809,275
              
              
              27,452
              
              
              -
              
              
              1,836,727Provision
                  for income taxes
              
              
              858,940
              
              
              -
              
              
              -
              
              
              858,940Net
                  income (loss)
              
              
              11,743,752
              
              
              (215,552
              )
              
              -
              
              
              11,528,200Capital
                  expenditures
              
              
              975,661
              
              
              17,988,117
              
              
              -
              
              
              18,963,778Total
                  assets
              
              
              85,264,844
              
              
              19,699,443
              
              
              -
              
              
              104,964,287
  Changshu
              
              
              Jiangsu Cold-
              
              
              Inter-Segment and**At June 30, 2005 and for the year then ended**
              
              
              Huaye
              
              
              Rolled
              
              
              Reconciling Items
              
              
              TotalRevenue
              
              $
              165,382,529
              
              $
              -
              
              $
              -
              
              $
              165,382,529Total
                  operating expenses
              
              
              1,927,219
              
              
              60,113
              
              
              -
              
              
              1,987,332Interest
                  revenue
              
              
              131,975
              
              
              1,875
              
              
              -
              
              
              133,850Interest
                  expense
              
              
              993,192
              
              
              -
              
              
              -
              
              
              993,192Depreciation
                  and amortization expense
              
              
              1,689,880
              
              
              10,134
              
              
              -
              
              
              1,700,014Net
                  income (loss)
              
              
              15,741,591
              
              
              (58,238
              )
              
              -
              
              
              15,683,353Capital
                  expenditures
              
              
              2,966,602
              
              
              403,764
              
              
              -
              
              
              3,370,366Total
                  assets
              
              
              66,335,906
              
              
              8,250,462
              
              
              -
              
              
              74,586,368




**NOTE
      12 - GEOGRAPHIC INFORMATION**





Changshu
      Huaye derives a portion of its revenue from sources outside of the PRC. The
      following schedule summarizes the sources of the Company’s revenue by geographic
      regions for the years ended June 30, 2007, 2006, and 2005:




**June
                  30,****Geographic
                  Area**
              
              **2007**
              
              **2006**
              
              **2005**People's
                  Republic of China
              
              $
              272,460,649
              
              $
              182,796,152
              
              $
              165,359,047Hong
                  Kong
              
              
              24,968,006
              
              
              7,422,731
              
              
              -Other
                  Countries
              
              
              6,010,082
              
              
              375,456
              
              
              23,482Total
              
              $
              303,438,737
              
              $
              190,594,339
              
              $
              165,382,529




**NOTE
      13 - QUARTERLY FINANCIAL DATA (UNAUDITED)**





The
      following tables are a summary of unaudited quarterly financial information
      for
      the years ended June 30, 2007, 2006 and 2005.




**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
            
            $
            92,146,724Operating
                Income
            
            
            3,437,274
            
            
            5,134,447
            
            
            4,978,618
            
            
            9,931,530Net
                Income
            
            
            3,032,156
            
            
            4,464,447
            
            
            3,885,959
            
            
            9,137,829Basic
                and Diluted Earnings Per Common Share
            
            
            0.09
            
            
            0.14
            
            
            0.11
            
            
            0.25




F-19


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Three
                  Months Ended****September 30,**
              
              **December 31,**
              
              **March
                  31,**
              
              **June
                  30,****2005**
              
              **2005**
              
              **2006**
              
              **2006**Revenues
              
              $
              46,068,330
              
              $
              45,148,232
              
              $
              34,338,456
              
              $
              65,039,321Operating
                  Income
              
              
              4,095,601
              
              
              2,988,173
              
              
              1,672,998
              
              
              4,031,917Net
                  Income
              
              
              3,910,765
              
              
              2,301,333
              
              
              1,324,850
              
              
              3,991,252Basic
                  and Diluted Earnings Per Common Share
              
              
              0.14
              
              
              0.08
              
              
              0.04
              
              
              0.13
  **Three
                  Months Ended****September 30,**
              
              
              **December 31,**
              
              
              **March
                  31,**
              
              
              **June
                  30,****2004**
              
              
              **2004**
              
              
              **2005**
              
              
              **2005**Revenues
              
              $
              34,610,087
              
              $
              61,505,656
              
              $
              28,737,025
              
              $
              40,529,761Operating
                  Income
              
              
              5,045,122
              
              
              7,701,745
              
              
              3,172,814
              
              
              624,372Net
                  Income
              
              
              4,503,131
              
              
              7,013,832
              
              
              2,843,413
              
              
              1,322,977Basic
                  and Diluted Earnings Per Common Share
              
              
              0.26
              
              
              0.39
              
              
              0.15
              
              
              0.06




**NOTE
      14 - SUBSEQUENT EVENTS**





Subsequent
      to June 30, 2007, the Company entered into certain bank loan agreements as
      detailed on the following table.




**Loan**
              
              **Maturity**
              
              **Interest**
              
              **Loan****Date**
              
              **Date**
              
              **Rate**
              
              **Amount**Note
                  payable to bank, guaranteed by related party
              
              
              8/3/2007
              
              
              8/3/2008
              
              
              9.03
              %
              
              2,623,020Note
                  payable to bank, guaranteed by related party
              
              
              8/8/2007
              
              
              8/7/2008
              
              
              6.84
              %
              
              2,623,020Note
                  payable to bank, secured by land use rights
              
              
              8/24/2007
              
              
              8/22/2008
              
              
              6.21
              %
              
              1,704,963Note
                  payable to bank, guaranteed by related party
              
              
              8/28/2007
              
              
              2/27/2008
              
              
              6.21
              %
              
              13,115,098Note
                  payable to bank, guaranteed by related party
              
              
              9/5/2007
              
              
              3/4/2008
              
              
              6.21
              %
              
              11,410,135Total
                  Bank Notes
              
              
              
              
              
              
              
              
              
              
              $
              31,476,235




The
      proceeds of these notes are being used for working capital and to repay notes
      as
      they become due.





**NOTE
      15 - 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 consolidated 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-20


**SUTOR
        TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **SUTOR
          TECHNOLOGY GROUP LIMITED**
 **CONDENSED
          BALANCE SHEETS**


**June
                  30,****2007**
              
              **2006****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              27,611
              
              $
              -**Total
                  Current Assets**
              
              
              27,611
              
              
              -**Investment
                  in consolidated subsidiary**
              
              
              89,504,471
              
              
              52,721,355**TOTAL
                  ASSETS**
              
              $
              89,532,082
              
              $
              52,721,355**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities:**Note
                  payable - related party
              
              $
              179,993
              
              $
              -**Total
                  Current Liabilities**
              
              
              179,993
              
              
              -**Stockholders'
                  Equity**Series
                  A voting convertible preferred stock - $0.001 par value; 185,000
                  shares
                   authorized; no shares outstanding
              
              
              -
              
              
              -Series
                  B voting convertible preferred stock - $0.001 par value; 500,000
                  shares
                   authorized; outstanding: no shares at June 30, 2007  304,182.73
                  shares at June 30, 2006
              
              
              -
              
              
              24,586,097Undesignated
                  preferred stock - $0.001 par value; 315,000 shares authorized;
 no
                  shares outstanding
              
              
              -
              
              
              -Common
                  stock - $0.001 par value; 500,000,000 shares authorized; outstanding:
                  37,955,602 shares at June 30, 2007 (unaudited) and no shares at
                  June 30,
                  2006
              
              
              37,955
              
              
              -Additional
                  paid-in capital
              
              
              37,170,164
              
              
              -Statutory
                  reserves
              
              
              7,748,269
              
              
              5,664,889Retained
                  earnings
              
              
              39,475,731
              
              
              21,038,719Accumulated
                  other comprehensive income
              
              
              4,919,970
              
              
              1,431,650**Total
                  Stockholders' Equity**
              
              
              89,352,089
              
              
              52,721,355**TOTAL
                  LIABILITES AND STOCKHOLDERS' EQUITY**
              
              $
              89,532,082
              
              $
              52,721,355




F-21


**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,****2007**
              
              **2006**
              
              **2005**General
                  and administrative expense
              
              $
              (1,321,340
              )
              $
              -
              
              $
              -Equity
                  in income of subsidiaries
              
              
              21,841,731
              
              
              11,528,200
              
              
              15,683,353**Net
                  Income**
              
              $
              20,520,391
              
              $
              11,528,200
              
              $
              15,683,353






**SUTOR
        TECHNOLOGY GROUP LIMITED CONDENSED STATEMENTS OF CASH
        FLOWS**
 **For
                    the Years Ended June 30,****2007**
                
                **2006**
                
                **2005****Cash
                    Flows from Operating Activities:**Net
                    income
                
                $
                20,520,391
                
                $
                11,528,200
                
                $
                15,683,353Adjustments
                    to reconcile net income to net cashprovided
                    by (used in) operating activitites:Stock-based
                    compensation
                
                
                528,077
                
                
                -
                
                
                -Earnings
                    of subsidiaries
                
                
                (21,841,731
                )
                
                (11,528,200
                )
                
                (15,683,353
                )**Net
                    Cash Used in Operating Activities**
                
                
                (793,263
                )
                
                -
                
                
                -**Cash
                    Flows from Investing Activities**Investment
                    in subsidiaries
                
                
                (9,953,064
                )
                
                -
                
                
                -**Net
                    Cash Used in Investing Activities**
                
                
                (9,953,064
                )
                
                -
                
                
                -**Cash
                    Flows from Financing Activities:**Proceeds
                    from issuance of notes payable
                
                
                179,993
                
                
                -
                
                
                -Proceeds
                    from issuance of Series B preferred stock
                
                
                10,570,762Cash
                    contributed by shareholders
                
                
                21,059,950
                
                
                -
                
                
                -Cash
                    distributed to shareholders
                
                
                (21,036,767
                )
                
                -
                
                
                -**Net
                    Cash Provided by Financing Activities:**
                
                
                10,773,938
                
                
                -
                
                
                -Net
                    increase in cash and cash equivalents
                
                
                27,611
                
                
                -
                
                
                -Cash
                    at beginning of period
                
                
                -
                
                
                -
                
                
                -**Cash
                    and Cash Equivalents at End of Year**
                
                $
                27,611
                
                $
                -
                
                $
                -
  F-22