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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Turbine Truck Engines, Inc. (the “Company”)
is a development stage enterprise that was incorporated in the state of Delaware on November 27, 2000, and converted to a Nevada
corporation in 2008. To date, the Company’s activities have been limited to raising capital, organizational matters, and
the structuring of its business plan. The corporate headquarters is located in Paisley, Florida.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We are currently working on the development
of three (3) separate revolutionary technologies: (a) Hyrdrogen Production Burner System (HPBS); (b) Detonation Cycle Gas Turbine
Engine (DCGT); and (c) the Gas To Methanol Technology (GTM)</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In the opinion of management, all adjustments
consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and
six month periods ended June 30, 2013 and 2012 and the period November 27, 2000 (Date of Inception) through June 30, 2013, (b)
the financial position at June 30, 2013 and December 31, 2012, and (c) cash flows for the six month periods ended June 30, 2013
and 2012, and the period November 27, 2000 (Date of Inception) through June 30, 2013, have been made.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The unaudited financial statements and notes
are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted.
The accompanying financial statements and notes should be read in conjunction with the audited financial statements and notes of
the Company for the fiscal year ended December 31, 2012. The results of operations for the six month period ended June 30, 2013
are not necessarily indicative of those to be expected for the entire year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. For the three and six months ended June 30, 2013 and
since November 27, 2000 (date of inception) through June 30, 2013, the Company had a net loss of $283,283, $525,835 and $18,057,243,
respectively. As of June 30, 2013, the Company has not emerged from the development stage and has a working capital deficit of
$236,485. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s
ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed its activities principally
from the sale of public equity securities. The Company intends on financing its future development activities and its working capital
needs largely from the sale of public equity securities with some additional funding from other traditional financing sources,
including term notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient
to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company
be unable to continue as a going concern.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company leased its corporate headquarters
on a month-to-month basis. For each of the three month periods ended June 30, 2013 and 2012, rent expense was approximately $6,250.
For each of the six months periods ended June 30, 2013 and 2012, rent expense was $12,500.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In October 2011, the Company entered into employment
agreements with terms that commence on October 1, 2011 and run through a range of dates with the latest being September 2014. These
agreements have a cumulative annual salary of approximately $156,000 annually and cumulative grants of fully vested stock issuances
of 850,000 shares of stock. Upon signing the employment agreements, all unearned stock compensation from the previous employment
agreements was recognized in full, as the employees were not required to forfeit their previous granted shares of common stock.
At the October 1, 2011 grant date, the Company recognized approximately $279,000 in stock-based compensation related to the above
grants of common stock, and grants made during 2010. Additionally, the employees were granted 850,000 fully vested common stock
options, with an exercise price of $0.25 per share, and expire five years from the date of grant. The grants of common stock and
common stock options were essentially sign-on bonuses, and accordingly, the grant-date fair values were recognized as compensation
expense at the October 1, 2011 grant date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2013, the Company entered into employment
agreements with terms that commence on January 1, 2013 and run through December 31, 2013. These agreements have a cumulative annual
salary of approximately $104,000 annually and cumulative grants of fully vested stock issuances of 450,000 shares of stock. At
the January 1, 2013 grant date, the Company recognized approximately $1,350 in stock-based compensation related to the above grants
of common stock made during 2013. Additionally, the employees were entitled to receive a bonus of 1,250,000 common stock options,
with an exercise price of $0.05 per share, and expire five years from the date of grant. The grants of common stock and common
stock options were essentially sign-on bonuses, and accordingly, the grant-date fair values were recognized as compensation expense
at the January 1, 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 23, 2013 the Company entered into
a Letter of Intent with BluGen, Inc., a California corporation (“BluGen”) for the purpose of setting the basis for
the joint development of a natural gas to Methanol technology (“GTM Technology”). Under the terms of the Agreement,
BluGen will work with TTE, and the inventor, Robert Scragg to recreate and expand upon the original designs created by Mr. Scragg
and to re-develop a lab version and control system, among other things. These items are to be completed under a timetable that
have been agreed upon by the parties. The Parties have agreed to establish at a later date, a joint venture, wherein the Company
will have a 15% interest and BluGen will have a 49% interest, and into which the commercial application of the technology will
be developed. There has been no activity at the date of this filing.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 28, 2013, the Company entered into Lease
Agreement dated with Fujian Xinchang Leather Company Limited, a Chinese company (“Fujian”), whose address is Jinjiang
City, Fujian, China Ying Lin Zhenxin Chang Industrial Park (the “Plant”) for the lease of a Hydrogen boiler combustion
equipment system (the “Equipment”) to be installed at their Plant. The Unit price for the Equipment is RMB 4,800,000
Yuan (approximately $800,000 US). The term of the Lease is seven (7) years, and renews on an annual basis if not terminated. Once
installation and proven energy efficiency are established, Fujian will post the performance bond of RMB 1 million Yuan and rental
payments shall commence, and be paid monthly thereafter. Any termination of the Lease within the first six (6) years will entitle
the Company to take possession of the entire performance bond. As of June 30, 2013, there has not been any payments made on this
lease.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has entered into various other
agreements that have been disclosed in previous 10K and 10Q filings. These agreements have been put on hold but will be further
pursued as adequate funding is generated.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2003, the
Company signed a note payable with a related party in the amount of $15,000. The balance at June 30, 2013 and December 31, 2012
is $1,901. This note payable was unsecured, non-interest bearing and has no specific repayment terms, however, payment is not expected
prior to December 31, 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of June 30, 2013 and December 31, 2012,
accounts payable included $12,220 for various accounting services, due to the Company’s Chief Accounting Officer who is also
a director of the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 15, 2012, the Board of Directors resolved
to issue 500,000 shares of Series A Convertible Preferred shares to Michael Rouse, the Company’s President and CEO, in exchange
for $335,285 of unpaid and accrued salary.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2012, the
Company’s CEO advanced the Company $1,430 with no specific terms of repayment and no stated interest rate.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company entered into a Debt Settlement
Agreement (the “Agreement”) dated April 27, 2012 with Alpha Engines Corporation (“Alpha”). The Company
and Alpha entered into a License Agreement dated December 31, 2001, pursuant to which the Company has accrued royalties and other
payables to Alpha in the amount of $1,508,250 as of the date of the Agreement. Pursuant to the terms of the Agreement, Alpha agreed
to accept 250,000 shares of the company common stock in full settlement of the above royalties and other payables and further agreed
to reduce the annual license royalty payable under the License Agreement from $250,000 per year to $25,000 per year, retroactive
to January 1, 2012, with the first payment being due January 1, 2013. On April 27, 2012, the Company recorded the difference between
the fair value of the common stock issued to Alpha and the settlement of the accrued royalties and other payables as a capital
contribution from Alpha to the Company, which is included in additional paid-in capital at December 31, 2012. As of June 30, 2013,
the Company has not made a payment under this license agreement and has recorded total accrued royalty fees of $37,500.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The above terms and amounts are not necessarily
indicative of the terms and amounts that would have been incurred had comparable transactions been entered into with independent
parties.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2012, the Company issued a convertible
promissory note for $42,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity
date of January 18, 2013. The conversion option price associated with the note has a 41 percent discount to the market price of
the stock. The market price is based on the average of the three lowest trading prices during a ten day period prior to conversion.
The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC
Topic 815, the Company bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the
conversion option. At the issuance date, the Company recorded a debt discount and derivative liability of $42,500 and $62,225,
respectively. The debt discount will be amortized over the life of the note, and the Company recognized approximately $6,900 of
interest expense related to amortization during 2013. As of June 30, 2013, the Company has converted $42,500 of debt into 5,538,855
shares of common stock. As of June 30, 2013 the discount related to the note was fully amortized. The derivative liability has
been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2012, the Company issued a convertible
promissory note for $42,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity
date of January 18, 2013. The conversion option price associated with the note has a 41 percent discount to the market price of
the stock. The market price is based on the average of the three lowest trading prices during a ten day period prior to conversion.
The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC
Topic 815, the Company bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the
conversion option. At the issuance date, the Company recorded a debt discount and derivative liability of $42,500 and $48,384,
respectively. As of June 30, 2013, the Company has converted $42,500 of debt into 12,880,124 shares of common stock and $1,300
of accrued interest into 565,217 shares of common stock. As of June 30, 2013 the discount related to the note was fully amortized.
The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income
and expense.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In October 2012, the Company issued a convertible
promissory note for $27,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity
date of July 18, 2013. The conversion option price associated with the note has a 41 percent discount to the market price of the
stock. The market price is based on the average of the three lowest trading prices during a ten day period prior to conversion.
The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC
Topic 815, the Company bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the
conversion option. At the issuance date, the Company recorded a debt discount and derivative liability of $27,500 and $28,950,
respectively. As of June 30, 2013, the Company has converted $16,800 of debt into 10,200,000 shares of common stock. As of June
30, 2013 the discount related to the note was fully amortized. The derivative liability has been adjusted to fair value each reporting
period with unrealized gain (loss) reflected in other income and expense.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 24 2012 (the “Closing date”),
the Company issued a convertible promissory note for $278,000. The lender funded $75,000 to the Company, and the lender at their
discretion may fund additional amounts to the Company. The note matures one year from the closing date. If the Company pays the
note within 90 days of the closing date, the interest rate is 0%. If the note is not paid within 90 days of the closing date, a
one-time interest charge of 5% will be applied to the unpaid principal amount. The conversion option price associated with the
note is the lesser of $0.10 or 70% of the lowest trade price in the 25 trading days previous to any conversion. The note is convertible
at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company
bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the conversion option. At
the issuance date, the Company recorded a debt discount and derivative liability of $75,000 and $100,415, respectively. The debt
discount will be amortized over the life of the note, and the Company recognized $59,657 of interest expense related to amortization
through 2013. The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected
in other income and expense.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2013, the Company issued a convertible
promissory note for $32,500. The note pays interest at 8% per annum, and principal and accrued interest is due in November 2013.
The conversion option price associated with the note has a 41 percent discount to the market price of the stock. The market price
is based on the average of the three lowest trading prices during a ten day period prior to conversion. The note is convertible
at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company
bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the conversion option. At
the issuance date, the Company recorded a debt discount and derivative liability of approximately$32,500 and $53,900, respectively.
The debt discount was amortized over the life of the note, and the Company recognized approximately $16,191 of interest expense
related to amortization during 2013. The derivative liability has been adjusted to fair value each reporting period, with unrealized
gain (loss) reflected in other income and expense.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For the six months ended June 30, 2013, the
unrealized loss on the above derivatives was approximately $152,555.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Liabilities measured at fair value on a recurring
basis by level within the fair value hierarchy as of June 30, 2013 and December 31, 2012 related to the above derivative liability
are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Fair Value</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Measurements at</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>June 30, 2013 (1)</b></p></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Fair Value</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Measurements</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>at December 31, 2012(1)</b></p></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Using Level 2</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Total</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Using Level 2</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Total</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 10pt">Liabilities:</font></td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 10pt">Derivative liabilities</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total liabilities</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 3%"> </td>
<td style="width: 3%"><font style="font-size: 10pt">(1)</font></td>
<td style="width: 94%; text-align: justify"><font style="font-size: 10pt">The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of June 30, 2013 or December 31, 2012.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s derivative liabilities
are classified within Level 2 of the fair value hierarchy. The Company utilizes the Black-Scholes Option Pricing Model to value
the derivative liabilities utilizing observable inputs such as the Company’s common stock price, the exercise price of the
warrants, and expected volatility, which is based on historical volatility. The Black-Scholes model employs the market approach
in determining fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic loss per share is computed by dividing
net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per
share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental
shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods
in which a net loss has been incurred, all potentially dilutive common shares are considered antidilutive and thus are excluded
from the calculation. For the three and six month periods ended June 30, 2013 and 2012 and for the period from November 27, 2000
(Date of Inception) through June 30, 2013, the Company had 6,665,413, 5,405,413, 6,665,413, 5,405,413 and 6,665,413 potentially
dilutive common stock options and warrants, respectively, which were not included in the computation of loss per share. Additionally,
convertible notes with a face amount of $90,971 can convert into approximately 42,642,971 shares of common stock at June 30, 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Subsequent to the June 30, 2013, the Company
issued 4,200,000 shares of common stock for the conversion of notes payable and accrued interest of $7,938.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 30, 2013, the Company signed an Agreement
with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the
initial sum of CAN $450,000 and a maximum of CAN $10,000,000 in accordance with the terms of the Agreement. The financing to be
provided is to be funded in tranches, and will have terms between three (3) and five (5) years, with each tranche being separately
negotiated. As a part of the loan costs, 236 shall be issued restricted common stock equal to the issued and outstanding common
shares of the Company at the time of the initial advance, with such shares being subject to a Lock Up/Leak Out Agreement to be
negotiated between the parties.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The initial advance of CAN $450,000 is covered
by a Loan Agreement dated June 19, 2013, and was signed on July 30, 2013 (the “Loan Agreement”), which provides that
(a) the interest rate shall be 20% per annum; and (b) CAN $90,000 shall be withheld by lender in interest rate reserve account
for the payment of the first years interest. The first tranche of CAN $150,000 under the Loan Agreement was advanced in August
2013 and delivered to Energy Technology Services Co., Ltd., (ETS) as the initial payment on the first machine to be delivered under
a purchase order agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Subsequent to June 30, 2013, the Company, as part of the above Agreement, has issued 41,333,333 shares of common stock. In
addition, the Company also issued 11,290,476 shares for cash various investors at various prices.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 28, 2012, the Company entered into
a joint venture with Energy Technology Services Co., Ltd., ("ETS"), a Taiwan corporation, for the manufacture, distribution,
leasing/sale, installation and maintenance of ETS’s Hydrogen Generator Burning Systems. Under the final structure of the
joint venture, the Company is the managing partner and ETS is the operational partner and managing agent in Asia for all business
conducted on behalf of the joint venture. All revenue and contracts from the joint venture will be booked by Turbine Truck Engines
with a 50/50 sharing of net profit between the Company and ETS after “reasonable expenses”. The Company will purchase
and own all assets, leases and contracts generated by the joint venture. There has been no activity.</p>
25000
37500
84341
264802
52954
16191
1300
59657
6900
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 -20pt; text-indent: 20pt"></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Fair Value</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Measurements at</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>June 30, 2013 (1)</b></p></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Fair Value</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Measurements</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>at December 31, 2012(1)</b></p></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Using Level 2</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Total</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Using Level 2</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Total</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 10pt">Liabilities:</font></td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 10pt">Derivative liabilities</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="width: 9%; border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total liabilities</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(148,782</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(123,272</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 3%"> </td>
<td style="width: 3%"><font style="font-size: 10pt">(1)</font></td>
<td style="width: 94%; text-align: justify"><font style="font-size: 10pt">The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of June 30, 2013 or December 31, 2012.</font></td></tr></table>
-123272
-123272
90971
32500
27500
42500
42500
278000
0.08
0.08
0.08
0.08
0.41
0.41
0.41
0.41
32500
27500
42500
42500
75000
53900
28950
48384
62225
100415
10200000
12880124
5538855
If the Company pays the note within 90 days of the closing date, the interest rate is 0%. If the note is not paid within 90 days of the closing date, a one-time interest charge of 5% will be applied to the unpaid principal amount.
The conversion option price associated with the note is the lesser of $0.10 or 70% of the lowest trade price in the 25 trading days previous to any conversion.
75000
black Scholes model
16800
42500
42500
565217
152555
236485
12500
12500
6250
6250
104000
156000
450000
850000
1350
279000
1250000
850000
0.05
0.25
P5Y
P5Y
0.15
0.49
800000
P7Y
1901
1901
15000
12220
12220
12220
12220
1430
500000
335285
1508250
250000
250000
25000
37500
5405413
6665413
5405413
6665413
6665413
42642971
267849
16840966
758948
166947
355071
267849
12958472
758948
166947
355071
257986
1216277
37156
116336
30423
The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of June 30, 2013 or December 31, 2012.