Form 10-Q Sutor Technology Group For: Dec 31

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February 17, 2015 2:18 PM EST

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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: December 31, 2014

¨	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

DongbangIndustrial 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 February 12, 2015 is as follows:

Class of Securities		Shares Outstanding
Common Stock, $0.001 par value		41,616,429

SUTOR TECHNOLOGY GROUP LIMITED

Quarterly Report on Form 10-Q

Period Ended December 31, 2014

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	15
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

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 December 31, 2014 and Condensed Consolidated Balance Sheets as of June 30, 2014		F-1 – F-2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended December 31, 2014 and 2013		F-3

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2014 and 2013		F-4 – F-5

Notes to Unaudited Condensed Consolidated Financial Statements		F-6 – F-21

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		June 30,
	2014		2014

ASSETS
Current Assets:
Cash and cash equivalents	$	3,307,151	$	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 $1,235,225 and $1,368,723, respectively		5,325,628		6,331,702
Trade accounts receivable, related parties		40,105,863		16,149,269
Notes receivables		10,030,830		194,919
Other receivables and prepayments, unrelated parties, net of allowance for doubtful accounts of $282,473 and $255,628, respectively		2,215,777		1,875,785
Other receivables and prepayments, related parties		406,245		405,558
Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $555,985 and $527,673, respectively		8,704,548		8,645,751
Advances to suppliers, related parties		307,892,313		286,085,768
Inventories, net		29,141,842		78,277,682
Current deferred tax assets		2,873,476		1,507,840
Total Current Assets		410,003,673		475,761,406
Non-current Assets:
Advances for purchase of long term assets		85,385		85,241
Property, plant and equipment, net		82,714,923		87,121,382
Intangible assets, net		3,531,438		3,568,855
Long-term investments		1,817,805		1,814,734
Total Non-current Assets		88,149,551		92,590,212
TOTAL ASSETS	$	498,153,224	$	568,351,618

F-1

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(CONTINUED)

	December 31,			June 30,
	2014			2014

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term loans	$	202,865,133		$	139,223,123
Accounts payable, unrelated parties		5,072,840			5,843,599
Accounts payable, related parties		351,448			-
Notes payable		1,663,104			136,274,446
Other payables and accrued expenses, unrelated parties		15,812,163			4,613,201
Other payables and accrued expenses, related parties		3,200,839			3,110,196
Advances from customers, unrelated parties		8,999,245			7,917,111
Advances from customers, related parties		8,382,043			15,114,353
Warrant liabilities		138			866
Total Current Liabilities		246,346,953			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		257,388,966			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 December 31 and June 30, 2014; issued: 42,252,267 shares and 42,252,267 shares as of December 31 and June 30, 2014, respectively		42,252			42,252
Additional paid-in capital		43,788,093			43,652,089
Statutory reserves		22,725,841			22,725,841
Retained earnings		132,016,722			137,081,594
Accumulated other comprehensive income		42,842,859			42,362,443
Less: Treasury stock, at cost, 590,838 as of December 31 and June 30, 2014		(651,509	)		(651,509	)
Total Stockholders' Equity		240,764,258			245,212,710
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	498,153,224		$	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 Six Months Ended
	December 31,						December 31,
	2014			2013			2014			2013

Revenue from unrelated parties	$	22,304,103		$	102,230,215		$	39,296,001		$	204,412,337
Revenue from related parties		62,998,146			26,086,595			83,994,078			63,012,798
Total Revenue		85,302,249			128,316,810			123,290,079			267,425,135
Cost of Revenue		(80,030,060	)		(114,691,101	)		(119,862,160	)		(241,596,881	)
Gross Profit		5,272,189			13,625,709			3,427,919			25,828,254

Operating Expenses:

Selling expenses		(756,869	)		(1,337,918	)		(1,026,509	)		(3,332,774	)
General and administrative expenses		(1,887,366	)		(2,624,720	)		(4,136,617	)		(5,528,990	)
Total Operating Expenses		(2,644,235	)		(3,962,638	)		(5,163,126	)		(8,861,764	)
Income from Operations		2,627,954			9,663,071			(1,735,207	)		16,966,490

Other Incomes/(Expenses):
Interest income		169,379			786,544			615,864			1,836,766
Interest expense		(2,438,408	)		(2,574,958	)		(5,416,755	)		(4,378,253	)
Changes in fair value of warrant liabilities		(135	)		(54,311	)		728			(66,898	)
Income from equity method investments		-			180,956			-			266,128
Other income		19,736			174,752			293,098			219,026
Other expense		(118,085	)		(201,757	)		(184,930	)		(219,780	)
Total Other Expenses, net		(2,367,513	)		(1,688,774	)		(4,691,995	)		(2,343,011	)

Income/(Loss) Before Taxes		260,441			7,974,297			(6,427,202	)		14,623,479
Income tax (expense)/benefit		(233,029	)		(1,579,161	)		1,362,330			(3,040,096	)
Net Income/(Loss)	$	27,412		$	6,395,136		$	(5,064,872	)	$	11,583,383

Other Comprehensive Income:
Foreign currency translation adjustment		405,834			1,477,555			480,416			3,137,112
Comprehensive Income/(Loss)	$	433,246		$	7,872,691		$	(4,584,456	)	$	14,720,495

Basic Earnings/(Loss) per Share	$	(0.00	)	$	0.15		$	(0.12	)	$	0.28
Diluted Earnings/(Loss) per Share	$	(0.00	)	$	0.15		$	(0.12	)	$	0.28

Basic Weighted Average Shares Outstanding		41,661,429			41,453,386			41,661,429			41,383,956
Diluted Weighted Average Shares Outstanding		41,661,429			41,453,386			41,661,429			41,383,956

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 Six Months Ended
	December 31,
	2014			2013
Cash Flows from Operating Activities:
Net (loss)/income	$	(5,064,872	)	$	11,583,383
Adjustments to reconcile net income to net cash provided by/(used in) operating activities
Depreciation and amortization		4,038,490			4,510,854
Provision/(reversal) for doubtful accounts		(81,765	)		123,435
Stock based compensation		136,004			238,320
Foreign currency exchange gain		-			(194,913	)
Gain on disposal of property, plant and equipment		-			(10,985	)
Income from equity method investments		-			(266,128	)
Deferred income taxes		(1,362,330	)		(86,678	)
Changes in fair value of warrant liabilities		(728	)		66,898
Changes in current assets and liabilities:
Restricted cash		60,929,534			(20,188,832	)
Trade accounts receivable, unrelated parties		1,151,793			(2,320,586	)
Trade accounts receivable, related parties		(23,916,037	)		-
Notes receivable		(9,830,144	)		213,696
Other receivables and prepayments, unrelated parties		(363,029	)		(5,775,579	)
Advances to suppliers, unrelated parties		(71,547	)		17,643,081
Advances to suppliers, related parties		(21,311,121	)		33,716,400
Inventories		49,237,038			(61,110,422	)
Accounts payable, unrelated parties		266,935			46,830,652
Accounts payable, related parties		351,254			(20,276,893	)
Notes payable		(126,789,039	)		-
Other payables and accrued expenses, unrelated parties		11,186,772			(293,095	)
Other payables and accrued expenses, related parties		88,221			-
Advances from customers, unrelated parties		1,068,671			10,458,615
Advances from customers, related parties		(14,732,496	)		-
Net Cash (Used in)/Provided by Operating Activities		(75,068,396	)		14,861,223

Cash Flows from Investing Activities:
Purchase of property, plant and equipment		(490,844	)		(7,818,783	)
Proceeds from disposal of property, plant and equipment		-			15,052
Purchase of intangible assets		-			(567,268	)
Payments for short-term investments		-			(3,254,308	)
Proceeds from sale of short-term investments		3,252,350			-
Net Cash Provided by/(Used In) Investing Activities		2,761,506			(11,625,307	)

Cash Flows from Financing Activities:
Proceeds from loans		111,384,323			93,079,729
Repayment of loans		(48,012,958	)		(110,464,374	)
Proceeds from issuance of common stock		-			1,500,000
Changes in restricted cash		-			21,485,248
Net Cash Provided by Financing Activities		63,371,365			5,600,603

Effect of Exchange Rate Changes on Cash and Cash Equivalents		64,451			87,351

Net Change in Cash and Cash Equivalents		(8,871,074	)		8,923,870
Cash and Cash Equivalents at Beginning of Period		12,178,225			3,601,385
Cash and Cash Equivalents at End of Period	$	3,307,151		$	12,525,255

F-4

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED)

Supplemental Non-Cash Information:
Offset of notes payable to related parties against receivable from related parties	$	-		$	11,126,897
Accounts payable for purchase of long-term assets	$	(1,047,151	)	$	(495,344	)
Advances for purchase of long-term assets	$	-		$	17,097,874

Supplemental Cash Flow Information:
Cash paid during the period for interest expense	$	(5,035,611	)	$	(4,430,640	)
Cash paid during the period for income tax	$	-		$	(3,122,617	)

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 December 31, 2014, 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

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 six months ended December 31, 2014 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:

	December 31, 2014		December 31, 2013		June 30, 2014
Closing RMB : USD exchange rate at the period end		6.1460		6.1122		6.1564
Average six months RMB : USD exchange rate		6.1494		6.1457		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 months ended December 31, 2014 and 2013, respectively. 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.

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 December 31, 2014 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 December 31, 2014 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 December 31, 2014
			Fair Value Measurements
	Carrying Value		Level 1		Level 2		Level 3

Warrant liabilities	$	138	$	-	$	-	$	138

	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 six months ended December 31, 2014, 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 months ended December 31, 2014 and 2013.

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 six month ended December 31, 2014:

	Amount
As of June 30, 2014		3,248,652
Foreign currency translation adjustment		3,698
Disposal of short-term investments		(3,252,350	)
As of December 31, 2014	$	-

NOTE 4 – OTHER RECEIVABLES AND PREPAYMENTS

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

	December 31,			June 30,
	2014			2014
Tax recoverable	$	22,276		$	10,266
Other receivables		2,475,974			2,121,147
		2,498,250			2,131,413
Less: allowance for doubtful accounts		(282,473	)		(255,628	)
Other receivables and prepayments, net	$	2,215,777		$	1,875,785

NOTE 5 – INVENTORIES

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

	December 31,			June 30,
	2014			2014
Raw materials	$	18,292,803		$	14,006,475
Finished goods		10,983,280			64,405,222
		29,276,083			78,411,697
Less: allowance for obsolescence		(134,241	)		(134,015	)
Inventories, net	$	29,141,842		$	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 December 31, 2014 and June 30, 2014 consisted of the following:

	December 31,			June 30,
	2014			2014
Buildings and plant	$	47,092,604		$	47,013,051
Machinery		73,108,646			72,916,144
Office and other equipment		1,746,147			1,734,518
Vehicles		670,233			669,101
		122,617,630			122,332,814
Less: accumulated depreciation		(66,522,114	)		(62,419,223	)
		56,095,516			59,913,591
Construction in progress		26,619,407			27,207,791
Property, Plant and Equipment, net	$	82,714,923		$	87,121,382

As of December 31, 2014 and June 30, 2014, certain of the Company’s property, plant and equipment amounted to approximately $38 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 December 31, 2014 and 2013 was $1,877,118 and $2,244,272, respectively.

Depreciation expense for the six months ended December 31, 2014 and 2013 was $3,995,058 and $4,470,232, respectively.

NOTE 7 – INTANGIBLE ASSETS

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

	December 31,			June 30,
	2014			2014
Cost	$	4,345,610		$	4,338,269
Less: Accumulated amortization		(814,172	)		(769,414	)
Intangible Assets, net	$	3,531,438		$	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 December 31, 2014 and 2013 was $21,753 and $21,789, respectively. Amortization expense for the six months ended December 31, 2014 and 2013 was $43,432 and $40,622, respectively.

As of December 31, 2014 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	$	43,456
For the year ending June 30, 2016		86,912
For the year ending June 30, 2017		86,912
For the year ending June 30, 2018		86,912
For the year ending June 30, 2019		86,912
For the year ending June 30, 2020 and thereafter		3,140,334
Total	$	3,531,438

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 March 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:

	December 31,		June 30,
	2014		2014
Short-term loans	$	202,865,133	$	139,223,123
Long-term loans, current portion		-		-
		202,865,133		139,223,123
Long-term loans, non-current portion		11,042,013		11,042,013
Total loans	$	213,907,146	$	150,265,136

The short-term loans outstanding as of December 31, 2014 and June 30, 2014 bore a weighted average interest rate of 6.88% 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 December 31, 2014 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.

Short-term loans as of December 31, 2014 were secured/guaranteed by the following:

Secured/guaranteed by
Guaranteed by related parties	$	105,740,966
Jointly guaranteed by (i) related parties, and (ii) the Company's property, plant and equipment		95,822,507
Guaranteed by the Company's property, plant and equipment		1,301,660
Total short-term loans	$	202,865,133

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 December 31, 2014 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.

As of December 31, 2014, amount of $13,273,969 included in the short-term loans remained unpaid and was reclassified from the notes payable, which bear an interest rate of 5.6% per annum and have contract terms of one year, in accordance with the agreement entered between the Company and banks.

NOTE 10 – RELATED PARTY TRANSACTIONS

The Company’s related parties mainly include Shanghai Huaye and its subsidiaries, which were ultimately controlled by the same party as the Company; CRM Suzhou, which is entity in which the Company owns 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 Six month ended
	December 31,				December 31,
	2014		2013		2014		2013
Sales to Shanghai Huaye and its subsidiaries	$	35,221,975	$	26,086,595	$	35,221,975	$	63,012,798
Sales to Related Trading Companies		27,776,171		-		48,772,103		-
Purchases from Shanghai Huaye and its subsidiaries		32,874,914		49,751,644		32,935,995		145,882,058
Purchases from CRM Suzhou		-		3,579,917		603,938		26,916,087
Rental fees to Shanghai Huaye and its subsidiaries		87,986		39,176		175,724		78,103
Interest expenses to Shanghai Huaye		85,723		85,723		171,446		171,447
Handling fee paid to Shanghai Huaye and its subsidiaries		90,345		-		90,345		88,782

Related Party Balances

	December 31,		June 30,
	2014		2014
Trade accounts receivables due from Shanghai Huaye and its subsidiaries	$	29,736,816	$	3,974,558
Trade accounts receivables due from Trading Entities		10,369,047		12,174,711
Advances paid to Shanghai Huaye and its subsidiaries for purchase of raw materials		245,101,713		281,720,894
Advances paid to Trading Entities for purchase of raw materials		1,478,924		3,231,826
Advances paid to Legang for purchase of raw materials		60,675,490		-
Advances paid to CRM Suzhou for purchase of raw materials		636,186		1,133,048
Other receivables due from Shanghai Huaye and its subsidiaries		406,245		405,558
Accounts payable due to Shanghai Huaye and its subsidiaries		351,448		-
Other payables and accrued expenses due to Shanghai Huaye and its subsidiaries		3,200,839		3,110,196
Long-term loans due to Shanghai Huaye and its subsidiaries		8,182,018		8,182,018

F-15

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – 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.

NOTE 11 – INCOME TAXES

The Company has total income tax of $233,029 and income tax benefit of $1,362,330 for the three months and six months ended December 31, 2014, 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 six months ended December 31, 2014.

The Company’s effective tax rates were 89% and 20% for the three months ended December 31, 2014 and 2013, respectively and 21% and 21% for the six months ended December 31, 2014 and 2013. The change in effective tax rate was mainly resulted from the non-deductible expenses incurred in the three months ended December 31, 2014 while the income before taxes was small.

NOTE 12 – 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:

	December 31, 2014			June 30, 2014
	Quarter end date			Year end date
Warrants indexed to common stock		685,000			685,000
Trading market price	$	0.50		$	1.00
Exercise price	$	3.76		$	3.76
Estimated Term (Year)		0.17			0.67
Expected volatility		149.25	%		60.57	%
Risk-free rate		0.02	%		0.11	%
Dividend yield rates		0.00	%		0.00	%
Fair value of warrants	$	138		$	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 six months ended December 31, 2014 and 2013:

	For The Six Months Ended
	December 31,
	2014			2013
Balance at beginning of the period	$	866		$	144,535
Changes in fair value		(728	)		66,898
Balance at end of the period	$	138		$	211,433

F-16

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – 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.

Stock-based compensation expense for the three months ended December 31, 2014 and 2013 was $68,001 and $16,307, respectively. Stock-based compensation expense for the six months ended December 31, 2014 and 2013 was $136,003 and $35,086, respectively. The remaining $6,238 stock-based compensation will be expensed over the remainder of the one-year service period. The value of the non-vested stock at December 31, 2014 is $72,500.

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 December 31, 2014 and 2013 were nil and $108,598, respectively. Stock-based compensation expense for the six months ended December 31, 2014 and 2013 were nil and $203,234, respectively.

F-17

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – 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 months ended December 31, 2014 and 2013 on the stock options were nil and $16,043, respectively. Stock-based compensation expense for the six months ended December 31, 2014 and 2013 on the stock options were nil and $32,087, respectively. As of December 31, 2014, the remaining unrecognized stock-based compensation is nil.

The following table summarizes the options activity for the six months ended December 31, 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 December 31, 2014		105,000	$	2.71		0.36	$	-

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

NOTE 14 – 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 Six Months Ended
	December 31,					December 31,
	2014			2013		2014			2013

Net income attributable to the common stockholders	$	27,412		$	6,395,136	$	(5,064,872	)	$	11,583,383

Basic weighted-average common shares outstanding		41,661,429			41,453,386		41,661,429			41,383,956
Dilutive effect of warrants and options		-			-		-			-
Diluted weighted-average common shares outstanding		41,661,429			41,453,386		41,661,429			41,383,956

Earnings per share:
Basic	$	(0.00	)	$	0.15	$	(0.12	)	$	0.28
Diluted	$	(0.00	)	$	0.15	$	(0.12	)	$	0.28

Warrants and options to purchase 685,000, and 105,000 shares of common stock, respectively were outstanding during as of December 31, 2014 and June 30, 2014, 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-18

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Operating lease commitments - As of December 31, 2014, 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		175,724
For the year ending June 30, 2016		351,448
For the year ending June 30, 2017		351,448
For the year ending June 30, 2018		351,448
For the year ending June 30, 2019		351,448
For the year ending June 30, 2020 and thereafter		1,464,367
Total	$	3,045,883

Capital commitments – The Company entered into agreements with suppliers to purchase property, plant and equipment. As of December 31, 2014 and June 30, 2014, the Company had purchase obligations totaled $2,504,792 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 December 31, 2014.

NOTE 16 – 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 December 31, 2014 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 currently sold a substantial portion of its products to Shanghai Huaye and its subsidiaries. As a percentage of revenues, 73.9% and 20.3% of the Company’s revenue was derived from Shanghai Huaye and its subsidiaries for the three months ended December 31, 2014 and 2013, respectively; 68.1% and 23.6% of the Company’s revenue was derived from Shanghai Huaye and its subsidiaries for the six months ended December 31, 2014 and 2013, respectively. The loss of sales from Shanghai Huaye and its subsidiaries would have a significant negative impact on the Company’s business. Sales to customers were mostly made through non-exclusive, short-term arrangements. Due to the Company’s dependence on Shanghai Huaye and its subsidiaries, any negative events with respect to Shanghai Huaye and its subsidiaries may cause material fluctuations or declines in the Company’s revenue and have a material adverse effect on the Company’s financial condition and results of operations.

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 70.7% and 43.1% of the Company’s total purchases for the three months ended December 31, 2014 and 2013, respectively; an aggregate of 57.3% and 50.5% of the Company’s total purchases for the six months ended December 31, 2014 and 2013, 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-19

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 – 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 December 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	$	1,475,239		$	15,185,364	$	4,808,603		$	834,897		$	-		$	22,304,103
Revenue from related parties		25,488,419			33,880,734		3,628,993			-			-			62,998,146
Revenue from other operating segments		3,193,787			18,148,684		621,680			-			(21,964,151	)		-
Total operating expenses		1,788,253			452,360		202,638			184,819			16,165			2,644,235
Interest income		55,599			68,021		43,759			1,996			4			169,379
Interest expense		764,806			1,381,676		112,948			-			178,978			2,438,408
Depreciation and amortization expense		272,798			1,225,117		245,814			136,825			18,317			1,898,871
Income tax expense/(benefit)		(228,132	)		622,238		(161,077	)		-			-			233,029
Net segment profit/(loss)		(1,081,201	)		1,868,199		(354,722	)		(59,868	)		(344,996	)		27,412
Capital expenditures		38,769			20,095		1			-			-			58,865
Segment assets		238,487,279		$	338,865,601	$	43,450,660		$	34,677,832		$	(157,328,148	)	$	498,153,224

As of December 31, 2013 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	$	43,288,250	$	46,524,694	$	10,353,468	$	2,063,803		$	-		$	102,230,215
Revenue from related parties		11,062,462		10,063,382		4,960,733		18			-			26,086,595
Revenue from other operating segments		2,086,742		23,484,758		2,416,240		3,419			(27,991,159	)		-
Total operating expenses		2,260,244		776,214		538,550		217,288			170,342			3,962,638
Interest income		310,259		466,569		9,464		91			161			786,544
Interest expense		467,340		1,767,976		1,626		-			338,016			2,574,958
Depreciation and amortization expense		598,493		1,274,540		255,920		137,108			-			2,266,061
Income tax expense		701,908		843,741		33,512		-			-			1,579,161
Net segment profit/(loss)		4,207,423		2,543,509		100,538		(88,724	)		(367,610	)		6,395,136
Capital expenditures		616,281		887,128		93,094		-			-			1,596,503
Segment assets		262,472,451	$	392,899,382	$	48,335,498	$	33,451,372		$	(195,203,803	)	$	541,954,900

F-20

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 – SEGMENT INFORMATION - continued

As of December 31, 2014 and for the six months then ended	Changshu Huaye			Jiangsu Cold-Rolled			Ningbo Zhehua			Sutor Technology			Inter-Segment and Reconciling Items			Total
Revenue from unrelated parties	$	2,886,292		$	28,275,778		$	7,164,309		$	969,622		$	-		$	39,296,001
Revenue from related parties		31,767,823			48,597,262			3,628,993			-			-			83,994,078
Revenue from other operating segments		6,755,623			19,684,494			1,881,268			-			(28,321,385	)		-
Total operating expenses		2,785,121			1,258,051			639,416			501,657			(21,119	)		5,163,126
Interest income		98,163			428,809			86,235			2,642			15			615,864
Interest expense		1,803,505			3,131,362			123,935			-			357,953			5,416,755
Depreciation and amortization expense		865,648			2,523,761			502,563			273,179			(126,661	)		4,038,490
Income tax benefit		(590,497	)		(439,048	)		(332,785	)		-			-			(1,362,330	)
Net segment loss		(3,052,898	)		(452,937	)		(846,173	)		(258,718	)		(454,146	)		(5,064,872	)
Capital expenditures		57,433			155,290			473			-			-			213,196
Segment assets	$	238,487,279		$	338,865,601		$	43,450,660		$	34,677,832		$	(157,328,148	)	$	498,153,224

As of December 31, 2013 and for the six months then ended	Changshu Huaye		Jiangsu Cold-Rolled		Ningbo Zhehua			Sutor Technology			Inter-Segment and Reconciling Items			Total
Revenue from unrelated parties	$	100,642,524	$	78,911,056	$	18,274,937		$	6,583,820		$	-		$	204,412,337
Revenue from related parties		17,845,221		32,209,387		12,952,614			5,576			-			63,012,798
Revenue from other operating segments		6,652,820		55,329,908		2,416,240			3,419			(64,402,387	)		-
Total operating expenses		5,154,889		1,575,263		1,195,526			481,235			454,851			8,861,764
Interest income		819,637		910,920		105,626			256			327			1,836,766
Interest expense		921,797		2,780,219		50,207			-			626,030			4,378,253
Depreciation and amortization expense		1,192,991		2,540,349		504,171			273,343			-			4,510,854
Income tax expense/(benefit)		1,338,008		1,709,881		(7,793	)		-			-			3,040,096
Net segment profit/(loss)		7,711,889		5,416,337		(23,377	)		(208,418	)		(1,313,048	)		11,583,383
Capital expenditures		2,392,029		4,785,530		93,094			-			-			7,270,653
Segment assets	$	262,472,451	$	392,899,382	$	48,335,498		$	33,451,372		$	(195,203,803	)	$	541,954,900

NOTE 18 – GEOGRAPHIC INFORMATION

The following schedule summarizes the sources of the Company’s revenue by geographic regions for the three and six months ended December, 2014 and 2013:

	For the Three Months Ended				For the Six Months Ended
	December 31,				December 31,
Geographic Area	2014		2013		2014		2013
People's Republic of China	$	83,831,434	$	123,212,281	$	120,774,225	$	244,227,432
Other Countries		1,470,815		5,104,529		2,515,854		23,197,703
Total	$	85,302,249	$	128,316,810	$	123,290,079	$	267,425,135

F-21

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 PRC, 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 chief executive officer, 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.

Overview of our Business

We are one of the leading China-based, non-state-owned manufacturers and service providers of fine finished steel products. 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. In addition, we 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 and water resource 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 250,000 MT for cold-rolled steel. Ningbo Zhehua, our subsidiary located in Ningbo, currently has an annual capacity of 400,000 MT for welded steel pipe products.

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.

Executive Overview of Quarterly Results

Along with the structural adjustment in the Chinese steel industry, our focus on sales growth of fine finished steel products has been more on profit growth than revenue scale. Our revenue and net income during the second quarter of fiscal 2015 increased 124.5% and 100.6%, respectively, as compared with the first quarter of fiscal 2015, although they decreased significantly as compared with the same period last year.

The following summarizes the major financial information for the second fiscal quarter of fiscal 2015:

Revenue: Revenue was $85.3 million for the three months ended December 31, 2014, a decrease of $43.0 million, or 33.5%, from $128.3 million for the same period last year.

Gross profit and margin: Gross profit was $5.3 million for the three months ended December 31, 2014, as compared to $13.6 million for the same period last year. Gross margin was 6.2% for the three months ended December 31, 2014, as compared to 10.6% for the same period last year.

Net income: Net income was $0.03 million for the three months ended December 31, 2014, a decrease of $6.37 million, or 99.5%, from $6.4 million for the same period of last year.

Fully diluted earnings per share: Fully diluted earnings per share were approximately $0 for the three months ended December 31, 2014, as compared to approximately $0.15 for the same period last year.

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 manufactures and sells HDG steel and PPGI products. Jiangsu Cold-Rolled manufactures and sells AP steel, cold-rolled steel and HDG steel. Ningbo Zhehua manufactures and sells steel pipe products. Changshu Huaye and Jiangsu Cold-Rolled are adjacent to each other and use largely the same management resources. 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. See Note 17, “Segment Information” to the consolidated financial statements included elsewhere in this report.

Revenue

Our revenue is mainly generated from sales of our HDG steel, PPGI, AP steel and cold-rolled steel products. As a result of our acquisition of Ningbo Zhehua, we also generate revenue from sales of steel pipe products, such as longitudinally welded steel pipes and spiral welded steel pipes. Our revenue has historically been affected by sales volume, sales price of our products and our product mix. In addition, we also generate revenue from offering fee-based steel processing services.

In the three months ended December 31, 2014 and 2013, Changshu Huaye generated revenue of $27.0 million and $54.4 million, which represented 31.6% and 42.4% of our total revenue, respectively. Jiangsu Cold-Rolled generated revenue of $49.1 million and $56.6 million in the three months ended December 31, 2014 and 2013, which represented 57.5% and 44.1% of our total revenue, respectively. In the three months ended December 31, 2014 and 2013, Ningbo Zhehua generated revenue of $8.4 million and $15.3 million, which represented 9.9% and 11.9% of our total revenue, respectively. In addition, in the three months ended December 31, 2014 and 2013, Sutor Technology PRC generated revenue of $0.8 million and $2.1 million, which represented 1.0% and 1.6% of our total revenue, respectively.

Historically a portion of our products was sold through our affiliate Shanghai Huaye, which also supplied to us a significant portion of our raw materials. Approximately 41.3% of our revenue was derived from Shanghai Huaye and its affiliates in the three months ended December 31, 2014, as compared to 20.3% last year. We are considering integration of downstream and upstream industrial resources from related parties in order to leverage our own brand value and improve brand operational performance.

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 product. Direct costs of manufacturing are generally highest when we first introduce a new product due to higher start-up costs and higher raw material costs. As production volume increases, we typically improve manufacturing efficiencies and are able to strengthen our purchasing power by buying raw materials in greater quantities.

In the three months ended December 31, 2014, approximately $32.9 million of raw material procurement was conducted through Shanghai Huaye and its affiliates. Due to the size of Shanghai Huaye and the economy of scale, it has stronger bargaining power than we do and our arrangement with Shanghai Huaye allows us to purchase raw materials at relatively lower prices than we could obtain from suppliers ourselves.

Gross Profit and Gross Margin

Gross profit is equal to the difference between revenue and the cost of revenue. Gross margin is equal to gross profit divided by revenue. For the three months ended December 31, 2014, gross margin for domestic and international sales was 5.8% and 25.2%, respectively, as compared with 10.0% and 20.6%, respectively, in the same period last year. On a segment basis, Changshu Huaye, Jiangsu Cold-Rolled and Ningbo Zhehua’s gross margins were approximately 4.2%, 7.2% and (2.8)%, respectively. Sutor Technology PRC has a gross margin of approximately 14.7% for the second 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 high-end, value-added products, such as the PPGI products, generally tend to have higher profit margins. For the second quarter of fiscal 2015, we did not produce PPGI steel as the production line was shut down for scheduled technical upgrading, which reduced our revenue and lowered our overall gross margin. We expect that our revenue and overall gross margin will improve after February 2015 when the upgrading of PPGI production line is completed.

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, research and development expenses 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 status of Changshu Huaye. As a result, Changshu Huaye is entitled to the preferred tax rate of 15% for the three years 2013 through 2016. 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.

Recent Development

On February 8, 2015, Changshu Huaye entered into a non-binding letter of intent (the “LOI”) with the shareholders of Shanghai Huaye. The LOI contemplates a transaction in which Changshu Huaye will acquire Shanghai Huaye, pursuant to which it is expected that Changshu Huaye will become a controlling shareholder of Shanghai Huaye when the transaction is completed. Consummation of the transaction is subject to entry into a definitive agreement between the parties containing specific singing and closing terms and conditions yet to be negotiated.

Results of Operations

Comparison of Three Months Ended December 31, 2014 and December 31, 2013

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 December 31, 2014						Three Months Ended December 31, 2013
	Amount			% of Revenue			Amount			% of Revenue
Revenue from unrelated parties	$	22,304			26.1	%	$	102,230			79.7	%
Revenue from related parties		62,998			73.9	%		26,087			20.3	%
Total Revenue		85,302			100.0	%		128,317			100.0	%
Cost of Revenue		80,030			93.8	%		114,691			89.4	%
Gross Profit		5,272			6.2	%		13,626			10.6	%
Operating Expenses
Selling expense		757			0.9	%		1,338			1.0	%
General and administrative expense		1,887			2.2	%		2,625			2.1	%
Total Operating Expenses		2,644			3.1	%		3,963			3.1	%
Income from Operations		2,628			3.1	%		9,663			7.5	%
Other Income (Expense)
Interest income		169			0.2	%		786			0.6	%
Other income		19			-			175			0.2	%
Interest expense		(2,438	)		(2.9	)%		(2,575	)		(2.0	)%
Other expense		(118	)		(0.1	)%		(202	)		(0.2	)%
Changes in fair value of warrant liabilities		-			-			(54	)		-
Income from equity method investments		-			-			181			0.1	%
Total Other Expenses, net		(2,368	)		(2.8	)%		(1,689	)		(1.3	)%
Income Before Taxes		260			0.3	%		7,974			6.2	%
Income tax (expense)/benefit		(233	)		(0.3	)%		(1,579	)		(1.2	)%
Net Income	$	27			-		$	6,395			5.0	%

Revenue. For the three months ended December 31, 2014, revenue was $85.3 million, compared to $128.3 million for the same period last year, a decrease of $43.0 million, or 33.5%. The decrease was mainly attributable to the change in our business model. 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. We believe that the fee-based model is more measurable and allows us to better adapt to the changes in the Chinese economy and improve company competitiveness. For the three months ended December 31, 2014, the volume of fee-based processing represents approximately 20% of the total production volume, while very minimum fee-based processing service revenue for the same period in last year.

The following table sets forth revenue by geography and by business segments for the three months ended December 31, 2014 and 2013.

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

	Three Months Ended December 31, 2014					Three Months Ended December 31, 2013
	Amount		% of Revenue			Amount		% of Revenue
Geographic Data
China	$	83,831		98.3	%	$	123,212		96.0	%
Other Countries		1,471		1.7	%		5,105		4.0	%

Segment Data
Changshu Huaye	$	26,964		31.6	%	$	54,351		42.4	%
Jiangsu Cold-Rolled		49,066		57.5	%		56,588		44.1	%
Ningbo Zhehua		8,437		9.9	%		15,314		11.9	%
Sutor Technology PRC		835		1.0	%		2,064		1.6	%

On a geographic basis, revenue generated from outside of China was $1.5 million, or 1.7% of the total revenue, for the three months ended December 31, 2014, as compared to $5.1 million, or 4.0% of the total revenue, for the same period in 2013. The decrease was mainly because of the decline in demand for our products and the upgrading of PPGI production line. As a result, we did not produce the PPGI products which are our main exported products.

On a segment basis, after eliminating intercompany sales and adjusting reconciliation items, revenue contributed by Changshu Huaye was $27.0 million for the three months ended December 31, 2014, reflecting a decrease of $27.4 million, or 50.4%, from $54.4 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 $49.1 million for the three months ended December 31, 2014, as compared at $56.6 million for the same period last year. As explained above, the decrease in sales revenue was mainly because of changes in our business model.

Revenue contributed by Ningbo Zhehua was $8.4 million for the three months ended December 31, 2014, a decrease of $6.9 million, or 45.1%, from $15.3 million for the same period in 2013, primarily resulting from changes in our business model.

Revenues contributed by Sutor Technology PRC were $0.8 million for the three months ended December 31, 2014, a decrease of approximately $1.3 million from $2.1 million for the same period in 2013, primarily resulting from the reduced demand for our products.

In terms of sales to related party as compared with sales to unrelated parties, our direct sales to unrelated parties in the three months ended December 31, 2014 decreased by $79.9 million, or 78.2%, to $22.3 million, from $102.2 million in the same period in 2013.

Cost of revenue. Cost of revenue decreased by $34.7 million, or 30.3%, to $80.0 million in the three months ended December 31, 2014, from $114.7 million in the same period in 2013. As a percentage of revenue, cost of revenue increased to 93.8% in the three months ended December 31, 2014, as compared to 89.4% 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 became pure processing service, 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 $8.3 million to $5.3 million in the three months ended December 31, 2014, from $13.6 million in the same period in 2013. Gross profit as a percentage of revenue (gross margin) was 6.2% for the three months ended December 31, 2014, as compared to 10.6% for the same period last year. The main reason for the declined gross margin was the scheduled technical upgrading of our PPGI production line and as a result, we did not produce high margin PPGI products. In addition, in order to speed up our transformation, we offered more competitive prices for processing services to attract more customers.

On a segment basis, gross margin for Changshu Huaye decreased to 4.2% in the three months ended December 31, 2014, from 13.4% in the same period last year. Gross margin for Jiangsu Cold-Rolled decreased to 7.2% in the three months ended December 31, 2014, from 9.0% in the same period last year. Gross margin for Ningbo Zhehua decreased to (2.8)% in the three months ended December 31, 2014, as compared to 5.3% in the same period in 2013. The main reason for above decreased gross margins was because of our ongoing business model transformation and PPGI production line upgrading. Gross margin for Sutor Technology PRC was 14.7% in the three months ended December 31, 2014, as compared to 6.3% in the same period last year, resulting from the functional change of Sutor Technology PRC to be a center of our brand building and order services offering higher value-added customized service.

Total operating expenses. Our total operating expenses decreased by $1.4 million to $2.6 million in the three months ended December 31, 2014, from $4.0 million in the same period in 2013. As a percentage of revenue, our total operating expenses remained 3.1% in the three months ended December 31, 2014, the same as in the same period last year.

Selling expenses. Our selling expenses decreased by $0.5 million to $0.8 million in the three months ended December 31, 2014, from $1.3 million in the same period in 2013. As a percentage of revenue, our selling expenses decreased to 0.9% for the three months ended December 31, 2014, from 1.0% for the same period last year. The decrease was mainly due to reduced shipping, handling and miscellaneous expenses of approximately $0.65 million as a result of our declined sales.

General and administrative expenses. General and administrative expenses was $1.9 million, or 2.2% of the total revenue, in the three months ended December 31, 2014, as compared with $2.62 million, or 2.1% of the revenue, in the same period in 2013. The decrease was primarily due to reduced office expenses and miscellaneous local fees resulted from the reduction of our sales.

Interest Income. Our interest income decreased by $0.6 million to $0.2 million in the three months ended December 31, 2014, from $0.8 million in the same period in 2013. As a percentage of revenue, our interest expense was 0.2% of total revenue in the three months ended December 31, 2014, compared to 0.6% in the same period in 2013. The decrease was mainly due to a change in financing structure. Our notes payable decreased during the three months ended December 31, 2014, which resulted in less restricted cash and accordingly lower interest income. The decrease of notes payable reduced our discounted cost and financial cost.

Interest expense. Our interest expense decreased by $0.2 million to $2.4 million in the three months ended December 31, 2014, from $2.6 million in the same period in 2013. As a percentage of revenue, our interest expense was 2.9% of total revenue in the three months ended December 31, 2014, compared to 2.0% in the same period in 2013. The decrease was mainly due to the fact that some of our bank acceptances were converted into short term loans, which reduced our interest expense.

Provision for income taxes. Our income tax expense decreased to $0.2 million in the three months ended December 31, 2014, from $1.6 million of income tax benefit in the same period last year, mainly due to the decreased taxable profit amount.

Net income. Net income, without including the foreign currency translation adjustment, decreased by $6.37 million, or 99.5%, to $0.03 million in the three months ended December 31, 2014, from $6.4 million in the same period in 2013, as a cumulative result of the above factors.

Comparison of Six Months Ended December 31, 2014 and December 31, 2013

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)

	Six Months Ended December 31, 2014						Six Months Ended December 31, 2013
	Amount			% of Revenue			Amount			% of Revenue
Revenue from unrelated parties	$	39,296			31.9	%	$	204,412			76.4	%
Revenue from related parties		83,994			68.1	%		63,013			23.6	%
Total Revenue		123,290			100.0	%		267,425			100.0	%
Cost of Revenue		119,862			97.2	%		241,597			90.3	%
Gross Profit		3,428			2.8	%		25,828			9.7	%
Operating Expenses
Selling expense		1,026			0.8	%		3,333			1.3	%
General and administrative expense		4,137			3.4	%		5,529			2.0	%
Total Operating Expenses		5,163			4.2	%		8,862			3.3	%
Income from Operations		(1,735	)		(1.4	)%		16,966			6.4	%
Other Income (Expense)
Interest income		616			0.5	%		1,837			0.7	%
Other income		293			0.2	%		219			0.1	%
Interest expense		(5,416	)		(4.4	)%		(4,378	)		(1.7	)%
Other expense		(185	)		(0.1	)%		(220	)		(0.1	)%
Changes in fair value of warrant liabilities		-			-			(67	)		-
Equity in gain of affiliated company		-			-			266			0.1	%
Total Other Expenses, net		(4,692	)		(3.8	)%		(2,343	)		(0.9	)%
Income Before Taxes		(6,427	)		(5.2	)%		14,623			5.5	%
Income tax (expense)/benefit		1,362			1.1	%		(3,040	)		(1.2	)%
Net Income	$	(5,065	)		(4.1	)%	$	11,583			4.3	%

Revenue. For the six months ended December 31, 2014, revenue was $123.3 million, compared to $267.4 million for the same period last year, a decrease of $144.1 million, or 53.9%. 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. For the six months ended December 31, 2014, the volume of fee-based processing represents approximately 20% of the total production volume, while very minimum fee-based processing service revenue for the same period in last year.

The following table sets forth revenue by geography and by business segments for the six months ended December 31, 2014 and 2013.

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

	Six Months Ended December 31, 2014					Six Months Ended December 31, 2013
	Amount		% of Revenue			Amount		% of Revenue
Geographic Data
China	$	120,774		98.0	%	$	244,227		91.3	%
Other Countries		2,516		2.0	%		23,198		8.7	%

Segment Data
Changshu Huaye	$	34,654		28.1	%	$	118,488		44.3	%
Jiangsu Cold-Rolled		76,873		62.3	%		111,120		41.5	%
Ningbo Zhehua		10,793		8.8	%		31,228		11.7	%
Sutor Technology PRC		970		0.8	%		6,589		2.5	%

On a geographic basis, revenue generated from outside of China was $2.5 million, or 2.0% of the total revenue, for the six months ended December 31, 2014, as compared to $23.2 million, or 8.7% of the total revenue, for the same period in 2013. The decrease was mainly because of the upgrading of PPGI production line. As a result, we did not produce the PPGI products which are our main exported products.

On a segment basis, after eliminating intercompany sales and adjusting reconciliation items, revenue contributed by Changshu Huaye was $34.7 million for the six months ended December 31, 2014, reflecting a decrease of $83.8 million, or 70.7%, from $118.5 million for the same period last year. The decrease mainly resulted from the transformation of 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 $76.9 million for the six months ended December 31, 2014, as compared at $111.1 million for the same period last year. As explained above, the decrease in sales revenue was mainly because of the transformation of our business model.

Revenue contributed by Ningbo Zhehua was $10.8 million for the six months ended December 31, 2014, a decrease of $20.4 million, or 65.4%, from $31.2 million for the same period in 2013. The decrease in sales revenue was mainly because of 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 $1.0 million for the six months ended December 31, 2014, a decrease of approximately $5.6 million from $6.6 million for the same period in 2013, primarily resulting from the decline in demand for our products.

In terms of sales to related party as compared with sales to unrelated parties, our direct sales to unrelated parties in the six months ended December 31, 2014 decreased by $165.1 million, or 80.8%, to $39.3 million, from $204.4 million in the same period in 2013.

Cost of revenue. Cost of revenue decreased by$121.7 million, or 50.4%, to $119.9 million in the six months ended December 31, 2014, from $241.6 million in the same period in 2013. As a percentage of revenue, cost of revenue increased to 97.2% in the six months ended December 31, 2014, as compared to 90.3% 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 became pure processing service, 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 $22.4 million to $3.4 million in the six months ended December 31, 2014, from $25.8 million in the same period in 2013. Gross profit as a percentage of revenue (gross margin) was 2.8% for the six months ended December 31, 2014, as compared to 9.7% for the same period last year. The main reason for the declined gross margin was our scheduled technical upgrading of the PPGI production line. As a result, we did not produce PPGI products, which generally have a higher margin than our other products. In addition, in order to speed up our transformation, we offered processing services with competitive prices to attract more customers, which also reduced our gross margin.

On a segment basis, gross margin for Changshu Huaye decreased to 3.8% in the six months ended December 31, 2014, from 12.2% in the same period last year. Gross margin for Jiangsu Cold-Rolled decreased to 3.0% in the six months ended December 31, 2014, from 8.9% in the same period last year. Gross margin for Ningbo Zhehua decreased to (4.6)% in the six months ended December 31, 2014, as compared to 4.1% in the same period in 2013. The main reason for above decreased gross margins was because of our ongoing business model transformation, PPGI production line upgrading and the delivery timing of various steel pipes. Gross margin for Sutor Technology PRC was 24.8% in the six months ended December 31, 2014, as compared to 4.2% in the same period last year, resulting from the functional change of Sutor Technology PRC to be a center of our brand building and order services offering higher value-added customized service.

Total operating expenses. Our total operating expenses decreased by $3.7 million to $5.2 million in the six months ended December 31, 2014, from $8.9 million in the same period in 2013. As a percentage of revenue, our total operating expenses decreased to 4.2% in the six months ended December 31, 2014, from 3.3% in the same period in 2013.

Selling expenses. Our selling expenses decreased by $2.3 million to $1.0 million in the six months ended December 31, 2014, from $3.3 million in the same period in 2013. As a percentage of revenue, our selling expenses decreased to 0.8% for the six months ended December 31, 2014, from 1.3% for the same period last year. The decrease was mainly due to reduced shipping, handling and miscellaneous expenses of approximately $1.9 million as our sales, especially international sales reduced significantly during the six months ended on December 31, 2014.

General and administrative expenses. General and administrative expenses was $4.1 million, or 3.4% of the total revenue, in the six months ended December 31, 2014, as compared with $5.5 million, or 2.1% of the revenue, in the same period in 2013. The decrease was primarily due to the decrease of office expenses, miscellaneous local fees, staff benefits and business entertainment expenses.

Interest Income. Our interest income decreased by $1.2 million to $0.6 million in the six months ended December 31, 2014, from $1.8 million in the same period in 2013. As a percentage of revenue, our interest expense was 0.5% of total revenue in the six months ended December 31, 2014, compared to 0.7% in the same period in 2013. The decrease was mainly due to a change in financing structure. Our notes payable decreased during the six months ended December 31, 2014, which resulted in less restricted cash and accordingly lower interest income. The decrease of notes payable reduced our discounted cost and financial cost.

Interest expense. Our interest expense increased by $1.0 million to $5.4 million in the six months ended December 31, 2014, from $4.4 million in the same period in 2013. As a percentage of revenue, our interest expense was 4.4% of total revenue in the six months ended December 31, 2014, compared to 1.6% in the same period in 2013. The increase in interest expense was mainly due to the adjustment of financing structure that we changed bank note payables to short term loans, which reduced the restricted cash and improved financial liquidity.

Provision for income taxes. Our income tax benefit is $1.4 million in the six months ended December 31, 2014, increased from $3.0 million of income tax expense in the same period last year, which was mainly due to the decreased taxable profit.

Net income. Net income, without including the foreign currency translation adjustment, decreased by $16.7 million, or 144.0%, to $(5.1) million in the six months ended December 31, 2014, from $11.6 million in the same period in 2013, 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 net cash used in operating activities was approximately $75.1 million for the six months ended December 31, 2014. As of December 31, 2014, our total indebtedness to non-related parties under existing short-term loans was approximately $202.9 million. There was no current portion of long-term loans as of December 31, 2014. We also had approximately $11.0 million under long-term loans. As of December 31, 2014, we had an unused line of credit with banks of approximately $30.9 million (RMB190 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 expect to renew our short term bank loans when they become due.

Our liquidity and working capital may be affected by a material decrease in cash flow due to factors such as the continued use of cash in operating activities resulting from a decrease in sales due to 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 December 31, 2014, we had cash and cash equivalents of $3.3 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)

	Six Months Ended December 31,
	2014			2013
Net cash (used in) provided by operating activities	$	(75,068	)	$	14,861
Net cash (used in) investing activities		2,762			(11,625	)
Net cash provided by financing activities		63,371			5,601
Effect of foreign currency translation on cash and cash equivalents		64			87
Net cash flows		(8,871	)		8,924

Operating Activities

Net cash used in operating activities was $75.1 million for the six months ended December 31, 2014, as compared to $14.9 million cash provided by operating activities for the same period last year. The increase in net cash used by operating activities was primarily due to increased prepayment of approximately $21.4 million to suppliers, increased accounts payable of $0.6 million, reduced notes payable of 126.8 million, net income of $(5.1) million, reduced advances from customers of $13.7 million, and depreciation and amortization of $4 million, partially offset by the reduced inventory of $49.2 million, reduced restricted cash of $60.9 million and increased trade and notes receivable of $33 million. We are taking measures to balance our accounts payable and receivable in an effort to maintain adequate liquidity. The recent inventory consisted of mostly raw steel materials. From the first quarter to the second quarter of fiscal 2015, our inventory of finished goods decreased by approximately $30.6 million. The decrease of inventories was mainly due to the upgrade of PPGI production line so purchase of raw materials was reduced.

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 in investing activities was $2.8 million for the six months ended December 31, 2014, as compared to $11.6 million used in investing activities for the same period last year. During the six months ended December 31, 2014, we received proceeds from sale of short-term investments of $3.3 million, which was partially offset by the purchase of plant and equipment for $0.5 million.

Financing Activities

Net cash provided by financing activities was $63.4 million for the six months ended December 31, 2014, as compared to $5.6 million provided by financial activities for the same period in 2013. The increase in cash flow provided by financing activities was mainly due to proceeds from loans of $111.4 million, among which approximately $48.0 million was used to repay matured loans.

As of December 31, 2014, 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**
Communications Bank of China, Changshu Branch	$	3.3	2013-11-04	2015-11-03	Shanghai Huaye
The Agricultural Bank of China, Changshu Branch		2.4	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		2.4	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		1.3	2014-06-13	2015-06-09	Shanghai Huaye, Ningbo Zhehua
Industrial and Commercial Bank of China, Changshu Branch		3.2	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	3.3	2014-06-17	2015-06-13	Shanghai Huaye, Ningbo Zhehua
Industrial and Commercial Bank of China, Changshu Branch	1.5	2014-06-25	2015-06-22	Shanghai Huaye, Ningbo Zhehua
Industrial and Commercial Bank of China, Changshu Branch	1.3	2014-06-25	2015-06-23	Sutor Technology PRC, Ningbo Zhehua
Construction Bank of China, Changshu	3.8	2014-07-28	2015-07-27	Shanghai Huaye
Industrial and Commercial Bank of China, Changshu Branch	3.7	2014-08-19	2015-08-18	Shanghai Huaye, Ningbo Zhehua
Construction Bank of China, Changshu	5.4	2014-08-08	2015-08-07	Shanghai Huaye
Construction Bank of China, Changshu	2.7	2014-08-14	2015-08-13	Shanghai Huaye
Industrial and Commercial Bank of China, Changshu Branch	0.4	2014-08-27	2015-08-26	Shanghai Huaye, Ningbo Zhehua
Construction Bank of China, Changshu	6.5	2014-10-15	2015-10-14	Shanghai Huaye
Construction Bank of China, Changshu	4.4	2014-10-21	2015-04-28	Shanghai Huaye
Construction Bank of China, Changshu	2.0	2014-11-22	2015-05-21	Shanghai Huaye
Communications Bank of China, Changshu Branch	4.8	2014-10-17	2015-10-17	Shanghai Huaye, Jiangsu Cold-Rolled, Ningbo Zhehua
The Agricultural Bank of China, Changshu Branch	4.9	2014-03-26	2015-03-23	Shanghai Huaye, Changshu Huaye
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
The Agricultural Bank of China, Changshu Branch	2.8	2014-05-21	2015-05-20	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	3.1	2014-05-26	2015-05-25	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	2.6	2014-04-11	2015-04-10	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	0.7	2014-04-15	2015-04-14	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	1.3	2014-06-12	2015-06-10	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	3.2	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	2.4	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

Industrial and Commercial Bank of China, Changshu Branch	1.1	2014-06-18	2015-06-15	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	3.6	2014-06-19	2015-06-18	Shanghai Huaye, Changshu Huaye
Construction Bank of China, Changshu	1.8	2014-06-27	2015-06-26	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	1.5	2014-07-16	2015-07-10	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	1.0	2014-07-16	2015-07-15	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	4.0	2014-07-18	2015-07-17	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	3.4	2014-07-25	2015-07-21	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	4.0	2014-07-18	2015-07-18	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu Branch	3.2	2014-08-15	2015-08-14	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu Branch	3.2	2014-08-15	2015-08-14	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu Branch	3.2	2014-08-15	2015-08-14	Shanghai Huaye, Changshu Huaye
The Agricultural Bank of China, Changshu Branch	3.2	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
Industrial and Commercial Bank of China, Changshu Branch	3.8	2014-08-14	2015-08-11	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	1.0	2014-09-17	2015-09-11	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	4.0	2014-09-19	2015-03-17	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	4.0	2014-09-19	2015-03-18	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	1.8	2014-09-10	2015-09-09	Shanghai Huaye, Changshu Huaye
Construction Bank of China, Changshu	1.1	2014-09-22	2015-09-21	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	1.6	2014-10-14	2015-10-13	Shanghai Huaye, Changshu Huaye
Industrial and Commercial Bank of China, Changshu Branch	3.6	2014-10-10	2015-04-09	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, Ningbo Branch	3.3	2014-01-27	2014-07-25	Shanghai Huaye, Changshu Huaye
Pingan Bank, Ningbo Branch	2.3	2014-08-25	2015-08-25	Shanghai Huaye, Changshu Huaye
Pingan Bank, Ningbo Branch	1.6	2014-09-30	2015-09-30	Shanghai 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	213.9

* Calculated on the basis that $1 = RMB6.15

** 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. We believe that we were in compliance with these debt covenants as of December 31, 2014.

In the coming twelve months, we will have approximately $202.9 million in bank loans that will mature. We plan to replace these loans with new bank loans in approximately the same aggregate amounts.

We believe that our currently available working capital, credit facilities referred to above and the expected additional credit facility should be adequate to sustain our operations at the current level for at least the next twelve months. However, depending on our future needs and changes and trends in the capital markets affecting our shares and the Company, we may determine to seek additional equity or debt financing in the private or public markets.

Critical Accounting Policies

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

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 December 31, 2014, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

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

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

Not applicable.

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

We have not sold any equity securities during the second 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 December 31, 2014, we did not repurchase any shares of our common stock.

No repurchase plans expired or were terminated during the second 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.

None.

ITEM 6. EXHIBITS.

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

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: February 17, 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)

EXHIBIT INDEX

Exhibit No.		Description
10.1		Independent Director Contract, dated February 1, 2015, by and between the Company and Guoyou Shao.
10.2		Independent Director Contract, dated February 16, 2015, by and between the Company and Xinchuang Li
10.3		Annual Product Supply Contract, dated December 10, 2014, by and between Ningbo Zhehua and Shanghai Legang Supply Chain Co., Ltd.
10.4		Annual Product Supply Contract, dated December 10, 2014, by and between Jiangsu Cold-Rolled and Shanghai Legang Supply Chain Co., Ltd.
10.5		Annual Product Supply Contract, dated December 10, 2014, by and between Changshu Huaye and Shanghai Legang Supply Chain Co., Ltd.
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 (furnished herewith).

Exhibit 10.1

SUTOR TECHNOLOGY GROUP LIMITED

INDEPENDENT DIRECTOR’S CONTRACT

THIS INDEPENDENT DIRECTOR’S CONTRACT (the “Agreement”) is made as of the 1^st day of February, 2015 and is by and between Sutor Technology Group Limited, a Nevada corporation (hereinafter referred to as the “Company”), and Guoyou Shao (hereinafter referred to as the “Director”).

BACKGROUND

The Company and the Director has entered into that certain Independent Director’s Contract, dated February 1^st, 2014 (the “Original Contract”), under which the Director was appointed as a member of the Board of Directors of the Company (the “Board of Directors”) for a term of 12 months. Both the Board of Directors and the Director desire to extend the Original Contract.

AGREEMENT

In consideration for the above recited promises and the mutual promises contained herein, the adequacy and sufficiency of which are hereby acknowledged, the Company and the Director hereby agree as follows:

1. DUTIES. The Company requires that the Director be available to perform the duties of an independent director customarily related to this function as may be determined and assigned by the Board of Directors and as may be required by the Company’s constituent instruments, including its Articles of Incorporation, Bylaws and its corporate governance and board committee charters, each as amended or modified from time to time, and by applicable law, including the Nevada Revised Statutes. The Director agrees to devote as much time as is necessary to perform completely the duties as the Director of the Company, including duties as a member of the Audit Committee, Compensation Committee, Governance and Nominating Committee and such other committees as the Director may hereafter be appointed to. The Director will perform such duties described herein in accordance with the general fiduciary duty of directors arising under Chapter 78 of the Nevada Revised Statutes.

2. TERM. The term of this Agreement shall commence as of the date hereof and shall continue until the Director’s removal, resignation or the one-year anniversary of the date hereof, whichever is earlier. This 12-month period ending on the anniversary date of the Director’s appointment is a “Service Year.”

3. COMPENSATION. For all services to be rendered by Director in any capacity hereunder, the Company agrees to pay Director a fee of RMB 150,000 in cash during this Service Year, paid monthly.

4. EXPENSES. In addition to the compensation provided in paragraph 3 hereof, the Company will reimburse the Director for pre-approved reasonable business related expenses incurred in good faith in the performance of the Director’s duties for the Company. Such payments shall be made by the Company upon submission by the Director of a signed statement itemizing the expenses incurred. Such statement shall be accompanied by sufficient documentary matter to support the expenditures.

5. CONFIDENTIALITY. The Company and the Director each acknowledge that, in order for the intents and purposes of this Agreement to be accomplished, the Director shall necessarily be obtaining access to certain confidential information concerning the Company and its affairs, including, but not limited to business methods, information systems, financial data and strategic plans which are unique assets of the Company (“Confidential Information”). The Director covenants not to, either directly or indirectly, in any manner, utilize or disclose to any person, firm, corporation, association or other entity any Confidential Information.

6. NON-COMPETE. During the term of this Agreement and for a period of twelve (12) months following the termination of this agreement (the “Restricted Period”), the Director shall not, directly or indirectly, (a) in any manner whatsoever engage in any capacity with any business competitive with the Company’s current lines of business or any business then engaged in by the Company, any of its subsidiaries or any of its affiliates (the “Company’s Business”) for the Director’s own benefit or for the benefit of any person or entity other than the Company or any subsidiary or affiliate; or (b) have any interest as owner, sole proprietor, stockholder, partner, lender, director, officer, manager, employee, consultant, agent or otherwise in any business competitive with the Company’s Business; provided, however, that the Director may hold, directly or indirectly, solely as an investment, not more than one percent (1%) of the outstanding securities of any person or entity which is listed on any national securities exchange or regularly traded in the over-the-counter market notwithstanding the fact that such person or entity is engaged in a business competitive with the Company’s Business. In addition, during the Restricted Period, the Director shall not develop any property for use in the Company’s Business on behalf of any person or entity other than the Company, its subsidiaries and affiliates.

7. TERMINATION. With or without cause, the Company and the Director may each terminate this Agreement at any time upon ten (10) days written notice, and the Company shall be obligated to pay to the Director the compensation and expenses due up to the date of the termination. Nothing contained herein or omitted herefrom shall prevent the stockholder(s) of the Company from removing the Director with immediate effect at any time for any reason.

8. INDEMNIFICATION. The Company shall indemnify, defend and hold harmless the Director, to the full extent allowed by the law of the State of Nevada, and as provided by, or granted pursuant to, any charter provision, Bylaw provision, agreement (including, without limitation, the Indemnification Agreement executed herewith), vote of stockholders or disinterested directors or otherwise, both as to action in the Director’s official capacity and as to action in another capacity while holding such office.

9. EFFECT OF WAIVER. The waiver by either party of the breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof.

10. NOTICE. Any and all notices referred to herein shall be sufficient if furnished in writing at the addresses specified on the signature page hereto or, if to the Company, to the Company’s address as specified in filings made by the Company with the U.S. Securities and Exchange Commission and if by fax to 0086-512-52687706.

-2-

11. GOVERNING LAW. This Agreement shall be interpreted in accordance with, and the rights of the parties hereto shall be determined by, the laws of the State of Nevada without reference to that state’s conflicts of laws principles.

12. ASSIGNMENT. The rights and benefits of the Company under this Agreement shall be transferable, and all the covenants and agreements hereunder shall inure to the benefit of, and be enforceable by or against, its successors and assigns. The duties and obligations of the Director under this Agreement are personal and therefore the Director may not assign any right or duty under this Agreement without the prior written consent of the Company.

13. MISCELLANEOUS. If any provision of this Agreement shall be declared invalid or illegal, for any reason whatsoever, then, notwithstanding such invalidity or illegality, the remaining terms and provisions of this Agreement shall remain in full force and effect in the same manner as if the invalid or illegal provision had not been contained herein.

14. ARTICLE HEADINGS. The article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one instrument. Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes.

16. ENTIRE AGREEMENT. Except as provided elsewhere herein, this Agreement sets forth the entire agreement of the parties with respect to its subject matter and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party to this Agreement with respect to such subject matter.

[Signature Page Follows]

-3-

IN WITNESS WHEREOF, the parties hereto have caused this Independent Director’s Contract to be duly executed and signed as of the day and year first above written.

	SUTOR TECHNOLOGY GROUP LIMITED


	BY:	/s/ Lifang Chen
	Name:	Lifang Chen
	Title:	Chief Executive Officer



	INDEPENDENT DIRECTOR


	BY:	/s/ Guoyou Shao
	Name:	Guoyou Shao

	Address:

EXHIBIT A

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “Agreement”), dated as of the 1^st day of February, 2015 is made by and between SUTOR TECHNOLOGY GROUP LIMITED., a Nevada corporation (the “Company”), and Guoyou Shao, an independent director of the Company (the “Indemnitee”).

RECITALS

A. The Company and the Indemnitee recognize that the present state of the law is too uncertain to provide the Company’s officers and directors with adequate and reliable advance knowledge or guidance with respect to the legal risks and potential liabilities to which they may become personally exposed as a result of performing their duties for the Company;

B. The Company and the Indemnitee are aware of the substantial growth in the number of lawsuits filed against corporate officers and directors in connection with their activities in such capacities and by reason of their status as such;

C. The Company and the Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most officers and directors of the Company;

D. The Company and the Indemnitee recognize that the legal risks and potential liabilities, and the threat thereof, associated with proceedings filed against the officers and directors of the Company bear no reasonable relationship to the amount of compensation received by the Company’s officers and directors;

E. The Company, after reasonable investigation prior to the date hereof, has determined that the liability insurance coverage available to the Company as of the date hereof is inadequate, unreasonably expensive or both. The Company believes, therefore, that the interest of the Company and its current and future stockholders would be best served by a combination of (i) such insurance as the Company may obtain pursuant to the Company’s obligations hereunder and (ii) a contract with its officers and directors, including the Indemnitee, to indemnify them to the fullest extent permitted by law (as in effect on the date hereof, or, to the extent any amendment may expand such permitted indemnification, as hereafter in effect) against personal liability for actions taken in the performance of their duties to the Company;

F. Section 78.7502 of the Nevada Revised Statutes empowers Nevada corporations to indemnify their officers and directors and further states that the indemnification provided by Section 78.7502 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office; thus, Section 78.7502 does not by itself limit the extent to which the Company may indemnify persons serving as its officers and directors;

G. The Company’s Articles of Incorporation and Bylaws authorize the indemnification of the officers and directors of the Company in excess of that expressly permitted by Section 78.7502;

H. The Board of Directors of the Company has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company to contractually indemnify its officers and directors, and to assume for itself liability for expenses and damages in connection with claims against such officers and directors in connection with their service to the Company, and has further concluded that the failure to provide such contractual indemnification could result in great harm to the Company and its stockholders;

I. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company, free from undue concern for the risks and potential liabilities associated with such services to the Company; and

J. The Indemnitee is willing to serve, or continue to serve, the Company, provided, and on the expressed condition, that the Indemnitee is furnished with the indemnification provided for herein.

AGREEMENT

NOW, THEREFORE, the Company and Indemnitee agree as follows:

1. DEFINITIONS.

(a) “EXPENSES” means, for the purposes of this Agreement, all direct and indirect costs of any type or nature whatsoever (including, without limitation, any fees and disbursements of Indemnitee’s counsel, accountants and other experts and other out-of-pocket costs) actually and reasonably incurred by the Indemnitee in connection with the investigation, preparation, defense or appeal of a Proceeding; provided, however, that Expenses shall not include judgments, fines, penalties or amounts paid in settlement of a Proceeding.

(b) “PROCEEDING” means, for the purposes of this Agreement, any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (including an action brought by or in the right of the Company) in which Indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by Indemnitee or of any inaction on his or her part while acting as such director or officer or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director or officer of the foreign or domestic corporation which was a predecessor corporation to the Company or of another enterprise at the request of such predecessor corporation, whether or not he or she is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement.

2. AGREEMENT TO SERVE.

Indemnitee agrees to serve or continue to serve as a director or officer of the Company to the best of his or her abilities at the will of the Company or under separate contract, if such contract exists, for so long as Indemnitee is duly elected or appointed and qualified or until such time as the Indemnitee tenders his or her resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.

3. INDEMNIFICATION.

(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee against Expenses, judgments, fines, penalties or amounts paid in settlement (if the settlement is approved in advance by the Company) actually and reasonably incurred by Indemnitee in connection with a Proceeding (other than a Proceeding by or in the right of the Company) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal Proceeding, had no reasonable cause to believe that Indemnitee's conduct was unlawful.

(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. To the fullest extent permitted by law, the Company shall indemnify Indemnitee against Expenses and amounts paid in settlement, actually and reasonably incurred by Indemnitee in connection with a Proceeding by or in the right of the Company to procure a judgment in its favor if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its stockholders. Notwithstanding the foregoing, no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged liable to the Company in the performance of Indemnitee’s duty to the Company and its stockholders unless and only to the extent that the court in which such action or Proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for Expenses and then only to the extent that the court shall determine.

(c) SCOPE. Notwithstanding any other provision of this Agreement but subject to Section 14(b), the Company shall indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by other provisions of this Agreement, the Company’s Articles of Incorporation, the Company’s Bylaws or by statute.

4. LIMITATIONS ON INDEMNIFICATION.

Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under applicable law;

(b) EXCLUDED INDEMNIFICATION PAYMENTS. To indemnify or advance Expenses in violation of any prohibition or limitation on indemnification under the statutes, regulations or rules promulgated by any state or federal regulatory agency having jurisdiction over the Company.

(c) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 78.7502 of the Nevada Revised Statutes, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit;

(d) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any Proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such Proceeding was not made in good faith or was frivolous;

(e) INSURED CLAIMS. To indemnify Indemnitee for Expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to or on behalf of Indemnitee by an insurance carrier under a policy of directors’ and officers’ liability insurance maintained by the Company or any other policy of insurance maintained by the Company or Indemnitee; or

(f) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for Expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

5. DETERMINATION OF RIGHT TO INDEMNIFICATION.

Upon receipt of a written claim addressed to the Board of Directors for indemnification pursuant to Section 3, the Company shall determine by any of the methods set forth in Section 78.751 of the Nevada Revised Statutes whether Indemnitee has met the applicable standards of conduct which makes it permissible under applicable law to indemnify Indemnitee. If a claim under Section 3 is not paid in full by the Company within ninety (90) days after such written claim has been received by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, unless such action is dismissed by the court as frivolous or brought in bad faith, the Indemnitee shall be entitled to be paid also the expense of prosecuting such claim. The court in which such action is brought shall determine whether Indemnitee or the Company shall have the burden of proof concerning whether Indemnitee has or has not met the applicable standard of conduct.

6. ADVANCEMENT AND REPAYMENT OF EXPENSES.

Subject to Section 4 hereof, the Expenses incurred by Indemnitee in defending and investigating any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding within 30 days after receiving from Indemnitee the copies of invoices presented to Indemnitee for such Expenses, if Indemnitee shall provide an undertaking to the Company to repay such amount to the extent it is ultimately determined that Indemnitee is not entitled to indemnification. In determining whether or not to make an advance hereunder, the ability of Indemnitee to repay shall not be a factor. Notwithstanding the foregoing, in a proceeding brought by the Company directly, in its own right (as distinguished from an action bought derivatively or by any receiver or trustee), the Company shall not be required to make the advances called for hereby if the Board of Directors determines, in its sole discretion, that it does not appear that Indemnitee has met the standards of conduct which make it permissible under applicable law to indemnify Indemnitee and the advancement of Expenses would not be in the best interests of the Company and its stockholders.

7. PARTIAL INDEMNIFICATION.

If the Indemnitee is entitled under any provision of this Agreement to indemnification or advancement by the Company of some or a portion of any Expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a Proceeding, but is not entitled to indemnification or advancement of the total amount thereof, the Company shall nevertheless indemnify or pay advancements to the Indemnitee for the portion of such Expenses or liabilities to which the Indemnitee is entitled.

8. NOTICE TO COMPANY BY INDEMNITEE.

Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof; provided, however, that any delay in so notifying the Company shall not constitute a waiver by Indemnitee of her rights hereunder. The written notification to the Company shall be addressed to the Board of Directors and shall include a description of the nature of the Proceeding and the facts underlying the Proceeding and be accompanied by copies of any documents filed with the court in which the Proceeding is pending. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

9. MAINTENANCE OF LIABILITY INSURANCE.

(a) Subject to Section 4 hereof, the Company hereby agrees that so long as Indemnitee shall continue to serve as a director or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible Proceeding, the Company, subject to Section 9(b), shall use reasonable commercial efforts to obtain and maintain in full force and effect directors’ and officers’ liability insurance (“D&O Insurance”) which provides Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’ directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer.

(b) Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or the Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.

(c) If, at the time of the receipt of a notice of a claim pursuant to Section 8 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

10. DEFENSE OF CLAIM.

In the event that the Company shall be obligated under Section 6 hereof to pay the Expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such Proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, or (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

11. ATTORNEYS' FEES.

In the event that Indemnitee or the Company institutes an action to enforce or interpret any terms of this Agreement, the Company shall reimburse Indemnitee for all of the Indemnitee’s reasonable fees and expenses in bringing and pursuing such action or defense, unless as part of such action or defense, a court of competent jurisdiction determines that the material assertions made by Indemnitee as a basis for such action or defense were not made in good faith or were frivolous.

12. CONTINUATION OF OBLIGATIONS.

All agreements and obligations of the Company contained herein shall continue during the period the Indemnitee is a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, fiduciary, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and shall continue thereafter so long as the Indemnitee shall be subject to any possible proceeding by reason of the fact that Indemnitee served in any capacity referred to herein.

13. SUCCESSORS AND ASSIGNS.

This Agreement establishes contract rights that shall be binding upon, and shall inure to the benefit of, the successors, assigns, heirs and legal representatives of the parties hereto.

14. NON-EXCLUSIVITY.

(a) The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed to be exclusive of any other rights that the Indemnitee may have under any provision of law, the Company’s Articles of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements or otherwise, both as to action in the Indemnitee’s official capacity and action in another capacity while occupying the Indemnitee’s position as a director or officer of the Company.

(b) In the event of any changes, after the date of this Agreement, in any applicable law, statute, or rule which expand the right of a Nevada corporation to indemnify its officers and directors, the Indemnitee's rights and the Company’s obligations under this Agreement shall be expanded to the full extent permitted by such changes. In the event of any changes in any applicable law, statute or rule, which narrow the right of a Nevada corporation to indemnify a director or officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

15. EFFECTIVENESS OF AGREEMENT.

To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the Nevada Revised Statutes, such provisions shall not be effective unless and until the Company’s Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page and may apply to acts of omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer, director, employee or other agent of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred.

16. SEVERABILITY.

Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 16. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

17. GOVERNING LAW.

This Agreement shall be interpreted and enforced in accordance with the laws of the State of Nevada, without reference to its conflict of law principals. To the extent permitted by applicable law, the parties hereby waive any provisions of law which render any provision of this Agreement unenforceable in any respect.

18. NOTICE.

All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

19. MUTUAL ACKNOWLEDGMENT.

Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the appropriate state or federal regulatory agency to submit for approval any request for indemnification, and has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

20. COUNTERPARTS.

This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

21. AMENDMENT AND TERMINATION.

No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set forth above.

COMPANY:		INDEMNITEE:

SUTOR TECHNOLOGY GROUP LIMITED



Name:	Lifang Chen	Name:	Guoyou Shao



By:	/s/ Lifang Chen	By:	/s/ Guoyou Shao
Title:	CEO& President

Address:	No. 8 Huaye Road	Address:
	Dongbang Industrial Park
	Changshu, China 215534

Exhibit 10.2

SUTOR TECHNOLOGY GROUP LIMITED

INDEPENDENT DIRECTOR’S CONTRACT

THIS INDEPENDENT DIRECTOR’S CONTRACT (the “Agreement”) is made as of the 16th day of February, 2015 and is by and between Sutor Technology Group Limited, a Nevada corporation (hereinafter referred to as the “Company”), and Xinchuang Li (hereinafter referred to as the “Director”).

BACKGROUND

The Company and the Director has entered into that certain Independent Director’s Contract, dated February 16, 2014 (the “Original Contract”), under which the Director was appointed as a member of the Board of Directors of the Company (the “Board of Directors”) for a term of 12 months. Both the Board of Directors and the Director desire to extend the Original Contract.

AGREEMENT

3. COMPENSATION. For all services to be rendered by Director in any capacity hereunder, the Company agrees to pay Director a fee of RMB 150,000 in cash during this Service Year, paid monthly.

9. EFFECT OF WAIVER. The waiver by either party of the breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof.

-2-

14. ARTICLE HEADINGS. The article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

[Signature Page Follows]

-3-

IN WITNESS WHEREOF, the parties hereto have caused this Independent Director’s Contract to be duly executed and signed as of the day and year first above written.

	SUTOR TECHNOLOGY GROUP LIMITED


	BY:	/s/ Lifang Chen
	Name:	Lifang Chen
	Title:	Chief Executive Officer & President



	INDEPENDENT DIRECTOR


	BY:	/s/ Xinchuang Li
	Name:	Xinchuang Li

	Address:

EXHIBIT A

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “Agreement”), dated as of the 16th day of February, 2015 is made by and between SUTOR TECHNOLOGY GROUP LIMITED., a Nevada corporation (the “Company”), and Xinchuang Li, an independent director of the Company (the “Indemnitee”).

RECITALS

G. The Company’s Articles of Incorporation and Bylaws authorize the indemnification of the officers and directors of the Company in excess of that expressly permitted by Section 78.7502;

J. The Indemnitee is willing to serve, or continue to serve, the Company, provided, and on the expressed condition, that the Indemnitee is furnished with the indemnification provided for herein.

AGREEMENT

NOW, THEREFORE, the Company and Indemnitee agree as follows:

1. DEFINITIONS.

2. AGREEMENT TO SERVE.

3. INDEMNIFICATION.

4. LIMITATIONS ON INDEMNIFICATION.

Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under applicable law;

5. DETERMINATION OF RIGHT TO INDEMNIFICATION.

6. ADVANCEMENT AND REPAYMENT OF EXPENSES.

7. PARTIAL INDEMNIFICATION.

8. NOTICE TO COMPANY BY INDEMNITEE.

9. MAINTENANCE OF LIABILITY INSURANCE.

10. DEFENSE OF CLAIM.

11. ATTORNEYS' FEES.

12. CONTINUATION OF OBLIGATIONS.

13. SUCCESSORS AND ASSIGNS.

This Agreement establishes contract rights that shall be binding upon, and shall inure to the benefit of, the successors, assigns, heirs and legal representatives of the parties hereto.

14. NON-EXCLUSIVITY.

15. EFFECTIVENESS OF AGREEMENT.

16. SEVERABILITY.

17. GOVERNING LAW.

18. NOTICE.

19. MUTUAL ACKNOWLEDGMENT.

20. COUNTERPARTS.

This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

21. AMENDMENT AND TERMINATION.

No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set forth above.

COMPANY:		INDEMNITEE:

SUTOR TECHNOLOGY GROUP LIMITED



Name:	Lifang Chen	Name:	Xinchuang Li



By:	/s/ Lifang Chen	By:	/s/ Xinchuang Li
Title:	CEO& President

Address:	No. 8 Huaye Road	Address:
	Dongbang Industrial Park
	Changshu, China 215534

Exhibit 10.3

Shanghai Legang Supply Chain Co., Ltd.

Annual Product Supply Contract

Term: Year 2015

Purchaser: Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd.

Supplier: Shanghai Legang Supply Chain Co., Ltd.

Contract No.: SHLG20141235

Contract Date: 2014-12-10

Place Signed: Shanghai

Product	Hot Rolled/ Full Hard		Specification/Amount/Unit Price	Subject to monthly contract and actual delivery amount
Supplier	Shanghai Legang Supply Chain Co., Ltd.		Address
Purchaser	Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd.		Address	Luotuo Town, Ningbo City
Supplier Schedule: 1. The purchaser intends to purchase steel coils in an amount of approximately 20,000 metric tons in the year of 2015 from the supplier and the main products are hot rolled coils and full hard coils. 2. The purchaser shall inform the supplier details of order in advance and enter into supplemental contracts. The specifications of products should be set forth in the supplemental contracts. 3. Payment: prepayment by the purchaser Note: 1. The tonnage mentioned above is an estimated amount; 2. No delivery is required for remaining amount of products not enough for one car; 3. Notice by facsimile is valid; 4. Thickness variation: Lower variation 0.22mm, width variation: positive variation 0-3; 5. Packaging standard: the supply and recycling of the packaging materials shall be determined by the supplier; 6. Acceptance and claim period: acceptance is subject to product specifications set forth in monthly contracts. The purchaser shall notify the supplier about any issue of the products in writing within two months of delivery. 7. Other terms or unspecified provisions shall be set forth through negotiations between parties; 8. The supplier is not liable for the failure to timely deliver the products due to reasons of maintenance or limitation of transportation capacity. Parties shall mutually determine a new delivery time. 9. The disputes shall be submitted to the jurisdiction of the court where the supplier is located.
The Supplier Signed		(Contract Seal of the Supplier)	The Purchaser Signed	(Contract Seal of the Purchaser)
Place of Signed			Place of Contract Performance

Exhibit 10.4

Shanghai Legang Supply Chain Co., Ltd.

Annual Product Supply Contract

Term: Year 2015

Purchaser: Jiangsu Cold-Rolled Technology Co., Ltd

Supplier: Shanghai Legang Supply Chain Co., Ltd.

Contract No.: SHLG20141233

Contract Date: 2014-12-10

Place Signed: Shanghai

Product	Hot Rolled/ Full Hard		Specification/Amount/Unit Price	Subject to monthly contract and actual delivery amount
Supplier	Shanghai Legang Supply Chain Co., Ltd.		Address
Purchaser	Jiangsu Cold-Rolled Technology Co., Ltd		Address	Dongbang Town, Changshu City
Supplier Schedule: 1. The purchaser intends to purchase steel coils in an amount of approximately 80,000 metric tons in the year of 2015 from the supplier and the main products are hot rolled coils. 2. The purchaser shall inform the supplier details of order in advance and enter into supplemental contracts. The specifications of products should be set forth in the supplemental contracts. 3. Payment: prepayment by the purchaser Note: 1. The tonnage mentioned above is an estimated amount; 2. No delivery is required for remaining amount of products not enough for one car; 3. Notice by facsimile is valid; 4. Thickness variation: Lower variation 0.22mm, width variation: positive variation 0-3; 5. Packaging standard: the supply and recycling of the packaging materials shall be determined by the supplier; 6. Acceptance and claim period: acceptance is subject to product specifications set forth in monthly contracts. The purchaser shall notify the supplier about any issue of the products in writing within two months of delivery. 7. Other terms or unspecified provisions shall be set forth through negotiations between parties; 8. The supplier is not liable for the failure to timely deliver the products due to reasons of maintenance or limitation of transportation capacity. Parties shall mutually determine a new delivery time. 9. The disputes shall be submitted to the jurisdiction of the court where the supplier is located.
The Supplier Signed		(Contract Seal of the Supplier)	The Purchaser Signed	(Contract Seal of the Purchaser)
Place of Signed			Place of Contract Performance

Exhibit 10.5

Shanghai Legang Supply Chain Co., Ltd.

Annual Product Supply Contract

Term: Year 2015

Purchaser: Changshu Huaye Steel Strip Co., Ltd.

Supplier: Shanghai Legang Supply Chain Management Ltd.

Contract No.: SHLG20141234

Contract Date: 2014-12-10

Place Signed: Shanghai

Product	Hot Rolled/ Full Hard		Specification/Amount /Unit Price	Subject to monthly contract and actual delivery amount
Supplier	Shanghai Legang Supply Chain Co., Ltd.		Address
Purchaser	Changshu Huaye Steel Strip Co., Ltd.		Address	Dongbang Town, Changshu City
Supplier Schedule: 1. The purchaser intends to purchase steel coils in an amount of approximately 40,000 metric tons in the year of 2015 from the supplier and the main products are full hard coils. 2. The purchaser shall inform the supplier details of order in advance and enter into supplemental contracts. The specifications of products should be set forth in the supplemental contracts. 3. Payment: prepayment by the purchaser Note: 1. The tonnage mentioned above is an estimated amount; 2. No delivery is required for remaining amount of products not enough for one car; 3. Notice by facsimile is valid; 4. Thickness variation: Lower variation 0.22mm, width variation: positive variation 0-3; 5. Packaging standard: the supply and recycling of the packaging materials shall be determined by the supplier; 6. Acceptance and claim period: acceptance is subject to product specifications set forth in monthly contracts. The purchaser shall notify the supplier about any issue of the products in writing within two months of delivery. 7. Other terms or unspecified provisions shall be set forth through negotiations between parties; 8. The supplier is not liable for the failure to timely deliver the products due to reasons of maintenance or limitation of transportation capacity. Parties shall mutually determine a new delivery time. 9. The disputes shall be submitted to the jurisdiction of the court where the supplier is located.
The Supplier Signed		(Contract Seal of the Supplier)	The Purchaser Signed	(Contract Seal of the Purchaser)
Place of Signed			Place of Contract Performance

Exhibit 31.1

CERTIFICATIONS

I, Lifang Chen, certify that:

I have reviewed this quarterly report on Form 10-Q of Sutor Technology Group Limited;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2015

/s/ Lifang Chen

Lifang Chen

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS

I, Jun Xu, certify that:

I have reviewed this quarterly report on Form 10-Q of Sutor Technology Group Limited;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2015

/s/ Jun Xu

Jun Xu

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Lifang Chen, the Chief Executive Officer of SUTOR TECHNOLOGY GROUP LIMITED (the “Company”), DOES HEREBY CERTIFY that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2014 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 17^th day of February, 2015.

	/s/Lifang Chen
	Lifang Chen
	Chief Executive Officer
	(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Sutor Technology Group Limited and will be retained by Sutor Technology Group Limited and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Jun Xu, the Chief Financial Officer of SUTOR TECHNOLOGY GROUP LIMITED (the “Company”), DOES HEREBY CERTIFY that:

2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 17^th day of February, 2015.

	/s/ Jun Xu
	Jun Xu
	Chief Financial Officer
	(Principal Financial Officer)

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Form 10-Q Sutor Technology Group For: Dec 31

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