UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: September 30, 2010

¨ 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 No.)

No 8, Huaye Road, Dongbang Industrial Park

Changshu, 215534

People’s Republic of China

(Address of principal executive offices, Zip Code)

(86) 512-52680988

(Registrant’s telephone number, including area code)

 _____________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

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

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

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  ¨(Do not check if a smaller reporting company)	Smaller reporting company  x

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 12, 2010 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	40,695,602

 

SUTOR TECHNOLOGY GROUP LIMITED

Quarterly Report on FORM 10-Q

 Three Months Ended September 30, 2010

TABLE OF CONTENTS

		Page
PART I
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	(Removed and Reserved)	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

2

PART I

FINANCIAL INFORMATION

SUTOR TECHNOLOGY GROUP LIMITED

3

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Page
Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and June 30, 2010	F-2
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended September 30, 2010 and 2009 (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2010 and 2009 (Unaudited)	F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)	F-5

F-1

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,		June 30,
	2010		2010
ASSETS
Current Assets:
Cash and cash equivalents	$	17,084,036	$	13,336,736
Restricted cash		45,097,082		48,315,962
Trade accounts receivable, net of allowance for doubtful accounts of $424,523 and $498,620, respectively		8,364,446		10,913,736
Other receivables		1,216,071		929,507
Advances to suppliers, related parties		98,558,271		96,776,181
Advances to suppliers, net of allowance of $428,505 and $542,490, respectively		12,277,368		8,304,246
Inventory, net of allowance for impairment of $103,711 and $102,028, respectively		36,814,616		40,179,358
Notes receivable		552,973		73,437
Deferred income taxes		300,626		329,414
Total Current Assets		220,265,489		219,158,577
Property and Equipment, net of accumulated depreciation of $28,202,200 and $25,914,352, respectively		69,666,934		70,018,522
Intangible Assets, net of accumulated amortization of $439,363 and $415,178, respectively		3,027,570		2,995,488
TOTAL ASSETS	$	292,959,993	$	292,172,587
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	12,869,095	$	23,954,009
Advances from customers		11,524,787		6,769,481
Other payables and accrued expenses		5,056,926		4,688,324
Other payables - related parties		412,057		352,495
Short-term notes payable		82,286,908		82,128,484
Short-term notes payable - related parties		597,184		587,492
Total Current Liabilities		112,746,957		118,480,285
Long-Term Notes Payable		2,859,995		2,859,995
Total Liabilities		115,606,952		121,340,280
Stockholders' Equity
Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; no shares outstanding		-		-
Common stock - $0.001 par value; 500,000,000 shares authorized, 40,715,602 shares outstanding		40,715		40,715
Additional paid-in capital		42,496,949		42,465,581
Statutory reserves		12,629,151		12,629,151
Retained earnings		99,577,496		96,164,928
Accumulated other comprehensive income		22,608,730		19,531,932
Total Stockholders' Equity		177,353,041		170,832,307
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	292,959,993	$	292,172,587

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

F-2

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

	For The Three Months Ended
	September 30
	2010			2009
Revenue:
Revenue	$	39,560,159		$	56,804,565
Revenue from related parties		62,386,937			67,003,757
		101,947,096			123,808,322
Cost of Revenue
Cost of revenue		31,930,290			54,330,912
Cost of revenue from related party sales		61,581,246			65,068,922
		93,511,536			119,399,834
Gross Profit		8,435,560			4,408,488
Operating Expenses:
Selling expense		1,380,478			1,604,096
General and administrative expense		1,643,145			1,294,215
Total Operating Expenses		3,023,623			2,898,311
Income from Operations		5,411,937			1,510,177
Other Income (Expense):
Interest income		189,313			480,572
Other income		22,037			319,803
Interest expense		(1,534,810	)		(1,346,898	)
Other expense		(65,714	)		(239,589	)
Total Other Income (Expense)		(1,389,174	)		(786,112	)
Income Before Taxes		4,022,763			724,065
Provision for income taxes		(610,195	)		(223,389	)
Net Income	$	3,412,568		$	500,676
Basic and Diluted Earnings per Share	$	0.08		$	0.01
Basic and Diluted Weighted Shares Outstanding		40,715,602			37,955,602
Net Income	$	3,412,568		$	500,676
Foreign currency translation adjustment		3,076,798			176,789
Comprehensive Income	$	6,489,366		$	677,465

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

F-3

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The Three Months Ended
	September 30
	2010			2009
Cash Flows from Operating Activities:
Net income	$	3,412,568		$	500,676
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		1,876,098			1,840,352
Deferred income taxes		33,807			39,646
Foreign currency exchange loss		31,603			-
Stock based compensation		31,368			-
Gain on sale of assets		(4,670	)		-
Changes in current assets and liabilities:
Trade accounts receivable, net		2,680,916			5,922,669
Other receivable, net		(267,941	)		153,474
Advances to suppliers		(3,789,606	)		13,256,897
Inventories		3,978,750			5,904,564
Accounts payable		(11,340,879	)		(3,482,040	)
Advances from customers		4,590,240			(3,517,770	)
Other payables and accrued expenses		293,252			(3,935	)
Other payables - related parties		53,095			-
Advances to suppliers - related parties		(24,309	)		(28,793,173	)
Net Cash Provided by (Used in) Operating Activities		1,554,292			(8,178,640	)
Cash Flows from Investing Activities:
Changes in notes receivable		(472,525	)		46,776
Purchase of property and equipment, net of value added tax refunds received		(371,661	)		(73,792	)
Proceeds from sale of assets		5,899			-
Net Cash Used in Investing Activities		(838,287	)		(27,016	)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable		41,910,402			61,432,374
Payments on notes payable		(43,092,361	)		(60,250,220	)
Proceeds from issuance of notes payable - related parties		-			199,932
Net change in restricted cash		3,967,261			9,680,250
Net Cash Provided By Financing Activities		2,785,302			11,062,336
Effect of Exchange Rate Changes on Cash		245,993			8,038
Net Change in Cash		3,747,300			2,864,718
Cash and Cash Equivalents at Beginning of period		13,336,736			10,653,438
Cash and Cash Equivalents at End of period	$	17,084,036		$	13,518,156
Supplemental Non-Cash Financing Activities
Offset of notes payable to related party against receivable from related parties (Note 7)	$	9,779,078		$	9,414,211
Supplemental Cash Flow Information
Cash paid during the period for interest	$	1,396,978		$	1,023,281
Cash paid during the period for income taxes	$	377,064		$	91,327

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

F-4

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

Sutor Technology Group Limited and subsidiaries (the “Company”) include its wholly owned subsidiaries Sutor Steel Technology Co., Ltd. (“Sutor Steel”),  Changshu Huaye Steel Strip Co., Ltd. (“Changshu Huaye”),  Jiangsu Cold-Rolled Technology Co., Ltd. (“Jiangsu Cold-Rolled”), Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. (“Ningbo Zhehua”) and Sutor Technology Co., Ltd (“Sutor Technology”).

Ningbo Zhehua was organized under the laws of the People’s Republic of China (the “PRC”) on April 5, 2004. On November 10, 2009, pursuant to an Equity Transfer Agreement (the “Agreement”), Changshu Huaye acquired 100% of the equity interests of Ningbo Zhehua from Shanghai Huaye Iron & Steel Co., Ltd., (an entity under common control with the Company) (“Shanghai Huaye”) for approximately $6,615,825 in cash. The acquisition was a transfer of equity interests between entities under common control and was recognized as a recapitalization of Ningbo Zhehua into the Company in a manner similar to the pooling-of-interests method of accounting, with the assets and liabilities of Ningbo Zhehua recognized at their historical carrying amounts.

Nature of Operations - The Company’s operations are located in the PRC. For the three months ended September 30, 2010 and 2009, approximately 93.1% and 93.5%, respectively, of the Company’s revenue was derived from sales within the PRC of steel products. A significant portion of the Company’s purchases and revenues consist of transactions with Shanghai Huaye and its subsidiaries. Changshu Huaye manufactures hot-dip galvanized steel and pre-painted galvanized steel. Jiangsu Cold-Rolled operates several production lines that refine products such as cold-rolled steel, acid pickled steel and hot-dip galvanized steel. Ningbo Zhehua manufactures heavy steel pipe and purchases and resells cold-rolled and hot-dip galvanized steel.  Sutor Technology Co., Ltd. has not started operation as of September 30, 2010.

F-5

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Statements – The accompanying unaudited consolidated financial statements of the Company and its subsidiaries at September 30, 2010 and for the three months ended September 30, 2010 and 2009 reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the consolidated financial position and results of operations of the Company for the periods presented. Operating results for the three months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010. The Company follows the same accounting policies in the preparation of interim reports.

Principles of Consolidation – The accompanying consolidated financial statements includes the accounts and transactions of Sutor Technology Group Limited and its subsidiaries for all periods presented.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Functional Currency and Translating Financial Statements - The accompanying condensed 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 condensed 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 exchange rate on the dates of significant transactions or 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.

Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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. There are no estimates that could change materially in the near term.

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) collectability 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.

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. The handling fees were $159,389 and $133,636 for the three months ended September 30, 2010 and 2009 respectively and have been classified as selling expenses in the statement of operations.

Recently Adopted Accounting Guidance- In June 2009, the FASB issued guidance on the consolidation of variable interest entities, which is effective for the Company beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The Company believes adoption of this new guidance did not have an impact on the financial statements.

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.

Recent Accounting Guidance Not Yet Adopted –

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

F-6

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 3 – INVENTORY

Inventory consisted of the following:

	September 30,			June 30,
	2010			2010
Raw materials	$	18,649,591		$	22,285,980
Work in process		-			265,282
Finished goods		18,268,736			17,730,124
		36,918,327			40,281,386
Less: allowance from impairment		(103,711	)		(102,028	)
Total Inventory - net	$	36,814,616		$	40,179,358

NOTE–4 - PROPERTY AND EQUIPMENT

Property and equipment includes value-added tax paid. Foreign invested enterprises and foreign enterprises doing business in the PRC are generally able to receive a refund of the value-added tax paid on property and equipment purchased and manufactured within the PRC. The Company recognizes refunds of value-added tax as a reduction of property and equipment when the refunds are collected. The refunds are a long-term asset as it can take up to three years to collect them from the PRC government. Investment tax credits are realized upon collection from the government. The Company has approximately $17,159,000 of property and equipment that is used as collateral for loans.

Property and equipment consisted of the following:

	September 30,			June 30,
	2010			2010
Buildings and plant	$	27,973,441		$	27,513,920
Machinery		67,193,917			66,220,305
Office and other equipment		1,161,437			994,114
Vehicles		320,432			337,454
		96,649,227			95,065,793
Less: accumulated depreciation		(28,202,200	)		(25,914,352	)
		68,447,027			69,151,441
Construction in process		1,219,907			867,081
Net property, plant and equipment	$	69,666,934		$	70,018,522

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

	Life
Buildings and Plant	20 years
Machinery	10 years
Office and other equipment	10 years
Vehicles	5 years

Depreciation expense for the three months ended September 30, 2010 and 2009 was $1,858,974 and 1,823,380, respectively.

F-7

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

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 three months ended September 30, 2010 and 2009 was $17,124 and $16,972 respectively. Intangible information by segment is presented below:

As of September 30, 2010	Changshu Huaye			Jiangsu Cold-Rolled			Total
Gross Carrying Amount	$	2,205,984		$	1,260,949		$	3,466,933
Accumulated Amortization		(299,833	)		(139,530	)		(439,363	)
	$	1,906,151		$	1,121,419		$	3,027,570

As of June 30, 2010	Changshu Huaye			Jiangsu Cold-Rolled			Total
Gross Carrying Amount	$	2,170,182		$	1,240,484		$	3,410,666
Accumulated Amortization		(284,116	)		(131,062	)		(415,178	)
	$	1,886,066		$	1,109,422		$	2,995,488

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

ESTIMATED AMORTIZATION EXPENSE
Remainder of the year ending June 30, 2011	$	52,004
For the year ending June 30, 2012		69,339
For the year ending June 30, 2013		69,339
For the year ending June 30, 2014		69,339
For the year ending June 30, 2015		69,339

F-8

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE–6 - NOTES PAYABLE

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

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

		September 30,		June 30,
	Maturity Date	2010		2010
Note payable at 4.78% interest, guaranteed by related party	11/14/2010	$	7,464,803	$	30,549,599
Note payable at 4.05% interest, guaranteed by land use right	10/8/2010		3,284,514		3,231,208
Note payable at 4.80% interest, secured by property	10/24/2010		2,388,737		9,693,623
Note payable at 5.31% interest, guaranteed by related party	12/20/2010		2,985,921		2,937,461
Note payable at 4.78% interest, guaranteed by related party	1/20/2011		2,239,441		2,203,096
Note payable at 5.31% interest, guaranteed by related party	3/1/2011		2,985,921		2,937,461
Note payable at 5.31% interest, guaranteed by related party	4/29/2011		2,985,921		2,937,461
Note payable at 5.31% interest, guaranteed by related party	5/19/2011		2,985,921		2,937,461
Note payable at 4.78% interest, guaranteed by related party	5/24/2011		5,076,066		4,993,684
Note payable at 4.78% interest, guaranteed by related party	5/26/2011		7,464,803		7,343,654
Note payable at 4.78% interest, guaranteed by related party	various dates from 6/20/2011 to 9/6/2011		32,397,249		-
Note payable at 4.26% interest, guaranteed by related party	10/28/2010		7,400,000		-
Note payable at 4.86% interest, guaranteed by related party	12/8/2010		1,134,650		-
Note payable at 5.31% interest, guaranteed by related party	8/20/2011		1,492,961		-
Note payable at 4.05% interest, guaranteed by related party	matured		-		1,909,350
Note payable at 5.31% interest, guaranteed by related party	matured		-		7,343,654
Note payable at 4.78% interest, guaranteed by related party	matured		-		1,321,858
Note payable at 4.86% interest, guaranteed by related party	matured		-		1,788,914
Total Short-Term Notes Payable		$	82,286,908	$	82,128,484
Long-term note payable at 6.00% interest, unsecured	11/20/2011		2,859,995		2,859,995
Total long-term notes payable		$	2,859,995	$	2,859,995

Notes due to related parties were comprised of the following:

	Maturity	September 30,		June 30,
	Date	2010		2010
Note payable to principal shareholder, no interest rate, unsecured	On demand	$	597,184	$	587,492
Total short-term notes payable - related parties		$	597,184	$	587,492

The Company has certain notes payable that 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.

F-9

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE–7 - RELATED PARTIES

Purchases from Related Parties

The Company sells its products to and buys raw materials from various companies which are owned or controlled by the Principal Shareholders. These other companies are composed of a number of 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 three months ended September 30, 2010 and 2009, purchases from these related parties totaled of $57,832,201 and $55,757,299, respectively.

Due from Related Parties

The amounts due to related parties are non-interest bearing and were incurred in the normal course of business except for certain notes payable. 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 September 30, 2010 and June 30, 2010, the net amounts due from related parties were $98,558,271 and $96,776,181, respectively. The amounts charged for products to the Company by the related parties are under the same pricing, terms and conditions as those charged to third parties, and are due upon receipt. It is not uncommon for the Company with its related parties to accommodate an extension of 90 to 180 days. Amounts receivable from related parties are also due upon delivery. Advances to suppliers which are related parties, are relieved once the goods are received.

Unused Letters of Credit Held by Related Parties

At September 30, 2010, the Company had unused letters of credit totaling $14,929,607 in the form of banker’s acceptance notes that are held by related parties in connection with purchases from related parties. The banker’s acceptance notes carry a 0% interest rate, can be presented to the respective banks in 90 to 180 days from the dates they were written, are secured by cash on deposit with the respective banks and are guaranteed by related parties. At September 30, 2010 and June 30, 2010, the Company had banker’s acceptance notes of $0 and $16,449,784, respectively which are classified as accounts payable.

Notes Payable to Principal Shareholder

On December 20, 2007, Ms. Chen loaned the Company $7,099,998. The loan was for an initial period of 24 months through December 20, 2009, carried an interest rate of 5%.

On March 11, 2009, Ms. Chen loaned the Company $99,998.  The loan was for a period of 36 months, carried an interest rate of 3.60%.

On April 29, 2009, Ms. Chen loaned the Company $149,998.  The loan was for a period of 36 months, carried an interest rate of 5.00%.

On July 25, 2009, Ms. Chen loaned the Company $199,930. The loan was for a period of 12 months, and carried an interest rate of 2%.

The notes to Ms. Chen described above plus the accrued interest on the notes of $997,059 totaling $8,546,983 (along with $1,232,095 of non-interest bearing notes due to Ms. Chen) was transferred to Shanghai Huaye by Ms. Chen pursuant to an agreement between the parties dated December 10, 2009.  Since the Company has a right of offset for amounts due from Shanghai Huaye, the aggregate amount of these notes and accrued interest of $9,779,078 has been recorded as a reduction of advances to related parties in the accompanying balance sheet as of September 30, 2010.

On various dates from February 25, 2007 to June 30, 2009, Ms. Chen loaned the Company a total of $5.3 million.  The Company during that same period paid Ms. Chen $2.5 million and as described above Ms. Chen transferred to Shanghai Huaye $1,232,095 of the notes on December 10, 2009.  The Company further paid off $1 million as of March 31, 2010. The notes are due on demand and bear no interest and are included in the accompanying balance sheet under the caption short-term notes payable – related parties in the net amount of $597,184 and $587,492 at September 30, 2010 and June 30, 2010, respectively.

F-10

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE–7 - RELATED PARTIES - continued

Rental Agreement with Principal Shareholder

On November 8, 2008, the Company entered into an agreement with the Principal Shareholder for the lease of 1,200 square meters of property in the Dongbang Industrial Park, in Changhsu, China.  The terms of the agreement state that the Company will lease the property for three years, and pay the principal shareholder approximately $17,500 per month. The Company has accrued expense for this lease of $412,057 and $352,495 that is included on the balance sheet under the caption Other payables – related parties at September 30, 2010 and June 30, 2010, respectively.

On August 6, 2004, the Company entered into a 10 year lease agreement with Ningbo Huaye Steel Processing, Ltd. to use a factory building in the Ningbo Camel Luo Ji Dian Industrial Park. Lease payments are made quarterly at a monthly rate of approximately $11,900.

Rent expense for the two leases for the three months ended September 30, 2010 and 2009 were $88,491 and $87,705, respectively. Annual future minimum lease payments due under the operating leases are as follows:

For the Year Ending June 30,
Remainder of 2011	$	268,733
2012		232,902
2013		143,324
2014		23,887
2015		-
Total	$	668,846

NOTE–8 - INCOME TAXES

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

The EIT Law gives existing FIEs a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. Changshu Huaye is subject to an EIT rate of 25% for 2009 and beyond. Jiangsu Cold-Rolled is 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. Ningbo Zhehua is subject to an EIT of 25% and has no preferential tax treatments.  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.

F-11

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE–8 - INCOME TAXES - continued

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

	September 30,		June 30,
	2010		2010
Value added tax	$	246,888	$	(584,996	)
Income tax		1,038,941		1,162,792
Surtax, insurance, other		138,111		136,401
Total Taxes	$	1,423,940	$	714,196

The statutory tax rate for 2010 and 2009 is 25%.

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

	For The Three Months Ended
	September 30,
	2010			2009
Income tax calculated at statutory rates	$	1,005,691		$	168,091
Tax credit		(49,214	)		-
Benefit of favorable rates		(297,603	)		(37,892	)
Operating loss carryforward		16			-
Tax effect of parent and sewer losses		(48,695	)		93,190
Provision for income taxes	$	610,195		$	223,389

F-12

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE–8 - INCOME TAXES - continued

Deferred taxes are comprised of the following:

	September 30,			June 30,
	2010			2010
Net of operating loss carryforward	$	1,183,622		$	1,183,622
Allowance for doubtful trade receivables		106,162			124,686
Allowance for doubtful other receivables		94,738			79,461
Allowance for doubtful advances to suppliers		73,798			99,760
Allowance for inventory impairment		25,928			25,507
Less: Valuation allowance		(1,183,622	)		(1,183,622	)
Total deferred income tax assets	$	300,626		$	329,414

As of September 30, 2010, the Company has a net operating loss from continuing operations for United States federal income tax purposes of $3,481,241 which are available to carry back five years or offset future taxable income, if any, through 2030.

The provision for income taxes is comprised of the following:

	For The Three Months Ended
	September 30,
	2010		2009
Current	$	576,388	$	183,743
Deferred		33,807		39,646
Provision for income taxes	$	610,195	$	223,389

There was no tax holiday for the three months ended September 30, 2010.

NOTE 9 – ISSUANCE OF COMMON STOCK AND WARRANTS

On March 10, 2010, the Company issued 2,740,000 shares of common stock and warrants to purchase up to 685,000 shares of common stock for an aggregate price of $7,398,000. Issuance costs of $583,804 were netted against the gross proceeds. The proceeds from the transaction were allocated to the common stock and warrants based on the relative fair value of the securities which was $5,838,910 and $975,286, respectively. 

The warrants have a five year term, expiring March 9, 2015, with an exercise price of $3.76 per share, adjustable for stock dividends, stock splits and upon occurrence of a fundamental transaction as defined in the warrant agreement. The fair value of the warrants was $1,368,428, valued using a Black-Scholes model.  The following assumptions were used to calculate the fair value of the warrants: dividend yield of 0%, expected volatility of 90%, risk-free interest rate of 2.39%, expected life of 5 years, and stock price of $2.99 per share. The Company evaluated the warrants and determined there is no derivative associated with the warrants.

The following table summarizes warrant activity for the three months ended September 30, 2010:

	Warrants		Weighted-average exercise price		Aggregate Intrinsic Value
Outstanding at June 30, 2010		685,000	$	3.76	$	-
Issued		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2010		685,000	$	3.76	$	-

F-13

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 10 – STOCK-BASED COMPENSATION

On February 1, 2010, the Company granted to an executive 20,000 shares of restricted common stock with a grant date fair value of $3.04 per share as part of his remuneration for his service commencing February 1, 2010 for one year period. The restricted common stock will vest on the first anniversary of the grant date. Stock-based compensation expense for the three months ended September 30, 2010 was $15,325.  The remaining $20,147 stock-based compensation will be expensed over the remainder of the one year service period.

On April 27, 2010, the Board of Directors approved the grant of stock options to purchase 100,000 shares of the Company’s common stock under the “2009 Equity Incentive Plan” to certain key employees as reward for past services and to promote future performance. These options have exercise price of $2.71 per share, expiring on the fifth anniversary of the grant date, and vest in three equal installments on each of the first, second and third anniversary of the vesting commencement date, which is April 27, 2010.

Stock-based compensation expense for the three months ended September 30, 2010 on the stock option was $16,043.  The remaining $163,574 stock based compensation will be expensed over the remainder of the three years service period.

The fair value of the options was $190,952, valued using a Black-Scholes model.  The following assumptions were used to calculate the fair value of the options: dividend yield of 0%, expected volatility of 90%, risk-free interest rate of 2.46%, expected life of 5 years, and stock price of $2.71 per share.

The following table summarizes the options for the three months ended September 30, 2010:

	Options		Weighted-average exercise price		Aggregate Intrinsic Value
Outstanding at June 30, 2010		100,000	$	2.71	$	-
Issued		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2010		100,000	$	2.71	$	-

F-14

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 11 – EARNINGS PER SHARE

Basic earnings per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period.  Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period.  The following table sets forth the computation of basic and diluted earnings per share:

	For The Three Months Ended
	September 30,
	2010		2009
Net income attributable to the common stockholders	$	3,412,568	$	500,676
Basic weighted-average common shares outstanding		40,715,602		37,955,602
Dilutive effect of options, warrants, and contingently issuable shares		-		-
Diluted weighted-average common shares outstanding		40,715,602		37,955,602
Earnings per share:
Basic	$	0.08	$	0.01
Diluted	$	0.08	$	0.01

Warrants and options to purchase 685,000 and 100,000 shares of common stock, respectively were outstanding during the three months ended September 30, 2010, but were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive.

NOTE 12 - 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.

On September 13, 2010, the Company signed an agreement with Suzhou Institute of Architectural Design Co., Ltd. for the design of office building and the cost of the design is $391,734 (RMB2,623,874).  The design project is still in process and the final drawing of the plan has yet to be submitted to the Company’s management for approval.  As of October 31, 2010, 20% of the cost, or $78,347 (RMB524,775) has been paid as the prepayment for the design project. The remaining balance is due upon the approval of the construction design and the completion of the construction of the office building.

F-15

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 13 - SEGMENT INFORMATION

The Company has four reportable segments represented by its four subsidiaries Changshu Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua and Sutor Technology Co., Ltd. as described in Note 1.

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.  Cold-Rolled offers cold-rolled steel strips and acid pickled steel products.  Ningbo Zhehua trades steel and manufactures heavy steel pipe products and Sutor Technology Co., Ltd. has not started operation as of September 30, 2010.

Certain segment information is presented below:

At September 30, 2010 and for the three months then ended	Changshu Huaye		Jiangsu Cold-Rolled		Ningbo		Sutor Technology			Inter-Segment and Reconciling Items			Total
Revenue	$	41,550,567	$	77,461,969	$	6,235,681	$	-		$	(23,301,121	)	$	101,947,096
Total operating expenses		2,054,593		254,022		535,491		63			179,454			3,023,623
Interest income		182,994		3,577		2,742		-			-			189,313
Interest expense		225,688		1,156,638		18,089		-			134,395			1,534,810
Depreciation and amortization expense		538,998		1,119,304		217,796		-			-			1,876,098
Provision for income taxes		277,566		313,500		19,129		-			-			610,195
Net income (loss)		855,059		2,394,985		64,334		(63	)		98,253			3,412,568
Capital expenditures, net of VAT refunds		2,153		367,871		1,637		-			-			371,661
Total assets		191,753,076		183,680,496		26,797,882		6,605,511			(115,876,972	)		292,959,993

At September 30, 2009 and for the three months then ended	Changshu Huaye		Jiangsu Cold-Rolled		Ningbo		Sutor Technology		Inter-Segment and Reconciling Items			Total
Revenue	$	59,524,248	$	69,131,185	$	16,437,035	$	-	$	(21,284,146	)	$	123,808,322
Total operating expenses		1,942,408		267,864		451,902				236,137			2,898,311
Interest income		418,885		3,513		58,174		-		-			480,572
Interest expense		306,204		891,656		12,415		-		136,623			1,346,898
Depreciation and amortization expense		547,926		1,105,112		187,314		-		-			1,840,352
Provision for income taxes		80,584		37,892		104,913		-		-			223,389
Net income (loss)		241,752		316,945		314,740		-		(372,761	)		500,676
Capital expenditures, net of VAT refunds		9,396		42,424		21,972		-		-			73,792
Total assets		230,443,455		150,571,785		10,967,268		-		(82,281,632	)		309,700,876

F-16

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

NOTE 14 - GEOGRAPHIC INFORMATION

The following schedule summarizes the sources of the Company’s revenue by geographic regions for the three months ended September 30, 2010 and 2009:

	For the Three Months Ended September 30,
Geographic Area	2010		2009
People's Republic of China	$	94,917,103	$	115,737,743
Other Countries		7,029,993		8,070,579
Total	$	101,947,096	$	123,808,322

F-17

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China and the current global economic crisis on our business and on our customers’ business; the factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in this report, and any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended June 30, 2010 and subsequent SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

Use of Terms

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

Overview of Our Business

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

4

We sell most of our products to customers who operate primarily in the solar energy, appliances, automobile, construction, infrastructure, medical equipment and water resource industries. Most of our customers are located in China. Our primary export markets are Europe, Middle East, South America and Hong Kong.

Our manufacturing facilities, located in Changshu, China, have three HDG Steel production lines, one PPGI production line, one AP Steel production line and one cold-rolled steel line. Our current annual designed production capacity is approximately 700,000 metric tons, or MT, for HDG Steel, 200,000 MT for PPGI, 500,000 MT for AP Steel and 250,000 MT for cold-rolled steel. Ningbo Zhehua, our subsidiary located in Ningbo, currently has an annual capacity of 400,000 MT for welded steel pipe products.

Executive Overview of Quarterly Results

We experienced strong growth in gross profit, net income and earnings per share in the first quarter of fiscal year 2011 even though our revenue decreased as compared to the same period last year. In this quarter, we continued our strategic efforts to reduce the lower-margin steel trading business and focus on higher margin products. Our orders and production output in the first fiscal quarter was more heavily focused on advanced PPGI products that require sophisticated processing procedures and more production time. This resulted in lower total production volume, but that decrease was offset by the sale of products with a significantly higher profit margin. Despite the decrease of revenue from $123.8 million in the first fiscal quarter last year to $101.9 million in this fiscal quarter, gross profit and net income were up 91.3% and 581.6% as compared to the same quarter last year, respectively. In addition, we benefited from higher commodity prices and sales prices as inflationary pressures were present in the major sectors of the economy.

The following summarizes certain key financial information for the first fiscal quarter.

· Revenue: Revenue was $101.9 million for the three months ended September 30, 2010, a decrease of $21.9 million, or 17.7%, from $123.8 million for the same period last year.

· Gross Profit and Margin:Gross profit was $8.4 million for the three months ended September 30, 2010 as compared to $4.4 million for the same period last year. Gross margin was 8.3% for the three months ended September 30, 2010 as compared to 3.6% for the same period last year.

· Net Income: Net income was $3.4 million for the three months ended September 30, 2010, an increase of $2.9 million, or approximately 581.6%, from $0.5 million for the same period of last year.

· Fully diluted net income per share: Fully diluted net income per share was approximately $0.08 for the three months ended September 30, 2010, as compared to approximately $0.01 for the same period last year.

5

Revenue

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

Our operations consist of three business segments: Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua, which are our three principal manufacturing facilities.  Changshu Huaye manufactures HDG Steel and PPGI products.  In the three months ended September 30, 2010 and 2009, before eliminating the intercompany sales, Changshu Huaye generated revenue of $41.6 million and $59.5 million, which represented 40.8% and 48.1% of our total revenue, respectively.  Jiangsu Cold-Rolled manufactures AP Steel, cold-rolled steel and HDG Steel.  In the three months ended September 30, 2010 and 2009, after eliminating the inter-company sales, Jiangsu Cold-Rolled generated revenue of $53.7 million and $47.8 million, which represented 52.7% and 38.6% of our total revenue, respectively. Ningbo Zhehua manufactures steel pipe products.  In the three months ended September 30, 2010 and 2009, Ningbo Zhehua generated revenue of $6.2 million and $16.4 million, which represented 6.1% and 13.3% of our total revenue, respectively.

A substantial portion of our products are sold through our affiliate Shanghai Huaye, which also supplies to us a significant portion of our raw materials. Approximately 61.2% of our revenue was derived from Shanghai Huaye and its affiliates in the three months ended September 30, 2010, an increase from approximately 54.1% in the same period last year. We continue to take advantage of Shanghai Huaye’s extensive sales network and as we strive to independently enhance brand value.

Cost of Revenue

Cost of revenue includes direct costs to manufacture our products, including the cost of raw materials, labor, overhead, energy cost, handling charges, and other expenses associated with the manufacture and delivery of product. Direct costs of manufacturing are generally highest when we first introduce a new product due to higher start-up costs and higher raw material costs. As production volume increases, we typically improve manufacturing efficiencies and are able to strengthen our purchasing power by buying raw materials in greater quantities.

In the three months ended September 30, 2010, approximately $57.8 million of our procurement was conducted through Shanghai Huaye.  Due to the size of Shanghai Huaye and the economy of scale, it has stronger bargaining power than we do and our arrangement with Shanghai Huaye allows us to purchase raw materials at relatively lower prices than we could obtain from suppliers ourselves.

Gross Profit and Gross Margin

Gross profit is equal to the difference between our revenue and the cost of revenue.  Gross margin is equal to gross profit divided by revenue.  In the three months ended September 30, 2010, gross margin for domestic and international sales were approximately 7.4% and 20.4%, respectively. On a segment basis, Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua’s gross margins were 10.1%, 5.4% and 10.8% in the three months ended September 30, 2010, respectively.

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

6

We implemented a vertical integration strategy where we use our own AP Steel and cold-rolled steel products as raw materials for HDG Steel and PPGI products. We believe our vertically integrated operations will allow us to provide customers with one-stop services, build customer loyalty, and maintain stable operating margins.

Operating Expenses

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

General and Administrative Expenses

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

Selling Expenses

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

Our selling expenses are generally affected by the amount of international sales and our sales to unrelated parties. The transportation costs for our international sales are generally higher than domestic sales.  In addition, when we sell products to Shanghai Huaye and its affiliates, Shanghai Huaye generally arranges and bears the cost of transportation. In contrast, when we sell products to customers other than Shanghai Huaye, we generally bear the transportation costs, but we are able to charge a higher price.

Provision for Income Taxes

United States

Sutor Technology Group Limited is subject to United States federal income tax at a tax rate of 34%. No provision for income taxes in the United States has been made as Sutor Technology Group Limited had no taxable income for the three months ended September 30, 2010.

BVI

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

PRC

On March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax Law (the “New EIT Law”), and on December 6, 2007, the State Council of China passed the Implementing Rules for the EIT Law (“Implementing Rules”) which took effect on January 1, 2008. The New EIT Law and Implementing Rules impose a unified enterprise income tax (“EIT”) of 25.0% on all domestic-invested enterprises and Foreign Invested Entities (“FIEs”) established in the PRC, 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.

7

Despite these changes, the New EIT Law gives the FIEs established before March 16, 2007 (“Old FIEs”) a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT law shall gradually increase their EIT rate by 2% per year until the tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT law, are allowed to remain to enjoy their preference until these holidays expire.

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

In addition to the changes to the current tax structure, under the New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25.0% on its global income.  The Implementing Rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.”  On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies (the “Notice”), further interpreting the application of the New EIT Law and its implementation with respect to non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operation reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) ½ of directors with voting rights or senior management often reside in China. Such resident enterprise would be subject to an EIT rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

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

8

Reportable Operating Segments

As a result of the acquisition of Ningbo Zhehua, we now have three reportable operating segments which are categorized based on manufacturing facilities – Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua. Changshu Huaye manufactures and sells HDG Steel and PPGI products. Jiangsu Cold-Rolled manufactures and sells AP Steel, Cold-Rolled Steel and HDG Steel. Ningbo Zhehua manufactures and sells steel pipe products. Changshu Huaye and Jiangsu Cold-Rolled are adjacent to each other and use largely the same management resources. See Note 13, “Segment Information” to the consolidated financial statements included elsewhere in this report.

Results of Operations

On November 10, 2009, Changshu Huaye acquired 100% of the equity interests of Ningbo Zhehua from Shanghai Huaye for a cash payment of approximately $6.6 million.  We consider Shanghai Huaye to be an affiliate due to the fact that Ms. Lifang Chen, our major shareholder, chief executive officer and chairwoman, and her husband Feng Gao own 100% of Shanghai Huaye.  We treated the acquisition of Ningbo Zhehua as a related party transaction.  From an accounting perspective, the acquisition was accounted for as a transfer of equity interests between entities under common control and was recognized as a recapitalization of Ningbo Zhehua into the Company in a manner similar to the pooling-of-interests method of accounting, with the assets and liabilities of Ningbo Zhehua recognized at their historical carrying amounts.  As a result of the reorganization, the financial statements for the periods covered by this quarterly report have been adjusted to combine the assets, liabilities, stockholders’ equity, and results of operations and cash flows of Ningbo Zhehua with those of the Company for all periods presented. The $6.6 million payment to Shanghai Huaye has been recognized as a dividend distribution to its shareholders in November 2009.

Comparison of Three Months Ended September 30, 2010 and September 30, 2009

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

9

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

(Unaudited)	Three Months Ended September 30,
	2010						2009
	Amount			As a Percentage of Revenue			Amount			As a Percentage of Revenue
Revenue:
Revenue from unrelated parties	$	39,560			38.8	%	$	56,804			45.9	%
Revenue from related parties		62,387			61.2	%		67,004			54.1	%
Total		101,947			100	%		123,808			100	%
Cost of Revenue:
Cost of revenue:		31,930			34.1	%		54,331			45.5	%
Cost of revenue from related parties		61,581			65.9	%		65,069			54.5	%
Total		93,511			100	%		119,400			100	%
Gross Profit		8,436			8.3	%		4,408			3.6	%
Operating Expenses
Selling expense		1,381			1.4	%		1,604			1.3	%
General and administrative expense		1,643			1.6	%		1,294			1.0	%
Total Operating Expenses		3,024			3.0	%		2,898			2.3	%
Income from Operations		5,412			5.3	%		1,510			1.2	%
Other Income (Expense)
Interest income		189			0.2	%		481			0.4	%
Other income		22			0.0	%		320			0.3	%
Interest expense		(1,535	)		1.5	%		(1,347	)		1.1	%
Other expense		(66	)		0.1	%		(240	)		0.2	%
Total Other Expense		(1,390	)		1.4	%		(786	)		0.6	%
Income Before Taxes and Minority Interest		4,022			3.9	%		724			0.6	%
Provision for income taxes		(610	)		-			(223	)		-
Net Income	$	3,412			3.3	%	$	501			0.4	%

The following table sets forth revenue by geography and the percentage of our total revenue and total revenue by business segments for the three months ended September 30, 2010 and 2009.

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

(Unaudited)	Three Months Ended September 30,
	2010					2009
	Amount		As a Percentage of Revenue			Amount		As a Percentage of Revenue
Geographic Data:
China	$	94,917		93.1	%	$	115,738		93.5	%
Other Countries		7,030		6.9	%		8,071		6.5	%
Total Revenue	$	101,947		100	%	$	123,808		100.0	%
Segment Data:
Changshu Huaye	$	41,551		40.8	%	$	59,524		48.1	%
Jiangsu Cold-Rolled		54,161		53.1	%		47,847		38.6	%
Ningbo Zhehua		6,236		6.1	%		16,437		13.3	%

10

Revenue

Revenue decreased $21.9 million, or 17.7%, to $101.9 million for the three months ended September 30, 2010, from $123.8 million for the same period last year. The decrease was primarily attributable to lower total production volume for our PPGI products and our strategic efforts to reduce the lower-margin steel trading businesses, which was partially offset by higher average sales price of approximately 10% as compared to the same quarter last year. We produced more advanced PPGI products that require sophisticated processing procedures and hence more production time than we did in the same period a year ago. In efforts to improve our gross margin and better allocate our resources, we also significantly reduced our lower margin steel trading volumes which contributed to the lower total revenues in this fiscal quarter.

On a geographic basis, revenue generated from outside of mainland China was $7.0 million, accounting for 6.9% of our revenue in the three months ended September 30, 2010 as compared to $8.1 million, which was 6.5% of our revenue for the same period last year.  We increased marketing efforts in targeted overseas markets and benefited from such efforts when the demand for our products in overseas markets remained consistent in this quarter.

On a segment basis before eliminating intercompany sales, revenue contributed by Changshu Huaye decreased to $41.6 million for the three months ended September 30, 2010, a decrease of $17.9 million, or 30.1%, from $59.5 million for the same period last year. The decrease was mainly attributable to the decreased overall product output of Changshu Huaye. Due to increasing market demand, we produced more advanced PPGI products in the three months ended September 30, 2010 which require sophisticated processing procedures and hence more production time. While such efforts resulted in decrease of sales volume and revenue, it contributed to the significant increase in gross margin and net income.

After eliminating the inter-company sales, revenues generated by Jiangsu Cold-Rolled were $53.7 million for the three months ended September 30, 2010, an increase of $5.9 million from $47.8 million for the same period last year, mainly as a result of the increased output of the new 400,000 MT HDG Steel production lines.

Revenues from Ningbo Zhehua were $6.2 million for the three months ended September 30, 2010, a decrease of $10.2 million from $16.4 million for the same period last year. After our acquisition of Ningbo Zhehua, we made a strategic decision to reduce its lower-margin steel trading businesses and increased its efforts on higher-margin production businesses.

In terms of sales to related parties as compared with sales to unrelated parties, our direct sales to unrelated parties in the three months ended September 30, 2010 decreased $17.2 million, or 30.3%, to $39.6 million from $56.8 million for the same period last year.

Cost of Revenue

Cost of revenue decreased $25.9 million, or 21.7% to $93.5 million for the three months ended September 30, 2010 from $119.4 million for the same period last year.  As a percentage of revenue, the cost of revenue decreased to 91.7% for the three months ended September 30, 2010 from 96.4% for the same period last year.  The amount decrease of cost of revenue was mainly due to the decreased sales volume.

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Gross Profit

Gross profit increased $4.0 million to $8.4 million for the three months ended September 30, 2010 from $4.4 million for the same period last year.  Gross profit as a percentage of revenue (gross margin) was 8.3% for the three months ended September 30, 2010, as compared to 3.6% for the same period last year.  The increased gross margin mainly resulted from changes in product mix and reduced revenue generated from the lower margin steel trading business as discussed above.

Gross margin for Changshu Huaye increased to 10.1% for the three months ended September 30, 2010 as compared to 4.8% for the same period last year. Changshu Huaye produced more advanced higher-margin PPGI products in the three months ended September 30, 2010 which contributed to the overall margin increase of Changshu Huaye. Gross margin for Jiangsu Cold-Rolled increased to 5.4% for the three months ended September 30, 2010 as compared to 3.3% for the same period last year, mainly due to the increase of sales prices. Gross margin for Ningbo Zhehua was approximately 10.8% for the three months ended September 30, 2010 as compared with approximately 4.9% in the same period last year, mainly as a result of our strategic efforts to reduce its lower-margin steel trading business.

Total Operating Expenses

Our total operating expenses increased $0.1 million to $3.0 million for the three months ended September 30, 2010, from $2.9 million for the same period last year.  As a percentage of revenue, our total operating expenses increased to 2.9% for the three months ended September 30, 2010 from 2.3% for the same period last year.

General and Administrative Expenses. General and administrative expenses increased approximately $0.3 million to $1.6 million for the three months ended September 30, 2010 from $1.3 million for the same period last year.  As a percentage of revenue, general and administrative expenses increased to 1.6% for the three months ended September 30, 2010 from 1.1% for the same period last year. Such dollar and percentage increase was mainly due to a credit to the expenses related to fixed assets in the same period last year and some one-time office building renovation expenses incurred during the three months ended September 30, 2010.

Selling Expenses. Selling expenses decreased $0.2 million to $1.4 million for the three months ended September, 2010, from $1.6 million for the same period last year.  As a percentage of revenue, our selling expenses increased slightly to1.4% for the three months ended September 30, 2010 from1.3% for the same period last year.  The dollar decrease and percentage increase were mainly due to the decrease in sales revenue and sales volume.

Interest Expense

Interest expense increased $0.2 million to $1.5 million for the three months ended September 30, 2010, from $1.3 million for the same period last year.  As a percentage of revenue, our interest expenses increased to 1.5% for the three months ended September 30, 2010, from 1.1% for the same period last year.  The amount increase was mainly due to the increased amount of discounted notes in this quarter.

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Provision for Income Taxes

We incurred income tax expense of $0.6 million and $0.2 million during the three months ended September, 2010 and 2009, respectively.  Such increase was primarily attributable to the increase of income.

Net Income

Net income, without including the foreign currency translation adjustment, increased $2.9 million, or approximately 581.6%, to $3.4 million for the three months ended September 30, 2010 from $0.5 million for the same period last year, mainly as a result of the reasons as stated above.

Liquidity and Capital Resources

Our major sources of liquidity for the periods covered by this quarterly report were borrowings through short-term bank and private loans.  Our operating activities provided $1.6 million of cash in the three months ended September 30, 2010. As of September 30, 2010, our total indebtedness to non-related parties under existing short-term loans was $82.3 million, our short-term notes payable to related parties was $0.6 million, and our long-term notes payable to non-related parties was $2.9 million. We had no long-term notes payable to related parties.

Short-term bank and private loans are likely to continue to be our key sources of financing for the foreseeable future, although in the future we may raise additional capital by issuing shares of our capital stock in an equity financing. We expect to renew our short term loans when they become due.

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.

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 and (vi) we may find ourselves at a competitive disadvantage compared to competitors that have proportionately less debt. If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations and be subject to foreclosure on such loans. Additionally, we could incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify.

13

 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 September 30, 2010, we had cash and cash equivalents (excluding restricted cash) of $17.1 million and restricted cash of $45.1 million.  The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.

Cash Flow

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

(Unaudited)	Three Months Ended September 30,
	2010			2009
Net cash provided by (used in) operating activities	$	1,554		$	(8,179	)
Net cash (used in) investing activities		(838	)		(27	)
Net cash provided by financing activities		2,785			11,062
Effect of foreign currency translation on cash and cash equivalents		246			8
Net cash flows		3,747			2,865

Operating Activities

Net cash provided by operating activities was $1.6 million for the three months ended September 30, 2010, an increase of $9.8 million from $8.2 million net cash used in operating activities for the same period last year.  Such increase of net cash provided by operating activities was mainly because we made less advance payments and received more advance payments from customers in this fiscal quarter.

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 during the three months ended September 30, 2010 was $0.8 million which was mainly used in building a new plant, as compared to $0.03 million net cash used in investing activities for the same period in 2009.

Financing Activities

Net cash provided by financing activities for the three months ended September 30, 2010 totaled $2.8 million as compared to $11.1 million net cash provided by financing activities for the same period last year.  Such decrease in net cash provided by financing activities was mainly because the decrease in proceeds from issuance of notes payable and restricted cash.

14

The table below sets forth the amount, starting date, maturity date and guarantor of each of our bank loans as of September 30, 2010:

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

Lender	Amount*		Starting Date		Maturity Date		Guarantor**
Changshu Rural Commercial Bank	$	3.28		2010-04-09		2010-10-08	None
Industrial and Commercial bank of China Changshu Branch		2.99		2010-05-20		2011-05-19	None
The Agricultural Bank of China, Changshu Branch		7.46		2010-05-27		2011-05-26	None
Communications Bank of China, Changshu Branch		2.99		2010-06-25		2010-12-20	None
The Agricultural Bank of China Changshu Branch		2.39		2009-10-29		2010-10-24	None
The Agricultural Bank of China Changshu Branch		7.46		2009-11-19		2010-11-14	Shanghai Huaye
The Agricultural Bank of China Changshu Branch		2.24		2010-02-03		2011-01-20	Shanghai Huaye
Industrial and Commercial bank of China Changshu Branch		2.99		2010-03-01		2011-03-01	Changshu Huaye
Industrial and Commercial bank of China Changshu Branch		2.99		2010-04-30		2011-04-29	Changshu Huaye
The Agricultural Bank of China Changshu Branch		5.08		2010-05-26		2011-05-24	Changshu Huaye
The Agricultural Bank of China Changshu Branch		9.70		2010-07-09		2011-06-20	Shanghai Huaye
The Agricultural Bank of China Changshu Branch		3.73		2010-07-09		2011-07-08	Shanghai Huaye
The Agricultural Bank of China Changshu Branch		7.02		2010-07-30		2011-07-28	Shanghai  Huaye
The Agricultural Bank of China Changshu Branch		5.97		2010-08-25		2011-08-22	Shanghai Huaye
The Agricultural Bank of China Changshu Branch		5.97		2010-09-08		2011-09-06	None
The Agricultural Bank of China Changshu Branch (Dollar Account)		7.40		2010-09-30		2010-10-28	None
Shenzhen Development Bank Ningbo Branch		1.49		2010-08-20		2011-08-20	None
Bank of China, Ning Bo Branch		1.13		2010-09-07		2010-12-08	None
Chen Lifang		0.60		N/A		N/A	None
Lin Gui Hua		2.86		2008-11-20		2011-11-20	None
Total	$	85.74

* Calculated on the basis that $1 = RMB 6.69810.

** 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 us to maintain certain inventory levels. We were in compliance with these debt covenants as of September 30, 2010.

15

In the coming 12 months, we have approximately $82 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, credit facilities referred to above and the expected additional credit facility should be adequate to sustain our operations at the current level for at least the next twelve months. However, depending on our future needs and changes and trends in the capital markets affecting our shares and the Company, we may determine to seek additional equity or debt financing in the private or public markets.

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management.  Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions.  There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.

Recent Accounting Pronouncements

In June 2009, the FASB issued guidance on the consolidation of variable interest entities, which is effective for the Company beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The Company believes adoption of this new guidance did not have an impact on the financial statements.

Seasonality

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

Off Balance Sheet Arrangements

We do not have any off-balance arrangements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined by regulations of the SEC, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC 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 us in the reports that we file or submit to the SEC under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of Lifang Chen, our Chief Executive Officer, and Yongfei Jiang, our Chief Financial Officer, have evaluated the design and operating effectiveness of our disclosure controls and procedures as of September 30, 2010. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures were effective as of September 30, 2010.

16

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during its most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

17

PART II

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

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

ITEM 1A.  RISK FACTORS.

Not Applicable.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.  (REMOVED AND RESERVED).

ITEM 5.  OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.  EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of 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.

18

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 12, 2010	SUTOR TECHNOLOGY GROUP LIMITED
	By:	/s/ Lifang Chen
		Lifang Chen, Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Yongfei Jiang
		Yongfei Jiang, Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

19