**UNITED
      STATES**


**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, 2008





**OR**





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


For
      the
      transition period from __________ to ____________




Commission
      File Number: 000-51908




**SUTOR
      TECHNOLOGY GROUP LIMITED**


**(Exact
      name of registrant as specified in its charter)**




**Nevada**
            **87-0578370**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification Number)





No
      8,
      Huaye Road, Dongbang Industrial Park


Changshu,
      China, 215534





(Address
      of principal executive office and zip code)




(86)
      512-52680988


(Registrant’s
      telephone number, including area code)







Securities
      registered pursuant to Section 12(b) of the Act: **Common
      Stock, par value $0.0001**




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




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes  ̈  No x





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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.


Yes x  No  ̈





Indicate
      by check mark 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 “large
      accelerated filer,” “accelerated filer,” and “smaller reporting company” in
      Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer ̈
            Accelerated filer ̈
            Non-accelerated filer ̈
            Smaller reporting companyx




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




Yes  ̈  No x




As
      of
      December 31, 2007, the aggregate market value of the shares of the Registrant’s
      common stock held by non-affiliates (based upon the closing price of such shares
      as reported on the Nasdaq) was approximately $32 million. Shares of the
      Registrant’s common stock held by each executive officer and director and each
      by each person who owns 10 percent or more of the outstanding common stock
      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 26, 2008, 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, 2008**




**Number**
            
            
            
            **Page****PART
                I****ITEM
                1.**
            
            **BUSINESS**
            
            **1****ITEM
                1A.**
            
            **RISK
                FACTORS**
            
            **9****ITEM
                1B.**
            
            **UNRESOLVED
                STAFF COMMENTS**
            
            **18****ITEM
                2.**
            
            **PROPERTIES**
            
            **18****ITEM
                3.**
            
            **LEGAL
                PROCEEDINGS**
            
            **19****ITEM
                4.**
            
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**
            
            **19****PART
                II****ITEM
                5.**
            
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITIES.**
            
            **19****ITEM
                6.**
            
            **SELECTED
                FINANCIAL DATA**
            
            **20****ITEM
                7.**
            
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
            
            **20****ITEM
                7A.**
            
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**
            
            **30****ITEM
                8.**
            
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA**
            
            **30****ITEM
                9.**
            
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**
            
            **30****ITEM 9A(T).**
            
            **CONTROLS
                AND PROCEDURES**
            
            **30****ITEM
                9B.**
            
            **OTHER
                INFORMATION.**
            
            **32****PART
                III****ITEM
                10.**
            
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
            
            **32****ITEM
                11.**
            
            **EXECUTIVE
                COMPENSATION**
            
            **35****ITEM
                12.**
            
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**
            
            **37****ITEM
                13.**
            
            **CERTAIN
                RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTION
                INDEPENDENCE**
            
            **38****ITEM
                14.**
            
            **PRINCIPAL
                ACCOUNTANT FEES AND SERVICES**
            
            **39****PART
                IV****ITEM
                15.**
            
            **EXHIBITS,
                FINANCIAL STATEMENTS SCHEDULES**
            
            **39**









**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 of which Lifang Chen,
      our major shareholder and chief executive officer, and her husband Feng Gao
      are
      100% owners, and its subsidiaries; (vi) “Securities Act” are to the Securities
      Act of 1933, as amended; (vii) “Exchange Act” means the Securities Exchange Act
      of 1934, as amended; (viii) “RMB” are to Renminbi, the legal currency of China;
      (ix) “U.S. dollar,” “$” and “US$” are to the legal currency of the United
      States; (x) “China” and “PRC” are to the People’s Republic of China; and (xi)
“BVI” are to the British Virgin Islands.





**Forward-Looking
      Statements** ****




Statements
      contained in this annual report include “forward-looking statements” within the
      meaning of such term in Section 27A of the Securities Act and Section 21E of
      the
      Exchange Act. Forward-looking statements involve known and unknown risks,
      uncertainties and other factors which could cause actual financial or operating
      results, performances or achievements expressed or implied by such
      forward-looking statements not to occur or be realized. Forward-looking
      statements made in this 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 on higher value-added finished
      steel
      products: hot-dip galvanized steel (“HDG Steel”), and prepainted galvanized
      steel (“PPGI”), which comprised approximately 28.36% and 32.84% of our total
      revenue in fiscal year 2008, 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 96.13% of our total
      revenue in fiscal year 2008. 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 began commissioning in
      February 2008 and is expected to start production at the end of September 2008.
      The new HDG steeling production line is capable of galvanizing both hot-rolled
      and cold-rolled steel with both zinc and aluminum, allowing us to better meet
      the needs of our customers. 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.





1




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










(1)
            The
                other 10% of Changshu Dongbang Sewage Treatment Co., Ltd. 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 revenue
                of
                approximately $0.26 million in the fiscal year of
                2008.




***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 products.


·
            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 at the end of September
                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.





***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
      manufactured by Jiangsu Cold-Rolled. We were certified ISO 9001:2000 for our
      quality management system in 2005, ISO 14001:2004 for our environmental
      management system in 2008, and GD/T28001:2001 for our occupational health and
      safety management system in 2008.




2




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




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




**Year
                Ended June 30,****2006**
            
            **2007**
            
            **2008****Product**
            
            **Revenue**
            
            **Percent of**
              **Revenue**
            
            **Revenue**
            
            **Percent of**
              **Revenue**
            
            **Revenue**
            
            **Percent of**
              **Revenue**HDG
                Steel
            
            $
            141.34
            
            
            74.16
            %
            $
            150.75
            
            
            49.68
            %
            $
            118.15
            
            
            28.26
            %PPGI
            
            
            44.62
            
            
            23.41
            %
            
            96.91
            
            
            31.94
            %
            
            137.26
            
            
            32.84
            %AP
                Steel
            
            
            -
            
            
            -
            
            
            41.06
            
            
            13.53
            %
            
            33.94
            
            
            8.12
            %Cold-Rolled
                Steel
            
            
            -
            
            
            -
            
            
            4.61
            
            
            1.52
            %
            
            104.40
            
            
            24.97
            %Other
            
            
            4.63
            
            
            2.43
            %
            
            10.11
            
            
            3.33
            %
            
            24.28
            
            
            5.81
            %**Total**
            
            
            190.59
            
            
            100
            %
            
            303.44
            
            
            100
            %
            
            418.03
            
            
            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





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 169200 MT in fiscal
      year 2008, representing approximately 28.26% 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 is installing a
      new
      HDG Steel production line which is capable of galvanizing both hot-rolled and
      cold-rolled steel with both zinc and aluminum. This new production line is
      expected to be operational at the end of September 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.




With
      the
      new production line, 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 is 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.





3




Our
      deliveries of PPGI products amounted to approximately 162,700 MT in fiscal
      year
      2008, representing approximately 32.84% of our total sales revenue. We currently
      self-supply approximately 86.74% 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 and 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 2008, our sales of AP Steel products were
      approximately 66,100 MT, representing approximately 8.12% of our total revenue.
      We also used approximately 243,700 MT of AP Steel products 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 73,000 MT in fiscal year 2008, representing
      approximately 24.97% of our revenue. In addition, approximately 210,900 MT
      of
      cold-rolled steel products were used for our own production.





***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 galvanize both hot-rolled and
      cold-rolled steel with both zinc and aluminum. The new HDG Steel production
      line
      will become operative at the end of September 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.




4









***Raw
      Materials and Suppliers***




The
      principal raw materials used in producing our products are steel coil, zinc,
      oil
      paint and acid. We source our raw materials from various suppliers, including
      our affiliate Shanghai Huaye through which approximately 28.67% of our
      procurement was conducted in fiscal year 2008, 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
      2008. We generally purchase steel coil after receiving orders from our customers
      and are generally able to pass on increased cost to our customers. We purchase
      steel strips from Chinese companies, both state-owned enterprises and private
      companies. State-owned enterprises can ensure consistent large supply, but
      do
      not react quickly to the fluctuations in prevailing market prices. Private
      companies normally react quickly to price changes, but are not as reliable
      as
      state-owned enterprises in terms of consistent supply. By sourcing 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.




Zinc
      is
      an important raw material for HDG of cold-rolled steel and accounts for
      approximately 7-8% of our total production costs of HDG Steel in fiscal year
      2008 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, are the most volatile among those of all of our raw materials.




Oil
      paint
      accounted for approximately 5-6% of the total production cost of PPGI products
      in fiscal year 2008. 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.




5




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.





***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.




Approximately
      43.19% of our revenue was derived from Shanghai Huaye and its affiliates in
      fiscal year 2008. We have a one-year sales agent cooperation agreement with
      Shanghai Huaye which will expire on August 31, 2009. Under the agreement,
      Shanghai Huaye agreed to act as an sales agent for Changshu Huaye and Jiangsu
      Cold-Rolled to sell 8,000 MT of HDG Steel products and 5,000 MT of PPGI products
      per month in exchange for a sales commission ranging from RMB 20 (approximately
      $2.94) per MT to RMB 120 (approximately $17.65) per MT based on the quantity
      of
      the products of each order placed by Shanghai Huaye. The agreement also provides
      that Shanghai Huaye must place an order with the quantity and specification
      of
      the products before the 15 th of each
      month for the following month and the parties will enter into a monthly sales
      contract based on such order. In addition, we may change the price for our
      products every half of month based on the marketing situation and are entitled
      to a penalty fee of RMB0.5 per MT per day if Shanghai Huaye fails to make the
      full payment for the purchase before the delivery day. We plan to further expand
      our sales channel and increase our direct sale to end customers in the future.
      Other than Shanghai Huaye, none of our customers accounted for more than 10%
      of
      our total revenue in fiscal year 2008.




***Sales
      and Marketing***





China
      is
      our most important market. Domestic sales represented approximately 96.13%
      of
      our total revenue in fiscal year 2008. 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 4.10%, 10.21% and 3.87% of our total
      revenue in fiscal years 2006, 2007 and 2008, respectively.




Our
      sales
      network covers most provinces and regions in China. We are developing a
      diversified sales network which allows us to effectively market products and
      services to our customers. We sold approximately 56.81% of our products through
      our own sales and marketing department in fiscal year 2008. 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 40 sales
      agents to sell our products, 9 of which have a direct contractual arrangement
      with us and the other 31 agents are affiliates of Shanghai Huaye. We entered
      into a sales agent cooperation agreement with each of these 9 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 $2.94) per MT to RMB 120 (approximately $17.65)
      per
      MT. The agreement also provides that the sale agent must place an order with
      the
      quantity and specification of the products before the 15 th of each
      month for the following month and the parties will enter into a monthly sales
      contract based on such order. In addition, we may change the price for our
      products every half of month based on the marketing situation under the
      agreement are entitled to a penalty fee of RMB0.5 per MT per day if the agent
      fails to make the full payment for the purchase before the delivery
      day.




***Competition***





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




6




We
      estimate our current market share in China for HDG Steel and PPGI products
      to be
      approximately 1% and 2%, respectively, based on our total sales revenue in
      fiscal year 2008. Eastern China is our biggest market in China and accounted
      for
      approximately 50% of our total sales in fiscal year 2008. The demand of Eastern
      China accounts for approximately 40% of China’s total demand for HDG Steel and
      PPGI products and we estimate that we have approximately 4-5% 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 3.87% of our total
      sales for fiscal year 2008.




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
      obtained the patent for our Bakeoven for PPGI products in 2008. In addition,
      we
      have filed two patent applications for our production technique of 0.18mm-0.20mm
      HDG of cold-rolled steel and our degreaser for cleaning cold-rolled steel
      surface and relevant facility with the Patent Office of the State Intellectual
      Property Office of China, both of which are pending approval.




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 “ ”
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.




7




In
      addition, we have registered the following domain names: www.cshuaye.net ,  .com, www.cshuaye.com , www.changshuhuaye.com , www.cshuaye.cn , www.cshuaye.com.cn , www.eshopcn.net , www.sutorcn.com , www.sutorcn.net , www.cshuaye.com.cn , www.cshuaye.cn . www.cshuye.net ,
      and www.cshuaye.com .
      www.sutorcn.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, 2008, we had approximately 370 employees, 350 of which are full-time
      employees. Approximately 240 are employees of Changshu Huaye and approximately
      110 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.





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





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





***Backlog***





Our backlog
      at June 30, 2008 was approximately $50 million, compared with backlog
      of approximately $30 million at June 30, 2007. Backlog
      includes orders confirmed for products scheduled to be shipped within 90 days
      to
      customers with approved credit status. Because of the generally short cycle
      between order and shipment and occasional customer changes in delivery schedules
      or cancellation of orders, we do not believe that our backlog,
      as of any particular date, is necessarily indicative of actual net sales for
      any
      future period.





***Regulation***





As
      a
      producer of steel products in China, we are subject to a number of PRC laws
      and
      regulations governing steel products, including:




*Environmental
      Regulations*





We
      are
      subject to various governmental regulations related to environmental protection.
      The major environmental regulations applicable to us include:





·
            the
                Environmental Protection Law of the PRC;


·
            the
                Law of PRC on the Prevention and Control of Water Pollution;


·
            Implementation
                Rules of the Law of PRC on the Prevention and Control of Water Pollution;


·
            the
                Law of PRC on the Prevention and Control of Air Pollution;


·
            Implementation
                Rules of the Law of PRC on the Prevention and Control of Air Pollution;


·
            the
                Law of PRC on the Prevention and Control of Solid Waste Pollution;
                and


·
            the
                Law of PRC on the Prevention and Control of Noise Pollution.





We
      have
      obtained all permits and licenses required for production of our products and
      believe we are in material compliance with all applicable laws and regulations.





8




***Environmental
      Matters***




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





**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
      43.19% of our revenue was derived from Shanghai Huaye in fiscal year 2008,
      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.





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





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





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





The
      steel
      industry as a whole is cyclical and pricing can be volatile as a result of
      general economic conditions, 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.





9




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





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




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





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





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


10


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


***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


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


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




Our
      future business and results of operations depend in significant part upon the
      continued contributions of our key technical and senior management personnel,
      including Lifang Chen, our Chief Executive Officer, Yongfei Jiang, our Chief
      Financial Officer and Xun Zhang, our Chief Technology 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.




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





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




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





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


12





**RISKS
      RELATED TO DOING BUSINESS IN CHINA**





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




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





·
            a
                higher level of government involvement;


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


·
            a
                rapid growth rate;


·
            a
                higher level of control over foreign exchange; and


·
            the
                allocation of resources.





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





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





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





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





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





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




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


13





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





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





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





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





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





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





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





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





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


14





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





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





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





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




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





***Under
      the New EIT Law, we may be classified as a “resident enterprise” of China. Such
      classification will likely result in unfavorable tax consequences to us and
      our
      non-PRC stockholders.***





China
      passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementing
      rules, both of which became effective on January 1, 2008. Under the New EIT
      Law,
      an enterprise established outside of China with “de facto management bodies”
within China is considered a “resident enterprise,” meaning that it can be
      treated in a manner similar to a Chinese enterprise for enterprise income tax
      purposes. The implementing rules of the New EIT Law define de facto management
      as “substantial and overall management and control over the production and
      operations, personnel, accounting, and properties” of the enterprise. Because
      the New EIT Law and its implementing rules are new, no official interpretation
      or application of this new “resident enterprise” classification is available.
      Therefore, it is unclear how tax authorities will determine tax residency based
      on the facts of each case.





If
      the
      PRC tax authorities determine that Sutor Technology Group Limited is a “resident
      enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC
      tax consequences could follow. First, we may be subject to the enterprise income
      tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
      income tax reporting obligations. In our case, this would mean that income
      such
      as interest on offering proceeds and non-China source income would be subject
      to
      PRC enterprise income tax at a rate of 25%. Second, although under the New
      EIT
      Law and its implementing rules dividends paid to us from our PRC subsidiaries
      would qualify as “tax-exempt income,” we cannot guarantee that such dividends
      will not be subject to a 10% withholding tax, as the PRC foreign exchange
      control authorities, which enforce the withholding tax, have not yet issued
      guidance with respect to the processing of outbound remittances to entities
      that
      are treated as resident enterprises for PRC enterprise income tax purposes.
      Finally, it is possible that future guidance issued with respect to the new
      “resident enterprise” classification could result in a situation in which a 10%
      withholding tax is imposed on dividends we pay to our non-PRC stockholders
      and
      with respect to gains derived by our non-PRC stockholders from transferring
      our
      shares. We are actively monitoring the possibility of “resident enterprise”
treatment for the 2008 tax year and are evaluating appropriate organizational
      changes to avoid this treatment, to the extent possible.


15





If
      we
      were treated as a “resident enterprise” by PRC tax authorities, we would be
      subject to taxation in both the U.S. and China, and our PRC tax may not be
      creditable against our U.S. tax.





***The
      M&A Rule establishes more complex procedures for some acquisitions of
      Chinese companies by foreign investors, which could make it more difficult
      for
      us to pursue growth through acquisitions in China.***





On
      August
      8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the
      Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign
      Investors (the “M&A Rule”), which became effective on September 8, 2006. The
      M&A Rule establishes additional procedures and requirements that could make
      some acquisitions of Chinese companies by foreign investors more time-consuming
      and complex, including requirements in some instances that the PRC Ministry
      of
      Commerce be notified in advance of any change-of-control transaction and in
      some
      situations, require approval of the PRC Ministry of Commerce when a foreign
      investor takes control of a Chinese domestic enterprise. In the future, we
      may
      grow our business in part by acquiring complementary businesses, although we
      do
      not have any plans to do so at this time. The M&A Rule also requires PRC
      Ministry of Commerce anti-trust review of any change-of-control transactions
      involving certain types of foreign acquirers. Complying with the requirements
      of
      the M&A Rule to complete such transactions could be time-consuming, and any
      required approval processes, including obtaining approval from the PRC Ministry
      of Commerce, may delay or inhibit our ability to complete such transactions,
      which could affect our ability to expand our business or maintain our market
      share.





***You
      may have difficulty enforcing judgments against us.*** ******





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





**RISKS
      RELATED TO THE MARKET FOR OUR STOCK**




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





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


16


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





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





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





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





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





The
      market price of our common stock is volatile, and this volatility may continue.
      For instance, between July 1, 2007 and June 30, 2008, the closing bid price
      of
      our common stock, as reported on the markets on which our securities have
      traded, ranged between $3.00 and $9.42. Numerous factors, many of which are
      beyond our control, may cause the market price of our common stock to fluctuate
      significantly. These factors include:





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


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


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


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


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


·
            customer
                demand for our products;


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


·
            the
                operating and stock performance of comparable
                companies;


·
            general
                economic conditions and trends;


·
            major
                catastrophic events;


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


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


·
            loss
                of external funding sources;


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


·
            additions
                or departures of key personnel.


17





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





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





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





**ITEM
              1B.**
            **UNRESOLVED
                STAFF COMMENTS**




None.




**ITEM
              2.**
            **PROPERTIES**********




***Our
      Facilities***




We
      have
      two principal facilities: Changshu Huaye and Jiangsu Cold-Rolled. Both are
      located in Dongbang Industrial park, Changshu, China. Changshu Huaye was
      established in January 2003 and started operation in June 2004. 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. Changshu Huaye’s capacity utilization rate was
      approximately 100% and 100% for HDG of cold-rolled steel and PPGI in fiscal
      year
      2008, respectively. 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. In fiscal year 2008, the
      capacity utilization rate for the AP Steel production line and cold-rolled
      steel
      production line was approximately 70% and 100%, respectively. Jiangsu
      Cold-Rolled is building a new HDG Steel production line with designed annual
      manufacturing capacity of 400,000 MT which will become operational at the end
      of
      September 2008. The new HDG steeling production line is capable of galvanizing
      both hot-rolled and cold-rolled steel with both zinc and aluminum, allowing
      us
      to better meet the needs of our customers and minimizing any excess capacity
      strains on our current HDG Steel production lines.





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.


18


**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 fiscal year 2008.




**PART
      II**




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




***Market
      for Our Common Stock***




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





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, 2008***1stFiscal Quarter (7/1/07-9/30/07)
            
            $
            6.20
            
            $
            3.002ndFiscal Quarter (10/1/07-12/31/07)
            
            
            7.00
            
            
            3.953rdFiscal Quarter (1/1/08-3/31/08)
            
            
            5.70
            
            
            3.624thFiscal Quarter (4/1/08 -6/30/08)
            
            
            9.00
            
            
            4.88***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





(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 24, 2008, there were approximately 36 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.




19


***Securities
      Authorized for Issuance Under Equity Compensation
      Plans***




We
      currently do not have any equity compensation plans.




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




Not
      Applicable.





**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 28.26% and 32.84% of our total revenue in fiscal year 2008,
      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 $190.59 million in fiscal year 2006 to $418.03 million
      in
      fiscal year 2008, representing a compounded growth rate of approximately
      119.33%. 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’s new HDG Steel production line
      capable of galvanizing both hot-rolled and cold-rolled steel with both zinc
      and
      aluminum will start production at end of September 2008. The addition of this
      new production line will help our further revenue growth in fiscal year 2009.
      A
      big portion of our AP Steel products and cold-rolled steel were used for the
      production of our HDG Steel and a portion of our HDG Steel products were used
      for the production of our PPGI products, this vertical integration helped to
      improve our profit margin.





***Revenue***





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





Our
      operations consist of two business segments: Changshu Huaye and Jiangsu
      Cold-rolled, which are our two principal manufacturing facilities. Changshu
      Huaye currently manufactures HDG Steel and PPGI products. In fiscal years 2008
      and 2007, Changshu Huaye generated revenue of $260.53 million and $257.71
      million which represented 62.32% and 84.93% 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 production lines
      become operative in October 2006 and January 2007, respectively, Jiangsu
      Cold-Rolled had no revenue until the second fiscal quarter of 2007. Jiangsu
      Cold-Rolled generated revenue of $157.50 million and $45.73 million in fiscal
      years 2008 and 2007, representing 37.68% and 15.07% of our total revenue,
      respectively. We expect that Jiangsu Cold-Rolled’s revenue will increase
      significantly after its new HDG Steel production line starts operation in fiscal
      year 2009.





Currently,
      a substantial portion of our products are sold through our affiliate Shanghai
      Huaye. Approximately 43.19% of our revenue was derived from Shanghai Huaye
      and
      its affiliates in fiscal year 2008, decreased from 51.40% in fiscal year 2007.
      We plan to further increase our direct sales to end customers in order to
      increase our margins.


20


***Cost
      of Revenue***





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





Our
      direct costs of manufacturing are generally highest when we first introduce
      a
      new product due to higher start-up costs associated and higher raw material
      costs. As production volume increases, we typically improve 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, had a
      relatively high cost of production in fiscal year 2007. As these two production
      lines started operating at normal levels, our manufacturing efficiency improved
      in fiscal year 2008.





***Gross
      Profit and Gross Margin***





Gross
      profit is equal to the difference between our revenue and the cost of revenue.
      Gross margin is equal to gross profit divided by revenue. In fiscal year 2008,
      Changshu Huaye and Jiangsu Cold-Rolled’s gross margins were 14.66% and 4.27%,
      respectively. Gross margins for domestic and international sales were
      approximately 10.42% and 18.95%, respectively. Changes in our gross margins
      are
      primarily driven by changes in our product mix, economies of scale, and our
      vertical integration strategy.





To
      gain
      market penetration, we price our products at levels that we believe are
      competitive 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, such as the PPGI products, generally tend to have higher profit
      margins.





In
      fiscal
      year 2007, our AP Steel production line and cold-rolled steel production line
      went into operation. Commencing January 2007, we have implemented the vertical
      integration strategy under which a large portion of our AP Steel and cold-rolled
      steel products were used internally as raw materials for our HDG Steel products.
      The AP Steel and cold-rolled steel products used for our PPGI products and
      HDG
      products increased to approximately 70% in fiscal year 2008 from approximately
      39% in fiscal year 2007. In addition, we also used portion of our HDG Steel
      products as raw materials for our PPGI products. This vertical integration
      of
      our operations has allowed us to benefit from the higher and more stable margins
      for our HDG Steel and PPGI products.





***Operating
      Expenses***





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





***General
      and Administrative Expenses***





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


21





Our
      selling expenses are generally affected by the amount of international sales
      and
      our sales to unrelated parties. The transportation costs for our international
      sales are generally higher than domestic sales. Our export sales accounted
      for
      3.87% of our revenue in fiscal year 2008 as compared to 10.21% in fiscal year
      2007 and our transportation costs for international sales accounted for 18.7%
      and 48.9% of the total transportation costs during these years. In addition,
      when we sell products to Shanghai Huaye and its affiliates, Shanghai Huaye
      generally arranges and bears the cost of the transportation. In
      contrast, when we sell products to 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 2008.





*BVI*





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





*PRC*





Before
      the implementation of the New EIT Law, Foreign Invested Entities (“FIE”)
      established in the PRC were generally subject to an enterprise income tax
      (“EIT”) rate of 33.0%, which includes a 30.0% state income tax and a 3.0% local
      income tax. FIEs established in Coastal Open Economic Zones, Special Economic
      Zones or Economic and Technical Development Zones, such as 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 was entitled to a two-year exemption from EIT followed by 50%
      tax
      exemption for the next three calendar years, commencing from the first
      cumulative profit-making year in the calendar of 2004. Our other subsidiary,
      Jiangsu Cold-Rolled had the same two-year full tax exemption for the calendar
      years 2006 and 2007, followed by 50% tax exemption for the next three
      years. ****




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





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





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





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




22





Our
      subsidiary Changshu Huaye is subject to an EIT rate of 12.5% for the fiscal
      year
      2008 and will be subject to an EIT rate of 25% after 2008. Our subsidiary
      Jiangsu Cold-Rolled is exempt from EIT for 2008 and is expected to be subject
      to
      an EIT rate of 12.5% for the next three year.





***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 the second quarter of fiscal year 2007 and currently manufactures
      and sells AP Steel and cold-rolled Steel. Jiangsu Cold-Rolled’s new HDG Steel
      production line is expected to become operative at the end of September 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.





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





**2008**
            
            **2007****Amount**
            
            **As a Percentage**
              **of Revenue**
            
            **Amount**
            
            **As a Percentage**
              **of Revenue****Revenue:**Revenue
                from unrelated parties
            
            $
            237,494
            
            
            56.81
            %
            $
            147,467
            
            
            48.6
            %Revenue
                from related parties
            
            
            180,536
            
            
            43.19
            %
            
            155,972
            
            
            51.4
            %Total
            
            
            418,030
            
            
            100.00
            %
            
            303,439
            
            
            100
            %**Cost
                of Revenue**Cost
                of revenue
            
            
            266,149
            
            
            63.67
            %
            
            115,286
            
            
            38.00
            %Purchases
                from related parties
            
            
            106,961
            
            
            25.59
            %
            
            157,615
            
            
            51.94
            %Total
            
            
            373,110
            
            
            89.25
            %
            
            272,901
            
            
            89.94
            %**Gross
                Profit**
            
            
            44,920
            
            
            10.75
            %
            
            30,538
            
            
            10.06
            %**Operating
                Expenses**Selling
                expense
            
            
            2,238
            
            
            0.54
            %
            
            2,320
            
            
            0.76
            %General
                and administrative expense
            
            
            3,749
            
            
            0.90
            %
            
            4,736
            
            
            1.56
            %**Total
                Operating Expenses**
            
            
            5,987
            
            
            1.43
            %
            
            7,056
            
            
            2.33
            %**Income
                from Operations**
            
            
            38,933
            
            
            9.31
            %
            
            23,482
            
            
            7.74
            %**Other
                Income (Expense)**Interest
                income
            
            
            944
            
            
            0.23
            %
            
            566
            
            
            0.19
            %Other
                income
            
            
            188
            
            
            0.05
            %
            
            298
            
            
            0.10
            %Interest
                expense
            
            
            (6,253
            )
            
            (1.50
            )%
            
            (2,258
            )
            
            (0.74
            )%Other
                expense
            
            
            (757
            )
            
            (0.18
            )%
            
            (874
            )
            
            (0.29
            )%**Total
                Other Expense**
            
            
            (5,878
            )
            
            (1.41
            )%
            
            (2,268
            )
            
            (0.75
            )%**Income
                Before Taxes and Minority Interest**
            
            
            33,054
            
            
            7.91
            %
            
            21,214
            
            
            6.99
            %Provision
                for income taxes
            
            
            (1,916
            )
            
            (0.46
            )%
            
            (697
            )
            
            (0.23
            )%Minority
                interest in loss of consolidated subsidiary
            
            
            (2
            )
            
            (0.00
            )%
            
            3
            
            
            0.01
            %**Net
                Income**
            
            $
            31,136
            
            
            7.45
            %
            $
            20,520
            
            
            6.76
            %





23




The
      following table set forth revenue by geography and the percentage of our total
      revenue and total revenue by business segments for fiscal years 2008 and 2007.





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





**2008**
            
            **2007****Revenue**
            
            **As a Percentage**
              **of Revenue**
            
            **Revenue**
            
            **As a Percentage**
              **of Revenue****Geographic
                Data:**China
            
            $
            401,872
            
            
            96.13
            %
            $
            272,461
            
            
            89.79
            %Hong
                Kong
            
            
            471
            
            
            0.12
            %
            
            24,968
            
            
            8.23
            %Other
                Countries
            
            
            15,687
            
            
            3.75
            %
            
            6,010
            
            
            1.98
            %**Total
                revenue**
            
            
            418,030
            
            
            100
            %
            
            303,439
            
            
            100
            %**Segment
                Data:**Changshu
                Huaye
            
            $
            260,528
            
            
            62.32
            %
            
            257,708
            
            
            84.93
            %Jiangsu
                Cold-Rolled
            
            
            157,502
            
            
            37.68
            %
            
            45,731
            
            
            15.07
            %**Total
                revenue**
            
            
            418,030
            
            
            100
            %
            
            303,439
            
            
            100
            %





**Comparison
      of Years ended June 30, 2008 and June 30, 2007.**





***Revenue*** .
      Our
      revenue increased $114.59 million, or 37.76%, to $418.03 million in fiscal
      year
      2008 from $303.44 million in fiscal year 2007. This increase was mainly
      attributable to increased production of our AP Steel and cold-rolled steel
      products, which together contributed $157.5 million revenue in fiscal year
      2008,
      an increase of $111.7 million as compared to that of fiscal year 2007. In fiscal
      year 2008, our AP Steel production line reached 70% of designed production
      capacity and cold-rolled steel production line reached 100% of its designed
      production capacity.




24





On
      a
      geographic basis, revenue generated from outside of China was $16.16 million,
      or
      3.87% of our revenue for fiscal year 2008, as compared to $30.98 million, or
      10.21% of our revenue for fiscal year 2007. Such percentage decrease was mainly
      due to the increased domestic demand for steel products in China resulting
      from
      the increased price of iron ore in the third quarter of fiscal year 2008, and
      the uncertainty of export tax rate adjustments during the second quarter of
      fiscal year 2008. This uncertainty caused our overseas customers to delay their
      orders. After January 1, 2008, the PRC government clarified that the export
      rate
      for cold-rolled products and steel tube products still enjoy the 5% export
      tax
      rebate.





On
      a
      segment basis, our subsidiary Jiangsu Cold-Rolled experienced significant
      revenue growth in fiscal year 2008. After eliminating the inter-company sale,
      revenues contributed by Jiangsu Cold-Rolled were $157.50 million in fiscal
      year
      2008. Revenue from the sales of our AP Steel and cold-rolled steel products
      to
      outside customers was approximately $33.94 million and $104.4 million in fiscal
      year 2008, respectively. Jiangsu Cold-rolled generated only $45.73 million
      revenue in fiscal year 2007 because our AP Steel production line and cold-rolled
      production lines did not become operative 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. Revenue
      contributed by Changshu Huaye increased to $260.53 million in fiscal year 2008,
      an increase of $2.82 million, or 1.09%, from $257.71 million in fiscal year
      2007. As part of our vertical integration strategy, we continued to use more
      of
      our own HDG Steel products for the production of PPGI products in fiscal year
      2008 to reduce the production costs. As a result, we sold less HDG Steel
      products to third parties in fiscal year 2008. However, the increase revenue
      generated from our sales of PPGI products more than offset the decrease of
      sales
      of our HDG Steel products.





In
      terms
      of sales to related parties as compared with sales to unrelated parties, our
      direct sales to unrelated parties in fiscal year 2008 increased $90.02 million,
      or 61.05% to $237.49 million from $147.47 million in fiscal year 2007. Such
      increase was mainly due to our increased direct sale to end customers during
      fiscal year 2008. While we maintain a cooperation relationship with our sales
      agent, Shanghai Huaye, we have been seeking to increase our direct sale to
      end
      customers to increase margin.





***Cost
      of Revenue*** .
      Our
      cost of revenue increased $100.21 million, or 36.72% to $373.11 million in
      fiscal year 2008 from $272.90 million in fiscal year 2007. This dollar increase
      was mainly due to increased production and sales volume. As a percentage of
      revenue, the cost of revenue decreased to 89.25% in fiscal year 2008 from
      89.94% in fiscal year 2007. Such slight percentage decrease was mainly
      attributable to our vertical integration strategy commencing January 2007,
      the
      change of our product mix and the increased sales to unrelated parties.





***Gross
      Profit*** .
      Our
      gross profit increased $14.38 million to $44.92 million in fiscal year 2008
      from
      $30.54 million in fiscal year 2007. Gross profit as a percentage of revenue
      (gross margin) was 10.75% in fiscal year 2008, as compared to 10.06% in fiscal
      year 2007. Such gross margin increase was mainly due to the increased production
      and sale of PPGI products, which have a higher profit margin than other
      products, our vertical integration strategy, economies of scales and our
      increased direct sales to unrelated parties in fiscal year 2008.





Gross
      margins for Changshu Huaye increased to 14.66% in fiscal year 2008 from 11.30%
      in fiscal year 2007, which was primarily attributable to the increased direct
      sales to unrelated parties, our vertical integration strategy that caused a
      large portion of Jiangsu Cold-Rolled’s products to be used as raw materials for
      Changshu Huaye, and an increase in sales of our higher margin PPGI products.





Gross
      margins for Jiangsu Cold-Rolled increased to 4.27% in fiscal year 2008 from
      3.08% in fiscal year 2007, which was mainly because Jiangsu Cold-Rolled had
      no
      revenue until the second fiscal quarter of 2007, since our AP Steel production
      line and cold-rolled production lines did not become operative until October
      2006 and January 2007, respectively. In addition, Jiangsu Cold-Rolled benefited
      from economies of scale which reduced its production costs per unit in fiscal
      year 2008.





***Total
      Operating Expenses*** .
      Our
      total operating expenses decreased $1.07 million to $5.99 million in fiscal
      year
      2008 from $7.06 million in fiscal year 2007. As a percentage of revenue, our
      total operating expenses decreased to 1.43% in fiscal year 2008 from 2.33%
      in
      fiscal year 2007.




25




*General
      and Administrative Expenses* .
      Our
      general and administrative expenses decreased $986,520 to $3.75 million in
      fiscal year 2008 from $4.74 million in fiscal year 2007. As a percentage of
      revenue, general and administrative expenses decreased to 1.43% in fiscal year
      2008 from 2.33% in fiscal year 2007. Both the dollar amount and percentage
      increase were mainly attributable to the more efficient expense management
      and
      economies of scale.





*Selling
      Expenses* .
      Our
      selling expenses decreased $81,771 to $2.24 million in fiscal year 2008 from
      $2.32 million in fiscal year 2007. As a percentage of revenue, our selling
      expenses decreased to 0.54% in fiscal year 2008 from 0.76% in fiscal year 2007.
      The decrease was mainly attributable to the decrease in our transportation
      cost
      and more effective control on selling expenses. In February 2008, the severe
      snowstorms in southern China caused transportation difficulties. As a result,
      many of our clients opted to arrange transportation themselves, which reduced
      our transportation costs. In addition, in the last quarter of fiscal year 2008,
      due to unusually high market demand of our products, most of our clients paid
      for transportation costs.





***Interest
      Expenses*** *.* Our
      interest expense increased $3.99 million to $6.25 million in fiscal year 2008,
      from $2.26 million in fiscal year 2007. As a percentage of revenue, our interest
      expenses increased to 1.50% in fiscal year 2008, from 0.74% in fiscal year
      2007.
      Such percentage change was mainly due to the increase of interest rate of our
      one-year term bank loan and a $79.55 million increase in outstanding amounts
      of
      bank loans for the use of procuring raw materials to accommodate the growth
      of
      our production. On December 20, 2007, the People’s Bank of China increased the
      interest rate of RMB banks loans with one-year terms to 7.47%, which was 6.39%
      in the same period last year.





***Provision
      for Income Taxes*** .
      We
      incurred income tax expense of $1.92 million and $696,754 in fiscal years 2008
      and 2007, respectively. Such increase was primarily attributable to the increase
      in our net income and the increased tax rate of Changshu Huaye. Due to the
      New
      EIT Law, Changshu Huaye is subject to an EIT rate of 12.5% in 2008, as compared
      to 12% in 2007.




***Net
      Income.*** Net
      income, without including the foreign currency translation adjustment, increased
      $10.62 million, or 51.73%, to $31.14 million in fiscal year 2008 from $20.52
      million in fiscal year 2007, as a result of the factors described above.




***Liquidity
      and Capital Resources***





As
      of
      June 30, 2008, we had cash and cash equivalents (excluding restricted cash)
      of
      $11.81 million and restricted cash of $59.49 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,****2008**
            
            **2007**Net
                cash (used in) operating activities
            
            $
            (34,969
            )
            $
            (28,556
            )Net
                cash (used in) investing activities
            
            
            (37,771
            )
            
            (3,567
            )Net
                cash provided by financing activities
            
            
            74,573
            
            
            34,093Net
                cash flow
            
            $
            2,973
            
            $
            2,298





26




***Operating
      Activities:***





Net
      cash
      used in operating activities was $34.97 million in fiscal year 2008, an increase
      of $ 6.41 million
      from the $28.56 million net cash used in operating activities in fiscal year
      2007. Such increase of net cash used in operating activities was primarily
      attributable to a $61.34 increase in advances to suppliers-related parties,
      a
      $28.62 decrease in advances to suppliers and a $15.55 million increase in
      inventory which more than offset the increase in net income and advances from
      customers and the decrease in trade account receivables. The increase in
      advances to suppliers, inventory and related parties receivable was mainly
      due
      to increase in purchase of raw materials made to accommodate the increased
      production and high market demands for our products.




***Investing
      Activities:***





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





Net
      cash
      used in investing activities in fiscal year 2008 was $37.77 million, which
      is an
      increase of $34.20 million from net cash used in investing activities of $3.57
      million in fiscal year 2007. Such increase of net cash used in investing
      activities was mainly due to a $32.61 million increase in restricted cash and
      a
      $2.02 million increase in purchase of property and equipment in fiscal year
      2008. In fiscal year 2008, a large portion of our payments was made through
      bankers’ acceptance bills rather than cash. As a result, we had more restricted
      cash deposited in banks as deposits for the acceptance bills.





***Financing
      Activities:***





Net
      cash
      provided by financing activities in fiscal year 2008 totaled $ 74.57 million
      as compared to $ 34.09 million
      provided by financing activities in fiscal year 2007. The increase of cash
      provided by financing activities was mainly attributable to an increase of
      $24.99 million in proceeds from issuance of notes payable in fiscal year 2008
      and $21.04 million in fiscal year 2007 to acquire the 100% equity of our
      subsidiaries Changshu Huaye and Jiangsu Cold-Rolled.





We
      believe we currently maintain a good business relationship with many banks.
      As
      of June 30, 2008, the amount, maturity date and term of each of our bank loans
      were as follows. Note that as of September 11, 2008, all loans that matured
      before such date have been paid off.




27




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




**Banks**
            
            **Amounts***
            
            
            **Starting Date**
            
            
            **Maturity Date**China
                Agriculture Bank Changshu Branch
            
            $
            1.43
            
            
            February
                1, 2008
            
            
            August
                1, 2008China
                Industry and Commerce Bank Changshu Branch
            
            
            2.91
            
            
            March
                10, 2008
            
            
            September
                9, 2008China
                Agriculture Bank Changshu Branch
            
            
            1.46
            
            
            May
                20, 2008
            
            
            November
                20, 2008China
                Agriculture Bank Changshu Branch
            
            
            0.73
            
            
            June
                27, 2008
            
            
            December
                27, 2008Bank
                of Jiangsu Xuzhou Branch
            
            
            11.64
            
            
            January 11, 2008
            
            
            July 11, 2008China
                Agriculture Bank Changshu Branch
            
            
            0.29
            
            
            January
                24, 2008
            
            
            July
                24, 2008China
                Industry and Commerce Bank Changshu Branch
            
            
            1.75
            
            
            February
                27, 2008
            
            
            August
                26, 2008China
                Industry and Commerce Bank Changshu Branch
            
            
            2.18
            
            
            March
                20, 2008
            
            
            September
                19, 2008China
                Construction Bank Changshu Branch
            
            
            8.73
            
            
            April
                2, 2008
            
            
            October
                2, 2008Changshu
                Rural Commercial Bank
            
            
            1.46
            
            
            April
                14, 2008
            
            
            October
                14, 2008Ever
                Growing Bank Nanjing Branch
            
            
            7.28
            
            
            April
                17, 2008
            
            
            October
                17, 2008Ever
                Growing Bank Nanjing Branch
            
            
            8.73
            
            
            April
                22, 2008
            
            
            October
                22, 2008China
                Agriculture Bank Changshu Branch
            
            
            1.02
            
            
            April
                30, 2008
            
            
            October
                30, 2008China
                Agriculture Bank Changshu Branch
            
            
            4.37
            
            
            May
                26, 2008
            
            
            November
                26, 2008Changshu
                Rural Commercial Bank
            
            
            6.40
            
            
            May
                27, 2008
            
            
            November
                27, 2008China
                Agriculture Bank Changshu Branch
            
            
            0.73
            
            
            June
                5, 2008
            
            
            December
                5, 2008China
                Agriculture Bank Changshu Branch
            
            
            4.37
            
            
            June
                10, 2008
            
            
            December
                10, 2008China
                Citic Bank Wuxi Branch
            
            
            2.91
            
            
            August
                3, 2007
            
            
            August
                3, 2008Bank
                of Jiangsu Nantong Branch
            
            
            2.91
            
            
            August
                8, 2007
            
            
            August
                7, 2008Bank
                of China Changshu Branch
            
            
            1.75
            
            
            March
                12, 2008
            
            
            September
                10, 2008Changshu
                Rural Commercial Bank
            
            
            1.75
            
            
            March
                20, 2008
            
            
            September
                19, 2008Changshu
                Rural Commercial Bank
            
            
            0.73
            
            
            April
                14, 2008
            
            
            October
                13, 2008Changshu
                Rural Commercial Bank
            
            
            2.62
            
            
            April
                14, 2008
            
            
            October
                13, 2008China
                Industry and Commerce Bank Changshu Branch
            
            
            1.46
            
            
            April
                7, 2008
            
            
            April
                6, 2009China
                Industry and Commerce Bank Changshu Branch
            
            
            1.46
            
            
            April
                14, 2008
            
            
            April
                13, 2009China
                Industry and Commerce Bank Changshu Branch
            
            
            1.46
            
            
            May
                16, 2008
            
            
            May
                15, 2009China
                Industry and Commerce Bank Changshu Branch
            
            
            1.46
            
            
            May
                21, 2008
            
            
            May
                20, 2009Bank
                of Communications Changshu Branch
            
            
            2.91
            
            
            May
                30, 2008
            
            
            November 25, 2008China
                Agriculture Bank Changshu Branch
            
            
            1.89
            
            
            February
                18, 2008
            
            
            August
                17, 2008China
                Agriculture Bank Changshu Branch
            
            
            11.79
            
            
            March
                4, 2008
            
            
            September
                3, 2008China
                Agriculture Bank Changshu Branch
            
            
            2.91
            
            
            May
                16, 2008
            
            
            November
                15, 2008China
                Agriculture Bank Changshu Branch
            
            
            4.37
            
            
            May
                19, 2008
            
            
            November
                18, 2008China
                Agriculture Bank Changshu Branch
            
            
            4.37
            
            
            May
                22, 2008
            
            
            November
                21, 2008China
                Agriculture Bank Changshu Branch
            
            
            2.91
            
            
            May
                30, 2008
            
            
            November
                29, 2008China
                Agriculture Bank Changshu Branch
            
            
            4.37
            
            
            June
                6, 2008
            
            
            December
                5, 2008China
                Agriculture Bank Changshu Branch
            
            
            9.60
            
            
            June
                18, 2008
            
            
            December
                17, 2008China
                Agriculture Bank Changshu Branch
            
            
            1.46
            
            
            June
                30, 2008
            
            
            December
                28, 2008******Total**
            
            $
            130.50





Calculated
      on the basis that $1 = RMB 6.87180





Our
      material capital expenditure requirements for fiscal year 2009 are approximately
      $20 million, which will be used for updating and expansion of our production
      lines, equipment and facilities. In addition, we expect that an additional
      $20
      million of working capital will be needed to maintain our business operations
      in
      the next twelve months which will be raised through bank loans. In the coming
      12
      months, we have approximately $130.5  million
      in bank loans that will mature. We plan to replace these loans with new bank
      loans in approximately the same aggregate amounts.





We
      believe that our currently available working capital after receiving the
      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.





***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:




28





·
            *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’sequity securities have been recorded at the exchange rate existing
                at the
                time of the transaction.





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





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





·
            *Advances
                to Suppliers and from Customers*-
                The Company, as is common practice in the PRC, will often make advance
                payments to its suppliers for materials, or receive advance payments
                from
                its customers. The Company had net advances to suppliers of $28,035,815
                and $32,791,928 at June 30, 2008 and 2007, respectively. The Company
                also
                had advances from its customers in the amount of $16,871,618 and
                $8,414,629 at June 30, 2008 and 2007, 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 to
      the
      consolidated financial statements included elsewhere in this annual
      report ,
      the
      Company sells product to affiliates, who in turn sell the product to various
      other third party customers. The price, terms and conditions on the sales to
      affiliates are the same as those to third parties. Revenue is considered
      realized or realizable and earned when the affiliates ship the product to third
      party customers. A fee of 0.5% of the sale is paid to the affiliate for handling
      the product. These handling fees have been classified as selling expenses in
      the
      statement of operations.





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





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




29




**For the Years Ended June 30,****2008**
            
            **2007**
            
            **2006**Net
                income
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Weighted-average
                common shares outstanding
            
            
            37,955,602
            
            
            4,181,750
            
            
            -Effect
                of participating convertible Series A and Series B preferred
                stock
            
            
            -
            
            
            30,418,273
            
            
            29,373,303Weighted-average
                basic and dilutive common shares Outstanding
            
            
            37,955,602
            
            
            34,600,023
            
            
            29,373,303**Basic
                and Diluted Earnings per Common Share**
            
            $
            0.82
            
            $
            0.59
            
            $
            0.39




***Seasonality***





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





***Off-Balance
      Sheet Arrangements***




We
      do not
      have any off-balance arrangements.





**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK.**




Not
      applicable.





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




The
      full
      text of our audited consolidated financial statements as of June 30, 2008 and
      2007 begins on page F-1 of this report.




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




None.




***ITEM 9A(T).***
            ***CONTROLS
                AND PROCEDURES.*******




***(a)***
            ***Evaluation
                of Disclosure Controls and
                Procedures***





Our
      management, with the participation of our chief executive officer and chief
      financial officer, Ms. Lifang Chen and Yongfei Jiang, respectively, evaluated
      the effectiveness of our disclosure controls and procedures. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
      15d-15(e) under the Exchange Act, means controls and other procedures of a
      company that are designed to ensure that information required to be disclosed
      by
      a company in the reports, such as this report, that it files or submits under
      the Exchange Act is recorded, processed, summarized and reported, within the
      time periods specified in the SEC’s rules and forms. Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by a company in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the company’s management, including its principal executive and principal
      financial officers, as appropriate to allow timely decisions regarding required
      disclosure. 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, Ms. Chen and Mr. Jiang concluded that because
      of the material weakness in internal control over financial reporting described
      below, our disclosure controls and procedures were not effective as of
      June
      30, 2008, to satisfy the objectives for which they are intended.




30





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





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





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


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


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





Although
      the Company is not required to have the auditor attestation until June 30,
      2010,
      the Company hired an outside consultant to assist with the evaluation of the
      Company’s internal controls in effect for fiscal year 2008 and to develop a test
      plan by which the Company would be able to determine whether the internal
      controls functioned appropriately and to assist with the implementation of
      the
      test plan to determine the effectiveness of the controls. Together with the
      outside consultant, management conducted an evaluation of the
      effectiveness of our internal control over fin ancial
      reporting as of June 30, 2008 based on the
      framework set forth in the report entitled Internal Control - Integrated
      Framework issued by the Committee of Sponsoring Organiza tions
      of
      the Treadway Commission. Based on this evaluation, management identified the
      following material weakness as of June 30, 2008:




·
            Several
                material audit adjustments were required for the Company’s accounting
                records to adhere to the standards of the PCAOB. These adjustments
                included reclassifications, correcting accruals and correcting allowances
                to conform to US GAAP.





Although
      our accounting staff is professional and experienced in accounting requirements
      and procedures generally accepted in the PRC, management has determined that
      they require additional training and assistance in U.S. GAAP matters. Until
      such
      time as a full-time experienced accountant with knowledge of U.S. GAAP is
      recruited, the Company will engage a professional firm or individual to assist
      with the financial reporting.





Our
      management is not aware that the material weakness in our internal control
      over
      financial reporting causes them to believe that any material inaccuracies or
      errors existed in our financial statement as of June 30, 2008.  The
      reportable conditions and other areas of our internal control over financial
      reporting identified by us as needing improvement have not resulted in a
      material restatement of our financial statements. Nor are we aware of any
      instance where such reportable conditions or other identified areas of weakness
      have resulted in a material misstatement of omission in any report we have
      filed
      with or submitted to the Commission.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies and procedures may deteriorate.




Management
      remains committed to improving its internal controls and will continue to work
      to put effective controls in place. The Company is actively recruiting staff
      with good knowledge of U.S. GAAP to assist in the Company’s financial reporting.





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




31





***(c)
      Changes in internal control over financial reporting***





Except
      as
      described above, there were no changes in our internal controls over financial
      reporting during the fourth quarter of our fiscal year ended June 30, 2008,
      that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.





**ITEM
              9B.**
            **OTHER
                INFORMATION.**




None.




**PART
      III**




**ITEM 10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE COVERNANCE.******




**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
            
            36
            
            Chairman
                of the board of directors, Chief Executive Officer and
                PresidentYongfei
                Jiang
            
            30
            
            Director,
                Chief Financial Officer, Treasurer and SecretaryXun
                Zhang
            
            37
            
            Chief
                Technology OfficerCarl
                Mudd
            
            64
            
            DirectorGuoyou
                Shao
            
            58
            
            DirectorXinchuang
                Li
            
            44
            
            Director





**Lifang
      Chen** .
      Ms.
      Chen became our Chairman on February 1, 2007 and our chief executive officer
      and
      president in May 2008. She has been the Chairman of our subsidiary Sutor BVI
      since August 2007. Since June 2001, Ms. Chen has 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.





**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.




32




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





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




***Xinchuang
      Li*** .
      Mr. Li
      has served as our directors since February 2008.  Since 2007, Mr.
      Li has served as the Executive Director of China Metallurgical
      Industry Planing & Research Institute in Beijing. Prior to this, Mr. Li
      served as the Vice Director and Chief Engineer of China Metallurgical
      Industry Planing & Research Institute.  China Metallurgical
      Industry Planing & Research Institute specializes in the planning and
      strategic study of the Chinese steel industry. Mr. Li is leading expert in
      this
      field and holds a Master’s degree in Business Administration from Fordham
      University and Beijing University





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





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





***Board
      Composition and Committees***




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





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





*Audit
      Committee*





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





Our
      audit
      committee is responsible for, among other things:




33





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


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


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


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


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


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


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


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


·
            reporting
                regularly to the full board of directors.





*Compensation
      Committee*





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





·
            Our
                compensation committee is responsible for, among other things:


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


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


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


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




*Governance
      and Nominating Committee*





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





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





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


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


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




34




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





***Family
      Relationships***





There
      are
      no family relationships among our directors or officers.





***Involvement
      in Certain Legal Proceedings***





To
      the
      best of our knowledge, none of our directors or executive officers has been
      convicted in a criminal proceeding, excluding traffic violations or similar
      misdemeanors, or has been a party to any judicial or administrative proceeding
      during the past five years that resulted in a judgment, decree or final order
      enjoining the person from future violations of, or prohibiting activities
      subject to, federal or state securities laws, or a finding of any violation
      of
      federal or state securities laws, except for matters that were dismissed without
      sanction or settlement. Except as set forth in our discussion below in
“Transactions with Related Persons, Promoters and Certain Control Persons;
      Corporate Governance,” 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 by and written representations of
      our
      sole director and executive offers, we believe that our directors and executive
      offers filed the required reports on time in 2008 fiscal year.





***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**




**Summary
      Compensation Table**





The
      following table sets forth information concerning all compensation awarded
      to,
      earned by or paid to our Chief Executive Officer for services during the last
      two fiscal years in all capacities to us, our subsidiaries and predecessors.
      No
      other executive officer received compensation of $100,000 or more for the year
      ended June 30, 2008.




**Name and Principal**
              **Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Total**
              **($)**Lifang
                Chen, CEO*
            
            2008
            
            
            -
            
            
            -
            
            
            -
            
            
            -2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -Liuhua
                Guo, former CEO*
            
            2008
            
            
            88,568
            
            
            -
            
            
            -
            
            
            -2007
            
            
            70,424
            
            
            -
            
            
            -
            
            
            -


*
      Mr. Guo
      resigned as our CEO in May 2008 and Ms. Chen was appointed as a replacement
      to
      Mr. Guo.





35




**Employment
      Contracts**





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





**Retirement
      Benefits**





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





**Payment
      Upon Termination or Change-in Control**




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





**Director
      Compensation - 2008**





The
      following table sets forth information concerning all compensation paid to
      our
      non-employee directors for services rendered in all capacities for the year
      ended June 30, 2008.




**Name**
              
              **Fees Earned or**
                **Paid in Cash ($)**
              
              **Total Compensation ($)**Carl
                  Mudd
              
              
              65,000
              
              
              65,000Guoyou
                  Shao
              
              
              17,143
              
              
              17,143Xinchuang
                  Li
              
              
              17,143
              
              
              17,143





In
      February 2008, we entered into agreements with each of the independent
      directors. Under the terms of the agreements, Mr. Mudd is entitled to $65,000,
      Mr. Shao is entitled to RMB 120,000 (approximately $17,143) and Mr. Li is
      entitled to RMB 120,000 (approximately $17,143) as annual compensation for
      their
      service as independent directors, and as chairpersons of various board
      committees, as applicable. Mr. Mudd’s compensation is greater because he has
      greater responsibilities as the Audit Committee Chairman. Under the terms of
      the
      agreements, the independent directors are entitled to indemnification for
      expenses, judgments, fines, penalties or other amounts actually and reasonably
      incurred by the independent directors in connection with any proceeding if
      the
      independent director acted in good faith and in our best interests. The Company
      also reimburses our directors for reasonable travel expenses related to
      attendance at board and committee meetings.





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




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




36





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




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 26, 2008 (i) by each person who is known by us
      to
      beneficially own more than 5% of our common stock; (ii) by each of our officers
      and directors; and (iii) by all of our officers and directors as a
      group.




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




Title of Class
            
            Name & Address of
              Beneficial Owner
            
            Office, If Any
            
            Amount & Nature of
              Beneficial
              Ownership1
            
            Percent of
              Class2Common Stock
            
            Lifang Chen
            
            Chairman
                and CEO
            
            30,338,0503
            
            79.9%Common
                Stock
            
            Yongfei
                Jiang
            
            CFO
            
            0
            
            *Common
                Stock
            
            Xun
                Zhang
            
            CTO
            
            0
            
            *Common
                Stock
            
            Carl
                Mudd
            
            Director
            
            0
            
            *Common
                Stock
            
            Guoyou
                Shao
            
            Director
            
            0
            
            *Common
                Stock
            
            Xinchuang
                Li
            
            Director
            
            0
            
            *All
                Officers and Directors as a group (6 persons named above)
            
            
            
            
            
            30,338,050
            
            79.9%Common
                Stock
            
            Feng
                Gao
            
            5%
                Security Holder
            
            30,338,05034
            
            79.9%Common
                Stock
            
            Total
                Shares Owned by Persons Named above
            
            
            
            30,338,050
            
            79.9%


*
      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.




37


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 26, 2008. 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
      11,258,600 shares of common stock owned by Lifang Chen, Mr. Gao’s wife and our
      Chairman.




***Changes
      in Control*** **




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




**ITEM 13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTION
                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. For additional information about the transactions,
      see Note 7, “Related Parties” to the consolidated financial statements included
      elsewhere in this annual report.





·
            We
                paid off a note payable to Shanghai Huaye, which is 100% owned by
                our CEO
                Ms. Lifang Chen and her husband Feng Gao, in the amount of $2.33
                million in August 2007.





·
            We
                sell our products to and buy raw materials from various companies
                which
                are owned or controlled by our principal shareholders. The amounts
                charged
                for products to our Company by such related party are under the same
                pricing, terms and conditions as those charged to third parties,
                and are
                due upon receipt.





·
            On
                December 12, 2007, we entered into a purchase agreement with our
                CEO and
                Chairperson Ms. Lifang Chen and certain accredited investors, pursuant
                to
                which on December 14, 2007, Ms. Chen sold to certain accredited investors
                2,000,000 shares of our common stock owned by her at a price of $4.25
                per
                share for a purchase price of $8.5 million. The shares sold by Ms.
                Chen to
                these accredited investors are restricted securities and were originally
                acquired by Ms. Chen in connection with the reverse acquisition of
                Sutor
                BVI that was closed on February 1, 2007. Under the purchase agreement,
                we
                were obligated to register the shares sold by Ms. Chen within a
                pre-defined period. Ms. Chen was obligated under the agreement to
                bear all
                costs related to the registration of the shares. We fulfilled our
                obligation by filing the required registration statement in January
                2008.





·
            On
                December 20, 2007, Ms. Chen loaned our Company $7.1 million. The
                loan is
                for a period of 24 months and carries an interest rate of 5%
                .




·
            Some
                of our notes payables are guaranteed by Shanghai Huaye and its affiliates.
                Please see Note 6 to our financial
                statements.




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.





***Promoters
      and Certain Control Persons***





We
      did
      not have any promoters at any time during the past five fiscal years.




38


***Director
      Independence***





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





**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES.**




The
      following is a summary of the fees billed to the Company by Hansen Barnett
&
Maxwell, P.C.


for
      professional services rendered for the fiscal years ended June 30, 2008 and
      2007:





(in
      thousands of U.S. dollars)


**June 30,**
                **2008**
              
              **June 30,**
                **2007**Audit
                  fees(1)
              
              $
              202.04
              
              $
              204.40Audit-related
                  fees(2)
              
              
              32.65
              
              
              12.09Tax
                  fees
              
              
              -
              
              
              -All
                  other fees
              
              
              -
              
              
              -Total
              
              
              234.69
              
              
              216.49





(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, 2008.




**PART
      IV**




**ITEM
              15.**
            **EXHIBITS,
                FINANCIAL STATEMENTS
                SCHEDULES.**




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




1)
              Financial
                  Statement are set forth beginning on page F-1 of the
                  Report
 
 ·
              Report
                  of Independent Registered Public Accounting Firm
              F –
                  2·
              Consolidated
                  Balance Sheets
              F
–
                  3·
              Consolidated
                  Statement of Operations and Comprehensive Income
              F
–
                  4·
              Consolidated
                  Statement of Stockholders’ Equity
              F
–
                  5·
              Consolidated
                  Statement of Cash Flows
              F
–
                  6·
              Notes
                  to Consolidated Statements
              F
–
                  7
  39
 2)
              Financial
                  Statement Schedules: All Schedules are omitted because the information
                  called for is not applicable, is not required, or because the financial
                  information is set forth in the financial statements or notes
                  thereto.
 
 3)
              Exhibits:
                  See the Exhibits immediately following the signature page of this
                  Annual
                  Report on Form 10-K.




40





**SIGNATURES**




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




**SUTOR
                TECHNOLOGY GROUP LIMITED**By:
            /s/
                Lifang ChenLifang
                ChenChief
                Executive OfficerDate:
                September 26, 2008




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




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




**Signature**
            
            **Capacity**
            
            **Date**/s/
Lifang
                Chen
            
            Chief
                Executive Officer (Principal Executive
            
            September
                26, 2008Lifang
                Chen
            
            Officer)/s/
Yongfei
                Jiang
            
            Chief
                Financial Officer and director (Principal
            
            September
                26, 2008Yongfei
                Jiang
            
            Financial
                Officer and Principal Accounting Officer)/s/
Carl
                MuddCarl
                Mudd
            
            Director
            
            September
                26, 2008/s/
Guoyou
                ShaoGuoyou
                Shao
            
            Director
            
            September
                26, 2008/s/
Xinchuang
                LiXinchuang
                Li
            
            Director
            
            September
                26, 2008







**EXHIBITS**




Exhibit No.
            
            **Description**2.1
            
            Share
                Exchange Agreement, dated September 3, 2007, among BTHC III, Inc.,
                Sutor
                Steel Technology Co., Ltd. and its stockholders. [Incorporated by
                reference to Exhibit 10.1 to the registrant’s current report on Form 8-K
                filed on November 8, 2007]2.2
            
            Amendment
                No. 1 to Share Exchange Agreement, dated February 1, 2007, among
                the
                registrant, Sutor Steel Technology Co., Ltd. and its stockholders.
                [Incorporated by reference to Exhibit 2.2 to the registrant’s current
                report on Form 8-K filed on February 2, 2007]3.1
            
            Articles
                of Incorporation of the registrant as filed with the Secretary of
                State of
                Nevada, as amended to date. [Incorporated by reference to Exhibit
                3.1 to
                the registrant’s quarterly report on Form 10Q-SB filed on November 3,
                2007, in commission file number 333-83351]3.2
            
            Amended
                and Restated Bylaws of the registrant. [Incorporated by reference
                to
                Exhibit 3.2 to the registrant’s registration statement on Form SB-2 filed
                on July 21, 1999, in commission file number 333-83351].4.1
            
            Certificate
                of Designation of Series B Voting Convertible Preferred Stock.
                [Incorporated by reference to Exhibit 4.1 to the registrant’s current
                report on Form 8-K filed on February 2, 2007]4.2
            
            Form
                of Registration Rights Agreement, dated February 1, 2007. [Incorporated
                by
                reference to Exhibit 4.2 to the registrant’s current report on Form 8-K
                filed on February 2, 2007]10.1
            
            Assignment
                Agreement, dated November 7, 2007, by and among the registrant, BTHC
                III,
                Inc., Sutor Steel Technology Co., Ltd. and its stockholders. [Incorporated
                by reference to Exhibit 10.2 to the registrant’s current report on Form
                8-K filed on November 8, 2007]10.2
            
            Form
                of the Securities Purchase Agreement, dated February 1, 2007.
                [Incorporated by reference to Exhibit 10.2 to the registrant’s current
                report on Form 8-K filed on February 2, 2007]10.3
            
            Make
                Good Escrow Agreement, dated February 1, 2007, by and among the
                registrant, Roth Capital Partners, LLC, Ms. Lifang Chen and Wells
                Fargo
                Bank, National Association. [Incorporated by reference to Exhibit
                10.3 to
                the registrant’s current report on Form 8-K filed on February 2, 2007]10.4
            
            Closing
                Escrow Agreement, dated January 25, 2007, by and among the registrant,
                Roth Capital Partners, LLC and Thelen Reid Brown Raysman & Steiner
                LLP. [Incorporated by reference to Exhibit 10.4 to the registrant’s
                current report on Form 8-K filed on February 2, 2007]10.5
            
            Equity
                Transfer Agreement, dated August 18, 2007, 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, 2007, 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, 2007, 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, 2007, 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, 2007, 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, 2007, 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, 2007, 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, 2007, 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, 2007, 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. [Incorporated by reference
                to
                Exhibit 10.18 to the registrant’s Amendment No. 1 to registration
                statement on Form S-1 filed on June 4, 2007]10.19
            
            Employment
                Agreement, dated July 10, 2007, by and between Sutor Steel Technology
                Co.,
                Ltd. and Liuhua Guo. [Incorporated by reference to Exhibit 10.21
                to the
                registrant’s registration statement on Form S-1 filed on July 13, 2007]10.20
            
            Employment
                Agreement, dated July 10, 2007, by and between Sutor Steel Technology
                Co.,
                Ltd. and Xun Zhang. [Incorporated by reference to Exhibit 10.22 to
                the
                registrant’s registration statement on Form S-1 filed on July 13, 2007]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 annual
                report).31.1*
            
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2*
            
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1*
            
            Certification
                of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                200232.2*
            
            Certifications
                Principal Financial Officer furnished pursuant to 18 U.S.C. Section
                1350,
                as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002




* Filed
      herewith


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, 2008 and 2007
            
            F-3Consolidated
                Statements of Operations and Comprehensive Income for the Years Ended
                June
                30, 2008, 2007 and 2006
            
            F-4Consolidated
                Statements of Stockholders’ Equity for the Years Ended June 30, 2006, 2007
                and 2008
            
            F-5Consolidated
                Statements of Cash Flows for the Years Ended June 30, 2008, 2007
                and
                2006
            
            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**
              
              
              **A
                Member of the Forum of
                Firms**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and the Stockholders


Sutor
      Technology Group Limited





We
      have
      audited the accompanying consolidated balance sheets of Sutor Technology Group
      Limited and subsidiaries as of June 30, 2008 and 2007, 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,
      2008. These financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





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




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Sutor Technology Group
      Limited and subsidiaries as of June 30, 2008 and 2007 and the results of their
      operations and their cash flows for each of the three years in the period ended
      June 30, 2008, in conformity with accounting principles generally accepted
      in
      the United States of America.





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





Salt
      Lake
      City, Utah


September
      19, 2008


F-2


**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**June 30,**
            
            **June 30,****2008**
            
            **2007****ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            11,806,101
            
            $
            8,832,942Restricted
                cash
            
            
            59,489,508
            
            
            27,799,475Trade
                accounts receivable, net of allowance for doubtful accounts of $70,653
                and
                $2,947, respectively
            
            
            6,268,858
            
            
            14,768,954Other
                receivables
            
            
            100,271
            
            
            44,226Advances
                to suppliers, related parties
            
            
            76,118,544
            
            
            -Advances
                to suppliers, net of allowance of $1,472,828 and $499,842, respectively
            
            
            28,035,815
            
            
            32,791,928Inventory
            
            
            51,315,521
            
            
            22,703,304Notes
                receivable
            
            
            130,970
            
            
            203,546Deferred
                taxes
            
            
            288,976
            
            
            -**Total
                Current Assets**
            
            
            233,554,564
            
            
            107,144,375**Property
                and Equipment,**net
                of accumulated depreciation of $12,019,445 and $6,726,756, respectively
            
            
            59,736,612
            
            
            47,571,353**Intangible
                Assets,**net
                of accumulated amortization of $285,888 and $188,132, respectively
            
            
            3,238,931
            
            
            2,988,589**TOTAL
                ASSETS**
            
            $
            296,530,107
            
            $
            157,704,317**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities:**Accounts
                payable
            
            $
            6,003,898
            
            $
            3,916,596Advances
                from customers
            
            
            16,871,618
            
            
            8,414,629Other
                payables and accrued expenses
            
            
            3,265,860
            
            
            2,707,473Short-term
                notes payable
            
            
            130,504,380
            
            
            50,954,916Short-term
                notes payable - related parties
            
            
            -
            
            
            2,325,802**Total
                Current Liabilities**
            
            
            156,645,756
            
            
            68,319,416**Long-Term
                Notes Payable - Principal Shareholder**
            
            
            7,099,998
            
            
            -**Total
                Liabilites**
            
            
            163,745,754
            
            
            68,319,416**Minority
                Interest in Net Assets of Subsidiary**
            
            
            34,697
            
            
            32,812**Stockholders'
                Equity**Undesignated
                preferred stock - $0.001 par value; 1,000,000 shares authorized;
                no shares
                outstanding
            
            
            -
            
            
            -Common
                stock - $0.001 par value; 500,000,000 shares authorized; 37,955,602
                shares
                outstanding
            
            
            37,955
            
            
            37,955Additional
                paid-in capital
            
            
            37,170,164
            
            
            37,170,164Statutory
                reserves
            
            
            12,586,995
            
            
            7,748,269Retained
                earnings
            
            
            65,772,975
            
            
            39,475,731Accumulated
                other comprehensive income
            
            
            17,181,567
            
            
            4,919,970**Total
                Stockholders' Equity**
            
            
            132,749,656
            
            
            89,352,089**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            296,530,107
            
            $
            157,704,317





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,****2008**
            
            **2007**
            
            **2006****Revenue:**Revenue
            
            $
            237,494,371
            
            $
            147,466,726
            
            $
            45,941,894Revenue
                from related parties
            
            
            180,535,469
            
            
            155,972,011
            
            
            144,652,445418,029,840
            
            
            303,438,737
            
            
            190,594,339**Cost
                of Revenue**Other
                cost of revenue
            
            
            266,149,352
            
            
            115,285,842
            
            
            57,220,341Purchases
                from related parties
            
            
            106,960,453
            
            
            157,615,325
            
            
            117,436,244373,109,805
            
            
            272,901,167
            
            
            174,656,585**Gross
                Profit**
            
            
            44,920,035
            
            
            30,537,570
            
            
            15,937,754**Operating
                Expenses:**Selling
                expense
            
            
            2,237,957
            
            
            2,319,728
            
            
            1,894,452General
                and administrative expense
            
            
            3,749,453
            
            
            4,735,973
            
            
            1,254,613**Total
                Operating Expenses**
            
            
            5,987,410
            
            
            7,055,701
            
            
            3,149,065**Income
                from Operations**
            
            
            38,932,625
            
            
            23,481,869
            
            
            12,788,689**Other
                Income (Expense):**Interest
                income
            
            
            943,466
            
            
            566,469
            
            
            467,443Other
                income
            
            
            188,273
            
            
            298,488
            
            
            185,664Interest
                expense
            
            
            (6,253,098
            )
            
            (2,258,425
            )
            
            (923,673
            )Other
                expense
            
            
            (756,943
            )
            
            (874,651
            )
            
            (155,497
            )**Total
                Other Income (Expense)**
            
            
            (5,878,302
            )
            
            (2,268,119
            )
            
            (426,063
            )**Income
                Before Taxes and Minority Interest**
            
            
            33,054,323
            
            
            21,213,750
            
            
            12,362,626Provision
                for income taxes
            
            
            (1,916,468
            )
            
            (696,754
            )
            
            (858,940
            )Minority
                interest in loss of consolidated subsidiary
            
            
            (1,885
            )
            
            3,395
            
            
            24,514**Net
                Income**
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200**Basic
                and Diluted Earnings per Common Share**
            
            $
            0.82
            
            $
            0.59
            
            $
            0.39**Net
                Income**
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Foreign
                currency translation adjustment
            
            
            12,261,597
            
            
            3,488,320
            
            
            1,440,146**Comprehensive
                Income**
            
            $
            43,397,567
            
            $
            24,008,711
            
            $
            12,968,346




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


F-4




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**


**FOR
        THE YEARS ENDED JUNE 30, 2006, 2007 AND 2008**


**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, 2005**
            
            
            -
            
            $
            -
            
            
            279,415.53
            
            $
            22,586,429
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            3,163,599
            
            $
            12,011,810
            
            $
            (8,496
            )
            $
            37,753,342Issuance
                for cash, December
            
            
            -
            
            
            -
            
            
            24,767.20
            
            
            1,999,668
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,999,668Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,501,290
            
            
            9,026,910
            
            
            -
            
            
            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
            
            
            21,038,720
            
            
            1,431,650
            
            
            52,721,356Issuance
                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
            
            
            39,475,731
            
            
            4,919,970
            
            
            89,352,089Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,838,726
            
            
            26,297,244
            
            
            -
            
            
            31,135,970Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            12,261,597
            
            
            12,261,597**Balance,
                June 30, 2008**
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            37,955,602
            
            $
            37,955
            
            $
            37,170,164
            
            $
            12,586,995
            
            $
            65,772,975
            
            $
            17,181,567
            
            $
            132,749,656





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,****2008**
            
            **2007**
            
            **2006****Cash
                Flows from Operating Activities:**Net
                income
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activitiesDepreciation
                and amortization
            
            
            4,384,418
            
            
            2,708,805
            
            
            1,836,727Minority
                interest in loss of consolidated subsidiary
            
            
            1,885
            
            
            (3,395
            )
            
            (24,514
            )Deferred
                income taxes
            
            
            (272,375
            )
            
            -
            
            
            -Stock
                based compensation
            
            
            -
            
            
            528,077
            
            
            -Gain
                on sale of property and equipment
            
            
            (2,844
            )
            
            -
            
            
            -Changes
                in current assets and liabilities:Trade
                accounts receivable, net
            
            
            9,537,171
            
            
            (13,596,643
            )
            
            (694,786
            )Other
                receivables, net
            
            
            (48,258
            )
            
            (41,539
            )
            
            62,895Advances
                to suppliers
            
            
            7,869,743
            
            
            (20,747,998
            )
            
            355,095Inventories
            
            
            (24,623,639
            )
            
            (9,075,799
            )
            
            4,236,357Accounts
                payable
            
            
            1,562,872
            
            
            395,630
            
            
            (5,429,417
            )Advances
                from customers
            
            
            7,102,064
            
            
            490,208
            
            
            7,140,491Other
                payables and accrued expenses
            
            
            257,455
            
            
            802,466
            
            
            856,622Related
                party receivables or payables
            
            
            (71,873,877
            )
            
            (10,536,690
            )
            
            10,625,951**Net
                Cash Provided by (Used in) Operating Activities**
            
            
            (34,969,415
            )
            
            (28,556,487
            )
            
            30,493,621**Cash
                Flows from Investing Activities:**Changes
                in notes receivable
            
            
            89,430
            
            
            (126,402
            )
            
            (69,593
            )Purchase
                of property and equipment, net of value added tax refunds received
            
            
            (10,872,302
            )
            
            (8,850,305
            )
            
            (18,963,778
            )Proceeds
                from sale of property and equipment
            
            
            10,369
            
            
            -
            
            
            -Purchase
                of land use rights
            
            
            -
            
            
            (198,301
            )
            
            167,530Net
                change in restricted cash
            
            
            (26,998,292
            )
            
            5,607,772
            
            
            (9,573,358
            )**Net
                Cash Used in Investing Activities**
            
            
            (37,770,795
            )
            
            (3,567,236
            )
            
            (28,439,199
            )**Cash
                Flows from Financing Activities:**Proceeds
                from issuance of notes payable
            
            
            161,549,825
            
            
            136,558,731
            
            
            22,210,230Payments
                on notes payable
            
            
            (91,833,084
            )
            
            (112,004,593
            )
            
            (15,037,160
            )Proceeds
                from issuance of Series B preferred stock
            
            
            -
            
            
            33,130,712
            
            
            1,999,668Proceeds
                from issuance of notes payable - principal shareholder
            
            
            7,099,998
            
            
            -
            
            
            -Payments
                on notes payable - related parties
            
            
            (2,244,164
            )
            
            -
            
            
            -Payments
                on long-term debt
            
            
            -
            
            
            (2,554,598
            )
            
            (6,187,169
            )Capital
                distribution to shareholders
            
            
            -
            
            
            (21,036,767
            )
            
            -**Net
                Cash Provided by Financing Activities**
            
            
            74,572,575
            
            
            34,093,485
            
            
            2,985,569**Effect
                of Exchange Rate Changes on Cash**
            
            
            1,140,794
            
            
            328,687
            
            
            (63,894
            )Net
                Change in Cash
            
            
            2,973,159
            
            
            2,298,449
            
            
            4,976,097Cash
                and Cash Equivalents at Beginning of Year
            
            
            8,832,942
            
            
            6,534,493
            
            
            1,558,396**Cash
                and Cash Equivalents at End of Year**
            
            $
            11,806,101
            
            $
            8,832,942
            
            $
            6,534,493**Supplemental
                Cash Flow Information**Cash
                paid during the period for interest
            
            $
            5,952,002
            
            $
            2,258,425
            
            $
            923,673Cash
                paid during the period for taxes
            
            $
            3,746,316
            
            $
            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. For the year ended June 30, 2008, approximately 93.8% of Changshu
      Huaye revenue is derived from sales within the PRC of steel products. A
      significant portion of the purchases and revenues of Changshu Huaye consist
      of
      transactions between Shanghai Huaye, which is owned by the Principal
      Stockholders, and its subsidiaries.





The
      operations of Jiangsu Cold-Rolled are also located in the PRC. Jiangsu
      Cold-Rolled operates several production lines that refines products such as
      cold-rolled steel and acid pickled steel through the use of various
      high-technology machines. For the year ended June 30, 2008 all of Jiangsu
      Cold-Rolled revenue is derived from sales of steel products within the PRC.





**NOTE
      2 - SIGNIFICANT ACCOUNTING POLICIES**





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





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





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




F-8




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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





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





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





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




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





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





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





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





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




F-9




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





***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 $28,035,815 and $32,791,928 at June
      30,
      2008 and 2007, respectively. The Company also had advances from its customers
      in
      the amount of $16,871,618 and $8,414,629 at June 30, 2008 and 2007,
      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
      $492,804, $315,821 and $114,211 for the years ended June 30, 2008, 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:




F-10




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**For
                the Years Ended June 30,****2008**
            
            **2007**
            
            **2006**Net
                income
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Weighted-average
                common shares outstanding
            
            
            37,955,602
            
            
            4,181,750
            
            
            -Effect
                of participating convertible Series B Preferred Stock
            
            
            -
            
            
            30,418,273
            
            
            29,373,303Weighted-Average
                Basic and Dilutive Common Shares Outstanding
            
            
            37,955,602
            
            
            34,600,023
            
            
            29,373,303**Basic
                and Diluted Earnings per Common Share**
            
            $
            0.82
            
            $
            0.59
            
            $
            0.39





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





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




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





In
      March
      2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
      and Hedging Activities"(“SFAS 161”), an amendment of SFAS No. 133. SFAS 161
      applies to all derivative instruments and non-derivative instruments that are
      designated and qualify as hedging instruments pursuant to paragraphs 37 and
      42
      of SFAS 133 and related hedged items accounted for under SFAS 133. SFAS 161
      requires entities to provide greater transparency through additional disclosures
      about how and why an entity uses derivative instruments, how derivative
      instruments and related hedged items are accounted for under SFAS 133 and its
      related interpretations, and how derivative instruments and related hedged
      items
      affect an entity's financial position, results of operations, and cash flows.
      SFAS 161 is effective as of the beginning of an entity's first fiscal year
      that
      begins after November 15, 2008. The Company does not expect SFAS 161 to have
      a
      material impact on its results of operations or financial position.




F-11




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” SFAS 162 will provide framework for selecting accounting
      principles to be used in preparing financial statements that are presented
      in
      conformity with U.S. generally accepted accounting principles (GAAP) for
      nongovernmental entities. SFAS 162 will be effective 60 days following the
      Securities and Exchange Commission’s approval of the Public Company Accounting
      Oversight Board (PCAOB) amendments to AU Section 411. The Company does not
      expect the adoption of SFAS 162 will have a material impact on its financial
      condition or results of operation.





**NOTE
      3 – INVENTORY**





Inventory
      consisted of the following:





**June
                30,****2008**
            
            **2007**Raw
                materials
            
            $
            32,840,857
            
            $
            9,719,288Finished
                goods
            
            
            18,474,664
            
            
            12,984,016Total
                Inventory
            
            $
            51,315,521
            
            $
            22,703,304





**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 further discussion regarding
      the investment tax credit, see Note 8.





Property
      and equipment consisted of the following:





**June
                30,****2008**
            
            **2007**Buildings
                and plant
            
            $
            17,525,800
            
            $
            15,713,151Machinery
            
            
            40,119,643
            
            
            36,575,299Office
                and other equipment
            
            
            789,968
            
            
            609,633Vehicles
            
            
            217,883
            
            
            143,600Construction
                in process
            
            
            13,102,763
            
            
            1,256,426Total
            
            
            71,756,057
            
            
            54,298,109Less
                accumulated depreciation
            
            
            (12,019,445
            )
            
            (6,726,756
            )Net
                property, plant and equipment
            
            $
            59,736,612
            
            $
            47,571,353




F-12




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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, 2008, 2007 and 2006 was $4,311,708,
      $2,653,422 and $1,777,788, 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, 2008, 2007, and 2006 was $72,710, $55,383 and $58,939,
      respectively. Intangible information by segment is presented below:





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





**As of June 30, 2007**
            
            **Steel Coating**
              **and Plating**
            
            **Cold Rolled**
              **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





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





**Estimated
                Amortization Expense**For
                the year ending June 30, 2009
            
            $
            72,710For
                the year ending June 30, 2010
            
            
            72,710For
                the year ending June 30, 2011
            
            
            72,710For
                the year ending June 30, 2012
            
            
            72,710For
                the year ending June 30, 2013
            
            
            72,710




F-13




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      6 - NOTES PAYABLE**





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





Short-term
      notes were comprised of the following:





**Maturity**
              **Date**
            
            **June
                30,**
              **2008**
            
            **June
                30,**
              **2007**Short-term
                notes payable, no interest rate, secured by cash deposits, guaranteed
                by
                related parties
            
            
            12/27/2008
            
            $
            65,455,921
            
            $
            24,724,719Note
                payable at 6.39% interest, secured by inventory
            
            
            matured
            
            
            -
            
            
            5,246,039Note
                payable at 6.84% interest, guaranteed by related party
            
            
            8/7/2008
            
            
            2,910,446
            
            
            -Note
              payable at 7.52% interest, guaranteed by related party
            
            
            8/3/2008
            
            
            2,910,446
            
            
            -Note
                payable at 6.57% interest, secured by property
            
            
            9/19/2008
            
            
            1,746,267
            
            
            -Note
                payable at 6.57% interest, secured by property
            
            
            10/13/2008
            
            
            3,347,012
            
            
            -Note
                payable at 6.57% interest, secured by related party
            
            
            9/3/2008
            
            
            11,787,305
            
            
            -Note
                payable at 8.22% interest, secured by inventory
            
            
            5/20/2009
            
            
            5,820,891
            
            
            -Note
                payable at 6.90% interest, secured by inventory
            
            
            9/10/2008
            
            
            1,746,267
            
            
            -Note
                payable at 6.57% interest, secured by related party
            
            
            11/25/2008
            
            
            2,910,446
            
            
            -Note
                payable at 6.57% interest, secured by related party
            
            
            8/17/2008
            
            
            1,891,790
            
            
            -Note
                payable at 6.57% interest, secured by related party
            
            
            12/5/2008
            
            
            18,917,896
            
            
            -Note
                payable at 6.90% interest, secured by property
            
            
            12/28/2008
            
            
            11,059,693
            
            
            -Note
                payable at 6.12% interest, secured by inventory
            
            
            matured
            
            
            -
            
            
            1,311,510Note
                payable at 6.39% interest, secured by inventory
            
            
            matured
            
            
            -
            
            
            2,623,020Note
                payable at 6.23% interest, guaranteed by related party
            
            
            matured
            
            
            -
            
            
            3,672,227Note
                payable at 7.25% interest, guaranteed by related party
            
            
            matured
            
            
            -
            
            
            1,573,812Note
                payable at 5.58% interest, secured by inventory
            
            
            matured
            
            
            -
            
            
            2,623,020Note
                payable at 6.25% interest, guaranteed by related party
            
            
            matured
            
            
            -
            
            
            2,623,020Note
                payable at 5.75% interest, guaranteed by related party
            
            
            matured
            
            
            -
            
            
            6,557,549Total
                Short-Term Notes Payable
            
            
            
            
            $
            130,504,380
            
            $
            50,954,916Notes
                payable to related parties no interest rate, secured by cash
                deposits
            
            
            matured
            
            $
            -
            
            $
            2,325,802$
            -
            
            $
            2,325,802





Long-term
      notes were comprised of the following:





**Maturity**
              **Date**
            
            **June
                30,**
              **2008**
            
            **June
                30,**
              **2007**Long-term
                notes payable to principal shareholder at 5.00% interest, unsecured
                - See
                Note 7
            
            
            12/20/2009
            
            $
            7,099,998
            
            $
            -Total
                long-term debt
            
            
            
            
            $
            7,099,998
            
            $
            -




F-14




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 - RELATED PARTIES**





The
      Company sells it products to and buys raw materials from various companies
      which
      are owned or controlled by the Principal Shareholders. These other companies
      are
      composed of 20 sister companies with which the Company conducts significant
      transactions. Revenues related to these transactions are shown separately in
      the
      accompanying consolidated statements of operations. For the years ended June
      30,
      2008, 2007, and 2006, costs of revenue include purchases from these related
      parties of $106,960,453, $157,615,325 and $117,436,244, respectively.





The
      amounts due to related parties are non-interest bearing and were incurred in
      the
      normal course of business. Receivables from, advances to suppliers, sales to,
      payables from advanced sales deposits, and payables from purchases from related
      parties have been netted due to the right of offset. At June 30, 2008 and 2007,
      the net amounts due from and (due to) related parties were $76,118,544 and
      $(2,325,802), respectively. The amounts charged for products to the Company
      by
      the related parties are under the same pricing, terms and conditions as those
      charged to third parties, and are due upon receipt. Amounts receivable from
      related parties are also due upon delivery. Advances to suppliers to related
      parties are relieved once the goods are received.





On
      December 20, 2007, Ms. Chen loaned the Company $7.1 million. The loan is for
      a
      period of 24 months, carries an interest rate of 5% and is included in the
      accompanying balance sheet at June 30, 2008 under the caption “long term notes
      payable – principal shareholder.”





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





**NOTE
      8 - INCOME TAXES**





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





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





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




F-15




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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





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





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





**June 30,****2008**
            
            **2007**Value
                added tax
            
            $
            339,849
            
            $
            698,619Income
                tax
            
            
            1,035,182
            
            
            904,377Surtax,
                insurance, other
            
            
            115,046
            
            
            81,345Total
                Taxes
            
            $
            1,490,077
            
            $
            1,684,341





Due
      to
      the change in tax rate during the fiscal year, the statutory tax rate for June
      30, 2008 is a blended rate of approximately 30%, which was calculated as 33%
      during the six months ended December 31, 2007 and 25% during the six months
      ended June 30, 2008. For the years ended June 30, 2007 and 2006 the statutory
      rate was 33%.





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




**For the Years Ended June 30,**2008
            
            2007
            
            2006Income
                tax calculated at statutory rates
            
            $
            10,003,860
            
            $
            7,000,538
            
            $
            4,079,667Investment
                tax credit
            
            
            (1,385,711
            )
            
            (
                1,889,992
            )
            
            -Benefit
                of favorable rates
            
            
            (1,640,703
            )
            
            (
                1,886,627
            )
            
            (1,132,418
            )Benefit
                of tax holiday
            
            
            (5,008,137
            )
            
            (
                2,615,685
            )
            
            (2,160,841
            )Tax
                effect of change in tax rates
            
            
            165,585
            
            
            -
            
            
            -Tax
                effect of parent and sewer losses
            
            
            (218,426
            )
            
            88,520
            
            
            72,532Provision
                for income taxes
            
            $
            1,916,468
            
            $
            696,754
            
            $
            858,940




F-16





**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Deferred
      taxes are comprised of the following:




**June 30,****2008**
            
            **2007**Allowance
                for doubtful trade receivables
            
            $
            16,105
            
            $
            -Allowance
                for doubtful advances to suppliers
            
            
            272,871
            
            
            -Total
                deferred income tax assets
            
            
            288,976
            
            
            -Valuation
                allowance
            
            
            -
            
            
            -Net
                deferred income tax asset
            
            $
            288,976
            
            $
            -





The
      provision for income taxes is comprised of the following:




**For the Years Ended June 30,**2008
            
            2007
            
            2006Current
            
            $
            2,205,444
            
            $
            696,754
            
            $
            858,940Deferred
            
            
            (288,976
            )
            
            -
            
            
            -Provision
                for (benefit from) income taxes
            
            $
            1,916,468
            
            $
            696,754
            
            $
            858,940





If
      the
      Company had not been granted a “tax holiday” during the years ended June 30,
      2008, 2007, and 2006, the provision for income taxes would have been $6,924,605,
      $3,312,439, and $3,019,781, respectively. Net income after income tax for the
      years ended June 30, 2008, 2007, and 2006 would have been $26,127,833,
      $17,904,706 and $9,367,359, respectively. Basic and diluted earnings per common
      share for the years ended June 30, 2008, 2007, and 2006 diluted earnings per
      common share would have been $0.69, $0.52 and $0.32, 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.




F-17




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





***Commitment
      under Make Good Agreement*** - On
      February 1, 2007, the Company issued 39,473.56 shares of Series B Preferred
      Stock in a private placement offering for $10,570,762 of cash, net of $720,000
      of commissions and other costs of $709,238. In connection with the private
      placement offering, a Principal Shareholder delivered 39,473.68 shares of Series
      B voting convertible preferred stock into an escrow pursuant to the terms of
      a
      Make Good Agreement. Upon conversion, as described below, the Series B Preferred
      Stock held in the escrow was exchanged for 3,947,368 shares of common stock.
      Under the terms of the Make Good Agreement, the escrow agent 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. On December 7, 2007, the escrow agent
      returned 1,973,684 shares to the Principal Shareholder because the contingent
      issuance related to June 30, 2007 was not fulfilled as the Company achieved
      the
      net income requirement of the agreement for that period. The remaining shares
      will be delivered to the principal shareholders after verification by the escrow
      agent.





**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.





***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.




F-18


**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





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





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





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





On
      February 1, 2007, the Company issued 39,473.56 shares of Series B Preferred
      Stock in a private placement offering for $10,570,762 of cash, net of $720,000
      of commissions and other costs of $709,238. 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
      Treatment Co., Ltd. has been included with Changshu Huaye as its operations
      are
      insignificant and do not meet any of the quantitative thresholds for discrete
      presentation.




F-19


**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





***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:





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





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





**At
                June 30, 2006 and for the year then ended**
            
            Changshu Huaye
            
            Jiangsu Cold-
              Rolled
            
            Inter-Segment and
              Reconciling Items
            
            TotalRevenue
            
            $
            190,594,339
            
            $
            -
            
            $
            -
            
            $
            190,594,339Total
                operating expenses
            
            
            2,937,183
            
            
            211,882
            
            
            -
            
            
            3,149,065Interest
                revenue
            
            
            467,443
            
            
            -
            
            
            -
            
            
            467,443Interest
                expense
            
            
            920,005
            
            
            3,668
            
            
            -
            
            
            923,673Depreciation
                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





**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, 2008, 2007, and 2006:




F-20




**SUTOR
      TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Years Ended June 30,****Geographic
                Area**
            
            **2008**
            
            **2007**
            
            **2006**People's
                Republic of China
            
            $
            401,872,120
            
            $
            272,460,649
            
            $
            182,796,152Hong
                Kong
            
            
            470,456
            
            
            24,968,006
            
            
            7,422,731Other
                Countries
            
            
            15,687,264
            
            
            6,010,082
            
            
            375,456Total
            
            $
            418,029,840
            
            $
            303,438,737
            
            $
            190,594,339





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





The
      following tables are a summary of unaudited quarterly financial information
      for
      the years ended June 30, 2008, 2007 and 2006.





**Three Months Ended****September 30,**
            
            **December 31,**
            
            **March 31,**
            
            **June 30,****2007**
            
            **2007**
            
            **2008**
            
            **2008**Revenues
            
            $
            99,490,092
            
            $
            114,892,021
            
            $
            98,101,235
            
            $
            105,546,492Income
                from Operations
            
            
            8,320,903
            
            
            8,658,641
            
            
            10,179,585
            
            
            11,773,496Net
                Income
            
            
            6,619,990
            
            
            6,687,792
            
            
            7,792,258
            
            
            10,035,930Basic
                and Diluted Earnings Per Common Share
            
            
            0.17
            
            
            0.18
            
            
            0.21
            
            
            0
                .26




**Three Months Ended****September 30,**
            
            **December 31,**
            
            **March 31,**
            
            **June 30,****2006**
            
            **2006**
            
            **2007**
            
            **2007**Revenues
            
            $
            61,397,183
            
            $
            78,610,889
            
            $
            71,283,941
            
            $
            92,146,724Income
                from Operations
            
            
            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





**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





**NOTE
      14** – **SUBSEQUENT EVENTS**





Subsequent
      to June 30, 2008, the Company entered into a loan for $2,910,446 at an interest
      rate of 8.217% due August 14, 2009. The loan is guaranteed by a related party.
      The proceeds of this note were used to repay a matured note





**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 unconsolidated subsidiaries, which occurred on February 1, 2007, is recorded
      under the equity method of accounting as prescribed in APB opinion No. 18, *The
      Equity Method of Accounting for Investments in Common Stock* . Under
      PRC laws and regulations, there are restrictions on the Company’s ability to
      transfer substantially all of its assets out of the PRC, regardless of the
      form
      of such transfer (dividends, loans, advances) (See Note 9).




F-21


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


**SUTOR
      TECHNOLOGY GROUP LIMITED**


**CONDENSED
      BALANCE SHEETS**





**June
                30,****2008**
            
            **2007****ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            63,666
            
            $
            27,611**Total
                Current Assets**
            
            
            63,666
            
            
            27,611**Investment
                in unconsolidated subsidiaries**
            
            
            139,973,700
            
            
            89,504,471**TOTAL
                ASSETS**
            
            $
            140,037,366
            
            $
            89,532,082**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities:**Accrued
                liabilities
            
            $
            187,712
            
            $
            -Note
                payable - related party
            
            
            7,099,998
            
            
            179,993**Total
                Current Liabilities**
            
            
            7,287,710
            
            
            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; no shares outstanding
            
            
            -
            
            
            -Undesignated
                preferred stock - $0.001 par value; 315,000 shares authorized; no
                shares
                outstanding
            
            
            -
            
            
            -Common
                stock -$0.001 par value; 500,000,000 shares authorized; 37,955,602
                shares
                outstanding
            
            
            37,955
            
            
            37,955Additional
                paid-in capital
            
            
            37,170,164
            
            
            37,170,164Statutory
                reserves
            
            
            12,586,995
            
            
            7,748,269Retained
                earnings
            
            
            65,772,975
            
            
            39,475,731Accumulated
                other comprehensive income
            
            
            17,181,567
            
            
            4,919,970**Total
                Stockholders' Equity**
            
            
            132,749,656
            
            
            89,352,089**TOTAL
                LIABILITES AND STOCKHOLDERS' EQUITY**
            
            $
            140,037,366
            
            $
            89,532,082





F-22




**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,****2008**
            
            **2007**
            
            **2006****Loss
                from Operations**
            
            $
            (873,702
            )
            $
            (1,321,340
            )
            $
            -Equity
                in earnings of unconsolidated subsidiaries
            
            
            32,009,672
            
            
            21,841,731
            
            
            11,528,200**Net
                Income**
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200





**SUTOR
      TECHNOLOGY GROUP LIMITED**


**CONDENSED
      STATEMENTS OF CASHFLOWS**





**For
                the Years Ended June 30,****2008**
            
            **2007**
            
            **2006****Cash
                Flows from Operating Activities:**Net
                income
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Stock
                based compensation
            
            
            -
            
            
            528,077
            
            
            -Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activitites:Earnings
                of subsidiaries
            
            
            (32,009,672
            )
            
            (21,841,731
            )
            
            (11,528,200
            )Changes
                in current assets and liabilities:Other
                payables and accrued expenses
            
            
            187,712
            
            
            -
            
            
            -**Net
                Cash Used in Operating Activities**
            
            
            (685,990
            )
            
            (793,263
            )
            
            -**Cash
                Flows from Investing Activities**Investment
                in subsidiaries
            
            
            (6,377,953
            )
            
            (9,953,064
            )
            
            -**Net
                Cash Used in Investing Activities**
            
            
            (6,377,953
            )
            
            (9,953,064
            )
            
            -**Cash
                Flows from Financing Activities:**Proceeds
                from issuance of notes payable
            
            
            7,099,998
            
            
            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:**
            
            
            7,099,998
            
            
            10,773,938
            
            
            -Net
                increase in cash and cash equivalents
            
            
            36,055
            
            
            27,611
            
            
            -Cash
                at beginning of period
            
            
            27,611
            
            
            -
            
            
            -**Cash
                and Cash Equivalents at End of Period**
            
            $
            63,666
            
            $
            27,611
            
            $
            -





F-23