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: March 31, 2015

¨ 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: 001-33959

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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 May 12, 2015 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	42,362,267

 SUTOR TECHNOLOGY GROUP LIMITED

Quarterly Report on Form 10-Q

 Period Ended March 31, 2015

TABLE OF CONTENTS

	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	15
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	16

i

PART I

FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS.

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Page
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2015 and June 30, 2014	F-1 – F-2
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31, 2015 and 2014	F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014	F-4 – F-5
Notes to Unaudited Condensed Consolidated Financial Statements	F-6 – F-22

1

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,		June 30,
	2015		2014
ASSETS
Current Assets:
Cash and cash equivalents	$	2,611,240	$	12,178,225
Restricted cash		-		60,860,255
Short-term investments		-		3,248,652
Trade accounts receivable, unrelated parties, net of allowance for doubtful accounts of $1,287,544 and $1,368,723, respectively		7,591,806		6,331,702
Trade accounts receivable, related parties		39,490,041		16,149,269
Notes receivables		63,657		194,919
Other receivables and prepayments, unrelated parties, net of allowance for doubtful accounts of $325,427 and $255,628, respectively		2,001,352		1,875,785
Other receivables and prepayments, related parties		407,931		405,558
Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $619,141 and $527,673, respectively		8,111,881		8,645,751
Advances to suppliers, related parties		275,880,702		286,085,768
Inventories, net		29,895,466		78,277,682
Current deferred tax assets		4,160,207		1,507,840
Total Current Assets		370,214,283		475,761,406
Non-current Assets:
Advances for purchase of long term assets		85,739		85,241
Long-term advances to suppliers, related parties, net		33,287,396		-
Property, plant and equipment, net		82,949,711		87,121,382
Intangible assets, net		3,524,275		3,568,855
Long-term investments		1,825,349		1,814,734
Total Non-current Assets		121,672,470		92,590,212
TOTAL ASSETS	$	491,886,753	$	568,351,618

F-1

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(CONTINUED)

	March 31,			June 30,
	2015			2014
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term loans	$	203,376,129		$	139,223,123
Accounts payable, unrelated parties		7,996,523			5,843,599
Accounts payable, related parties		352,907			-
Notes payable		1,670,006			136,274,446
Other payables and accrued expenses, unrelated parties		14,974,459			4,613,201
Other payables and accrued expenses, related parties		3,378,641			3,110,196
Advances from customers, unrelated parties		9,095,000			7,917,111
Advances from customers, related parties		628,758			15,114,353
Warrant liabilities		-			866
Total Current Liabilities		241,472,423			312,096,895
Non-Current Liabilities
Long-term loans, unrelated parties		2,859,995			2,859,995
Long-term loans, related parties		8,182,018			8,182,018
Total Non-current Liabilities		11,042,013			11,042,013
Total Liabilities		252,514,436			323,138,908
Commitments and Contingencies (Note 15)
Stockholders' Equity
Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; nil shares outstanding		-			-
Common stock - $0.001 par value; authorized: 500,000,000 shares as of March 31, 2015 and June 30, 2014; issued: 42,282,267 shares and 42,252,267 shares as of March 31, 2015 and June 30, 2014, respectively		42,282			42,252
Additional paid-in capital		43,797,358			43,652,089
Statutory reserves		22,725,841			22,725,841
Retained earnings		129,464,830			137,081,594
Accumulated other comprehensive income		43,993,515			42,362,443
Less: Treasury stock, at cost, 590,838 as of March 31, 2015 and June 30, 2014		(651,509	)		(651,509	)
Total Stockholders' Equity		239,372,317			245,212,710
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	491,886,753		$	568,351,618

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

	For The Three Months Ended						For The Nine Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Revenue from unrelated parties – sales of goods	$	17,053,145		$	50,478,926		$	42,779,567		$	254,891,263
Revenue from unrelated parties – services		4,013,826			-			17,583,405
Revenue from related parties – sales of goods		21,860			45,898,686			83,972,747			108,911,484
Revenue from related parties - services		-			-			43,191			-
Total Revenue		21,088,831			96,377,612			144,378,910			363,802,747
Cost of Revenue		(22,163,818	)		(89,054,821	)		(142,025,978	)		(330,651,702	)
Gross Profit		(1,074,987	)		7,322,791			2,352,932			33,151,045
Operating Expenses:
Selling expenses		(480,426	)		(1,006,441	)		(1,506,935	)		(4,339,215	)
General and administrative expenses		(2,043,997	)		(2,687,763	)		(6,180,614	)		(8,216,753	)
Total Operating Expenses		(2,524,423	)		(3,694,204	)		(7,687,549	)		(12,555,968	)
Income from Operations		(3,599,410	)		3,628,587			(5,334,617	)		20,595,077
Other Incomes/(Expenses):
Interest income		2,194			771,046			618,058			2,607,812
Interest expense		(177,191	)		(1,998,580	)		(5,593,946	)		(6,376,833	)
Changes in fair value of warrant liabilities		138			143,567			866			76,669
Income from equity method investments		-			30,681			-			296,809
Other income		(13,019	)		(90,919	)		280,079			128,107
Other expense		(34,125	)		(744,370	)		(219,055	)		(964,150	)
Total Other Expenses, net		(222,003	)		(1,888,575	)		(4,913,998	)		(4,231,586	)
Income/(Loss) Before Taxes		(3,821,413	)		1,740,012			(10,248,615	)		16,363,491
Income tax (expense)/benefit		1,269,521			(626,356	)		2,631,851			(3,666,452	)
Net Income/(Loss)	$	(2,551,892	)	$	1,113,656		$	(7,616,764	)	$	12,697,039
Other Comprehensive Income:
Foreign currency translation adjustment		1,150,656			(2,422,686	)		1,631,072			714,426
Comprehensive Income/(Loss)	$	(1,401,236	)	$	(1,309,030	)	$	(5,985,692	)	$	13,411,465
Basic Earnings/(Loss) per Share	$	(0.06	)	$	0.03		$	(0.18	)	$	0.31
Diluted Earnings/(Loss) per Share	$	(0.06	)	$	0.03		$	(0.18	)	$	0.31
Basic Weighted Average Shares Outstanding		41,679,096			41,548,819			41,667,232			41,470,152
Diluted Weighted Average Shares Outstanding		41,679,096			41,548,819			41,667,232			41,470,152

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

F-3

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For The Nine Months Ended
	March 31,
	2015			2014
Cash Flows from Operating Activities:
Net (loss)/income	$	(7,616,764	)	$	12,697,039
Adjustments to reconcile net income to net cash provided by/(used in) operating activities
Depreciation and amortization		6,278,329			6,800,389
Provision/(reversal) for doubtful accounts		67,797			(121,322	)
Stock based compensation		145,299			398,123
Foreign currency exchange gain		-			(37,907	)
Gain on disposal of property, plant and equipment		-			(11,075	)
Income from equity method investments		-			(296,809	)
Deferred income taxes		(2,631,851	)		(8,987	)
Changes in fair value of warrant liabilities		(866	)		(76,669	)
Changes in current assets and liabilities:
Restricted cash		60,945,391			(7,926,735	)
Trade accounts receivable, unrelated parties		(1,129,463	)		(588,183	)
Trade accounts receivable, related parties		(23,143,463	)		(26,643,587	)
Notes receivable		131,816			-
Other receivables and prepayments, unrelated parties		(182,090	)		(1,821,968	)
Advances to suppliers, unrelated parties		493,863			21,997,275
Advances to suppliers, related parties		(21,316,668	)		(89,009,045	)
Inventories		48,620,660			(38,600,780	)
Accounts payable, unrelated parties		1,255,961			64,198,549
Accounts payable, related parties		351,345			41,735,109
Notes payable		(134,802,460	)		-
Other payables and accrued expenses, unrelated parties		10,294,917			247,358
Other payables and accrued expenses, related parties		259,895			27,528,078
Advances from customers, unrelated parties		1,128,382			4,702,254
Advances from customers, related parties		(14,509,520	)		15,989,417
Net Cash (Used in)/Provided by Operating Activities		(75,359,490	)		31,150,524
Cash Flows from Investing Activities:
Purchase of property, plant and equipment		(786,588	)		(8,488,717	)
Proceeds from disposal of property, plant and equipment		87,374			17,178
Purchase of intangible assets		-			(568,119	)
Payments for short-term investments		-			(13,851,544	)
Proceeds from sale of short-term investments		3,253,196			-
Net Cash Provided by/(Used In) Investing Activities		2,553,982			(22,891,202	)
Cash Flows from Financing Activities:
Proceeds from loans		178,913,067			93,219,276
Repayment of loans		(115,854,623	)		(121,389,798	)
Proceeds from issuance of common stock		-			1,500,000
Changes in restricted cash		-			21,517,459
Net Cash Provided by Financing Activities		63,058,444			(5,153,063	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		180,079			(12,317	)
Net Change in Cash and Cash Equivalents		(9,566,985	)		3,093,942
Cash and Cash Equivalents at Beginning of Period		12,178,225			3,601,385
Cash and Cash Equivalents at End of Period	$	2,611,240		$	6,695,327

F-4

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED)

Supplemental Non-Cash Information:
Accounts payable for purchase of long-term assets	$	853,408		$	110,393
Advances for purchase of long-term assets	$	-		$	17,123,508
Supplemental Cash Flow Information:
Cash paid during the period for interest expense	$	(4,160,475	)	$	(7,256,280	)
Cash paid during the period for income tax	$	-		$	(4,678,335	)

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

F-5

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

Sutor Technology Group Limited (“Sutor”) was incorporated on May 1, 1997 in the State of Nevada under the name of Bronze Marketing, Inc. and changed the name to Sutor Technology Group Limited effective March 6, 2007. Its principal activity is investment holding. The principal activities of its subsidiaries are described in the table below. Sutor together with its subsidiaries listed below are referred to as the “Company” hereinafter.

As of March 31, 2015, Sutor’s subsidiaries and affiliated company included the following entities:

Name of subsidiary or affiliate	Date of incorporation/ acquisition	Place of incorporation	Percentage of shareholding	Principal activities
Sutor Steel Technology Co., Ltd. (“Sutor BVI”)	August 15, 2006	British Virgin Islands	100%	Investment holding
Changshu Huaye Steel Strip Co., Ltd. (“Changshu Huaye”)	January 17, 2003	PRC	100%	Manufacture of hot-dip galvanized steel (“HDG”) and pre-painted galvanized steel (“PPGI”)
Jiangsu Cold-Rolled Technology Co., Ltd. (“Jiangsu Cold-Rolled”)	August 28, 2003	PRC	100%	Manufacture of cold-rolled steel, acid pickled steel and hot-dip galvanized steel
Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. (“Ningbo Zhehua”)	April 5, 2004	PRC	100%	Manufacture of heavy steel pipe
Sutor Technology Co., Ltd. (“Sutor Technology”)	February 24, 2010	PRC	100%	Trading of steel products

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, the Company had cash and cash equivalents amounted to $3 million as of March 31, 2015. Since the Company has certain bank borrowings which are due within the near term future, sufficient funds may not be available to the Company. Accordingly, the Company may need to raise additional funds through public or private equity or debt financing. Any additional equity financing may be dilutive to shareholders and debt financing, if available, may involve covenants that would restrict the Company. The Company expects to generate money from operations, borrowings from banks and new contributions from investors to meet the Company’s working capital requirements for at least the next twelve months from March 31, 2015. The Company believes that it will be able to repay or extend short term borrowings and other liabilities as they become due for at least the next twelve months from March 31, 2015.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Statements – The accompanying unaudited condensed consolidated financial statements of the Company 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 and nine months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending June 30, 2015. The accompanying unaudited 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, 2014. The Company follows the same accounting policies in the preparation of interim reports.

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

F-6

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

Functional Currency and Translating Financial Statements - Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the condensed consolidated statement of operations and comprehensive income.

The reporting currency of the Company is the United States Dollars (“USD”). Sutor and Sutor BVI maintain their books and records in USD, their functional currency. The PRC subsidiaries maintain their books and records in its local currency, the Renminbi Yuan (“RMB”), which is their functional currencies as being the primary currency of the economic environment in which these entities operate. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the USD are translated into USD, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income.

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective periods:

	March 31,  2015		March 31,  2014		June 30, 2014
Closing RMB : USD exchange rate at the period end		6.1206		6.1632		6.1564
Average nine months RMB : USD exchange rate		6.1478		6.1365		n/a

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Accounting Estimates – The preparation of financial statements in conformity with US GAAP 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 materially differ from those estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are provision for doubtful accounts on trade accounts receivable, notes receivable, other receivables and prepayments, advances to suppliers, reserves for inventories, estimated useful lives of property, plant and equipment, valuation allowance for deferred tax assets and valuation of warrant liabilities.

Cash and Cash Equivalents - Cash and cash equivalents are stated at cost, which approximates fair value, and consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use and have original maturities of less than 90 days.

Restricted Cash - Restricted cash represents amounts held by banks in escrow as security for either notes payable that have yet to be drawn down or bank loans and therefore are not available for the Company’s use.

Short-term investments - Investments with stated maturities of greater than 90 days but less than 365 days are mainly time deposits that are classified as short-term investments. Short-term investments are classified as held-to-maturity and recorded at amortized cost when the Company has both the positive intent and ability to hold investments to maturity. As of June 30, 2014, all the short-term investments of the Company were classified as held-to-maturity.

Trade Accounts Receivable - Trade accounts receivable are carried at original invoiced amounts less an allowance for doubtful accounts.

Allowance for doubtful accounts – The Company provides a general provision for doubtful accounts for the outstanding trade receivable balances based on historical experience and information available. Additionally, the Company makes specific bad debt provisions based on (i) specific assessment of the collectability of all significant accounts; and (ii) any specific knowledge the Company has acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Company to use substantial judgment in assessing its collectability.

F-7

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

Inventories - Inventories are stated at the lower of cost or market. The cost of inventories is determined using first-in-first-out method, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In case of finished goods and work in progress, cost includes an appropriate share of production overhead based on normal operating capacity. The Company regularly reviews the cost of inventories against their estimated fair market value and records a lower of cost or market write-down for inventories that have cost in excess of estimated market value.

Property, Plant and Equipment – Property, plant and equipment are stated at cost and are depreciated using the straight-line method 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

Repair and maintenance costs are charged to expense as incurred, whereas the costs of betterments that extend the useful life of property, plant and equipment are capitalized as additions to the related assets. Retirements, sale and disposals of assets are recorded by removing the cost and accumulated depreciation with any resulting gain or loss reflected in the consolidated statements of operations.

Property, plant and equipment that are purchased or constructed which require a period of time before the assets are ready for their intended use are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including installation costs. Construction-in-progress is transferred to specific property, plant and equipment accounts and commences depreciation when these assets are ready for their intended use.

Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could have been avoided if expenditures for these assets have not been made. Capitalization of interest costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are incurred. Interest costs are capitalized until the assets are ready for their intended use.

Foreign invested enterprises and foreign enterprises running business in the PRC are generally able to receive a refund of the value-added tax paid on property, plant and equipment purchased and manufactured within the PRC. The Company recognizes refunds of value-added tax as a reduction of property, plant and equipment when the refunds are collected.

Intangible Assets – Intangible assets are land use rights. Acquisition costs of land use rights are capitalized and amortized using the straight-line method over the land lease term of 50 years.

Impairment of Long-lived Assets - The Company evaluates its long-lived assets or asset group, including intangible assets with finite lives, for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, the Company evaluates for impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available for the long-lived assets. No impairment charge was recognized for the three and nine months ended March 31, 2015 and 2014, respectively. The Company is gradually changing its business model from selling products to providing processing services. The change of business model did not trigger impairment of long-term assets since all of the long-term assets continue to be utilized by the processing model and the estimated useful lives remain the same.

Notes Payable – Notes payable represent accounts payable in the form of bills of exchange whose acceptances are guaranteed and settlements are handled by banks. The Company has pledged cash deposits and certain property, plant and equipment to secure notes payable granted by banks.

F-8

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

Fair Values of Financial Instruments - The Company adopted ASC 820 “Fair value measurements and disclosures”. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under US GAAP, certain assets and liabilities must be measured at fair value, and the guidance details the disclosures that are required for items measured at fair value.

The three levels are defined as follows: Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities. Level 2 – Valuations based other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Financial instruments of the Company primarily comprise of cash and cash equivalents, restricted cash, short-term investments, trade accounts receivable, other receivables, loans, accounts payable, other payables and warrant liabilities. As of March 31, 2015 and June 30, 2014, cash and cash equivalents, restricted cash, short-term investments, trade accounts receivable, other receivables, short-term loans, current portion of long-term loans, accounts payable and other payables were carried at cost on the condensed consolidated balance sheets, and carrying amounts approximated their fair values because of their generally short maturities. The estimated fair value of long-term loan approximated the carrying amount as of March 31, 2015 and June 30, 2014 as they bear floating interest rate and the market rate approximate the floating interest rates at the respective balance sheet dates. Warrants are recorded as liabilities at their estimated fair value at the date of issuance, with subsequent changes in estimated fair value recorded in changes in fair value of warrant liabilities on the Company’s statement of operations in each subsequent period. The warrants were measured at estimated fair value using the Black Scholes valuation model, which was based, in part, upon inputs for which there is little or no observable market data, requiring the Company to develop its own assumptions. Inherent in this model were assumptions related to expected stock-price volatility, expected life, risk free interest rate and dividend yield. We estimated the volatility of our common stock at the date of issuance, and at each subsequent reporting period, based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate was based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants was assumed to be equivalent to their remaining contractual term. The dividend rate was based on our historical rate, which we anticipated to remain at zero. The assumptions used in calculating the estimated fair value of the warrants represent our best estimates. However these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and different assumptions were used, the warrant liability and the changes in estimated fair value could be materially different.

Liabilities measured at fair value on a recurring basis are summarized below:

	Balance as of March 31, 2015
			Fair Value Measurements
	Carrying Value		Level 1		Level 2		Level 3
Warrant liabilities	$	-	$	-	$	-	$	-
	Balance as of June 30, 2014
			Fair Value Measurements
	Carrying Value		Level 1		Level 2		Level 3
Warrant liabilities	$	866	$	-	$	-	$	866

For a summary of changes in warrant liabilities for the three and nine months ended March 31, 2015, please see Note 12.

Statutory Reserves - In accordance with the PRC Regulations on Enterprises with Foreign Investment, an enterprise established in the PRC with foreign investment is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A wholly owned foreign enterprise (“WOFE”) is required to allocate at least 10% of its annual after-tax profit to the General Reserve Fund until the balance of such fund has reached 50% of its respective registered capital. A non-wholly owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

F-9

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

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

Revenue Recognition - The Company recognizes revenues from the sale of products when they are realized and earned. The Company considers revenue realized 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.

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 recorded as revenue, and the associated costs are included in cost of revenues.

Employee Benefits - The full-time employees of the Company’s PRC subsidiaries are entitled to staff welfare benefits including medical care, housing fund, pension benefits and unemployment insurance, which are governmental mandated defined contribution plans. These entities are required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued.

Stock-based Compensation – Share options granted to employees are accounted for under ASC 718, “Compensation – Stock Compensation”, which requires that share-based awards granted to employees be measured based on the grant date fair value and recognized as compensation expense over the requisite service period (which is generally the vesting period) in the consolidated statements of operations. The Company has elected to recognize compensation expense using the straight-line method for all share options granted with service conditions that have a graded vesting schedule.

ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Forfeiture rate is estimated based on historical and future expectation of employee turnover rate and are adjusted to reflect future change in circumstances and facts, if any. Share-based compensation expense is recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest. To the extent the Company revises this estimate in the future, the share-based payments could be materially impacted in the period of revision, as well as in following periods.

Transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on the earlier of: (1) the performance commitment date, or (2) the date the services required under the arrangement have been completed.

Income Taxes – The Company accounts for income taxes using the liability method whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of certain assets and liabilities, changes in deferred tax assets and liabilities, if any, include the impact of any tax rate changes enacted during the year. ASC Topic 350, “Accounting for Income Taxes,” requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Additionally, the Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes. The Company did not have any uncertain tax positions for the three and nine months ended March 31, 2015 and 2014.

If the amount of the Company’s taxable income or income tax liability is a determinant of the amount of a grant, the grant is treated as a reduction of the income tax provision in the year the grant is realized.

F-10

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

Earnings Per Share – Earnings per share are calculated in accordance with ASC subtopic 260-10 (“ASC 260-10”), Earnings Per Share: Overall. Basic earnings per share is computed by dividing net income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of shares and dilutive equivalent shares outstanding during the period. Dilutive equivalent shares consist of ordinary shares issuable upon the exercise of stock options granted, with an exercise price less than the average fair market value for such period, using the treasury stock method. Dilutive equivalent shares are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 will eliminate transaction-specific and industry-specific revenue recognition guidance under current US GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The Company is currently assessing the impact the adoption of ASU 2014-09 and the effect of the standard on our ongoing financial reporting.

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-12 (“ASU 2014-12”), “Compensation—Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company is currently evaluating the impact of adopting this Update on its financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which will explicitly require management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Currently, there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the first annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact of adopting this update on its financial statements.

F-11

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

In January 2015, the FASB issued Accounting Standards Update No. 2015-01, “Income Statement-Extraordinary and Unusual Items (Subtopic 225-20)”, which simplifies income statement presentation by eliminating the concept of an extraordinary item. As a result, entities will no longer segregate an extraordinary item from the results of ordinary operations; separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; and disclose income taxes and earnings per share data applicable to an extraordinary item. The guidance is effective for the Company beginning the first quarter of fiscal 2017 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial position, results of operations, or cash flows.

NOTE 3 – SHORT-TERM INVESTMENTS

The following table summarizes the movement of short-term investments for the nine month ended March 31, 2015:

	Amount
As of June 30, 2014		3,248,652
Foreign currency translation adjustment		4,544
Disposal of short-term investments		(3,253,196	)
As of March 31, 2015	$	-

NOTE 4 – OTHER RECEIVABLES AND PREPAYMENTS

Other receivables and prepayments as of March 31, 2015 and June 30, 2014 consisted of the following:

	March 31,			June 30,
	2015			2014
Tax recoverable	$	176,027		$	10,266
Other receivables		2,150,752			2,121,147
		2,326,779			2,131,413
Less: allowance for doubtful accounts		(325,427	)		(255,628	)
Other receivables and prepayments, net	$	2,001,352		$	1,875,785

NOTE 5 – INVENTORIES

Inventories as of March 31, 2015 and June 30, 2014 consisted of the following:

	March 31,			June 30,
	2015			2014
Raw materials	$	17,593,394		$	14,006,475
Finished goods		12,436,870			64,405,222
		30,030,264			78,411,697
Less: allowance for obsolescence		(134,798	)		(134,015	)
Inventories, net	$	29,895,466		$	78,277,682

F-12

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of March 31, 2015 and June 30, 2014 consisted of the following:

	March 31,			June 30,
	2015			2014
Buildings and plant	$	51,294,456		$	47,013,051
Machinery		97,346,643			72,916,144
Office and other equipment		1,649,902			1,734,518
Vehicles		490,721			669,101
		150,781,722			122,332,814
Less: accumulated depreciation		(68,683,964	)		(62,419,223	)
		82,097,758			59,913,591
Construction in progress		851,953			27,207,791
Property, Plant and Equipment, net	$	82,949,711		$	87,121,382

As of March 31, 2015 and June 30, 2014, certain of the Company’s property, plant and equipment amounted to approximately $35 million and $39 million, respectively, was pledged to banks to secure the loan granted to the Company (Note 9).

Depreciation expense for the three months ended March 31, 2015 and 2014 was $2,218,106 and $2,267,712, respectively.

Depreciation expense for the nine months ended March 31, 2015 and 2014 was $6,213,164 and $6,737,944, respectively.

NOTE 7 – INTANGIBLE ASSETS

Intangible assets as of March 31, 2015 and June 30, 2014 consisted of the following:

	March 31,			June 30,
	2015			2014
Cost	$	4,363,644		$	4,338,269
Less: Accumulated amortization		(839,369	)		(769,414	)
Intangible Assets, net	$	3,524,275		$	3,568,855

The Company’s intangible assets represented several land use rights, which are amortized using the straight-line method over the lease term of 50 years. Amortization expense for the three months ended March 31, 2015 and 2014 was $21,733 and $21,823, respectively. Amortization expense for the nine months ended March 31, 2015 and 2014 was $65,165 and $62,445, respectively.

As of March 31, 2015 and June 30, 2014, certain of the Company’s intangible assets amounted to approximately $2.8 million was pledged to banks to secure the loan granted to the Company (Note 9).

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

ESTIMATED AMORTIZATION EXPENSE
Remainder of the year ending June 30, 2015	$	21,818
For the year ending June 30, 2016		87,273
For the year ending June 30, 2017		87,273
For the year ending June 30, 2018		87,273
For the year ending June 30, 2019		87,273
For the year ending June 30, 2020 and thereafter		3,153,365
Total	$	3,524,275

F-13

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – LONG-TERM INVESTMENTS

In August 2012, the Company together with other two unrelated companies jointly established CRM Suzhou. The Company holds 39% equity interest in CRM Suzhou with the consideration of $6.2 million in cash. The Company evaluated its interest in CRM Suzhou under relevant guidance in ASC 810 and ASC 323 pertaining to consolidation and equity method accounting, respectively. The Company determined that it does not have a controlling financial interest in the investee, but rather possesses significant influence. Accordingly, the Company has accounted for this investment under the equity method.

In 2014, the Company entered into a share transfer agreement with China Railway Materials Wuhan Company Limited (“CRM Wuhan”), CRM Suzhou’s holding company, and sold 28% of CRM Suzhou’s shares held by Jiangsu Coldrolled to CRM Wuhan for total consideration of $4.5 million in cash. The Company evaluated its interest in CRM Suzhou again after disposal under relevant guidance in ASC 810 and ASC 323 pertaining to consolidation and equity method accounting, respectively. The Company determined that it neither has a controlling financial interest in the investee nor possesses significant influence. Accordingly, the Company has accounted for this investment under the cost method after disposal. Immediately before the disposal, the carrying value of the investment in CRM Suzhou was $6.4 million as a result of the equity accounting; and immediately after the disposal, the carrying value of the investment CRM Suzhou was $1.8 million.

NOTE 9 – LOANS

Loans are as follows as of the respective balance sheet dates:

	March 31,		June 30,
	2015		2014
Short-term loans	$	203,376,129	$	139,223,123
Long-term loans, current portion		-		-
		203,376,129		139,223,123
Long-term loans, non-current portion		11,042,013		11,042,013
Total loans	$	214,418,142	$	150,265,136

The short-term loans outstanding as of March 31, 2015 and June 30, 2014 bore a weighted average interest rate of 6.41% and 6.82% per annum, respectively. These loans were obtained from financial institutions and have contract terms of three months to one year.

The long-term loans outstanding as of March 31, 2015 and June 30, 2014 bore a weighted average interest rate of 4.63% per annum. These loans were obtained from financial institutions and one individual. Long-term loans have contract terms of more than one year to three years.

The short-term loans can be continually extended when they are matured.

Short-term loans as of March 31, 2015 were secured/guaranteed by the following:

Secured/guaranteed by
Guaranteed by related parties	$	116,513,741
Jointly guaranteed by (i) related parties, and (ii) the Company's property, plant and equipment		86,862,388
Total short-term loans	$	203,376,129

Short-term loans as of June 30, 2014 were secured/guaranteed by the following:

Secured/guaranteed by
	$
Jointly guaranteed by (i) a related party, and (ii) the Company's property, plant and equipment		75,476,159
Guaranteed by a related party		52,701,548
Guaranteed by the Company's property, plant and equipment		11,045,416
Total short-term loans	$	139,223,123

F-14

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – LOANS - continued

Long-term loans, non-current portion as of March 31, 2015 were secured/guaranteed by the following:

Secured/guaranteed by
Unsecured	$	11,042,013

Long-term loans, non-current portion as of June 30, 2014 were secured/guaranteed by the following:

Secured/guaranteed by
Unsecured	$	11,042,013

The Company must use the loans for the purpose specified in borrowing agreements, pay interest at the interest rate described in borrowing agreements. The Company also has to repay the principal outstanding on the specified date as described in borrowing agreements. The Company had complied with such financial covenants as of March 31, 2015.

NOTE 10 – NOTES PAYABLE

Notes payable are as follows as of the respective balance sheet dates:

	March 31,		June 30,
	2015		2014
Bank acceptance notes	$	1,670,006	$	136,274,446

Notes payable represent accounts payable in the form of bills of exchange whose acceptances are guaranteed and settlements are handled by banks. The Company has pledged cash deposits and certain property, plant and equipment to secure notes payable granted by banks.

NOTE 11 – RELATED PARTY TRANSACTIONS

The Company’s related parties mainly include Shanghai Huaye and its subsidiaries, which were ultimately controlled by the husband of Lifang Chen, the Company’s major shareholder and chairwoman; CRM Suzhou, in which the Company holds 11% if its shares; Tianjin Xinhao Commerce Co., Ltd, Hangzhou Xiaoshan Ruifan Industrial Co., Ltd, Guangzhou Xingbang Metal Industrial Co., Ltd. and Wuxi Suwu Industrial Co., Ltd. (collectively “Related Trading Companies”) and Shanghai Legang Supply Chain Co., Ltd. (“Legang”), over which the Company’s ultimate controlling party has significant influence.

Related Party Activities

	For the Three Months Ended				For the Nine month ended
	March 31,				March 31,
	2015		2014		2015		2014
Sales to Shanghai Huaye and its subsidiaries	$	9,166	$	45,898,686	$	35,231,141	$	108,911,484
Sales to Related Trading Companies		12,694		-		48,784,797		-
Purchases from Shanghai Huaye and its subsidiaries		558,816		23,463,112		33,494,811		169,345,170
Purchases from CRM Suzhou		-		4,331,213		603,938		31,247,299
Rental fees to Shanghai Huaye and its subsidiaries		88,956		39,228		264,680		117,331
Interest expenses to Shanghai Huaye		83,860		83,860		255,306		255,307
Handling fee paid to Shanghai Huaye and its subsidiaries		23		60,516		90,368		149,298

Related Party Balances

	March 31,		June 30,
	2015		2014
Trade accounts receivables due from Shanghai Huaye and its subsidiaries	$	29,057,057	$	3,974,558
Trade accounts receivables due from Trading Entities		10,432,984		12,174,711
Advances paid to Shanghai Huaye and its subsidiaries for purchase of raw materials (2)		212,829,526		281,720,894
Advances paid to Trading Entities for purchase of raw materials		1,485,062		3,231,826
Advances paid to Legang for purchase of raw materials		60,927,288		-
Advances paid to CRM Suzhou for purchase of raw materials		638,826		1,133,048
Other receivables due from Shanghai Huaye and its subsidiaries		407,931		405,558
Accounts payable due to Shanghai Huaye and its subsidiaries		352,907		-
Advances received from Shanghai Huaye and its subsidiaries		618,542		-
Advances received from Trading Entities		10,216		-
Other payables and accrued expenses due to Shanghai Huaye and its subsidiaries		3,378,641		3,110,196
Long-term loans due to Shanghai Huaye and its subsidiaries		8,182,018		8,182,018

Guarantees Related Parties Provided to the Company

As of March 31, 2015 and June 30, 2014, Shanghai Huaye and its subsidiaries provided guarantees for the Company’s bank loans amounted to $203 million and $128 million, respectively.

F-15

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – RELATED PARTY TRANSACTIONS - continued

⁽¹⁾ The amounts charged for products to the Company by Shanghai Huaye and its subsidiaries under the same pricing, terms and conditions as those charged to third parties. Different to nonrelated party suppliers, the Company does not have to enter into a long-term contract with related party suppliers in which case is more flexible for the Company.

⁽²⁾ The advance payments to Shanghai Huaye and its subsidiaries were made under the agreements in prior periods. The purchase transactions will be executed at the discretion of the Company based on the market and production demand. The Company could withdraw the advances paid to Shanghai Huaye and its subsidiaries in the future if the Company does not purchase raw materials or other goods from them anymore.

NOTE 12 – INCOME TAXES

The Company has total income tax benefit of $1,269,521 and $2,631,851 for the three months and nine months ended March 31, 2015, respectively. The Company continues to conduct most of its business through its major PRC subsidiaries whose applicable income tax rates are 15% or 25% for the three and nine months ended March 31, 2015.

The Company’s effective tax rates were 33% and 36% for the three months ended March 31, 2015 and 2014, respectively and 26% and 22% for the nine months ended March 31, 2015 and 2014, respectively.

NOTE 13 – WARRANTS

On March 10, 2010, The Company issued warrants to purchase up to 685,000 shares of common stock in connection with the Company’s registered direct offering. The Warrants are exercisable for a five year period, 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 values of the Warrants at the issuance date and the end of each reporting period were calculated using Black-Scholes pricing model and based on the following assumptions:

	June 30, 2014
	Year end date
Warrants indexed to common stock		685,000
Trading market price	$	1.00
Exercise price	$	3.76
Estimated Term (Year)		0.67
Expected volatility		60.57	%
Risk-free rate		0.11	%
Dividend yield rates		0.00	%
Fair value of warrants	$	866

The Warrants were recorded as liabilities at their estimated fair value at the date of issuance, with subsequent changes in estimated fair value recorded in changes in fair value of warrant liabilities on the Company’s consolidated statement of operations in each subsequent period.

The following table summarizes the movement of warrant liabilities for the nine months ended March 31, 2015 and 2014:

	For The Nine Months Ended
	March 31,
	2015			2014
Balance at beginning of the period	$	866		$	144,535
Changes in fair value		(866	)		(76,669	)
Balance at end of the period	$	-		$	67,866

F-16

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – STOCK-BASED COMPENSATION

2009 Equity Incentive Plan

In April 2009, the Company authorized an equity incentive plan (“2009 Equity Incentive Plan”) that provides for issuance of up to 2,000,000 shares of the Company’s common stock. Under the 2009 Equity Incentive Plan, the management may, at their discretion, grant any employees and directors of the Company, and consultants (i) options to subscribe for common stocks, (ii) stock appreciation rights to receive payment, in cash and/or the Company’ common stocks, equals to the excess of the fair market value of the Company’ common stocks, (iii) Restricted stock awards and restricted stock units, or (iv) other types of compensation based on the performance of the Company’ common stocks. The exercise price of the options may not be less than the fair market value of the share on the grant date and the option term may not exceed ten years.

Non-Vested Stock Grants to employees and directors

On December 14, 2012, the Company granted an executive 50,000 shares of restricted common stock with a grant date fair value of $1.00 per share as part of his remuneration for his service commencing December 14, 2012 for a one year period. The restricted common stock will vest on the one-year anniversary date of the grant date.

On March 7, 2013, the Company granted a director 10,000 shares of restricted common stock with a grant date fair value of $2.43 per share as part of his remuneration for the service commencing March 7, 2013 for a one-year period. The restricted common stock will vest on the one-year anniversary date of the grant date.

On January 7, 2014, the Company granted seven employees 135,000 shares of restricted common stock with a grant date fair value of $1.85 per share as part of their remuneration for the service commencing January 7, 2014 for a one-year period. The restricted common stock will vest on the one-year anniversary date of the grant date.

On February 10, 2014, the Company granted a director 10,000 shares of restricted common stock with a grant date fair value of $1.93 per share as part of his remuneration for the service commencing February 10, 2014 for a one-year period. The restricted common stock will vest on the one-year anniversary date of the grant date.

On February 6, 2015, the Company granted a two executives 30,000 shares of restricted common stock with a grant date fair value of $0.70 per share as part of his remuneration for the service commencing February 6, 2015 for a one-year period. The restricted common stock will vest on the one-year anniversary date of the grant date.

Stock-based compensation expense for the three months ended March 31, 2015 and 2014 was $9,295 and $63,886, respectively. Stock-based compensation expense for the nine months ended March 31, 2015 and 2014 was $145,299 and $98,972, respectively. The remaining $17,942 stock-based compensation will be expensed over the remainder of the one-year service period. The value of the non-vested stock at March 31, 2015 is $19,800.

F-17

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Non-Vested Stock Grants to non-employees

On April 29, 2013 (“Agreement Date”), the Company entered into a consultancy agreement with a Company’s external consultant. In accordance with the agreement, the consultant will provide financing consultancy service to the Company and the Company will grant 200,000 restricted common stocks as consideration, out of which, 100,000 restricted common stock will vest 30 days after the Agreement Date (e.g. May 20, 2013) and the other 100,000 restricted common stock will vest 180 days after the Agreement Date (e.g. October 26, 2013). The service period is one year from April 29, 2013 to April 29, 2014.

The Company accounted for equity instruments granted to non-employees in accordance with ASC 505-50 “Equity-Based Payments to Non-Employees”. Restricted stocks granted to non-employees are measured at the fair value of the equity instrument as of the earlier of (a) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment) or (b) the date at which the counterparty's performance is complete. Because the restricted stocks will vest 30 and 180 days after the Agreement Date for the first and second half of the grant of 200,000 restricted stocks, respectively, a measurement date has been reached on May 20, 2013 and October 26, 2013 for the first 100,000 and second 100,000 grant of restricted stocks, respectively. Since the service will be performed during the year started from April 29, 2013, the Company recognized a prepayment at the date of grant based on the fair value of the measurement date.

Stock-based compensation expense for the three months ended March 31, 2015 and 2014 were nil and $95,917, respectively. Stock-based compensation expense for the nine months ended March 31, 2015 and 2014 were nil and $299,151, respectively.

F-18

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – STOCK-BASED COMPENSATION - continued

Options to employees

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 an 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. The fair value of the options, determined using the Black-Scholes Option Pricing Model, was calculated using the following assumptions: risk free interest rate of 2%, expected dividend yield of 0%, expected volatility of 90% and an expected life of 5 years.

Stock-based compensation expense for the three and nine months ended March 31, 2015 and 2014 on the stock options were nil. As of March 31, 2015, the remaining unrecognized stock-based compensation is nil.

The following table summarizes the options activity for the nine months ended March 31, 2015 and 2014:

	Options		Weighted-average exercise price		Weighted average remaining contractual life (years)		Aggregate Intrinsic Value
Outstanding as of June 30, 2014		105,000	$	2.71		0.86	$	-
Issued		-		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-
Outstanding as of March 31, 2015		105,000	$	2.71		0.11	$	-

Total intrinsic value of stock options outstanding as of March 31, 2015 and June 30, 2014 was nil.

NOTE 15 – EARNINGS PER SHARE

Basic earnings per share are 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					For The Nine Months Ended
	March 31,					March 31,
	2015			2014		2015			2014
Net income/(loss) attributable to the common stockholders	$	(2,551,892	)	$	1,113,656	$	(7,616,764	)	$	12,697,039
Basic weighted-average common shares outstanding		41,679,096			41,548,819		41,667,232			41,470,152
Dilutive effect of warrants and options		-			-		-			-
Diluted weighted-average common shares outstanding		41,679,096			41,548,819		41,667,232			41,470,152
Earnings (loss) per share:
Basic	$	(0.06	)	$	0.03	$	(0.18	)	$	0.31
Diluted	$	(0.06	)	$	0.03	$	(0.18	)	$	0.31

Warrants and options to purchase 685,000, and 105,000 shares of common stock, respectively were outstanding as of March 31, 2015 and June 30, 2014, respectively, but were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive because the exercise prices of the warrants and options were larger than the average share price during the period.

F-19

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Operating lease commitments - As of March 31, 2015, the Company has future minimum lease payments under non-cancelable operating leases in relation to office premises consisting of the following:

	Lease Payment
Remainder of the year ending June 30, 2015		88,227
For the year ending June 30, 2016		352,907
For the year ending June 30, 2017		352,907
For the year ending June 30, 2018		352,907
For the year ending June 30, 2019		352,907
For the year ending June 30, 2020 and thereafter		1,470,444
Total	$	2,970,299

Capital commitments – The Company entered into agreements with suppliers to purchase property, plant and equipment. As of March 31, 2015 and June 30, 2014, the Company had purchase obligations totaled $343,455 and $2,464,606, respectively.

Indemnification Obligations – The Company entered into agreements whereby its directors are indemnified for certain events or occurrences while the director is, or was, serving at the Company's request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors' liability insurance policy that reduces its exposure and enables the Company to recover a portion of future amounts paid. As a result of the Company's insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, no liabilities have been recorded for these agreements as of March 31, 2015.

NOTE 17 – SIGNIFICANT CONCENTRATIONS

Concentration of credit risk

Assets that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, trade accounts receivable and advances to suppliers. The Company performs ongoing credit evaluations with respect to the financial condition of its debtors, but does not require collateral. As of March 31, 2015 and June 30, 2014, substantially all of the Company’s cash and cash equivalents and restricted cash were held in major financial institutions located in the PRC, which management considers to be of high credit quality. However, the deposit accounts in PRC were not insured in any manner. Trade accounts receivable are generally unsecured and denominated in RMB, and derived from revenues earned from operations primarily in the PRC. Advances to suppliers are typically unsecured and arise from deposits paid in advance for future purchases of raw materials. In order to determine the value of the Company’s trade accounts receivable and advances to suppliers, the Company records a provision for doubtful accounts to cover probable credit losses. Management reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collectability of outstanding trade accounts receivable and advances to suppliers.

Concentration of customers

The Company sold a substantial portion of its products to Shanghai Huaye and its subsidiaries. As a percentage of revenues, 0.04% and 47.6% of the Company’s revenue was derived from Shanghai Huaye and its subsidiaries for the three months ended March 31, 2015 and 2014, respectively; 24.4% and 29.9% of the Company’s revenue was derived from Shanghai Huaye and its subsidiaries for the nine months ended March 31, 2015 and 2014, respectively. Sales to customers were mostly made through non-exclusive, short-term arrangements.

Concentration of suppliers

A significant portion of the Company’s raw materials were sourced from Shanghai Huaye and its subsidiaries who collectively accounted for an aggregate of 3.3% and 48.5% of the Company’s total purchases for the three months ended March 31, 2015 and 2014, respectively; an aggregate of 45.0% and 38.9% of the Company’s total purchases for the nine months ended March 31, 2015 and 2014, respectively. Failure to develop or maintain relationships with these suppliers may cause the Company to be unable to source adequate raw materials needed to manufacture its products. Any disruption in the supply of raw materials to the Company may adversely affect the Company’s business, financial condition and results of operations.

F-20

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 – SEGMENT INFORMATION

The Company has four reportable segments represented by its four subsidiaries Changshu Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua and Sutor Technology 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.  Jiangsu Cold-Rolled offers cold-rolled steel strips, acid pickled steel and HDG steel products. Ningbo Zhehua manufactures heavy steel pipe products and Sutor Technology engages in trading of steel products.

Certain segment information is presented below:

As of March 31, 2015 and for the three months then ended	Changshu Huaye			Jiangsu Cold-Rolled			Ningbo Zhehua			Sutor Technology		Inter-Segment and Reconciling Items			Total
Revenue from unrelated parties	$	1,186,855		$	8,773,393		$	1,064,491		$	10,042,232	$	-		$	21,066,971
Revenue from related parties		8,268			12,647			945			-		-			21,860
Revenue from other operating segments		2,186,803			3,783,599			(3,793,775	)		217,481		(2,394,108	)		-
Total operating expenses		1,240,195			483,553			477,249			294,536		28,890			2,524,423
Interest income		104			231			1,253			601		5			2,194
Interest expense		474			815			72,230			-		103,672			177,191
Depreciation and amortization expense		236,752			1,646,166			223,236			136,696		(3,011	)		2,239,839
Income tax expense/(benefit)		(146,248	)		(490,711	)		(632,562	)		-		-			(1,269,521	)
Net segment profit/(loss)		(722,939	)		(1,471,907	)		(1,876,228	)		-		1,519,182			(2,551,892	)
Capital expenditures		15			1,792,364			101,255			-		-			1,893,634
Segment assets	$	235,963,835		$	329,188,443		$	42,048,629		$	39,720,973	$	(155,035,127	)	$	491,886,753

As of March 31, 2014 and for the three months then ended	Changshu Huaye			Jiangsu Cold-Rolled		Ningbo Zhehua		Sutor Technology			Inter-Segment and Reconciling Items			Total
Revenue from unrelated parties	$	17,462,739		$	26,546,237	$	5,320,542	$	1,149,408		$	-		$	50,478,926
Revenue from related parties		12,163,612			29,432,804		4,302,262		8			-			45,898,686
Revenue from other operating segments		14,258,925			18,817,785		2,417,842		5			(35,494,557	)		-
Total operating expenses		1,717,399			564,678		946,003		207,449			258,675			3,694,204
Interest income		184,985			568,092		17,846		99			24			771,046
Interest expense		537,624			917,530		26,149		-			517,277			1,998,580
Depreciation and amortization expense		614,440			1,277,438		260,371		137,286			-			2,289,535
Income tax expense		11,295			598,787		16,274		-			-			626,356
Net segment profit/(loss)		(200,915	)		1,824,468		48,821		(84,012	)		(474,706	)		1,113,656
Capital expenditures		96,434			1,169,214		9,945		-			-			1,275,593
Segment assets	$	290,910,682		$	398,267,232	$	54,799,089	$	32,795,065		$	(123,013,420	)	$	653,758,648

F-21

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 – SEGMENT INFORMATION - continued

As of March 31, 2015 and for the nine months then ended	Changshu Huaye			Jiangsu Cold-Rolled			Ningbo Zhehua			Sutor Technology			Inter-Segment and Reconciling Items			Total
Revenue from unrelated parties	$	4,073,147		$	37,049,171		$	8,228,800		$	11,011,854		$	-		$	60,362,972
Revenue from related parties		31,776,091			48,609,909			3,629,938			-			-			84,015,938
Revenue from other operating segments		8,942,425			23,468,093			(1,912,507	)		217,481			(30,715,492	)		-
Total operating expenses		4,025,316			1,741,604			1,116,665			796,193			7,771			7,687,549
Interest income		98,266			429,040			87,488			3,242			22			618,058
Interest expense		1,803,979			3,132,177			196,165			-			461,625			5,593,946
Depreciation and amortization expense		1,102,400			4,169,927			725,799			409,875			(129,672	)		6,278,329
Income tax benefit		(736,745	)		(929,759	)		(965,347	)		-			-			(2,631,851	)
Net segment profit/(loss)		(3,775,837	)		(1,924,844	)		(2,722,401	)		(258,718	)		1,065,036			(7,616,764	)
Capital expenditures		57,448			1,947,654			101,728			-						2,106,830
Segment assets	$	235,963,835		$	329,188,443		$	42,048,629		$	39,720,973		$	(155,035,127	)	$	491,886,753

As of March 31, 2014 and for the nine months then ended	Changshu Huaye		Jiangsu Cold-Rolled		Ningbo Zhehua		Sutor Technology			Inter-Segment and Reconciling Items			Total
Revenue from unrelated parties	$	118,105,263	$	105,457,293	$	23,595,479	$	7,733,228		$	-		$	254,891,263
Revenue from related parties		30,008,833		61,642,191		17,254,876		5,584			-			108,911,484
Revenue from other operating segments		20,911,745		74,147,693		4,834,082		3,424			(99,896,944	)		-
Total operating expenses		6,872,288		2,139,941		2,141,529		688,684			713,526			12,555,968
Interest income		1,004,622		1,479,012		123,472		356			350			2,607,812
Interest expense		1,459,421		3,697,749		76,356		-			1,143,307			6,376,833
Depreciation and amortization expense		1,807,431		3,817,787		764,542		410,629			-			6,800,389
Income tax expense/(benefit)		1,349,303		2,308,668		8,481		-						3,666,452
Net segment profit/(loss)		7,510,974		7,240,805		25,444		(292,430	)		(1,787,754	)		12,697,039
Capital expenditures		2,488,463		5,954,744		103,039		-			-			8,546,246
Segment assets	$	290,910,682	$	398,267,232	$	54,799,089	$	32,795,065		$	(123,013,420	)	$	653,758,648

NOTE 19 – GEOGRAPHIC INFORMATION

The following schedule summarizes the sources of the Company’s revenue by geographic regions for the three and nine months ended March 31, 2015 and 2014:

	For the Three Months Ended				For the Nine Months Ended
	March 31,				March 31,
Geographic Area	2015		2014		2015		2014
People's Republic of China	$	19,837,489	$	92,535,229	$	140,611,714	$	336,762,661
Other Countries		1,251,342		3,842,383		3,767,196		27,040,086
Total	$	21,088,831	$	96,377,612	$	144,378,910	$	363,802,747

F-22

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

Special Note Regarding Forward Looking Statements

In addition to historical information, this report 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. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of 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; 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 involve risks and uncertainties, including those identified in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended June 30, 2014, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Use of Terms

Except as otherwise indicated by the context, all references in this report to:

· “Company,” “we,” “us” and “our” are to the combined business of Sutor Technology Group Limited, a Nevada corporation, and its subsidiaries: Sutor BVI, Sutor Technology, Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua;

· “Sutor BVI” are to our wholly-owned subsidiary Sutor Steel Technology Co., Ltd., a BVI company;

· “Sutor Technology PRC” are to our wholly-owned subsidiary Sutor Technology Co., Ltd., a PRC company;

· “Changshu Huaye” are to our wholly-owned subsidiary Changshu Huaye Steel Strip Co., Ltd., a PRC company;

· “Jiangsu Cold-Rolled” are to our wholly-owned subsidiary Jiangsu Cold-Rolled Technology Co., Ltd., a PRC company;

· “Ningbo Zhehua” are to our wholly-owned subsidiary Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd., a PRC company;

· “Shanghai Huaye” are to Shanghai Huaye Iron & Steel Group Co., Ltd., a PRC company of which Lifang Chen, our major shareholder and Chairwoman, and her husband Feng Gao, are 100% owners, and its subsidiaries;

· “SEC” are to the United States Securities and Exchange Commission;

· “Securities Act” are to the Securities Act of 1933, as amended;

· “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

· “China” and “PRC” are to the People’s Republic of China;

· “RMB” are to Renminbi, the legal currency of China; and

· “U.S. dollar,” “$” and “US$” are to the legal currency of the United States.

2

Overview of our Business

We are a leading China-based, non-state-owned fine finished steel supply chain service provider. 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, or HDG steel, and pre-painted galvanized steel, or PPGI. In addition, we produce acid pickled steel, or AP steel, and cold-rolled steel, which represent the least processed of our finished products. Since November 2009, our product offerings have included welded steel pipe products. We use a large portion of our AP steel and cold-rolled steel to produce our HDG steel and PPGI products. Our vertical integration has allowed us to maintain more stable margins for our HDG steel and PPGI products. With the transformation of our business, we also offer fee-based steel processing services and market and sell our products through electronic commerce platforms.

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

Our manufacturing facilities, located in Changshu, China, have three HDG steel production lines, one PPGI production line, one AP steel production line and two cold-rolled steel lines. Our current annual 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 750,000 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.

Since early fiscal year 2015, we have been in the process of transforming our business from manufacturing and selling fine finished steel products to one that offers both manufactured products and fee-based customized processing services. Sutor Technology PRC dedicates itself to providing innovative services with a focus on brand promotion, sales channels expansion and integrated order processing. Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua focus on product quality improvement and technological upgrading, as well as promoting fee-based processing services.

In connection with the transformation of our business model, our board of directors has determined to abolish the position of Chief Operating Officer.  Effective on May 14, 2015, Shoubin Xiong ceased to hold the position of the Company’s Chief Operating Officer but Mr. Xiong remains as an employee of the Company.

Executive Overview of Quarterly Results

As a result of our business transformation, the three month revenue of Sutor Technology PRC increased significantly by 773.7% compared with same period of last year. Through our efforts in brand promotion and development of online-to-offline (O2O) E-commerce, Sutor Technology PRC’s online orders increased gradually. Meanwhile, the total revenues from related parties declined approximately 100.0% compared with same period of last year. The three month revenue of Changshu Huaye and Jiangsu Cold-Rolled decreased significantly compared with same period last year since the fee-based processing services increased to 79.7% and 44.7% respectively of their revenue. During the third quarter of fiscal 2015, Ningbo Zhehua also introduced two precision cold rolling production lines with capacity of 100,000 and 200,000 metric tons, respectively, to expand cold rolled market and extend our comprehensive support services. These two production lines are now under installation and testing.

The following summarizes the major financial information for the third fiscal quarter:

· Revenue: Revenue was $21.1 million for the three months ended March 31, 2015, a decrease of $75.3 million, or 78.1%, from $96.4 million for the same period last year.

· Gross profit and margin: Gross profit was a loss of $1.1million for the three months ended March 31, 2015, as compared to $7.3 million for the same period last year. Gross margin was (5.1)% for the three months ended March 31, 2015, as compared to 7.6% for the same period last year.

· Net income: For the three months ended March 31, 2015, the company had a loss of $2.6 million compared to net income of $1.1 million for the same period of last year, a decrease of $3.7 million or 329.2%.

· Fully diluted earnings per share: Fully diluted earnings per share were approximately $(0.06) for the three months ended March 31, 2015, as compared to approximately $0.03 for the same period last year.

3

Reportable Operating Segments

We have four reportable operating segments which are categorized based on manufacturing facilities and nature of operations – Changshu Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua and Sutor Technology PRC. Changshu Huaye sells and processes HDG steel and PPGI products. Jiangsu Cold-Rolled sells and processes AP steel, cold-rolled steel and HDG steel. Ningbo Zhehua sells and processes steel pipe products. Changshu Huaye and Jiangsu Cold-Rolled are adjacent to each other and use largely the same management resources. Ningbo Zhehua is located in Ningbo, China. Sutor Technology PRC dedicates itself to providing innovative services with a focus on brand promotion, sales channels expansion and integrated order processing. Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua also focus on product quality improvement and technological upgrading, as well as promoting fee-based processing services. See Note 18, “Segment Information” to the consolidated financial statements included elsewhere in this report.

Revenue

Our revenue is primarily generated from sales and processing of our HDG steel, PPGI, AP steel, cold-rolled steel products, as well as our steel pipe products, such as longitudinally welded steel pipes and spiral welded steel pipes. We believe that our processing revenues will increase gradually as a result of our business transformation. Our revenue has historically been affected by sales volume, sales price of our products and services, the quality of products and services as well as our product mix.

In the three months ended March 31, 2015 and 2014, Changshu Huaye generated revenue of $1.2 million and $29.6 million, which represented 5.7% and 30.7% of our total revenue, respectively. Jiangsu Cold-Rolled generated revenue of $8.8 million and $56.0 million in the three months ended March 31, 2015 and 2014, which represented 41.7% and 58.1% of our total revenue, respectively. In the three months ended March 31, 2015 and 2014, Ningbo Zhehua generated revenue of $1.1 million and $9.6 million, which represented 5.1% and 10.0% of our total revenue, respectively. In addition, in the three months ended March 31, 2015 and 2014, Sutor Technology PRC generated revenue of $10.0 million and $1.1 million, which represented 47.6% and 1.2% of our total revenue, respectively.

Historically, a portion of our products are sold through our affiliate Shanghai Huaye, which also supplies to us a significant portion of our raw materials. Approximately 0.04% of our revenue was derived from Shanghai Huaye and its affiliates in the three months ended March 31, 2015, as compared to 47.6% last year. The significant reduction of revenue from related parties was mainly attributed to our own marketing resources expansion, brand promotion and service quality improvement.

Cost of Revenue

Cost of revenue includes direct costs to manufacture our products, including the cost of raw materials, labor, overhead, energy, handling charges and other expenses associated with the manufacture and delivery of products. 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 March 31, 2015, only approximately $0.6 million of raw material procurement was conducted through Shanghai Huaye and its affiliates, while approximately $16.4 million of raw materials were procured from non-related parties.

Gross Profit and Gross Margin

Gross profit is equal to the difference between revenue and the cost of revenue. Gross margin is equal to gross profit divided by revenue. For the three months ended March 31, 2015, gross margin for domestic and international sales was (6.3)% and 14.5%, respectively. On a segment basis, Changshu Huaye’s, Jiangsu Cold-Rolled’s and Ningbo Zhehua’s gross margins were approximately 18.9%, (14.1)% and (55.6)%, respectively. Sutor Technology PRC has a gross margin of approximately 2.6% for the third quarter of fiscal 2015.

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 value-added products and services generally tend to have higher profit margins.

4

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 solution 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. The change in general and administrative expenses is generally commensurate with the change in our revenue.

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

Sutor Technology Group Limited is subject to United States federal income tax at a tax rate of 34%. Sutor BVI was incorporated in the British Virgin Islands and, under the current laws of the British Virgin Islands, is not subject to income taxes.

On March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax Law, or the EIT Law, and on December 6, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008.  The EIT Law gives existing foreign invested enterprises a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. Changshu Huaye was subject to an EIT of 15% from calendar years 2010 to 2012 because it qualified as a high-tech enterprise for the calendar years 2010, 2011 and 2012.  In 2013, Jiangsu provincial government renewed the high-tech enterprise statue of Changshu Huaye. As a result, Changshu Huaye is entitled to the preferred tax rate of 15% for the three years 2013 through 2015. Jiangsu Cold-Rolled was subject to an EIT of 12.5% for the calendar years 2010 and 2011 and is subject to an EIT of 25% for the calendar year 2012 and beyond.  Ningbo Zhehua and Sutor Technology PRC are subject to an EIT of 25% and have no preferential tax treatments.

5

Results of Operations

Comparison of Three Months Ended March 31, 2015 and March 31, 2014

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

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

	Three Months Ended March 31, 2015						Three Months Ended March 31, 2014
	Amount			% of Revenue			Amount			% of Revenue
Revenue from unrelated parties - sales of goods	$	17,053			80.9	%	$	50,479			52.4	%
Revenue from unrelated parties - services		4,014			19.0	%		-			-
Revenue from related parties - sales of goods		22			0.1	%		45,899			47.6	%
Revenue from related parties - services		-			-			-			-
Total Revenue		21,089			100.0	%		96,378			100.0	%
Cost of Revenue		22,164			105.1	%		89,055			92.4	%
Gross Profit		(1,075	)		(5.1	)%		7,323			7.6	%
Operating Expenses
Selling expense		480			2.3	%		1,006			1.0	%
General and administrative expense		2,044			9.7	%		2,688			2.8	%
Total Operating Expenses		2,524			12.0	%		3,694			3.8	%
Income from Operations		(3,599	)		(17.1	)%		3,629			3.8	%
Other Income (Expense)
Interest income		2			-			771			0.8	%
Other income		(13	)		-			(91	)		(0.1	)%
Interest expense		(177	)		(0.8	)%		(1,999	)		(2.1	)%
Other expense		(34	)		(0.2	)%		(744	)		(0.8	)%
Changes in fair value of warrant liabilities		-			-			143			0.2	%
Income from equity method investments		-			-			31			0.0	%
Total Other Income (Expense)		(222	)		(1.0	)%		(1,889	)		(2.0	)%
Income Before Taxes		(3,822	)		(18.1	)%		1,740			1.8	%
Income tax (expense)/benefit		1,270			6.0	%		(626	)		(0.7	%)
Net Income	$	(2,552	)		(12.1	)%	$	1,114			1.1	%

Revenue. For the three months ended March 31, 2015, revenue was $21.1 million, compared to $96.4 million for the same period last year, a decrease of $75.3 million, or 78.1%.

Under the downturn environment, Chinese steel industry is undergoing structure transformation. In face with this situation, the Company also carried on its transformation and changed business model to its best interest. In the past, our revenue was primarily derived from selling manufactured products and the sales price included the cost of steel sheets plus a gross profit. With the fee-based processing services, the price of pure processing services does not include the cost of steel sheets as the customers are responsible for procurement of the raw materials. As a result, revenue from processing one ton of fine finished steel products is only a fraction of the revenue from the traditional business model. Compared with 4.7% fee-based processing service revenue during the same period of last year, 19.1% of its revenue for the three months ended March 31, 2015 generated from fee-based processing service. In addition, we did not produce PPGI steel as the production line was shut down for scheduled technical upgrading.

The following table sets forth revenue by geography and by business segments for the three months ended March 31, 2015 and 2014.

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

	Three Months Ended March 31, 2015					Three Months Ended March 31, 2014
	Amount		% of Revenue			Amount		% of Revenue
Geographic Data
China	$	19,838		94.1	%	$	92,535		96.0	%
Other Countries		1,251		5.9	%		3,843		4.0	%
Segment Data
Changshu Huaye	$	1,195		5.7	%	$	29,627		30.7	%
Jiangsu Cold-Rolled		8,786		41.7	%		55,979		58.1	%
Ningbo Zhehua		1,066		5.0	%		9,623		10.0	%
Sutor Technology		10,042		47.6	%		1,149		1.2	%

6

On a geographic basis, revenue generated from outside of China was $1.3 million, or 5.9% of the total revenue, for the three months ended March 31, 2015, as compared to $3.8 million, or 4.0% of the total revenue, for the same period in 2014. We did not produce PPGI steel as the production line was shut down for scheduled technical upgrading. PPGI products are Company’s main exported products. In addition, we lowered the price of our products in order to gain international market penetration.

On a segment basis, after eliminating intercompany sales and adjusting reconciliation items, revenue contributed by Changshu Huaye was $1.2 million for the three months ended March 31, 2015, a decrease of $28.4 million, or 96.0%, from $29.6 million for the same period last year. The decrease mainly resulted from the transformation of our business model as well as the shutdown of the PPGI line for technical upgrading.

After eliminating inter-company sales and adjusting reconciliation items, revenue contributed by Jiangsu Cold-Rolled was $8.8 million for the three months ended March 31, 2015, as compared at $56.0 million for the same period last year. The decrease in sales revenue was mainly because of changes in our business model. Compared with 1.0% of revenue from fee-based processing service revenue during the same period of last year, 44.8% of Jiangsu Cold-Rolled’s revenue for the three months ended March 31, 2015 generated from fee-based processing service.

Revenue contributed by Ningbo Zhehua was $1.1 million for the three months ended March 31, 2015, a decrease of $8.5 million, or 88.9%, from $9.6 million for the same period in 2014. The change is mainly due to the timing of contract delivery, which made Ningbo Zhehua’s revenue fluctuate quarter by quarter.

Revenues contributed by Sutor Technology PRC were $10.0 million for the three months ended March 31, 2015, an increase of approximately $8.9 million from $1.1 million for the same period in 2014. Through our efforts in brand promotion and development of online-to-offline (O2O) E-commerce, Sutor Technology PRC’s online orders increased gradually. Sutor Technology PRC dedicates itself to providing innovative services with a focus on brand promotion, sales channels expansion and integrated order processing.

In terms of related party sales as compared with sales to unrelated parties, our direct sales to unrelated parties in the three months ended March 31, 2015 decreased by $29.4 million, or 58.2%, to $21.1 million, from $50.5 million in the same period in 2014.

Cost of revenue. Cost of revenue decreased by $66.9 million, or 75.1%, to $22.2million in the three months ended March 31, 2015, from $89.1 million in the same period in 2014. As a percentage of revenue, cost of revenue increased to 105.1% in the three months ended March 31, 2015, as compared to 92.4% in the same period last year. The decrease in cost of revenue was mainly due to our new fee-based processing model, which significantly reduced our cost of revenue. However, its percentage of revenue increased because those fixed costs including depreciation and amortization cost did not decrease at the early stage of our transformation period.

Gross profit and gross margin. Gross profit decreased by $8.4million to $(1.1) million in the three months ended March 31, 2015, from $7.3 million in the same period in 2014. Gross profit as a percentage of revenue (gross margin) was (5.1)% for the three months ended March 31, 2015, as compared to 7.6% for the same period last year. The main reason for the declined gross margin was the upgrading of our PPGI production line and as a result, we did not produce high margin PPGI products during this quarter. In addition, in order to expand sales channels, we offered more competitive prices for processing services to attract more customers.

On a segment basis, gross margin for Changshu Huaye decreased to 4.3% in the nine months ended March 31, 2015, from 11.4% in the same period last year. Gross margin for Jiangsu Cold-Rolled decreased to 1.3% in the nine months ended March 31, 2015, from 8.2% in the same period last year. Gross margin for Ningbo Zhehua decreased to (8.6)% in the nine months ended March 31, 2015, as compared to 8.2% in the same period in 2014. The main reasons for above decreased gross margins were because of our business model transformation, equipment renovation and upgrading as well as the fixed costs including depreciation and amortization cost did not decrease at the early stage of our transformation period. Gross margin for Sutor Technology PRC was 4.6% in the nine months ended March 31, 2015, as compared to 5.9% in the same period last year because we offered customers with more attractive service prices to improve market competitiveness and expand sales channels during business model transformation.

Total operating expenses. Our total operating expenses was $2.5 million in the three months ended March 31, 2015, from $3.7 million in the same period in 2014. As a percentage of revenue, our total operating expenses increased to 12.0% in the three months ended March 31, 2015, from 3.8% in the same period in 2014.

7

Selling expenses. Our selling expenses decreased by $0.5 million to $0.5 million in the three months ended March 31, 2015, from $1.0 million in the same period in 2014. As a percentage of revenue, our selling expenses increased to 2.3% for the three months ended March 31, 2015, from 1.0% for the same period last year. The decrease in selling expenses is mainly because we optimized the delivery model which reduced the selling expenses effectively.

General and administrative expenses. General and administrative expenses increased by $0.7million to $2.0 million, or 9.7% of the total revenue, in the three months ended March 31, 2015, from $2.7 million, or 2.8% of the revenue, in the same period in 2014. The increased general and administrative expenses were primarily due to the increased office expenses and other fixed miscellaneous expenses in this fiscal quarter.

Interest expense. Our interest expense decreased by $1.8 million to $0.2 million in the three months ended March 31, 2015, from $2.0 million in the same period in 2014. As a percentage of revenue, our interest expense was 0.8% of total revenue in the three months ended March 31, 2015, compared to 2.1% in the same period in 2014. The decrease was mainly due to a change in financing structure. We converted bank note payables to short term loans, which reduced the restricted cash and financial cost.

Provision for income taxes. Our income tax benefit was $1.3 million in the three months ended March 31, 2015, from $0.6 million of income tax expense in the same period last year, due to the decreased taxable profit amount.

Net income. Net income, without including the foreign currency translation adjustment, decreased by $3.7 million, or 329.2%, to $(2.6) million in the three months ended March 31, 2015, from $1.1 million in the same period in 2014, as a cumulative result of the above factors.

Comparison of Nine Months Ended March 31, 2015 and March 31, 2014

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

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

	Nine Months Ended March 31, 2015						Nine Months Ended March 31, 2014
	Amount			% of Revenue			Amount			% of Revenue
Revenue from unrelated parties - sales of goods	$	42,780			29.6	%	$	254,891			70.1	%
Revenue from unrelated parties - services		17,583			12.2	%		-			-
Revenue from related parties - sales of goods		83,973			58.2	%		108,912			29.9	%
Revenue from related parties - services		43			-			-			-
Total Revenue		144,379			100.0	%		363,803			100.0	%
Cost of Revenue		142,026			98.4	%		330,652			90.9	%
Gross Profit		2,353			1.6	%		33,151			9.1	%
Operating Expenses
Selling expense		1,507			1.0	%		4,339			1.2	%
General and administrative expense		6,181			4.3	%		8,217			2.2	%
Total Operating Expenses		7,688			5.3	%		12,556			3.4	%
Income from Operations		(5,335	)		(3.7	)%		20,595			5.7	%
Other Income (Expense)
Interest income		618			0.4	%		2,608			0.7	%
Other income		280			0.2	%		128			0.1	%
Interest expense		(5,594	)		(3.9	)%		(6,377	)		(1.8	)%
Other expense		(219	)		(0.1	)%		(964	)		(0.3	)%
Changes in fair value of warrent liabilities		1			-			77			-
Income from equity method investments		-			-			296			0.1	%
Total Other Income (Expense)		(4,914	)		(3.4	)%		(4,232	)		(1.2	)%
Income Before Taxes		(10,249	)		(7.1	)%		16,363			4.5	%
Income tax (expense)/benefit		2,632			1.8	%		(3,666	)		(1.0	)%
Net Income	$	(7,617	)		(5.3	)%	$	12,697			3.5	%

8

Revenue. For the nine months ended March 31, 2015, revenue was $144.4 million, compared to $363.8 million for the same period last year, a decrease of $219.4 million, or 60.3%. The decrease was mainly attributable to the change in our business model. As described above, under our new fee-based processing service model, the price of pure processing services does not include the cost of steel sheets as the customers are responsible for procurement of the raw materials. As a result, revenue from processing one ton of fine finished steel products is only a fraction of the revenue from the traditional business model. In addition, we did not produce PPGI steel as the production line was shut down for scheduled technical upgrading.

The following table sets forth revenue by geography and by business segments for the nine months ended March 31, 2015 and 2014.

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

	Nine Months Ended March 31, 2015					Nine Months Ended March 31, 2014
	Amount		% of Revenue			Amount		% of Revenue
Geographic Data
China	$	140,612		97.4	%	$	336,763		92.6	%
Other Countries		3,767		2.6	%		27,040		7.4	%
Segment Data
Changshu Huaye	$	35,849		24.8	%	$	148,114		40.7	%
Jiangsu Cold-Rolled		85,659		59.4	%		167,100		46.0	%
Ningbo Zhehua		11,859		8.2	%		40,850		11.2	%
Sutor Technology		11,012		7.6	%		7,739		2.1	%

On a geographic basis, revenue generated from outside of China was $3.8 million, or 2.6% of the total revenue, for the nine months ended March 31, 2015, as compared to $27.0 million, or 7.4% of the total revenue, for the same period in 2014. The decrease was because we lowered the price of our products in order to gain international market penetration, and the upgrading of PPGI production line affected the sales as well.

On a segment basis, after eliminating intercompany sales and adjusting reconciliation items, revenue contributed by Changshu Huaye was $35.8 million for the nine months ended March 31, 2015, a decrease of $112.3 million, or 75.8%, from $148.1 million for the same period last year. The decrease mainly resulted from the transformation of our business model as well as the shutdown of the PPGI line for technical upgrading.

After eliminating the inter-company sales and adjusting reconciliation items, revenue contributed by Jiangsu Cold-Rolled was $85.7 million for the nine months ended March 31, 2015, as compared at $167.1 million for the same period last year. The decrease in sales revenue was mainly because of the transformation of our business model.

Revenue contributed by Ningbo Zhehua was $11.9 million for the nine months ended March 31, 2015, a decrease of $29.0 million, or 70.9%, from $40.9 million for the same period in 2014, primarily resulting from the transformation of our business model to one based on processing fee charges and timing of contract delivery.

Revenues contributed by Sutor Technology PRC were $11.0 million for the nine months ended March 31, 2015, an increase of approximately $3.3 million from $7.7 million for the same period in 2014. Through our efforts in brand promotion and development of online-to-offline (O2O) E-commerce, Sutor Technology PRC’s online orders increased gradually. Sutor Technology PRC dedicates itself to providing innovative services with a focus on brand promotion, sales channels expansion and integrated order processing.

In terms of related party sales as compared with sales to unrelated parties, our direct sales to unrelated parties in the nine months ended March 31, 2015 decreased by $194.5 million, or 76.3%, to $60.4 million, from $254.9 million in the same period in 2014.

Cost of revenue. Cost of revenue decreased by $188.7 million, or 57.1%, to $142.0 million in the nine months ended March 31, 2015, from $330.7 million in the same period in 2014. As a percentage of revenue, cost of revenue increased to 98.4% in the nine months ended March 31, 2015, as compared to 90.9% in the same period last year. The decrease in cost of revenue was mainly due to our new fee-based processing model that part of our business, which significantly reduced our cost of revenue. However, its percentage of revenue increased because those fixed costs including depreciation and amortization cost did not decrease at the early stage of our transformation period.

9

Gross profit and gross margin. Gross profit decreased by $30.8 million to $2.4 million in the nine months ended March 31, 2015, from $33.2 million in the same period in 2014. Gross profit as a percentage of revenue (gross margin) was 1.6% for the nine months ended March 31, 2015, as compared to 9.1% for the same period last year. The main reason for the declined gross margin was the upgrading of our PPGI production line and as a result, we did not produce high margin PPGI products during this quarter. In addition, in order to expand sales channels, we offered more competitive prices for processing services to attract more customers.

On a segment basis, gross margin for Changshu Huaye decreased to 4.3% in the nine months ended March 31, 2015, from 11.4% in the same period last year. Gross margin for Jiangsu Cold-Rolled decreased to 1.3% in the nine months ended March 31, 2015, from 8.2% in the same period last year. Gross margin for Ningbo Zhehua decreased to (8.6)% in the nine months ended March 31, 2015, as compared to 8.2% in the same period in 2014. The main reasons for above decreased gross margins were because of our business model transformation, PPGI production line upgrading, the delivery timing of various steel pipes as well as the fixed costs including depreciation and amortization cost did not decrease at the early stage of our transformation period. Gross margin for Sutor Technology PRC was 4.6% in the nine months ended March 31, 2015, as compared to 5.9% in the same period last year because we offered customers with more attractive service prices to improve market competitiveness and expand sales channels during business model transformation.

Total operating expenses. Our total operating expenses decreased by $4.9 million to $7.7 million in the nine months ended March 31, 2015, from $12.6 million in the same period in 2014. As a percentage of revenue, our total operating expenses increased to 5.3% in the nine months ended March 31, 2015, from 3.4% in the same period in 2014.

Selling expenses. Our selling expenses decreased by $2.8 million to $1.5 million in the nine months ended March 31, 2015, from $4.3 million in the same period in 2014. As a percentage of revenue, our selling expenses decreased to 1.0% for the nine months ended March 31, 2015, from 1.2% for the same period last year. The decreased was mainly due to the optimized the logistics distribution model, which reduced our transportation and handling fees.

General and administrative expenses. General and administrative expenses decreased by $2.0 million to $6.2 million, or 4.3% of the total revenue, in the nine months ended March 31, 2015, from $8.2 million, or 2.2% of the revenue, in the same period in 2014. The decrease was primarily due to decrease of office expenses and miscellaneous local fees as a result of our cost control measures.

Interest expense. Our interest expense decreased by $0.8 million to $5.6 million in the nine months ended March 31, 2015, from $6.4 million in the same period in 2014. As a percentage of revenue, our interest expense was 3.9% of total revenue in the nine months ended March 31, 2015, compared to 1.8% in the same period in 2014. The decrease in interest expense was mainly attributable to the adjustment of financing structure that we converted bank note payables to short term loans, which reduced the restricted cash and financial cost.

Provision for income taxes. Our income tax expense benefit was $2.6 million in the nine months ended March 31, 2015, from $3.7 million of income tax expense in the same period last year, due to the decreased taxable profit.

Net income. Net income, without including the foreign currency translation adjustment, decreased by $20.3 million, or 160.0%, to $(7.6) million in the nine months ended March 31, 2015, from $12.7 million in the same period in 2014, as a cumulative result of the above factors.

Liquidity and Capital Resources

Our major sources of liquidity for the periods covered by this quarterly report were mainly borrowings through short-term bank loans. Our operating activities used approximately $75.4 million of cash in the three months ended March 31, 2015. As of March 31, 2015, our total indebtedness to non-related parties under existing short-term loans was approximately $203.4 million. We had approximately $11.0 million long-term loans. As of March 31, 2015, we had an unused line of credit with banks of approximately $31.0 million (RMB 190 million) which entitled us to draw bank loans for general corporate purposes.

Short-term and long-term banks 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 will introduce in more strategic investors and optimize financing structure to reduce financing cost. We will continue to build good relationship with financial institutions. With the Company’s further transformation, we expect the increasing profitably enables us to improve loan repayment capacity.

10

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 a challenging economic climate, increased competition, decreases in the availability, or increases in the cost of raw materials, unexpected equipment failures, or regulatory changes.

As stated above, a portion of our operations is funded through short-term bank loans and we expect to renew our short term loans when they become due. 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.

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 March 31, 2015, we had cash and cash equivalents (excluding restricted cash) of $2.6 million and no restricted cash. The following table provides detailed information about our net cash flow for the financial statement period presented in this report.

Cash Flow

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

	Nine Months Ended March 31,
	2015			2014
Net cash provided by (used in) operating activities	$	(75,359	)	$	31,151
Net cash provided by (used in) investing activities		2,554			(22,891	)
Net cash provided by (used in) financing activities		63,058			(5,153	)
Effect of foreign currency translation on cash and cash equivalents		180			(12	)
Net cash flows		(9,567	)		3,095

Operating Activities

Net cash used in operating activities was $75.4 million for the nine months ended March 31, 2015, from $31.2 million net cash provided by operating activities for the same period last year. The increase in net cash used in operating activities was primarily due to the repayment of business note payables. 

11

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 provided by investing activities was $2.6 million for the nine months ended March 31, 2015, as compared to $22.9 million used in investing activities for the same period in 2014. The increase in net cash provided by investing activities was primarily due to the reduced short-term investments products purchasing.

Financing Activities

Net cash provided by financing activities was $63.1 million for the nine months ended March 31, 2015, as compared to $5.2 million used in financial activities for the same period in 2014. The positive cash flow from financing activities was mainly due to increased short-term loans.

As of March 31, 2015, the amount, maturity date and term of each of our loans were as follows: 

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

Lender	Amount*		Starting Date	Maturity Date	Guarantor**
The Agricultural Bank of China, Changshu  Branch		2.5	2014-05-16	2015-05-05	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		3.6	2014-05-17	2015-05-15	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		2.5	2014-05-19	2015-05-18	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		2.6	2014-06-11	2015-06-10	Shanghai Huaye, Jiangsu Cold-Rolled
Industrial and Commercial Bank of China,  Changshu Branch		3.3	2014-06-20	2015-06-19	Shanghai Huaye,  Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		4.1	2014-06-20	2015-06-19	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		4.1	2014-06-24	2015-06-23	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		4.1	2014-06-25	2015-06-23	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
Industrial and Commercial Bank of China,  Changshu Branch		1.6	2014-06-25	2015-06-22	Shanghai Huaye,  Ningbo Zhehua
Construction Bank of China, Changshu Branch		3.7	2014-07-28	2015-07-27	Shanghai Huaye
Construction Bank of China, Changshu Branch		5.4	2014-08-08	2015-08-07	Shanghai Huaye
Construction Bank of China, Changshu Branch		2.7	2014-08-14	2015-08-13	Shanghai Huaye
Construction Bank of China, Changshu Branch		6.5	2014-10-15	2015-10-14	Shanghai Huaye
Construction Bank of China, Changshu Branch		4.4	2014-10-21	2015-04-28	Shanghai Huaye
Construction Bank of China, Changshu Branch		2.0	2014-11-22	2015-05-21	Shanghai Huaye
Communications Bank of China, Changshu  Branch		4.8	2014-10-17	2015-10-16	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
Communications Bank of China, Changshu  Branch		3.3	2014-11-03	2015-11-03	None
Industrial and Commercial Bank of China,  Changshu Branch		1.3	2015-03-31	2016-03-29	Shanghai Huaye,  Ningbo Zhehua
Industrial and Commercial Bank of China,  Changshu Branch		3.3	2015-03-31	2016-03-29	Shanghai Huaye,  Ningbo Zhehua
Industrial and Commercial Bank of China,  Changshu Branch		1.3	2015-03-31	2016-03-29	Shanghai Huaye,  Ningbo Zhehua
Industrial and Commercial Bank of China,  Changshu Branch		3.7	2015-03-31	2016-03-29	Shanghai Huaye,  Ningbo Zhehua
Industrial and Commercial Bank of China,  Changshu Branch		0.5	2015-03-31	2016-03-29	Shanghai Huaye,  Ningbo Zhehua
The Agricultural Bank of China, Changshu  Branch		4.2	2014-04-14	2015-04-13	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch		8.8	2014-04-17	2015-04-15	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch		3.3	2014-04-30	2015-04-17	Shanghai Huaye, Changshu Huaye

12

The Agricultural Bank of China, Changshu  Branch	2.8	2014-05-21	2015-05-20	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.9	2014-06-20	2015-06-19	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-06-20	2015-06-19	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	0.3	2014-06-23	2015-06-22	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	2.5	2014-06-24	2015-06-22	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-06-23	2015-06-22	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	4.1	2014-06-23	2015-06-22	Shanghai Huaye, Changshu Huaye
Construction Bank of China, Changshu Branch	1.5	2014-06-27	2015-06-26	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-08-15	2015-08-14	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-08-15	2015-08-14	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-08-15	2015-08-14	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-08-16	2015-08-15	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-08-16	2015-08-15	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	3.3	2014-08-16	2015-08-15	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	3.3	2014-08-08	2015-08-06	Shanghai Huaye, Changshu Huaye
Construction Bank of China, Changshu Branch	1.1	2014-09-22	2015-09-21	Shanghai Huaye, Changshu Huaye
Communications Bank of China, Changshu  Branch	3.1	2014-10-08	2015-10-08	Shanghai Huaye, Changshu Huaye
Communications Bank of China, Changshu  Branch	5.4	2014-12-25	2015-12-25	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu  Branch	4.9	2015-03-23	2016-03-21	None
Industrial and Commercial Bank of China,  Changshu Branch	4.0	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	1.1	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	4.0	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	2.6	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	0.9	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	0.6	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	1.8	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	4.0	2015-03-31	2015-09-24	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	3.1	2015-03-31	2016-3-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	3.6	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	3.4	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	3.8	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	1.5	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	1.6	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	1.0	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	4.0	2015-03-31	2015-09-24	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch	1.3	2015-03-31	2016-03-25	Shanghai Huaye, Changshu Huaye

13

Industrial and Commercial Bank of China,  Changshu Branch		3.3	2015-03-31	2016-03-24	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China,  Changshu Branch		3.6	2015-03-31	2015-09-25	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Ningbo  Branch		3.3	2014-01-27	2014-07-25	Changshu Huaye,  Ningbo Zhehua
Pingan Bank, Ningbo Branch		2.3	2014-08-25	2015-08-25	Shanghai Huaye, Changshu Huaye, Ningbo Huaye
Pingan Bank, Ningbo Branch		1.6	2014-09-30	2015-09-30	Ningbo Huaye, Changshu Huaye
Lin, Guihua		2.9	2008-11-20	2016-12-31	None
Shanghai Huaye		8.2	2013-12-31	2016-12-31	None
Total	$	214.4

* Calculated on the basis that $1 = RMB 6.12

** 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 generally contain debt covenants that require us to maintain certain financial and operating condition, among other things. The Company had complied with these debt covenants as of March 31, 2015.

In the coming twelve months, we will have approximately $203.4 million in bank loans that will mature. We will introduce in more strategic investors and optimize financing structure to reduce financing cost. We will continue to build good relationship with financial institutions. With the Company’s further transformation, we expect the increasing profitably enables us to improve loan repayment capacity..

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, 2014.

Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies, to our unaudited condensed consolidated financial statements included elsewhere in this report

Seasonality

Our operating results and operating cash flows historically have not been subject to significant 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.

14

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, Ms. Lifang Chen and Mr. Jun Xu, 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 management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Ms. Chen and Mr. Xu concluded that as of March 31, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the third quarter of fiscal year 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

15

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 effect 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.

We have not sold any equity securities during the third quarter of fiscal year 2015 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the quarter.

During the three-month period ended March 31, 2015, we did not repurchase any shares of our common stock.

No repurchase plans expired or were terminated during the third quarter of fiscal year 2015, nor do any plans exist under which we do not intend to make further purchases.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of fiscal year 2015, 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 list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 15, 2015	SUTOR TECHNOLOGY GROUP LIMITED
	By:	/s/ Lifang Chen
		Lifang Chen, Chief Executive Officer
		(Principal Executive Officer)

By:	/s/ Jun Xu
	Jun Xu, Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

17

EXHIBIT INDEX

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.
101	Interactive data files pursuant to Rule 405 of Regulation S-T.

18