Telidyne, Inc. - Quarter Report: 2011 September (Form 10-Q)

TEC Technology, Inc.: Form 10-Q - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: September 30, 2011

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

For the transition period from ____________to _____________

Commission File Number: 000-53432

TEC TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware	13-4013027
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

Xinqiao Industrial Park
Jingde County
Anhui Province 242600
People’s Republic of China
(Address of principal executive offices, Zip Code)

(86) 563 8023488
(Registrant’s telephone number, including area code)

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

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

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [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 November 10, 2011 is as follows:

	Class of Securities		Shares Outstanding
	Common Stock, $0.001 par value		30,181,552

TEC TECHNOLOGY, INC.

Quarterly Report on Form 10-Q

Three and Nine Months Ended September 30, 2011

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	8
Item 4.	Controls and Procedures	8

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	9
Item 1A.	Risk Factors	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3.	Defaults Upon Senior Securities	9
Item 4.	(Removed and Reserved)	9
Item 5.	Other Information	9
Item 6.	Exhibits	9

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TEC TECHNOLOGY, INC.
QUARTERLY FINANCIAL REPORT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

TEC TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
CONSOLIDATED BALANCE SHEETS	F - 1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME	F - 2
CONSOLIDATED STATEMENTS OF CASH FLOWS	F - 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F - 4 - F - 25

TEC TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

		September 30, 2011		December 31, 2010
		(Unaudited)		(Audited)
ASSETS
Current assets
Cash and cash equivalents	$	3,375,312	$	2,526,710
Restricted cash		69,291		1,164,598
Accounts receivable, net of allowance for doubtful accounts		20,179,785		14,356,352
Inventory		6,113,015		5,235,074
Deposits and prepaid expenses		4,092,188		5,439,579
Other receivables		2,803,897		1,626,039
Taxes recoverable		17,391		2,389
Total current assets		36,650,879		30,350,741
Property and equipment
Property and equipment, net of accumulated depreciation		3,885,813		3,790,765
Land use rights, net of accumulated amortization		8,057,124		2,071,771
Construction in progress		2,258,450		473,355
		14,201,387		6,335,891
Total assets	$	50,852,266	$	36,686,632

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable	$	7,056,658	$	8,313,633
Other payables and accrued expenses		4,683,755		3,494,358
Taxes payables		420,762		44,608
Customer deposits		1,140,085		80,331
Short term borrowings		23,428,713		12,938,582
		36,729,973		24,871,512
Commitments and contingencies		-		-

Stockholders' equity
Preferred stock: 10,000,000 authorized, none issued and outstanding $0.001 par value
Common stock: 300,000,000 authorized $0.001 par value 30,181,552 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively	$	30,182	$	30,182
Additional paid in capital		1,105,454		1,024,891
Retained earnings		11,852,910		10,077,006
Accumulated other comprehensive income		1,133,747		683,041
Total stockholders' equity		14,122,293		11,815,120
Total liabilities and stockholders' equity	$	50,852,266	$	36,686,632

See accompanying notes of these consolidated financial statements
F - 1

TEC TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

		Three months			Three months			Nine months			Nine months
		ended			ended			ended			ended
		September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	11,364,648		$	7,285,615		$	19,559,792		$	21,892,594
Cost of goods sold		8,418,882			5,355,307			14,203,143			15,313,202
Gross profit		2,945,766			1,930,308			5,356,649			6,579,392
Selling and marketing expenses		(438,939	)		(337,423	)		(1,065,308	)		(1,127,290	)
General and administrative expenses		(378,165	)		(293,389	)		(1,271,357	)		(938,337	)
Net income from operations		2,128,662			1,299,496			3,019,984			4,513,765
Other income (expenses)
Government grant		1,421			10,798			218,408			190,215
Other income		2,123			-			2,123			13,695
Interest expense		(465,391	)		(299,865	)		(1,125,568	)		(979,425	)
Net other income (expenses)		(461,847	)		(289,067	)		(905,037	)		(775,515	)
Net income before provision for income taxes		1,666,815			1,010,429			2,114,947			3,738,250
Provision for income taxes		(257,753	)		(151,535	)		(339,043	)		(538,396	)
Net income		1,409,062			858,894			1,775,904			3,199,854
Other comprehensive income (loss)
Foreign currency translation gain (loss)		151,543			12,462			450,706			(177,290	)
Comprehensive income	$	1,560,605		$	871,356		$	2,226,610		$	3,022,564
Weighted average numbers of common shares
Basic		30,181,882			25,298,383			30,181,882			25,298,383
Diluted		30,181,882			25,298,383			30,181,882			25,298,383
Earnings per share
Basic	$	0.05		$	0.03		$	0.06		$	0.13
Diluted	$	0.05		$	0.03		$	0.06		$	0.13

See accompanying notes of these consolidated financial statements
F - 2

TEC TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine months			Nine months
		ended			ended
		September 30, 2011			September 30, 2010
		(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income for the period	$	1,775,904		$	3,199,854
Adjustments to reconcile net income to net cash (used in) provided by operating activites:
Depreciation		259,193			207,350
Loss on disposal of property and equipment		537			-
Amortization of land use rights		33,745			31,779
Stock based compensation		93,800			-
Changes in operating assets and liabilities
Decrease in restricted cash		1,095,307			-
Increase in inventory		(877,941	)		(958,677	)
Increase/(decrease) in deposits and prepaid expenses		(2,281,507	)		1,471,962
Increase in accounts receivable		(5,823,433	)		(7,678,771	)
(Increase) decrease in other receivables		(1,177,858	)		59,733
Increase in taxes recoverable		(15,002	)		(6,336	)
Increase/(decrease) in taxes payable		376,154			(862,532	)
(Decrease) increase in accounts payable		(1,259,975	)		4,360,248
Increase/(decrease) in customer deposits		1,059,754			(81,279	)
Increase in other payables and accrued expenses		1,189,397			1,955,393
Net cash (used in) provided by operating activities		(5,551,925	)		1,698,724
Cash flows from investing activities
Purchase of property and equipment		(239,580	)		(622,961	)
Proceeds from disposal of property and equipment		5,379			-
Payment for construction in progress		(1,775,312	)		(36,959	)
Purchases of land use rights		(2,174,130	)		-
Net cash used in investing activities		(4,183,643	)		(659,920	)
Cash flows from financing activities
Common stock issued		-			10,987
Contribution of paid in capital		-			58,321
Proceeds from short term borrowings		18,050,799			-
Repayment of short term borrowings		(8,146,100	)		(1,124,474	)
Net cash provided by (used in) financing activities		9,904,699			(1,055,166	)
Effects on exchange rate changes on cash		679,471			84,800
Increase in cash and cash equivalents		848,602			68,438
Cash and cash equivalents, beginning of period		2,526,710			164,927
Cash and cash equivalents, end of period		3,375,312			233,365
Supplementary disclosures of cash flow information:
Cash paid for interest		1,125,568			979,425
Cash paid for income taxes		2,196,414			1,392,926
Non cash transactions:
Issuance of warrant		94,120			-
Acquisition of land use rights from deposits and prepaid expenses		3,659,766			-
Capital contributed by directors assuming debts of Company		80,563			-

See accompanying notes of these consolidated financial statements
F - 3

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	BUSINESS ORGANIZATION

	TEC Technology, Inc. (formerly known as Highland Ridge, Inc., Sea Green, Inc., Americom Networks Corp. and Americom Networks International, Inc.) was incorporated on July 22, 1988 in the State of Delaware, United States of America. (the “Company” or “TEC Holding”). On June 9, 2010, the Company changed its name from Highland Ridge, Inc. to TEC Technology, Inc.

	On May 4, 2010, the Company completed a reverse acquisition transaction pursuant to a share exchange agreement among the Company, TEC Technology Limited, a Hong Kong limited company (“TECT”) and TECT’s sole stockholder, Mr. Hua Peng Phillip Wong, whereby the Company acquired 100% of the issued and outstanding capital stock of TECT in exchange for 19,194,421 shares of the Company’s common stock, which constituted 63.6% of the Company’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of reverse acquisition. As a result of the acquisition of TECT, the Company now owns all of the issued and outstanding capital stock of TECT, which in turn owns Anhui TEC Tower Co., Ltd. (“ATEC”); and Shuncheng Taida Technology Co., Ltd. (“STT”). ATEC currently owns 90% of Zhejiang TEC Tower Co., Ltd. (“ZTEC”). For accounting purposes, the share exchange transaction with TECT was treated as a reverse acquisition and recapitalization of TECT, with TECT as the acquirer and TEC US as the acquired party. Upon completion of the exchange, TECT became a wholly owned subsidiary of TEC US. On the same date, Mr. Chun Lu, Chairman of the Board and Chief Executive Officer of TEC US, entered into an option agreement with TECT and Mr. Hua Peng Phillip Wong, the Company’s controlling stockholder, pursuant to which Mr. Lu was granted an option to acquire 17,797,372 shares of the Company’s common stock currently owned by Mr. Wong for an aggregate exercise price of $1,000,000. Mr. Lu may exercise this option, in whole but not in part, during the period commencing on the 365th day following of the date of the option agreement and ending on the second anniversary of the date thereof.

	TECT was organized as a private corporation, under the Companies Laws of the Hong Kong on November 11, 2009. It was principally established to serve as an investment holding company and its operations are carried out in Hong Kong. On February 22, 2010, TECT entered into an equity transfer agreement with Mr. Chun Lu, the sole shareholder of ATEC. The transfer was approved by the Department of Commerce of Anhui Province on March 2, 2010. This business combination was accounted for as entities under common control because the majority shareholders of TECT and ATEC were the same person.

	ATEC is a private corporation, incorporated under the laws of the People’s Republic of China (“PRC”) on July 3, 2007. ATEC’s principal activities are the development and manufacturing of mobile communication steel towers, microwave towers, angle steel towers, steel pipe towers and transmission cable towers.

	ZTEC was established on December 7, 2009 as a PRC limited company with ATEC owning 90% of equity interest and Ms. Yiping Zhu, an individual, owning the remaining 10% equity interest. ZTEC’s production facility is still under construction and it has not yet commenced operations. ZTEC’s main business will include the development and manufacturing of mobile communication steel towers, microwave towers, angle steel towers, steel pipe towers and transmission cable towers.

	STT was incorporated in the PRC on January 20, 2010. STT has not commenced operations and its main business will include engineering consultancy and design of mobile communication steel towers, microwave towers, angle steel towers, steel pipe towers and transmission cable towers. As a result of the reverse acquisition of TECT, the Company entered into new businesses. The Company is primarily engaged, through its indirect Chinese subsidiaries, in the design, production and sale of transmission towers and related products used in high voltage electric power transmission and wireless communications.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

	2.1	FISCAL YEAR

		The Company has adopted December 31 as its fiscal year end.

F - 4

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.2	REPORTING ENTITIES

		The accompanying consolidated financial statements include the following entities:

Place of

Date of

Percentage

Name of subsidiary

incorporation

of interest

Principal activity

TEC Technology Limited

Hong Kong

November 11, 2009

100% directly

Investment holding.

Anhui TEC Tower Co., Ltd.

People's Republic of China

April 19, 2006

100% directly

Development,manufacturing and selling of mobile communication steel towers, microwave towers, angle steel towers, steel pipe towers, transmission cable towers, telecommunication equipment, scrap and provision for technical consulting service.

Zhejiang TEC Tower Co., Ltd.

People's Republic of China

December 7, 2009

90% indirectly

The company has not commenced its business of development and manufacturing of mobile communication steel towers, microwave towers, angle steel towers, steel pipe towers and transmission cable towers.

Shuncheng Taida Technology Co., Ltd.

People's Republic of China

January 20, 2010

100% directly

The company has not commenced its business of engineering consultancy and design of mobile communication steel towers, microwave towers, angle steel towers, steel pipe towers and transmission cable towers.

	2.3	BASIS OF CONSOLIDATION AND PRESENTATION

		The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). In the opinion of management, the accompanying balance sheets, and statements of income, and cash flows include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material inter- company transactions and balances have been eliminated in consolidation.

		On February 22, 2010, TECT entered into an equity transfer agreement with Mr. Chun Lu, the sole shareholder of ATEC. The transfer was approved by the Department of Commerce of Anhui Province on March 2, 2010. The business combination was accounted for as entities under common control because the majority shareholders of TECT and ATEC were the same people.

F - 4

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.3	BASIS OF CONSOLIDATION AND PRESENTATION (CONTINUED)

		On May 4, 2010, the Company completed a reverse acquisition transaction pursuant to a share exchange agreement among the Company, TECT and TECT’s sole stockholder, Mr. Hua Peng Phillip Wong, whereby the Company acquired 100% of the issued and outstanding capital stock of TECT in exchange for 19,194,421 shares of the Company’s common stock, which constituted 63.6% of the Company’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of reverse acquisition. As a result of the acquisition of TECT, the Company now owns all of the issued and outstanding capital stock of TECT, which in turn owns ATEC and STT. ATEC owns 90% equity interest in ZTEC. For accounting purposes, the share exchange transaction with TECT was treated as a reverse acquisition and recapitalization of TECT, with TECT as the acquirer and TEC US as the acquired party.

		Upon completion of the share exchange, TECT became a wholly owned subsidiary of TEC US. On the same date, Mr. Chun Lu, Chairman of the Board and Chief Executive Officer of TEC US, entered into an option agreement with TECT and Mr. Hua Peng Phillip Wong, the Company’s controlling stockholder, pursuant to which Mr. Lu was granted an option to acquire 17,797,372 shares the Company’s common stock owned by Mr. Wong for an aggregate exercise price of $1,000,000. Mr. Lu may exercise this option, in whole but not in part, during the period commencing on the 365 ^thday following of the date of the option agreement and ending on the second anniversary of the date thereof.

		Prior to the acquisition of ATEC by TECT, neither TECT nor TEC US had active business operations. For reporting purposes, the Company has assumed that Mr. Lu has exercised his option immediately and thus TEC US, TECT and ATEC were effectively under common control of Mr. Lu when the Company acquired ATEC. The acquisition transactions between (i) TEC US and TECT and (ii) TECT and ATEC are therefore accounted for as reverse mergers.

		For accounting purposes, the combination of the company and TECT was accounted for as a reverse merger with ATEC as the accounting acquirer and TEC US and TECT as the accounting acquiree and the acquisition of ZTEC and STT was accounted for under the acquisition method with TECT as the immediate parent corporation of both companies for legal purposes and the Company as the ultimate parent corporation. Accordingly the Company’s financial statements have been prepared on a consolidated basis for the periods presented and the consolidated balance sheets, consolidated statements of income and other comprehensive income, stockholders’ equity and cash flows were presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquired party from the date of share exchange transaction.

		TEC US, TECT, ATEC, ZTEC and STT are hereafter collectively referred to as the Company.

		Interim results are not necessarily indicative of results for a full year. The information included in this interim report should be read in conjunction with the information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010.

	2.4	USE OF ESTIMATES

		The preparation of consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

	2.5	ECONOMIC, POLITICAL AND BUSINESS RISK

		The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

F - 9

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.6	REVENUE RECOGNITION

		The Company’s revenue recognition policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer. For international sales, the revenue recognition criteria are generally satisfied under Free on Board (“FOB”) and Cost Insurance Freight (“CIF”) terms, in which the Company’s responsibility ends once the goods clear the port of shipment.

		Technical consulting service income is recognized when the relevant service is rendered.

		Government grants represent local authority grants to the company for infrastructure development and the revenue is recognized on cash basis when the local authority approves the grant to the company.

		The Company recognizes revenue when the goods are delivered and title has passed. Sales revenue represents the invoiced value of goods, net of a value-added tax (VAT). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT liability may be offset by the VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.

	2.7	SHIPPING AND HANDLING

		Shipping and handling costs related to costs of goods sold are included in cost of sales and selling and marketing expenses which totaled $212,124 and $282,189 for the three months ended September 30, 2011 and 2010, respectively. Shipping and handling costs amounted to $577,229 and $567,990 for the nine months ended September 30, 2011 and 2010.

	2.8	ADVERTISING

		Advertising costs are expensed as incurred and totaled $6,915 and $1,206 for the three months ended September 30, 2011 and 2010, respectively. Advertising costs are expensed as incurred and totaled $6,918 and $3,788 for the nine months ended September 30, 2011 and 2010, respectively.

	2.9	RESEARCH AND DEVELOPMENT COSTS

		Research and development costs include costs incurred to develop new products and are charged to operations when incurred. These costs totaled $0 as incurred for the three months ended September 30, 2011 and 2010 and for the nine months ended September 30, 2011 and 2010, respectively. The costs for development of new products and substantial enhancements to existing products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized.

	2.10	CASH AND CASH EQUIVALENTS

		Cash and cash equivalents comprise cash in bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired.

F - 9

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.11	FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

		The reporting currency of the Company is United States Dollars ($). The functional currency of the Company is United States Dollars ($) and the functional currency of its subsidiaries ATEC, ZTEC, STT and TECT is Chinese Renminbi (RMB).

		For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholders’ equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported in the statement of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheet. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

		Foreign currency translation gain included in accumulated other comprehensive income amounted to $1,133,747 as of September 30, 2011 and $683,041 as of December 31, 2010. The balance sheet amounts with the exception of equity as of September 30, 2011 and December 31, 2010 were translated at RMB6.40 to $1.00 and RMB6.61 to $1.00, respectively. The average translation rates applied to the statements of income and of cash flows for the nine months ended September 30, 2011 and September 30, 2010 were RMB6.51 to $1.00 and RMB6.80 to $1.00, respectively.

	2.12	BUSINESS COMBINATION

		The Company adopted the accounting pronouncements relating to business combinations (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquire as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions.

	2.13	NON-CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

		The Company adopted the accounting pronouncement on non-controlling interests in consolidated financial statements, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is primarily contained in ASC Topic “Consolidation”. The adoption of this standard has not had material impact on our consolidated financial statements.

F - 9

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.14	PROPERTY AND EQUIPMENT

		Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. .

		Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets.

	Assets Classifications	Estimated useful life

	Buildings	50 years
	Plant and machinery	5 years
	Furniture, fixtures and office equipment	5 years
	Motor vehicles	5 years

		An item of property and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the sale or disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statements of income in the period the item is sold or otherwise disposed. Maintenance and repairs of property and equipment are charged to operations when incurred. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. The Company reviews its property and equipment whenever events or changes in circumstances indicate that the carrying value of certain assets might not be recoverable. In these instances, the Company recognizes an impairment loss when it is probable that the estimated cash flows are less than the carrying value of the asset. To date, no such impairment losses have been recorded.

	2.15	LAND USE RIGHTS

		Land use rights represent acquisition of land use rights of industrial land from local government and are amortized on the straight line over their respective lease periods. The lease period of agriculture land is 50 years.

	2.16	CONSTRUCTION IN PROGRESS

		Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended use.

	2.17	IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

		In accordance with ASC Topic 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2011 and December 31, 2010, the Company determined no impairment charges were necessary.

F - 9

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.18	CAPITALIZED INTERNAL-USE SOFTWARE

		The Company capitalizes certain costs incurred to purchase or create internal-use software in accordance with ASC Topic 350-40, “Internal Use Software”. To date, such costs have included external direct costs of materials and services incurred in the implementation of internal-use software and are included within computer hardware and software. Once the capitalization criteria have been met, such costs are classified as software and are amortized on a straight-line basis over five years once the software has been put into use. Subsequent additions, modifications, or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred.

	2.19	INVENTORY

		Inventory consists primarily of raw materials, work in progress, and finished goods. Raw materials are stated at cost. Cost comprises direct materials and, where applicable direct labor costs and applicable overhead costs that have been incurred in bringing the inventory to its present location and condition. Finished goods are stated at the lower of cost (determined on first in first out method) and net realizable value.

		Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

		The Company provides for inventory losses based on obsolescence and levels in excess of forecasted demand In these cases, inventory is reduced to estimated realizable value based on historical usage and expected demand. Inherent in the Company’s estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for the Company’s products, and technical obsolescence of products.

	2.20	ACCOUNTS RECEIVABLE

		The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are primarily on a specific identification basis.

		The standard credit period of the Company’s most of clients is three months. Management evaluates the collectability of the receivables at least quarterly. The estimated average collection period was 90 days as of September 30, 2011 and December 31, 2010.

	2.21	INCOME TAXES

		The Company accounts for income taxes under the provisions of Topic ASC 740 “Accounting for Income Taxes”. Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using the tax bases of assets and liabilities using the enacted taxes rates in effect in the years in which the differences are expected to reverse.

		Provision for income taxes consist of taxes currently due plus deferred taxes. Since the Company had no operations within the United States there is no provision for US income taxes and there are no deferred tax amounts as of September 30, 2011 and December 31, 2010.

		Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

F - 10

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.21	INCOME TAXES (CONTINUED)

		The provision for income tax is based on the results for the year as adjusted for items, which are non- assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

		Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

		Topic ASC 740 also prescribes a more-likely-than-not threshold for financial statements recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Topic ASC 740 also provide guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded in tax expense.

	2.22	RELATED PARTIES

		Parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party, or exercise significant influence over the party in making financial and operating decisions, or where the company and the party are subject to common control. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities which are under the significant influence of related parties of the company.

	2.23	PRODUCT WARRANTIES

		Substantially all of the Company’s products are covered by a standard warranty of 1 to 2 years for products. In the event of a failure of products covered by this warranty, the Company must repair or replace the software or products or, if those remedies are insufficient, and at the discretion of the Company, provide a refund. The Company provides 0% of sales income for product warranties for the nine months ended September 30, 2011 and 2010. The product warranty reserve was $0 as of September 30, 2011 and December 31, 2010.

	2.24	WEIGHTED AVERAGE NUMBER OF SHARES

		On May 4, 2010, the Company entered into a share exchange agreement which has been accounted for as a reverse merger since there has been a change of control. The Company computes the weighted-average number of common shares outstanding in accordance with ASC Topic 805 “Business Combination” which states that in calculating the weighted average shares when a reverse merger takes place in the middle of the year, the number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted average number of common shares of the legal acquiree (the accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. The number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.

F - 11

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.25	CONCENTRATIONS OF CREDIT RISK

		Cash includes demand deposits in accounts maintained at banks within the People’s Republic of China. Total cash in these banks as of September 30, 2011 and December 31, 2010 amounted to $3,348,408 and $2,088,297, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

		Accounts receivable are derived from revenue earned from customers located primarily in the People’s Republic of China. We perform ongoing credit evaluations of customers and have not experienced any material losses to date.

		The Company had 5 major customers whose revenue individually represented the following percentages of the Company’s total revenue:

	Three months ended	Three months ended	Nine months ended	Nine months ended
	September 30, 2011	September 30, 2010	September 30, 2011	September 30, 2010
Customer A	65.53%	-	37.92%	-
Customer B	17.77%	20.23%	32.90%	31.91%
Customer C	11.07%	-	13.03%	-
Customer D	4.88%	-	6.85%	-
Customer E	0.75%	-	3.55%	-
Customer F	-	45.42%	-	20.42%
Customer G	-	-	-	18.11%
Customer H	-	-	-	6.90%
Customer I	-	-	-	6.84%
Customer J	-	17.19%	-	-
Customer K	-	5.26%	-	-
Customer L	-	4.57%	-	-
	100.00%	92.67%	94.25%	84.18%

F - 12

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.25	CONCENTRATIONS OF CREDIT RISK (CONTINUED)

		The company had 5 major customers whose accounts receivable balance individually represented of the Company’s total accounts receivable as follows:

	September 30, 2011	December 31, 2010
Customer A	30.88%	-
Customer B	21.41%	31.46%
Customer C	12.24%	-
Customer D	7.45%	16.73%
Customer E	6.44%	12.57%
Customer E	-	9.89%
Customer F	-	7.82%
	78.42%	78.47%

	2.26	EARNINGS PER SHARE

		As prescribed in ASC Topic 260 “Earning per Share”, Basic Earnings per Share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period.

		For the three months ended September 30, 2011 and 2010, basic and diluted earnings per share amount to $0.05 and $0.03, respectively. For the nine months ended September 30, 2011 and 2010, basic and diluted earnings per share amount to $0.06 and $0.13, respectively.

	2.27	FAIR VALUE OF FINANCIAL INSTRUMENTS

		The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

		Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

		Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting.

		Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

F - 18

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.27	FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

		The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments.

		The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2011 or December 31, 2010, nor gains or losses are reported in the statement of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal periods ended September 30, 2011 or 2010.

	2.28	STOCK-BASED COMPENSATION

		The Company adopted ASC Topic 718, “Compensation – Stock Compensation” and ASC Topic 505-50 “Equity – Based Payments to Non-Employees” using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

		On June 15, 2010, the Company issued, a warrant to purchase 80,000 shares at a price of $2.00 per share. The warrant vests in four equal installments on June 30^th, September 30^th, December 31^st2010 and March 31^stof 2011. In the event that the agreement is terminated prior to the vesting date, such portion of the warrant shall not vest and the holder of the warrant shall not be entitled to exercise such unvested portion of the warrant. The warrant expires on June 15, 2015.

	2.29	RETIREMENT BENEFIT COSTS

		PRC state managed retirement benefit programs are defined contribution programs and the payments to these programs are charged as expenses when employees have rendered service entitling them to the contribution.

	2.30	ACCUMULATED OTHER COMPREHENSIVE INCOME

		ASC Topic 220 “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

3.	RECENT ACCOUNTING PRONOUNCEMENTS

	In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03), intended to improve financial reporting of repurchase agreements and refocus the assessment of effective control on a transferor’s contractual rights and obligations rather than practical ability to perform those rights and obligations. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011.The Company does not expect the adoption of ASU 2011-03 to have a significant impact on its consolidated financial statements.

	In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the FASB and the International Accounting Standards Board (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and early application is not permitted. The Company is evaluating the impact adoption of ASU 2011-04 and does not expect the adoption of ASU 2011-04 will have significant impact on its consolidated financial statements.

F - 18

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.	RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

	In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. Amendments under ASU 2011-05 for public entities should be applied retrospectively for fiscal years, and interim periods within those years, beginning December 15, 2011. The Company is evaluating the impact adoption of ASU 2011-05 and does not expect the adoption of ASU 2011-05 will have significant impact on its consolidated financial statements.

4.	INCOME TAXES

	No provision for income taxes in the United States has been made as the Company has no income taxable in the United States.

	No Hong Kong corporate income tax has been provided in the financial statements, as TECT did not have any assessable profits for the nine months ended September 30, 2011 and 2010.

	Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DEs and FIEs. The Company is currently evaluating the impact that the new EIT will have on its financial condition. Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.

	Provision for income tax of the company’s subsidiary ATEC was made at the unified EIT rate of 25% for the year ended December 31, 2010 but ATEC is entitled to a refund of 10% according to local preferential tax policy for manufacturing of high technology products for the three years from January 1, 2010 to December 31, 2013. Therefore, the provision for income tax of the company’s subsidiary ATEC was made at the local preferential EIT rate of 15% for the year ended December 31, 2010.

	The company’s subsidiaries ZTEC and STT have not commenced their business, therefore no provision for income taxes has been made for the nine months ended September 30, 2011 and 2010.

	The following table reconciles the U.S statutory rates to the company’s effective tax rate for the September 30, 2011:

	2011
	$
U.S. Statutory rates	34	%
Foreign income not recognized in USA	(34)	%
Hong Kong profits tax	16.5	%
Offshore income not recognized in Hong Kong	(16.5)	%
China Enterprise income taxe rate for high technology	15	%
	15	%

F - 18

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.	INCOME TAXES (CONTINUED)

	Provision for income taxes is as follows:

		Three months ended		Three months ended		Nine months ended		Nine months ended
		September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Income tax
HGHN - US corporate tax	$	-	$	-	$	-	$	-
TECT - Hong Kong profits tax		-		-		-		-
ATEC - China EIT		257,753		151,535		339,043		538,396
ZTEC and STT - China EIT		-		-		-		-
Deferred tax		-		-		-		-
	$	257,753	$	151,535	$	339,043	$	538,396

5.	CASH AND CASH EQUIVALENTS

			September 30, 2011			December 31, 2010
	Cash and bank balances	$	3,375,312		$	2,526,710

6.	RESTRICTED CASH

	The Company’s restricted cash consists of bank time deposits in the bank as security deposits for the completion of certain projects of the company. The Company is required to keep certain amounts on deposit that are subject to withdrawal restrictions. Restricted cash amounted to $69,291 and $1,164,598 as of September 30, 2011 and December 31, 2010, respectively.

7.	ACCOUNTS RECEIVABLE

	The Company has performed an analysis on all of its accounts receivable and determined that all amounts are probable of collection within one year. As such, all trade receivables are reflected as a current asset and no additional allowance for doubtful debt has been recorded for the three months and the nine months ended September 30, 2011 and 2010. Bad debts written off for the three months and nine months ended September 30, 2011 and 2010 were $0.

	Aging of accounts receivable is as follows:

		September 30, 2011		December 31, 2010

within 3 month	$	11,792,292	$	13,658,262
over 3 months and within 6 months		4,348,792		356,438
over 6 months and within 1 year		3,997,459		343,298
over 1 year		111,242		68,354
		20,249,785		14,426,352
Less: Allowance for doubtful accounts		(70,000)		(70,000)
	$	20,179,785	$	14,356,352

Accounts receivable includes the amounts of $8,911,822 (12.31.2010: $3,151,959) that were factored to the Industrial and Commercial Bank, PRC and China Construction Bank, PRC for collection.

F - 18

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.	INVENTORY

	Inventory consists of the followings:

		September 30, 2011		December 31, 2010
Raw materials	$	3,626,144	$	2,590,642
Consumables		237,475		-
Work in progress		2,249,396		2,644,432
	$	6,113,015	$	5,235,074

9.	DEPOSITS AND PREPAID EXPENSES

		September 30, 2011		December 31, 2010
Guarantee and utility deposits	$	1,410,970	$	828,170
Deposit for acquistion of land use rights		-		518,753
Land levelling, design fees and stamp duty prepaid expenses		494,685		3,110,145
Prepaid expenses		514,101		91,091
Advances to suppliers and services providers		1,313,279		874,436
Prepayment for purchase of property and equipment		20,025		2,269
Advances to logistic service providers		339,128		14,715
	$	4,092,188	$	5,439,579

	Guarantee deposits are provided to financial institutions in return for issuance of a corporate guarantee to financiers. Advances to suppliers are down payments or deposits for inventory purchases. The inventory and services are normally delivered and rendered within one to two months after the payments. ZTEC acquired land use rights for new land in the PRC and paid deposits for the acquisition of land use rights, ZTEC also prepaid land leveling, design fees and stamp duty fees.

10.	OTHER RECEIVABLES

		September 30, 2011		December 31, 2010
Due from employees	$	1,401,277	$	963,416
Due from third parties		1,401,153		661,156
Others		1,467		1,467
	$	2,803,897	$	1,626,039

Due from employees are the amounts advanced for business transactions on behalf of the Company and will be reconciled on the completion of the business transactions. Due from third parties are unsecured advances, interest free and without fixed terms of repayment and are for specific business purposes.

F - 21

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

TAXES RECOVERABLE

			September 30, 2011			December 31, 2010
	VAT recoverable	$	17,391		$	2,389

12.

PROPERTY AND EQUIPMENT

		September 30, 2011			December 31, 2010
Buildings	$	2,669,359		$	2,584,596
Plant and machinery		1,493,790			1,351,729
Furniture, fixtures and office equipment		151,558			123,716
Motor vehicles		417,102			294,812
		4,731,809			4,354,853
Less: Accumulated depreciation		(845,996	)		(564,088	)
Net book value	$	3,885,813		$	3,790,765

	Depreciation expense was $91,613 and $77,164 for the three months ended September 30, 2011 and 2010, respectively. Depreciation expense was $259,193 and $207,350 for the nine months ended September 30, 2011 and 2010, respectively.

13.	LAND USE RIGHTS

	Private ownership of land is not permitted in the PRC. The Company has acquired the land use rights to three parcels located at Xinqiao Industrial Park, Jingde Country, Anhui Province. The total cost of these land use rights of ATEC was $2,112,867 and the land use rights will expire in 2056, 2058 and 2058, respectively. The Company has acquired the land use right to an additional parcel located at Songxi Village, Xindeng Town, Fuyang City, Hangzhou City, Zhejiang Province. The total cost of these land use rights of ZTEC was $5,781,780 and the land use right will expire in 2061.

		September 30, 2011			December 31, 2010
Cost	$	8,200,846		$	2,178,255
Less: Accumulated amortization		(143,722	)		(106,484	)
Net book value	$	8,057,124		$	2,071,771

	Land use rights are amortized on the straight line basis over their respective lease periods. The lease period of land use rights located in an industrial park zone is 50 years.

	Amortization expense was $11,068 and $10,593 for the three months ended September 30, 2011 and 2010, respectively. Amortization expense was $33,745 and $31,779 for the nine months ended September 30, 2011 and 2010, respectively.

F - 21

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.

CONSTRUCTION IN PROGRESS

			September 30, 2011			December 31, 2010
	Construction of office building and workshops	$	2,258,450		$	473,355

15.

OTHER PAYABLES AND ACCRUED EXPENSES

		September 30, 2011		December 31, 2010
Due to former sole stockholder and his affiliates	$	2,319,114	$	2,789,568
Due to third parties		1,088,772		603,824
Due to construction material and building service providers		542,548		-
Due to employees		178,168		8,359
Accrued expenses		555,153		92,607
	$	4,683,755	$	3,494,358

	Due to former sole stockholder and his affiliates, due to third parties and employees are unsecured, interest free and without a fixed term of repayment and are for unspecific business purposes.

16.	TAXES PAYABLE

		September 30, 2011		December 31, 2010
Enterprise income tax payable	$	253,548	$	42,557
VAT payable		163,984		-
Individual income tax payable		3,230		2,051
	$	420,762	$	44,608

F - 21

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.	SHORT TERM BORROWINGS

	There are no provisions in the Company’s bank borrowings that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’s business. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par.

	Interest rate	Maturity date		September 30, 2011			December 31, 2010
Industrial and Commercial Bank, Longshou Branch, PRC	6.06% - 6.71%	From December 15, 2011 to March 23, 2012	$	3,905,000	*^	$	3,864,182
China Merchant Bank, Heifei branch, PRC	6.94%	October 29, 2011		1,562,000	+		1,512,400
China Merchant Bank, Heifei branch, PRC	5.56%	November 22, 2011		-			4,537,200
China Merchant Bank, Heifei branch, PRC	7.32%	February 10, 2012		^2,343,000	^		-
China Everbright Bank, Heifei branch, PRC	5.56%	November 22, 2011		4,686,000	+		-
Huishang Bank, Xuancheng branch, PRC	7.88%	February 16, 2011		-			3,024,800
Huishang Bank, Xuancheng branch, PRC	7.88%	February 16, 2012		^2,030,600	*		-
Huishang Bank, Xuancheng branch, PRC	8.20%	April 11, 2012		^4,686,000	*		-
Huishang Bank, Xuancheng branch, PRC	8.53%	August 5, 2012		^1,093,400	*		-
China Construction Bank, Jingde branch, PRC	5.85%	November 3, 2011		2,382,325	^		-
China Construction Bank, Jingde branch, PRC	6.10%	January 8, 2012		740,388	^		-
			$	23,428,713		$	12,938,582

* secured by land use rights
+ secured by third party’s guarantee
^ secured by accounts receivable

18.	CUSTOMER DEPOSITS

	Customer deposits represent amounts advanced by customers for orders of product. The products normally are shipped within three months after receipt of the advance payment and the related sale is recognized in accordance with the Company’s revenue recognition policy. As of September 30, 2011 and December 31, 2010, customer deposits amounted to $1,140,085 and $80,331, respectively.

19.	COMMON STOCK

	The Company has authorized Preferred stock of 10,000,000 shares with a par value of $0.001. As of September 30, 2011 and December 31, 2010, the company has not issued any preferred shares.

	The Company has authorized common stock of 300,000,000 shares with a par value of $0.001.

	On May 4, 2010, the Company issued 19,194,421 shares of common stock to the sole shareholder of TECT in exchange for 10,000 shares of TECT, which was all the issued and outstanding capital stock of TECT.

	As a result of the reverse merger, the equity account of the Company, prior to the share exchange date, has been retroactively restated so that the ending outstanding share balance as of the share exchange date is equal to the number of post share-exchange shares.

	As of each of September 30, 2011, and December 31, 2010, the Company had outstanding 30,181,552 shares of issued common stock, with a par value of $0.001 per share.

F - 21

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.	COMMITMENTS AND CONTINGENCIES

	Total lease expenses for the three months ended September 30, 2011 and 2010 was $20,140 and $10,966, respectively. Total lease expense for the nine months ended September 30, 2011 and 2010 was $43,620 and $22,309, respectively.

	The future minimum lease payments as of September 30, 2011 and December 31, 2010 were $0.

	From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. As of September 30, 2011 and December 31, 2010, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income or cash flows.

	The Company has entered into two separate agreements that would require the Company to pay liquidated damages if the Company failed to perform under the agreements. The amount of the potential damages is listed below:

		September 30, 2011		December 31, 2010

Liquidated damages for
- investment relation service with CCG	$	90,000	$	90,000

21.	STOCK OPTIONS & WARRANTS

	The Company accounts for its stock options and warrants in accordance with ASC Topic 718, “Compensation – Stock Compensation” and ASC Topic 505-50 “Equity – Based Payments to Non-Employees” which were adopted by the Company on June 15, 2010. The company issued a warrant to CCG Investor Relations Partners LLC (“CCG”), an investor relations firm, for the purchase of 80,000 shares of the Company’s common stock at an exercise price of $2.00 per share. The warrant vested in four equal installations on June 30 , September 30, December 31 of 2010 and March 31, 2011. The warrant will expire on June 15, 2015.

	The Company determines the estimated fair value of share-based awards using the Black-Scholes option-pricing model. The Black-Scholes model is affected by the Company’s stock price as well as by assumptions regarding certain complex and subjective variables. These variables include, but are not limited to; the Company’s expected stock price volatility over the term of the awards and the actual and projected option exercise behaviors. The Company calculated a stock based compensation of $93,800 and recognized $93,800 in stock based compensation expense for the nine months ended September 30, 2011. As of September 30, 2011 and December 31, 2010, the prepaid compensation expense amount was $0 and $31,600, respectively.

	The initial value of the warrants was determined using the Black-Scholes model using the following assumptions:

	.	Expected volatility of 125%
	.	Risk-free interest rate of 3%
	.	Year to maturity of 5 years
	.	Market price at issuance date of $3.50
	.	Strike price of $2.00

The value of the warrants was based on the Company’s common stock price of $3.50 on the date the warrants were issued. The warrants were valued at $186,000 when they vested in four equal installations on June 30 , September 30, December 31 of 2010 and March 31, 2011.

F - 24

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.

STOCK OPTIONS & WARRANTS (CONTINUED)

	Number of shares
	entitled to purchase		Exercise Price	Expiration date
Issued on June 15, 2010	80,000	$	2.00	June 15, 2015

Balance as of September 30, 2011	80,000	$	2.00
Warrants exercised	-		2.00
Warrants expired	-		2.00

Total outstanding as of September 30, 2011	80,000		2.00	June 15, 2015

	Utilizing the Black Scholes option-pricing model, the share based compensation expense for the three months ended September 30, 2011 and 2010; the amounts were $0 and $0, respectively. The share based compensation expense for the nine months ended September 30, 2011 and 2010 were $93,800 and $0, respectively.

22.	OBLIGATION UNDER MATERIAL CONTRACTS

	CCG was issued a warrant to purchase up to 80,000 shares of the Company’s stock, at a price of $2.00 per share, pursuant to the terms and conditions of a letter agreement, dated June 20, 2010, between the Company and CCG. CCG's right to exercise its warrant will vest in four equal portions, with the first portion vesting on June 20, 2010, and the remaining portions vesting on September 30, 2010, December 31, 2010 and March 31, 2011, respectively. The warrant has a term of 5 years and will expire on June 15, 2015. The warrant contains a $90,000 liquidated damage provision for breach of such exclusivity. As of September 30, 2011 and December 31, 2010, CCG had not exercised the warrant.

23.	PRODUCT LINE INFORMATION

	The Company sells towers, which are used by customers in various industries. The production process, class of customer, selling practice and distribution process are the same for all towers. The Company’s chief operating decision-makers (i.e. chief executive officer and other members of management) review financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by product lines for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. The Company considers itself to be operating within one reportable segment. The Company does not have long- lived assets located in foreign countries. The Company's net revenue from external customers by main product lines is as follows:

		Three months ended		Three months ended		Nine months ended		Nine months ended
		September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010

Domestic sales
Communication towers	$	2,049,173	$	1,550,889	$	6,887,140	$	8,628,648
Electricity supply towers		1,827,445		4,882,728		4,457,273		11,808,089
		3,876,618		6,433,617		11,344,413		20,436,737
Export sales
Communication towers		17,647		814,393		734,349		1,050,491
Electricity supply towers		7,416,327		37,605		7,418,371		405,366
		7,433,974		851,998		8,152,720		1,455,857
Technical service income		54,056		-		62,659		-
	$	11,364,648	$	7,285,615	$	19,559,792	$	21,892,594

F - 24

TEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24.	RELATED PARTIES TRANSACTIONS

	In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, the Company had no other significant related party transactions during the reporting periods.

	On January 13, 2010, the Company entered into and closed a share purchase agreement with Mr. Michael Anthony, the CEO of the Company at the time, and certain accredited purchasers signatory thereto, pursuant to which the Company sold an aggregate of 10,880,000 shares of the Company’s common stock for a total of $225,000. Simultaneously with and as a condition to the closing of the share purchase agreement, the Company re-purchased 10,880,000 common shares from Corporate Services International Profit Sharing and Century Capital Partners, LLC, which are both beneficially owned by Mr. Anthony, for an aggregate purchase price of $225,000.

	Name of related party	Nature of transactions
	Mr. Chun Lu, CEO, Chairman and his affiliates	Included in other payable, due to former stockholder and its affiliates were $2,319,114 and $2,789,568 as of September 30, 2011 and December 31, 2010, respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

F - 25

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 December 31, 2010, 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 where the context otherwise requires and for the purposes of this report only:

the “Company,” “we,” “us,” and “our” refer to the combined business of TEC Technology, Inc., a Delaware corporation, and its consolidated subsidiaries, TEC HK, TEC Tower, ZTEC and STT;
“TEC HK” refers to TEC Technology Limited, a Hong Kong limited company;
“TEC Tower” refers to Anhui TEC Tower Co., Ltd., a PRC limited company;
“ZTEC” refers to Zhejiang TEC Tower Co., Ltd., a PRC limited company;
“STT” refers to Shuncheng Taida Technology Co., Ltd., a PRC limited company;
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
“PRC” and “China” refer to the People’s Republic of China;
“SEC” refers to the Securities and Exchange Commission;
“Exchange Act” refers the Securities Exchange Act of 1934, as amended;
“Securities Act” refers to the Securities Act of 1933, as amended;
“Renminbi” and “RMB” refer to the legal currency of China; and
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

Overview of our Business

We are primarily engaged in the design, production and sale of transmission towers and related products used in high voltage electric power transmission and wireless communications. We sell our tower products to prime contractors on large transmission projects for electric utility companies or telecommunications service providers, who are developing and constructing projects for end customers. Our electric transmission towers currently support 35kv, 110kv, 220kv, and 500kv transmission lines and we plan to build towers that support Ultra High Voltage (UHV) tower lines of 750+kv DC or 1000+kv AC transmission lines. Our wireless communication towers include single-tube towers, 4-strut towers and roof top towers for the 2G, 3G, and microwave market. We plan to expand our business in the near future to enter the communication base station system integration market and to offer tower installation and maintenance services. Our towers are primarily made of steel, but some contain aluminum or other alloy materials.

Our revenues currently are, and historically have been, generated from the sale of our tower products. In the future, we expect to offer installation and technical services that we believe will generate an additional revenue stream; however, we have not yet generated material revenues from such services.

Our headquarters are located in Anhui Province in southeastern China and our international sales network is primarily operated from our branch offices in the Shenzhen Special Economic Zone and Beijing.

Third Quarter Financial Performance Highlights

The following summarizes certain key financial information for the third quarter of 2011:

Revenues: Revenues were $11.36 million for the three months ended September 30, 2011, an increase of $4.07 million, or 55.83%, from $7.29 million for the same period last year.
Gross Profit and Margin: Gross profit was $2.94 million for the three months ended September 30, 2011, an increase of $1.01 million, or 52.33%, from $1.93 million for the same period last year. Gross margin was 25.92% for the three months ended September 30, 2011, as compared to 26.49% for the same period last year.
Net Income: Net income was $1.36 million for the three months ended September 30, 2011, an increase of $0.50 million, or 58.14%, from $0.86 million for the same period of last year.
Fully diluted net income per share: Fully diluted net income per share for the three months ended September 30, 2011 was $0.05, as compared to $0.03 for the same period last year.

Results of Operations

Comparison of Three Months Ended September 30, 2011 and September 30, 2010

The following table shows key components of our results of operations during the three months ended September 30, 2011 and 2010, in both dollars and as a percentage of our revenues.

		Three Months Ended					Three Months Ended
		September 30, 2011					September 30, 2010
				Percent of					Percent of
		Dollars		Revenues			Dollars		Revenues
Revenues	$	11,364,648		100.00%		$	7,285,615		100.00%
Cost of good sold		8,418,882		74.08%			5,355,307		73.51%
Gross profit		2,945,766		25.92%			1,930,308		26.49%
Selling and marketing expenses		(438,939	)	(3.86%	)		(337,423	)	(4.63%	)
General and administrative expenses		(378,165	)	(3.33%	)		(293,389	)	(4.03%	)
Net income from operations		2,128,662		18.73%			1,299,496		17.84%
Other income (expenses)
Government grant		1,421		0.01%			10,798		0.15%
Other income		2,123		0.02%			-		-
Interest expense		(465,391	)	(4.09%	)		(299,865	)	(4.12%	)
Net other income (expenses)		(461,847	)	(4.06%	)		(289,067	)	(3.97%	)
Net income before provision for income taxes		1,666,815		14.67%			1,010,429		13.87%
Provision for income taxes		(257,753	)	(2.71%	)		(151,535	)	(2.08%	)
Net income		1,409,062		11.96%			858,894		11.79%
Foreign currency translation gain		151,543		1.33%			12,462		0.17%
Comprehensive income	$	1,560,605		13.29%		$	871,356		11.96%

Revenues. Our revenues are mainly generated from sales of our tower products. Our revenues increased $4.08 million, or 55.96%, to $11.36 million for the three months ended September 30, 2011 from $7.29 million during the same period in 2010. For the three month period ended September 30, 2011, approximately 81.34% of our revenues were generated from sales to customers in the energy industry and approximately 18.19% were generated from sales to communications industry customers. The period-over-period increase in revenues resulted mainly from an increase of approximately 87.87% in revenues generated by sales of energy transmission towers as compared to the same period in 2010 which more than offset a decrease of approximately 18.79% in revenues generated by sales of communications towers. In this quarter, we benefited from our strategic efforts in expanding international markets as generated approximately $7.4 million from overseas orders for energy transmission towers.

Cost of goods sold. Our cost of goods sold includes the direct costs of our raw materials, primarily steel, as well as the cost of labor and overhead. Our cost of goods sold increased $1.01 million, or 18.88%, to $8.42 million in the three months ended September 30, 2011, from $5.36 million during the same period in 2010. We believe the dollar increase in cost of goods sold was generally in line with the increase in sales volume and revenues. As a percentage of revenues, our cost of goods sold increased slightly to 74.08% in the three months ended September 30, 2011 from 73.51% for the same period last year.

Gross profit and gross margin. Our gross profit is equal to the difference between our revenue and our cost of goods sold. Our gross profit increased $1.01 million, or 52.61%, to $2.94 million in the three months ended September 30, 2011, from $1.93 million during the same period in 2010. The dollar increase was mainly due to the increase of sales volume and revenues. Gross profit as a percentage of revenue (gross margin) was 25.92% and 26.49% for three months ended September 30, 2011 and 2010, respectively. Although our overseas orders generally had higher gross margins, gross margins for our domestic orders remained constrained due to continuing increases of steel prices, which is our primary raw material, and market competition.

Selling and marketing expenses. Our selling and marketing expenses consist primarily of compensation and benefits to our sales and marketing staff, sales commission, cost of advertising, promotion, business travel, after-sale support, transportation costs and other sales related costs. Our selling and marketing expenses increased $0.10 million, or 30.09%, to $0.44 million in the three months ended September 30, 2011, from $0.34 million during the same period in 2010. Such increase was largely attributable to increased sales volume and our continuing marketing efforts.

General and administrative expenses. General and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional advisor fees, bad debts reserve and other expenses incurred in connection with general operations. Our general and administrative expenses increased $0.09 million, or 31.03%, to $0.38 million in the three months ended September 30, 2011, from $0.29 million during the same period in 2010. Such increase was mainly attributable to increased labor costs.

Interest expense. Interest expense increased $0.16 million, or 55.33%, to $0.46 million for the three months ended September 30, 2011, from $0.30 million during the same period in 2010. Such increase was mainly due to the increase in our outstanding short term loans and annual interest rate.

Income before income taxes. Our income before income taxes increased $0.66 million, or 64.96%, to $1.67 million for the three months ended September 30, 2011, from $1.01 million during the same period in 2010, as a result of the factors described above.

Provision for income taxes. Our income tax provisions increased $0.16 million, or 106.67%, to $0.26 million for the three months ended September 30, 2011, from $0.15 million during the same period in 2010, mainly due to increase in taxable income.

Net income. We generated a net income of $1.41 million in the three months ended September 30, 2011, an increase of $0.55 million, or 63.95%, from $0.86 million during the same period in 2010, as a cumulative effect of all factors discussed above.

Comparison of Nine Months Ended September 30, 2011 and September 30, 2010

The following table shows key components of our results of operations during the nine months ended September 30, 2011 and 2010, in both dollars and as a percentage of our revenues.

		Nine Months Ended					Nine Months Ended
		September 30, 2011					September 30, 2010
				Percent of					Percent of
		Dollars		Revenues			Dollars		Revenues
Revenues	$	19,559,792		100.00%		$	21,892,594		100.00%
Cost of good sold		14,203,143		72.61%			15,313,202		69.95%
Gross profit		5,356,649		27.39%			6,579,392		30.05%
Selling and marketing expenses		(1,065,308	)	(5.45%	)		(1,127,290	)	(5.15%	)
General and administrative expenses		(1,271,357	)	(6.50%	)		(938,337	)	(4.29%	)
Net income from operations		3,019,984		15.44%			4,513,765		20.62%
Other income (expenses)
Government grant		218,408		1.12%			190,215		0.87%
Other income		2,123		0.01%			13,695		0.06%
Interest expense		(1,125,568	)	(5.75%	)		(979,425	)	(4.47%	)
Net other income (expenses)		(905,037	)	(4.62%	)		(775,515	)	(3.54%	)
Net income before provision for income taxes		2,114,947		10.82%			3,738,250		17.08%
Provision for income taxes		(339,043	)	(1.73%	)		(538,396	)	(2.46%	)
Net income		1,775,904		9.09%			3,199,854		14.62%
Foreign currency translation gain		450,706		2.30%			(177,290	)	(0.81%	)
Comprehensive income	$	2,236,610		11.39%		$	3,022,564		13.81%

Revenues. Our revenues decreased $2.33 million, or 10.64%, to $19.56 million for the nine months ended September 30, 2011 from $21.89 million during the same period in 2010. For the nine month period ended September 30, 2011, approximately 60.71% of our revenues were generated from sales to customers in the energy industry and approximately 38.96% were generated from sales to communications industry customers. The decrease was mainly concentrated in the first half of 2011 and mostly resulted for lower sales volume. Revenues generated by sales of energy transmission towers and sales of communications towers decreased approximately 2.76% and 21.26% as compared to the same period in 2010, respectively.

Cost of goods sold. Our cost of goods sold decreased $1.11 million, or 7.25%, to $14.20 million in the nine months ended September 30, 2011, from $15.31 million during the same period in 2010. The decrease in cost of goods sold was mainly due to the decrease in sales volume and revenues in the first two quarters of 2011. As a percentage of revenues, our cost of goods sold increased to 72.61% in the nine months ended September 30, 2011 from 69.9% for the same period last year, mainly because the price of steel increased. We are closely monitoring our pricing policy in an effort to reduce the risk of inflation and fluctuations of raw material prices.

Gross profit and gross margin. Our gross profit decreased $1.22 million, or 18.58%, to $5.36 million in the nine months ended September 30, 2011, from $6.58 million during the same period in 2010. The decrease was mainly due to the decrease of sales revenues in the first two quarters of 2011. Gross profit as a percentage of revenue (gross margin) was 27.39% and 30.1% for nine months ended September 30, 2011 and 2010, respectively. The decrease in gross margin was mainly due to the increased price of steel as discussed above.

Selling and marketing expenses. Our selling and marketing expenses decreased $0.06 million, or 5.53%, to $1.07 million in the nine months ended September 30, 2011, from $1.13 million during the same period in 2010. Such decrease was largely attributable to reduced operations in our sales and marketing department in the first two quarters of 2011.

General and administrative expenses. Our general and administrative expenses increased $0.33 million, or 35.11%, to $1.30 million for the nine months ended September 30, 2011, from $0.94 million during the same period in 2010. Such increase was primarily attributable to expenses associated with being a public company and increased labor costs.

Interest expense. Interest expense increased $0.55 million, or 48.67%, to $1.13 million for the nine months ended September 30, 2011, from $0.98 million during the same period in 2010. Such increase was mainly due to the increase in our outstanding short term loans and annual interest rate.

Income before income taxes. Our income before income taxes decreased $1.62 million, or 43.42%, to $2.11 million for the nine months ended September 30, 2011, from $3.74 million during the same period in 2010, as a result of the factors described above.

Provision for income taxes. Our income tax provisions decreased $0.20 million, or 37.03%, to $0.34 million for the nine months ended September 30, 2011, from $0.54 million during the same period in 2010, mainly due to decrease in taxable income in the first two quarters of 2011.

Net income. We generated a net income of $1.78 million for the nine months ended September 30, 2011, a decrease of $1.42 million, or 44.37%, from $3.20 million during the same period in 2010, as a cumulative effect of all factors discussed above.

Liquidity and Capital Resources

As of September 30, 2011, we had cash and cash equivalents of approximately $3.38 million, primarily consisting of cash on hand and demand deposits. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

Cash Flow

		Nine Months Ended September 30,
		2011			2010
Net cash (used in) provided by operating activities	$	(5,551,925	)	$	1,698,724
Net cash (used in) investing activities		(4,183,643	)		(659,920	)
Net cash provided by (used in) financing activities		9,904,699			(1,055,166	)
Effects of exchange rate change in cash		579,411			84,800
Net increase in cash and cash equivalents		848,602			68,438
Cash and cash equivalents at beginning of the period		2,526,710			164,927
Cash and cash equivalent at end of the period	$	3,375,312		$	233,365

Operating Activities

Net cash used in operating activities was $5.55 million for the nine months ended September 30, 2011, as compared to $1.70 million net cash provided by operating activities for the same period in 2010. The increase in net cash used in operating activities was primarily attributable to the cash outflow associated with increased accounts payables and decreased net income in the nine months ended September 30, 2011. Due to the tightening of lending policy in China, some of our suppliers required shorter payment terms.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2011 was $4.18 million, as compared to $0.66 million during the same period in 2010. During the nine months ended September 30, 2011, we invested approximately $2.18 million in the form of an installment payment for land use right and approximately $1.78 million for construction of our Zhejiang facilities and Anhui administration office, and upgrade of production facilities.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2011 was $9.90 million, as compared to $1.06 million net cash used in financing activities for the same period in 2010. The increase in net cash provided by financing activities was mainly attributable to increased net short term borrowings.

Loan Commitments

As of September 30, 2011, we did not hold any long-term loans. Our short-term bank loans, totaling $23.43 million, are as follows:

Amount

Interest

Bank

(in millions)*

Rate

Maturity Date

Duration

Industrial and Commercial Bank, Longshou Branch

0.31

6.06%

March 22, 2012

12 months

Industrial and Commercial Bank, Longshou Branch

0.31

6.71%

March 19, 2012

6 months

Industrial and Commercial Bank, Longshou Branch

0.78

6.71%

March 19, 2012

6 months

Industrial and Commercial Bank, Longshou Branch

0.31

6.67%

March 21, 2012

12 months

Industrial and Commercial Bank, Longshou Branch

0.94

6.67%

March 23, 2012

12 months

Industrial and Commercial Bank, Longshou Branch

1.25

6.44%

December 15, 2011

6 months

Huishang Bank, Xuancheng Branch

2.03

7.88%

February 16, 2012

12 months

Huishang Bank, Xuancheng Branch

4.69

8.20%

April 11, 2011

12 months

Huishang Bank, Xuancheng Branch

1.09

7.88%

August 5, 2012

12 months

China Merchants Bank, Hefei Branch

1.56

6.94%

October 29, 2011

12 months

China Merchants Bank, Hefei Branch

2.34

7.32%

February 10, 2011

12 months

China Construction Bank, Jingde Branch

2.39

5.85%

May 3, 2011

6 months

China Construction Bank, Jingde Branch

0.74

6.10%

November 3, 2011

6 months

China Everbright Bank, Hefei Branch

4.69

5.56%

January 8, 2012

6 months

Total

23.43

___________
* Calculated based on the exchange rate of $1 = RMB 6.40

Capital Expenditures

Our capital expenditures for the nine months ended September 30, 2011 and 2010 were $4.18 million and $0.66 million, respectively, representing the total amount of investment activities.

To date, we have financed our operations primarily through cash flows from operations, augmented by short-term bank loans and equity contributions by our stockholders. We believe that our cash on hand and cash flow from operations will meet a portion of our present cash needs and we will require additional cash resources to meet our expected capital expenditures and working capital requirements for the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the Chinese economy and our industry and continually maintain effective cost controls in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues usually increase over each quarter of the calendar year with the first quarter usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.

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 December 31, 2010.

Recent Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03), intended to improve financial reporting of repurchase agreements and refocus the assessment of effective control on a transferor’s contractual rights and obligations rather than practical ability to perform those rights and obligations. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011.The Company does not expect the adoption of ASU 2011-03 to have a significant impact on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the FASB and the International Accounting Standards Board (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and early application is not permitted. The Company is evaluating the impact adoption of ASU 2011-04 and does not expect the adoption of ASU 2011-04 will have significant impact on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. Amendments under ASU 2011-05 for public entities should be applied retrospectively for fiscal years, and interim periods within those years, beginning December 15, 2011. The Company is evaluating the impact adoption of ASU 2011-05 and does not expect the adoption of ASU 2011-05 will have significant impact on its consolidated financial statements.

See Note 3 to our unaudited consolidated financial statements included elsewhere in this report.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Chun Lu, and Chief Financial Officer, Mr. Yuhua Yang, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2011. Based upon, and as of the date of this evaluation, Messrs. Lu and Yang, determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2010, which we are still in the process of remediating as of September 30, 2011, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2010 for the description of these weaknesses.

Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2010, our management concluded that we still need to hire qualified accounting personnel and enhance the supervision, monitoring and review of the financial statements preparation processes. Although our accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP. We are actively searching for additional personnel with relevant accounting experience, skills and knowledge in the preparation of financial statements in accordance with of U.S. GAAP and financial reporting disclosure requirements under SEC rules. In addition, we plan to establish an audit committee and appoint qualified committee members to strengthen our internal control over financial reporting.

Other than the foregoing changes, there were no changes in our internal controls over financial reporting during the third quarter of 2011 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.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

(REMOVED AND RESERVED).

ITEM 5.

OTHER INFORMATION.

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

ITEM 6.

EXHIBITS.

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

Exhibit No.		Description
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith).

SIGNATURES

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

Date: November 17, 2011	TEC TECHNOLOGY, INC.

	By:	/s/ Chun Lu
		Chun Lu, Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Yuhua Yang
		Yuhua Yang, Chief Financial Officer
		(Principal Financial Officer and Principal
		Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith).