UNITED STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-K/A
 Amendment
No. 2
  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:
 
 Title
      of Each Class
                  
                  Name
      of Each Exchange on Which RegisteredCommon
      Stock, par value $0.0001
                  
                  NASDAQ
      Capital Market
 
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes   ̈ No  x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes   ̈ No  x
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
 Yes 
x No   ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
 Yes 
 ̈ No   ̈
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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 company 
      x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
 
 Yes 
 ̈ No  x
 
 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.
 
 Explanatory
Note
 
 This
Amendment No. 2 to the Annual Report on Form 10-K for the fiscal year ended June
30, 2008 of Sutor Technology Group Limited (the “ Company ”)
is being filed to (i) amend Item 1A by adding a risk factor related to our
business, (ii) amend the discussion under the section “Liquidity and Capital
Resources” in Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations, (iii) amend the disclosure in Item 9A –
Controls and Procedures, (iv) amend the disclosure under Item 11 – Executive
Compensation, (v) amend the disclosure under Item 13 – Certain Relationships and
Related Party Transactions and Director Independence, (vi) amending the
consolidated balance sheets, statements of cash flows and notes 1, 6 and 7 to
the financial statements, and (v) amending the exhibit index, all in response to
SEC comments.
  1
 
 PART
I
 
 ITEM
1A.        RISK FACTORS
 
 RISKS
RELATED TO OUR BUSINESS
 
 Our
level of indebtedness may make it more difficult for us to fulfill all of our
debt obligations and may reduce the amount of cash available for maintaining and
growing our operations, which could have an adverse effect on our
revenues.
 
 Our total
debt under existing loans to the Company as of June 30, 2008 was $163.75
million. This substantial indebtedness could impair our financial condition and
our ability to fulfill all of our debt obligations, especially during a downturn
in our business, in the industry in which we operate or in the general economy.
Our indebtedness and the incurrence of any new indebtedness could (i) make it
more difficult for us to satisfy our existing obligations, which could in turn
result in an event of default on such obligations, (ii) require us to seek other
sources of capital to finance cash used in operating activities, thereby
reducing the availability of cash for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes, (iii) impair our
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes; (iv) diminish our ability to withstand a downturn in our business, the
industry in which we operate or the economy generally, (v) limit our flexibility
in planning for, or reacting to, changes in our business and the industry in
which we operate, or (vi) place us at a competitive disadvantage compared to
competitors that have proportionately less debt. If we are unable to meet our
debt service obligations, we could be forced to restructure or refinance our
indebtedness, seek additional equity capital or sell assets. We may be unable to
obtain financing or sell assets on satisfactory terms, or at all, which could
cause us to default on our debt service obligations and be subject to
foreclosure on such loans. Additionally, we could incur additional indebtedness
in the future and, if new debt is added to our current debt levels, the risks
above could intensify.
 
 ITEM
7.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
 Liquidity
and Capital Resources
 
 Our major
sources of liquidity for the 2008 and 2007 financial years were borrowings
through short-term bank and private loans and the issuance of our capital stock.
For the years ended June 30, 2008 and 2007, our operating activities used
$34,969,414 and $28,556,487 of cash; therefore external sources of cash flows
have been required and will likely continue to be required. At June 30, 2008,
our total indebtedness under existing short-term loans was $129,192,870, our
short-term notes payable to related parties was $1,311,510, and our long-term
notes payable to related parties totaled $7,099,998.
 
 Short-term
bank and private loans are likely to continue to be our key sources of liquidity
for the foreseeable future, although in the future we may decide to raise
additional capital by issuing shares of our capital stock in an equity
financing.
 
 Our
liquidity and working capital may be affected by a material decrease in cash
flow due to factors such as the continued use of cash in operating activities
resulting from a decrease in sales due to the current global economic crisis,
increased competition, decreases in the availability, or increases in the cost,
of raw materials, unexpected equipment failures, or regulatory changes. Please
see section entitled “Risk Factors” for a
more complete description of risks affecting our business, liquidity, working
capital and financial results.
 
 A portion
of our operations is funded through short-term bank loans. As these loans become
due, we may repay them in full at maturity or elect to refinance them. We are
exposed to a variety of risks associated with short-term borrowings including
adverse fluctuations in fixed interest rates for short-term borrowings and
unfavorable increases in variable interest rates, potential inability to service
our short term indebtedness through cash flow from operations and the overall
reduction of credit in the current economic environment.
  Our
liquidity and working capital may also be affected by the substantial amount of
our outstanding short-term loans, which represent our primary source of
financing in China. Depending on the level of cash used in our operating
activities and the level of our indebtedness, (i) it may become more difficult
for us to satisfy our existing or future liabilities or obligations, which could
in turn result in an event of default on such obligations, (ii) we may have to
dedicate a substantial portion of our cash flows from borrowings to our
operating activities and to debt service payments, thereby reducing the
availability of cash for working capital and capital expenditures, acquisitions,
general corporate purposes or other purposes, (iii) our ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may become impaired,
(iv) our ability to withstand a downturn in our business, the industry in which
we operate or the economy generally may be diminished, (v) we may experience
limited flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate (vi)we may find ourselves at a competitive
disadvantage compared to competitors that have proportionately less debt. If we
are unable to meet our debt service obligations, we could be forced to
restructure or refinance our indebtedness, seek additional equity capital or
sell assets. We may be unable to obtain financing or sell assets on satisfactory
terms, or at all, which could cause us default on our debt service obligations
and be subject to foreclosure on such loans. Additionally, we could incur
additional indebtedness in the future and, if new debt is added to our current
debt levels, the risks above could intensify.
  2
 
 As some
of our loans become due, we may elect to refinance, rather than repay, the
indebtedness. However, there is no assurance that additional financing will
become available on terms acceptable to us. We believe that we will have the
ability to refinance our indebtedness when and if we elect to do so. While we
currently are not in a position to know the terms of such refinancing, we expect
to refinance our indebtedness at prevailing market rates and on prevailing
market terms.
 
 As of
June 30, 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
                    
                    
                    2007Net
      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
 
 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.
  3
 
 (All
amounts in million of U.S. dollars)
  Banks
                      
                      Amounts*
                      
                      Starting Date
                      
                      Maturity Date
                      
                      Guarantor**China
      Agriculture Bank Changshu Branch
                      
                      $
                      1.43
                      
                      February
      1, 2008
                      
                      August
      1, 2008
                      
                      NoneChina
      Industry and Commerce Bank Changshu Branch
                      
                      
                      2.91
                      
                      March
      10, 2008
                      
                      September
      9, 2008
                      
                      NoneChina
      Agriculture Bank Changshu Branch
                      
                      
                      1.46
                      
                      May
      20, 2008
                      
                      November
      20, 2008
                      
                      NoneChina
      Agriculture Bank Changshu Branch
                      
                      
                      0.73
                      
                      June
      27, 2008
                      
                      December
      27, 2008
                      
                      NoneBank
      of Jiangsu Xuzhou Branch
                      
                      
                      11.64
                      
                      January
      11, 2008
                      
                      July
      11, 2008
                      
                      Shanghai
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      0.29
                      
                      January
      24, 2008
                      
                      July
      24, 2008
                      
                      NoneChina
      Industry and Commerce Bank Changshu Branch
                      
                      
                      1.75
                      
                      February
      27, 2008
                      
                      August
      26, 2008
                      
                      NoneChina
      Industry and Commerce Bank Changshu Branch
                      
                      
                      2.18
                      
                      March
      20, 2008
                      
                      September
      19, 2008
                      
                      NoneChina
      Construction Bank Changshu Branch
                      
                      
                      8.73
                      
                      April
      2, 2008
                      
                      October
      2, 2008
                      
                      Shanghai
      HuayeChangshu
      Rural Commercial Bank
                      
                      
                      1.46
                      
                      April
      14, 2008
                      
                      October
      14, 2008
                      
                      NoneEver
      Growing Bank Nanjing Branch
                      
                      
                      7.28
                      
                      April
      17, 2008
                      
                      October
      17, 2008
                      
                      Shanghai
      HuayeEver
      Growing Bank Nanjing Branch
                      
                      
                      8.73
                      
                      April
      22, 2008
                      
                      October
      22, 2008
                      
                      Shanghai
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      1.02
                      
                      April
      30, 2008
                      
                      October
      30, 2008
                      
                      NoneChina
      Agriculture Bank Changshu Branch
                      
                      
                      4.37
                      
                      May
      26, 2008
                      
                      November
      26, 2008
                      
                      NoneChangshu
      Rural Commercial Bank
                      
                      
                      6.40
                      
                      May
      27, 2008
                      
                      November
      27, 2008
                      
                      Shanghai
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      0.73
                      
                      June
      5, 2008
                      
                      December
      5, 2008
                      
                      NoneChina
      Agriculture Bank Changshu Branch
                      
                      
                      4.37
                      
                      June
      10, 2008
                      
                      December
      10, 2008
                      
                      NoneChina
      Citic Bank Wuxi Branch
                      
                      
                      2.91
                      
                      August
      3, 2007
                      
                      August
      3, 2008
                      
                      Shanghai
      HuayeBank
      of Jiangsu Nantong Branch
                      
                      
                      2.91
                      
                      August
      8, 2007
                      
                      August
      7, 2008
                      
                      Shanghai
      HuayeBank
      of China Changshu Branch
                      
                      
                      1.75
                      
                      March
      12, 2008
                      
                      September
      10, 2008
                      
                      Shanghai
      HuayeChangshu
      Rural Commercial Bank
                      
                      
                      1.75
                      
                      March
      20, 2008
                      
                      September
      19, 2008
                      
                      NoneChangshu
      Rural Commercial Bank
                      
                      
                      0.73
                      
                      April
      14, 2008
                      
                      October
      13, 2008
                      
                      NoneChangshu
      Rural Commercial Bank
                      
                      
                      2.62
                      
                      April
      14, 2008
                      
                      October
      13, 2008
                      
                      NoneChina
      Industry and Commerce Bank Changshu Branch
                      
                      
                      1.46
                      
                      April
      7, 2008
                      
                      April
      6, 2009
                      
                      NoneChina
      Industry and Commerce Bank Changshu Branch
                      
                      
                      1.46
                      
                      April
      14, 2008
                      
                      April
      13, 2009
                      
                      NoneChina
      Industry and Commerce Bank Changshu Branch
                      
                      
                      1.46
                      
                      May
      21, 2008
                      
                      May
      20, 2009
                      
                      NoneBank
      of Communications Changshu Branch
                      
                      
                      2.91
                      
                      May
      30, 2008
                      
                      November
      25, 2008
                      
                      Shanghai
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      1.89
                      
                      February
      18, 2008
                      
                      August
      17, 2008
                      
                      NoneChina
      Agriculture Bank Changshu Branch
                      
                      
                      11.79
                      
                      March
      4, 2008
                      
                      September
      3, 2008
                      
                      Shanghai
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      2.91
                      
                      May
      16, 2008
                      
                      November
      15, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      4.37
                      
                      May
      19, 2008
                      
                      November
      18, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      4.37
                      
                      May
      22, 2008
                      
                      November
      21, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      2.91
                      
                      May
      30, 2008
                      
                      November
      29, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      4.37
                      
                      June
      6, 2008
                      
                      December
      5, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      9.60
                      
                      June
      18, 2008
                      
                      December
      17, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChina
      Agriculture Bank Changshu Branch
                      
                      
                      1.46
                      
                      June
      30, 2008
                      
                      December
      28, 2008
                      
                      Shanghai
      Huaye/
                        Changshu
      HuayeChen
      Lifang
                      
                      
                      1.31
                      
                      May
      15, 2008
                      
                      May
      15, 2009
                      
                      NoneChen
      Lifang
                      
                      
                      7.10
                      
                      December
      20, 2007
                      
                      December
      20, 2000
                      
                      NoneTotal
                      
                      $
                      137.60
 
 *Calculated
on the basis that $1 = RMB 6.87180
 **We do not pay any
consideration to Shanghai Huaye or its affiliated companies, which are
controlled by our CEO and her spouse, for the guarantees of our
loans.
 
 The loan
agreements with banks contain debt covenants that require the Company to
maintain certain inventory levels. The Company was in compliance with these debt
covenants at June 30, 2008.
  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 $129.2 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.
  4
  Critical
Accounting Policies
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported in the
financial statements, including the notes thereto, and related disclosures of
commitments and contingencies, if any. We consider our critical accounting
policies to be those that require the more significant judgments and estimates
in the preparation of financial statements, including the
following:
 
 ·
              Functional Currency and
      Translating Financial Statements - The 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.
 
 ·
              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:
  5
 
 For the Years Ended June 30,2008
                              
                              
                              2007
                              
                              
                              2006Net
      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
                              
                              
                              
                              29,373,303Basic
      and Diluted Earnings per Common Share
                              
                              $
                              0.82
                              
                              
                              $
                              0.59
                              
                              
                              $
                              0.39
 
 The
following table discloses the metrics by which we determine our allowance for
doubtful accounts in respect of our accounts receivable:
 
 Percentage
      of Account Receivable Included in Allowance
                      forTerm of Outstanding Accounts
      Receivable
                    
                    Doubtful Accounts1-30
      days
                    
                    
                    0.0
                    %31-90
      days
                    
                    
                    7.5
                    %91-180
      days
                    
                    
                    15.0
                    %181-360
      days
                    
                    
                    30.0
                    %1-2
      years
                    
                    
                    60.0
                    %Over
      2 years
                    
                    
                    100.0
                    %
 
 ITEM
9A.        CONTROLS AND
PROCEDURES.
  (a) Evaluation of Disclosure Controls and
Procedures
 
 Our
management, with the participation of our chief executive officer and chief
financial officer, Ms. Lifang Chen and Yongfei Jiang, respectively, evaluated
the effectiveness of our disclosure controls and procedures. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by
a company in the reports, such as this report, that it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, Ms. Chen and Mr. Jiang concluded that
because of the material weakness in internal control over financial reporting
described below, our disclosure controls and procedures were not effective as of
June 30, 2008.
 
 (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 financial 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 Organizations of the Treadway
Commission. Based on the evaluation, management concluded that our internal
control over financial reporting as of June 30, 2008 was not effective.
Management identified the following material weaknesses as of June 30,
2008:
  6
 
 ·
              The
      absence of a financial reporting manager or other specialist employed by
      the Company on a full-time basis who is experienced in application of U.S.
      GAAP·
              Weakness
      relating to the Company’s ability to correctly make necessary adjustments
      to its financial statements in accordance with U.S. GAAP in order to avoid
      the need for further
adjustments.
 
 Material
audit adjustments, resulted from the difference between Chinese generally
accepted accounting principles and U.S. GAAP, were made to reclassify related
party revenues, related party notes payable, related party selling expenses and
construction in progress, to record audit adjustments from the prior year, to
record unrecorded liabilities and to adjust the allowance account for advances
to supplies. The audit adjustments were material to the financial
statements.
 
 Although
our accounting staff is professional and experienced in accounting requirements
and procedures generally accepted in the PRC, management has determined that
they require additional training and assistance in U.S. GAAP 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.
 
 (c)
Changes in internal control over financial reporting
 
 There
were no changes in our internal controls over financial reporting during the
fourth quarter of our fiscal year ended June 30, 2008, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
 
 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
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              88,5682007
                              
                              
                              70,424
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              70,424
 * Mr. Guo
resigned as our CEO in May 2008 and Ms. Chen was appointed as a replacement to
Mr. Guo.
  7
 
 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
                  
                  
                  32,500
                  
                  
                  
                  32,500Guoyou
      Shao
                  
                  
                  8,572
                  
                  
                  
                  8,572Xinchuang
      Li
                  
                  
                  8,572
                  
                  
                  
                  8,572
 
 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.
 
 Additionally,
on February 4, 2008, we entered into Indemnification Agreements with each of
Messrs. Mudd, Shao and Li.  Under the terms of these Indemnification
Agreements, the Company agreed to indemnify the independent directors against
expenses, judgments, fines, penalties or other amounts actually and reasonably
incurred by the independent directors in connection with any proceeding (other
than a Proceeding by or in the right of the Company) if the independent director
acted in good faith and in the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
independent director’s conduct was unlawful.  The Company also agreed
to pay any such expenses to an independent director in advance of the final
disposition of any such proceeding if the director agrees to repay such amount
to the extent it is ultimately determined they are not entitled to
indemnification; provided, however, that the Company is not obligated to make
any such advance payment if the board of directors determines, in its sole
discretion, that it does not appear that such director has met the standards of
conduct which make it permissible under applicable law to indemnify such
director, and that the advancement of expenses would not be in the best
interests of the Company and its stockholders.
 
 Limitation
of Liability and Indemnification of Officers and Directors
 
 Our
bylaws provide for the indemnification of our present and prior directors and
officers or any person who may have served at our request as a director or
officer of another corporation in which we own shares of capital stock or of
which we are a creditor, against expenses actually and necessarily incurred by
them in connection with the defense of any actions, suits or proceedings in
which they, or any of them, are made parties, or a party, by reason of being or
having been director(s) or officer(s) of us or of such other corporation, in the
absence of negligence or misconduct in the performance of their duties. This
indemnification policy could result in substantial expenditure by us, which we
may be unable to recoup.
 
 Insofar
as indemnification by us for liabilities arising under the Securities Exchange
Act of 1934, as amended, may be permitted to our directors, officers and
controlling persons pursuant to provisions of the Articles of Incorporation and
Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
  8
 
 Additionally, on February 4, 2008, we
entered into Indemnification Agreements with each of Messrs. Mudd, Shao and Li,
our independent directors. Under the terms of these Indemnification Agreements,
the Company agreed to indemnify the independent directors against expenses,
judgments, fines, penalties or other amounts actually and reasonably incurred by
the independent directors in connection with any proceeding if the independent
director acted in good faith and in the best interests of the Company as
permitted under applicable state law.
 
 At the
present time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of ours in which indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
  ITEM 13.CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
 
 Transactions
with Related Persons
 
 The
following includes a summary of transactions since the beginning of fiscal year
ended June 30, 2007, or any currently proposed transaction, in which we were or
are to be a participant and the amount involved exceeded or exceeds the lesser
of $120,000 or one percent of the average of the Company’s total assets at the
end of the fiscal years ended June 30, 2007 and 2008 ($2,271,172), and in which
any related person had or will have a direct or indirect material interest
(other than compensation described under “Executive Compensation”). We believe
the terms obtained or consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to terms
available or the amounts that would be paid or received, as applicable, in
arm's-length transactions.
  ·
              We
      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. The note was incurred by the Company in the normal
      course of business and was non-interesting
  bearing.
 
 ·
              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. These transactions are set forth
  below:
 
 Amount of TransactionRelated Party
                          
                          Nature of Transaction
                          
                          Fiscal 2007
                          
                          
                          Fiscal 2008Changshu
      Diemate Steel Processing Co. Ltd.
                          
                          Sale
      of products by Sutor
                          
                          $
                          4,678,204
                          
                          
                          $
                          1,453,409Chengdu
      Pusidun Steel Trade Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          573,674
                          
                          
                          
                          -Guangzhou
      Huaye Steel Processing Co. Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          1,669,342
                          
                          
                          
                          3,022,387Hangzhou
      Nanye Material Co. Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          -
                          
                          
                          
                          668,702Hangzhou
      Xiaoshan Southern Industry Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          1,098,956
                          
                          
                          
                          -Huaye
      (H.K.) Intl Group Co. Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          24,643,872
                          
                          
                          
                          -Nanjing
      Huye Iron & Steel Trading Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          349,985
                          
                          
                          
                          -Ningbo
      Huaye Steel Processing Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          1,880,394
                          
                          
                          
                          1,690,847Qingdao
      Beiye Iron and Steel Trade Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          214,510Shanghai
      Huaye Steel Processing Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          6,913,643
                          
                          
                          
                          12,477,142Shanghai
      Huaye Steel Group Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          101,915,699
                          
                          
                          
                          159,050,906Tianjin
      Huaye Weiye Steel Trade Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          4,245,905
                          
                          
                          
                          -Wuxi
      Haide Steel Processing Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          3,303,600
                          
                          
                          
                          997,836Wuxi
      Huaye Material Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          502,459
                          
                          
                          
                          -Zhejiang
      Nanye Metal Cutting & Delivery Co., Ltd.
                          
                          Sale
      of products by Sutor
                          
                          
                          2,361,227
                          
                          
                          
                          1,492,766
 
 ·
              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 to be used for
      working capital purposes. The loan is for a period of 24 months and
      carries an interest rate of 5%. On May 15, 2008, Ms. Chen loaned our
      Company $1.3 million to be used for working capital. The loan is for a
      period of one year and carries no
interest.
  ·
              Some
      of our notes payables are guaranteed by Shanghai Huaye and its affiliates,
      as disclosed under the section “Liquidity and Capital Resources” under
      Item 7. We did not pay any stated or unstated consideration to Shanghai
      Huaye or its affiliates for their guarantees of our note
      payables.
  9
 
 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.
 
 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.
  10
 
 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
 
 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.
  11
  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 LIMITEDBy:
                /s/
      Lifang ChenLifang
      ChenChief
      Executive OfficerDate:
      July 8, 2009
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company in the capacities
and on the dates indicated.
 
 Each
person whose signature appears below hereby authorizes Lifang Chen as
attorney-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
                              
                              July
      8, 2009Lifang
      Chen
                              
                              Officer)/s/
      Yongfei Jiang
                              
                              Chief
      Financial Officer (Principal Financial Officer
                              
                              July
      8, 2009Yongfei
      Jiang
                              
                              and
      Principal Accounting Officer)/s/
      Carl MuddCarl
      Mudd
                              
                              Director
                              
                              July
      8, 2009/s/
      Guoyou ShaoGuoyou
      Shao
                              
                              Director
                              
                              July
      8, 2009/s/
      Xinchuang LiXinchuang
      Li
                              
                              Director
                              
                              July
      8,
2009


EXHIBITS




Exhibit No.
                    
                    Description2.1
                    
                    Share
      Exchange Agreement, dated September 3, 2007, among BTHC III, Inc., Sutor
      Steel Technology Co., Ltd. and its stockholders. [Incorporated by
      reference to Exhibit 10.1 to the registrant’s current report on Form 8-K
      filed on November 8, 2007]2.2
                    
                    Amendment
      No. 1 to Share Exchange Agreement, dated February 1, 2007, among the
      registrant, Sutor Steel Technology Co., Ltd. and its stockholders.
      [Incorporated by reference to Exhibit 2.2 to the registrant’s current
      report on Form 8-K filed on February 2, 2007]3.1
                    
                    Articles
      of Incorporation of the registrant as filed with the Secretary of State of
      Nevada, as amended to date. [Incorporated by reference to Exhibit 3.1 to
      the registrant’s quarterly report on Form 10Q-SB filed on November 3,
      2007, in commission file number 333-83351]3.2
                    
                    Amended
      and Restated Bylaws of the registrant. [Incorporated by reference to
      Exhibit 3.2 to the registrant’s registration statement on Form SB-2 filed
      on July 21, 1999, in commission file number 333-83351].4.1
                    
                    Certificate
      of Designation of Series B Voting Convertible Preferred Stock.
      [Incorporated by reference to Exhibit 4.1 to the registrant’s current
      report on Form 8-K filed on February 2, 2007]4.2
                    
                    Form
      of Registration Rights Agreement, dated February 1, 2007. [Incorporated by
      reference to Exhibit 4.2 to the registrant’s current report on Form 8-K
      filed on February 2, 2007]10.1
                    
                    Assignment
      Agreement, dated November 7, 2007, by and among the registrant, BTHC III,
      Inc., Sutor Steel Technology Co., Ltd. and its stockholders. [Incorporated
      by reference to Exhibit 10.2 to the registrant’s current report on Form
      8-K filed on November 8, 2007]10.2
                    
                    Form
      of the Securities Purchase Agreement, dated February 1, 2007.
      [Incorporated by reference to Exhibit 10.2 to the registrant’s current
      report on Form 8-K filed on February 2, 2007]10.3
                    
                    Make
      Good Escrow Agreement, dated February 1, 2007, by and among the
      registrant, Roth Capital Partners, LLC, Ms. Lifang Chen and Wells Fargo
      Bank, National Association. [Incorporated by reference to Exhibit 10.3 to
      the registrant’s current report on Form 8-K filed on February 2,
      2007]10.4
                    
                    Closing
      Escrow Agreement, dated January 25, 2007, by and among the registrant,
      Roth Capital Partners, LLC and Thelen Reid Brown Raysman & Steiner
      LLP. [Incorporated by reference to Exhibit 10.4 to the registrant’s
      current report on Form 8-K filed on February 2, 2007]10.5
                    
                    Equity
      Transfer Agreement, dated August 18, 2006, by and among Shanghai Huaye
      Iron & Steel Group Co., Ltd., Huaye (Hong Kong) International Group
      Limited and Sutor Steel Technology Co., Ltd. regarding the acquisition of
      Changshu Huaye Steel Strip Co., Ltd. [Incorporated by reference to Exhibit
      10.6 to the registrant’s current report on Form 8-K filed on February 2,
      2007]10.6
                    
                    Equity
      Transfer Agreement, dated August 18, 2006, by and among Shanghai Huaye
      Iron & Steel Group Co., Ltd., Huaye (Hong Kong) International Group
      Limited and Sutor Steel Technology Co., Ltd. regarding the acquisition of
      Jiangsu Cold-Rolled Technology Co., Ltd. [Incorporated by reference to
      Exhibit 10.5 to the registrant’s current report on Form 8-K filed on
      February 2, 2007]10.7
                    
                    Procurement
      Cooperation Frame Agreement, dated December 7, 2006, by and between
      Changshu Huaye Steel Strip Co., Ltd. and Shanghai Huaye Iron & Steel
      Group Co., Ltd. [Incorporated by reference to Exhibit 10.7 to the
      registrant’s current report on Form 8-K filed on February 2,
      2007]10.8
                    
                    Sales
      Cooperation Frame Agreement, dated December 7, 2006, by and between
      Changshu Huaye Steel Strip Co., Ltd. and Shanghai Huaye Iron & Steel
      Group Co., Ltd. [Incorporated by reference to Exhibit 10.8 to the
      registrant’s current report on Form 8-K filed on February 2,
      2007]10.9
                    
                    Notification
      Concerning Licensing the Brand Name of “Huaye” to Changshu Huaye Steel
      Strip Co., Ltd., dated August 15, 2005, from Shanghai Huaye Iron &
      Steel Group Co., Ltd. to Changshu Huaye Steel Strip Co., Ltd.
      [Incorporated by reference to Exhibit 10.9 to the registrant’s current
      report on Form 8-K filed on February 2,
2007]










10.10
              
              Employment
      Agreement, dated December 26, 2006, by and between Sutor Steel Technology
      Co., Ltd. and Guoxiang Ni. [Incorporated by reference to Exhibit 10.10 to
      the registrant’s current report on Form 8-K filed on February 2,
      2007]10.11
              
              Employment
      Agreement, dated December 26, 2006, by and between Sutor Steel Technology
      Co., Ltd. and Yongfei Jiang. [Incorporated by reference to Exhibit 10.11
      to the registrant’s current report on Form 8-K filed on February 2,
      2007]10.12
              
              Employment
      Agreement, dated December 26, 2006, by and between Sutor Steel Technology
      Co., Ltd. and Liuhua Guo. [Incorporated by reference to Exhibit 10.12 to
      the registrant’s current report on Form 8-K filed on February 2,
      2007]10.13
              
              Consulting
      Agreement, dated November 1, 2006, by and among Heritage Management
      Consultants, Inc., Sutor Steel Technology Co., Ltd. and HFG International,
      Limited. [Incorporated by reference to Exhibit 10.13 to the registrant’s
      current report on Form 8-K filed on February 2, 2007]10.14
              
              Financial
      Advisory Agreement, dated July 3, 2006, by and among HFG International,
      Limited, Changshu Huaye Steel Strip Co., Ltd and Jiangsu Cold-Rolled
      Technology Co., Ltd. [Incorporated by reference to Exhibit 10.14 to the
      registrant’s current report on Form 8-K filed on February 2,
      2007]10.15
              
              Consulting
      Agreement, dated January 8, 2007, by and between the registrant and
      Heritage Management Consultants, Inc. [Incorporated by reference to
      Exhibit 10.1 to the registrant’s current report on Form 8-K filed on
      January 9, 2007]10.16
              
              Consulting
      Agreement, dated January 8, 2007, by and between the registrant and Ye
      Zong. [Incorporated by reference to Exhibit 10.1 to the registrant’s
      current report on Form 8-K filed on January 9, 2007]10.17
              
              Consulting
      Agreement, dated January 8, 2007, by and between the registrant and
      Jingshi Cai. [Incorporated by reference to Exhibit 10.1 to the
      registrant’s current report on Form 8-K filed on January 9,
      2007]10.18
              
              Form
      of Sales Agent Cooperation Agreement. [Incorporated by reference to
      Exhibit 10.18 to the registrant’s Amendment No. 1 to registration
      statement on Form S-1 filed on June 4, 2007]10.19
              
              Employment
      Agreement, dated July 10, 2007, by and between Sutor Steel Technology Co.,
      Ltd. and Liuhua Guo. [Incorporated by reference to Exhibit 10.21 to the
      registrant’s registration statement on Form S-1 filed on July 13,
      2007]10.20
              
              Employment
      Agreement, dated July 10, 2007, by and between Sutor Steel Technology Co.,
      Ltd. and Xun Zhang. [Incorporated by reference to Exhibit 10.22 to the
      registrant’s registration statement on Form S-1 filed on July 13,
      2007]10.21
              
              Loan
      Agreement, dated December 20, 2007, by and between Sutor Steel Technology
      Co., Ltd. and Lifang Chen. [Incorporated by reference to Exhibit 10.23 to
      the registrant’s registration statement on Form S-1, filed January 28,
      2008, in Commission file no. 333-148898.]10.22
              
              Loan
      Agreement, dated May 15, 2008, by and between Lifang Chen and Jiangsu
      Cold-Rolled (English Translation) [Incorporated by reference to Exhibit
      99.1 to the registrant’s periodic report on Form 10-Q for the quarter
      ended September 30, 2008.]10.23
              
              Loan
      Agreement, dated July 1, 2008, by and between Lifang Chen and Jiangsu
      Cold-Rolled (English Translation) [Incorporated by reference to Exhibit
      99.2 to the registrant’s periodic report on Form 10-Q for the quarter
      ended September 30, 2008.]10.24
              
              Sutor
      Technology Group Limited Independent Director’s Contract, dated as of
      February 4, 2008, by and between Sutor Technology Group Limited and A.
      Carl Mudd [Incorporated by reference to Exhibit 10.1 to the registrant
      current report on Form 8-K filed on February 8, 2008]10.25
              
              Sutor
      Technology Group Limited Independent Director’s Contract, dated as of
      February 4, 2008, by and between Sutor Technology Group Limited and Guoyou
      Shao [Incorporated by reference to Exhibit 10.2 to the registrant current
      report on Form 8-K filed on February 8, 2008]10.26
              
              Sutor
      Technology Group Limited Independent Director’s Contract, dated as of
      February 4, 2008, by and between Sutor Technology Group Limited and
      Xinchuang Li [Incorporated by reference to Exhibit 10.3 to the registrant
      current report on Form 8-K filed on February 8, 2008]10.27
              
              Indemnification
      Agreement, dated as of February 4, 2008, by and between Sutor Technology
      Group Limited and A. Carl Mudd [Incorporated by reference to Exhibit 10.4
      to the registrant current report on Form 8-K filed on February 8,
      2008]










10.28
                  
                  Indemnification
      Agreement, dated as of February 4, 2008, by and between Sutor Technology
      Group Limited and Guoyou Shao [Incorporated by reference to Exhibit 10.5
      to the registrant current report on Form 8-K filed on February 8,
      2008]10.29
                  
                  Indemnification
      Agreement, dated as of February 4, 2008, by and between Sutor Technology
      Group Limited and Xinchuang Li [Incorporated by reference to Exhibit 10.6
      to the registrant current report on Form 8-K filed on February 8,
      2008]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







SUTOR TECHNOLOGY GROUP LIMITED AND
SUBSIDIARIES


INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS





PageReport
      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





HANSEN,BARNETT& MAXWELL, 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.




As
discussed in Note 1, the accompanying consolidated financial statements have
been restated for the effects of correcting the classification of notes payable
as of June 30, 2008.




HANSEN, BARNETT & MAXWELL,
P.C.





Salt Lake
City, Utah


September
19, 2008, except
for Note 1 regarding the restatement of financial statements, as to which the
date is July 2, 2009


F-2


SUTOR TECHNOLOGY GROUP LIMITED AND
SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS





June 30,
            
            June 30,2008
            
            2007ASSETSCurrent 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
            
            
            107,144,375Property and Equipment,net
      of accumulated depreciation of $12,019,445 and $6,726,756, respectively
            
            
            59,736,612
            
            
            47,571,353Intangible Assets,net
      of accumulated amortization of $285,888 and $188,132, respectively
            
            
            3,238,931
            
            
            2,988,589TOTAL
    ASSETS
            
            $
            296,530,107
            
            $
            157,704,317LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent 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
            
            
            129,192,870
            
            
            50,954,916Short-term
      notes payable - related party
            
            
            1,311,510
            
            
            2,325,802Total Current
      Liabilities
            
            
            156,645,756
            
            
            68,319,416Long-Term Notes Payable -
      Related Party
            
            
            7,099,998
            
            
            -Total
      Liabilites
            
            
            163,745,754
            
            
            68,319,416Minority Interest in Net Assets
      of Subsidiary
            
            
            34,697
            
            
            32,812Stockholders'
      EquityUndesignated
      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
            
            
            4,919,970Total Stockholders'
      Equity
            
            
            132,749,656
            
            
            89,352,089TOTAL 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
            
            2006Revenue: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
            
            
            190,594,339Cost of RevenueOther
      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
            
            
            174,656,585Gross Profit
            
            
            44,920,035
            
            
            30,537,570
            
            
            15,937,754Operating
      Expenses:Selling
      expense
            
            
            2,237,957
            
            
            2,319,728
            
            
            1,894,452General
      and administrative expense
            
            
            3,749,453
            
            
            4,735,973
            
            
            1,254,613Total Operating
      Expenses
            
            
            5,987,410
            
            
            7,055,701
            
            
            3,149,065Income from
      Operations
            
            
            38,932,625
            
            
            23,481,869
            
            
            12,788,689Other 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
            
            
            24,514Net
    Income
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Basic and Diluted Earnings per
      Common Share
            
            $
            0.82
            
            $
            0.59
            
            $
            0.39Net Income
            
            $
            31,135,970
            
            $
            20,520,391
            
            $
            11,528,200Foreign
      currency translation adjustment
            
            
            12,261,597
            
            
            3,488,320
            
            
            1,440,146Comprehensive
      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


AccumulatedSeries A Voting Convertible
            
            Series B Voting Convertible
            
            
            
            
            
            Additional
            
            
            
            
            
            Other
            
            TotalPreferred Stock
            
            Preferred Stock
            
            Common Stock
            
            Paid in
            
            Statutory
            
            Retained
            
            Comprehensive
            
            Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Reserves
            
            Earnings
            
            Income
      (Loss)
            
            EquityBalance, 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
            
            
            1,440,146Balance, 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
            
            
            3,488,320Balance, 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
            
            
            12,261,597Balance, 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
            
            2006Cash 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
            )
            
            10,625,951Net Cash Provided by (Used in)
      Operating Activities
            
            
            (34,969,415
            )
            
            (28,556,487
            )
            
            30,493,621Cash 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
            
            
            160,238,315
            
            
            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 - related party
            
            
            8,411,508
            
            
            -
            
            
            -Payments
      on notes payable - related party
            
            
            (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
            
            
            2,985,569Effect 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
            
            
            1,558,396Cash and Cash Equivalents at
      End of Year
            
            $
            11,806,101
            
            $
            8,832,942
            
            $
            6,534,493Supplemental Cash Flow
      InformationCash
      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.




Restatement of
Financial Statements – During June 2009, the Company concluded that a
short-term note payable to a related party had been classified with short-term
notes payable. As a result, the June 30, 2008 consolidated financial statements
needed to be revised to correct an overstatement of short-term notes payable and
an understatement of short-term notes payable - related party in the amount of
$1,311,510. The correction of these balances had no effect on the previously
reported net income. The effects of the restatements were as
follows:
  As Previously
                              Reported
                            
                            
                            Effect of
                              Restatement
                            
                            
                            As RestatedConsolidated
      Balance Sheet As of June 30, 2008Short-term
      notes payable
                            
                            $
                            130,504,380
                            
                            
                            $
                            (1,311,510
                            )
                            
                            $
                            129,192,870Short-term
      notes payable - related party
                            
                            
                            -
                            
                            
                            
                            1,311,510
                            
                            
                            
                            1,311,510Total
      Current Liabilities
                            
                            
                            156,645,756
                            
                            
                            
                            -
                            
                            
                            
                            156,645,756Total
      Liabilities
                            
                            
                            163,745,754
                            
                            
                            
                            -
                            
                            
                            
                            163,745,754Consolidated
      Statement of Cash FlowsFor
      the year ended June 30, 2008Proceeds
      from issuance of notes payable
                            
                            $
                            161,549,825
                            
                            
                            $
                            (1,311,510
                            )
                            
                            $
                            160,238,315Proceeds
      from issuance of notes payable - related party
                            
                            
                            7,099,998
                            
                            
                            
                            1,311,510
                            
                            
                            
                            8,411,508Net
      Cash Provided by Financing Activities
                            
                            
                            74,572,575
                            
                            
                            
                            -
                            
                            
                            
                            74,572,575Net
      Change in Cash
                            
                            
                            2,973,159
                            
                            
                            
                            -
                            
                            
                            
                            2,973,159


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
            
            2006Net
      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
            
            
            29,373,303Basic 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
            
            2007Raw
      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
            
            2007Buildings
      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
            
            TotalGross
      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
            
            TotalGross
      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
      ExpenseFor
      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,
                  2007Short-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
                
                
                4,509,381
                
                
                -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
                
                
                
                
                $
                129,192,870
                
                $
                50,954,916Note payable to
      related party, no interest rate
                
                
                5/15/2009
                
                $
                1,311,510
                
                $
                —Notes
      payable to related parties no interest rate, secured by cash
      deposits
                
                
                matured
                
                
                -
                
                
                2,325,802$
                1,311,510
                
                $
                2,325,802





Long-term
notes were comprised of the following:





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




The
Company has notes payable that indicate that they have a zero interest rate. The
Company intends to repay these notes as they mature. Interest-free loans are
common in China; therefore, the company does not impute interest on these
loans.
 
 The
Company’s debt agreements contain debt covenants which require the Company to
maintain certain inventory levels. The Company was in compliance with these debt
covenants at June 30, 2008.




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.




During
May 2008, Ms. Chen loaned the company $1.31 million. The note is due on demand
and bears no interest and is included in the accompanying balance sheet at June
30, 2008 under the caption short-term notes payable – related
party.
  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 – related party.”





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
            
            2007Value
      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
            
            2007Allowance
      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 andAt 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
            
            2006People'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 EndedSeptember 30,
            
            December 31,
            
            March 31,
            
            June 30,2007
            
            2007
            
            2008
            
            2008Revenues
            
            $
            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 EndedSeptember 30,
            
            December 31,
            
            March 31,
            
            June 30,2006
            
            2006
            
            2007
            
            2007Revenues
            
            $
            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 EndedSeptember 30,
            
            December 31,
            
            March 31,
            
            June 30,2005
            
            2005
            
            2006
            
            2006Revenues
            
            $
            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
            
            2007ASSETSCurrent Assets:Cash
      and cash equivalents
            
            $
            63,666
            
            $
            27,611Total Current
      Assets
            
            
            63,666
            
            
            27,611Investment in unconsolidated
      subsidiaries
            
            
            139,973,700
            
            
            89,504,471TOTAL ASSETS
            
            $
            140,037,366
            
            $
            89,532,082LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent Liabilities:Accrued
      liabilities
            
            $
            187,712
            
            $
            -Note
      payable - related party
            
            
            7,099,998
            
            
            179,993Total Current Liabilities
            
            
            7,287,710
            
            
            179,993Stockholders'
      EquitySeries
      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
            
            
            4,919,970Total Stockholders' Equity
            
            
            132,749,656
            
            
            89,352,089TOTAL 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
            
            2006Loss from Operations
            
            $
            (873,702
            )
            $
            (1,321,340
            )
            $
            -Equity
      in earnings of unconsolidated subsidiaries
            
            
            32,009,672
            
            
            21,841,731
            
            
            11,528,200Net 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
            
            2006Cash 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
      ActivitiesInvestment
      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