10-K 1 t76204_10k.htm FORM 10-K t76204_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
FORM 10-K
 
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2012
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from          , 20         , to          , 20           .
 
Commission File Number 333-109118
 
Turbine Truck Engines, Inc.
(Exact Name of Registrant as Specified in its Charter)
     
Nevada
  
59-3691650
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification Number)
 
46600 Deep Woods Road, Paisley Florida 32767
(Address of Principal Executive Offices)
 
(386) 943-8358
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(g) of the Act:
     
$.001 par value common stock
  
Over the Counter Bulletin Board
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
 
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 o
 
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 (Section 232.405) during the preceding 12 months. Yes o No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
  
Accelerated filer
o
     
Non-accelerated filer
o (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 Act):Yes o No x
 
The Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2012 was $8,044,593.
 
There were 84,443,316 shares of the Registrant’s $0.001 par value common stock outstanding as of April 15, 2013.
 
Documents incorporated by reference: none
 
 
 
 
 
TURBINE TRUCK ENGINES, INC.
FORM 10-K INDEX
           
     
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59
  
 
Certifications
        
 
 
 
 
 
TURBINE TRUCK ENGINES, INC.
 
This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about Turbine Truck Engines Inc.’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements.
 
 
DESCRIPTION OF BUSINESS
 
Turbine Truck Engines, Inc. was incorporated in Delaware on November 27, 2000. On February 20, 2008, the Company was re-domiciled to the State of Nevada. The Company is currently pursuing several different lines of business, including (a) the continued development of the Detonation Cycle Gas Turbine Engine” (“DCGT”); (b) the commercialization of a new hydrogen generation process for use in multiple industries; and (c) the development of a gas to liquid process based upon patents held by Robert Scraggs.
 
The development of the DCGT Engine has been at the core of the Company’s business for many years. On December 15, 2000, we acquired the option rights for an exclusive License from Alpha Engines Corporation (“Alpha”) for manufacturing and marketing heavy duty highway truck engines utilizing Alpha’s DCGT technology embodied in U.S. Patent No. 6,000,214 and other proprietary technology and rights owned by Alpha including Marketing Survey Data in the highway trucking industry. We exercised our option and acquired the licensing rights on July 22, 2002. Alpha has completed the design and prototype of a 540 hp engine for use in highway trucks.
 
The Company has a number of agreements regarding the development and manufacture of the DCGT Engine over the last few years that have terminated of their own accord, but which the Company classifies as “on hold”, pending the successful completion the testing of the 6th generation prototype that is a condition precedent to the development of the engine which would serve as a platform for these companies to work off of. Upon the successful completion of the testing of the 6th generation prototype, the Company intends revisit these strategic alliances and potential joint ventures
 
The Company, through AbM Engineering, completed the 6th generation prototype in June 2011 and is continuing the testing thereof, subject to the receipt of adequate funding.
 
OTHER AGREEMENTS
 
The Company entered into various strategic alliances with foreign companies during 2009 and 2010. Any changes during the  year ended December 31, 2012, have been disclosed in the Company’s 8-K filing dated April 3, 2013, with the SEC. These changes do not warrant further disclosure to these financial statements. The agreements with GUOHAO, TIANJIN and BEIJING ROYAL are based on the Company building, testing and demonstrating a prototype that will meet the efficiencies required to commercialize the engine for their respective products. Once the Company has demonstrated that it can produce an engine with the power output and efficiencies required, the parties that they would be willing to discuss reinstituting the original agreements for the respective companies to fulfill their agreements and fund the Company to bring the engine to full commercialization for that product will begin.
 
 
3
 
 
PRODUCT STATUS
 
THE DCGT ENGINE
 
To date, our DCGT Engine is not yet marketable, but we have completed initial testing of the 6th generation prototype. The Company continues to demonstrate the engine to investors and potential joint venture partners. Over the course of the last few years, the Company has entered into numerous strategic alliances and potential joint ventures for the development of the engine; however, those agreements have been placed on hold pending the successful completion of the testing on the 6th generation prototype. The prototype was completed in June 2011, and preliminary testing has been completed. Additional testing and modification of the 6th generation prototype was completed in the last quarter of 2012 by AbM Engineering, who continues to perform modifications and comprehensive testing, which will continue, on a schedule which is dependent upon adequate funding being received by the Company. Costs incurred for the prototype was included research and development costs for the year ended December 31, 2012.
 
Once the company has demonstrated that it can produce an engine with the power output and efficiencies required of the marketplace, the Company will revisit the prior agreements, as they have indicated that they remain interested. The Company continues to pursue funding to bring the engine to full commercialization.
 
OUR PRODUCTS AND BUSINESS LINES
 
Detonation Cycle Gas Turbine Engine
 
Our product is slated to be a new energy-efficient, Detonation Cycle Gas Turbine Engine (“DCGT”) for heavy-duty highway trucks as well as other potential applications. To date, we have no marketable product and will rely on the research firm of AbM Engineering and potential Strategic Alliance partners to continue the development and testing of our 6th generation prototype that will conform to our licensed application. Since our inception, we have continued to raise capital to bring this patented technology closer to where it can be utilized in a common market.
 
Detonation refers to an instant burning of a fuel-air mixture producing an explosion. Cycle refers to the explosion happening in one chamber and then in another chamber, repeating over and over again. Gas is the fuel which is in a gaseous state. Turbine is a rotating wheel or disk connected to a shaft spinning in one direction. This combined process along with the Electromagnetic Isothermal Combustion “(EIC”) process creates the high efficiency, low emission engine that we intend to bring to market.
 
Alpha’s completed the design and prototype of a 540 hp engine for use in highway trucks. Through the course of the development of the engine, the company has expanded its focus to the utilization of the technology to power generation applications which are easier to commercialize, due to the inherent issues arising in the integration into existing systems.  The Company is currently testing the 6th generation prototype, however, this takes a considerable amount of money.
 
Under our Agreement with Alpha, they will continue to consult and advise with AbM Engineering on future development of this 540 horsepower DCGT highway truck engine prototype at AbM’s facilities in Daytona Beach, Florida.   The continued pursuit of the technology for use in highway trucks will not continue to be pursued until we have made significantly more progress on the 6th generation prototype.
 
It was our initial intention solely to target 18 wheel class 8 vehicles commonly used for transporting goods throughout the United States for distribution of our engine, however, the Company has determined to focus on the power generation applications of the engine at this time.
 
PATENTS AND LICENSE
 
Patent #6000214 is a novel patent with a 20-year life from the filing date of December 16, 1997. The patent was based on research and development beginning in 1984, which included the design, construction, and testing of four (4) working prototypes. The patent attorneys were Schoemaker & Mattare Ltd. The inventor has and will file additional patents to protect any new developments in the engine technology. We will have access to any new patent filings on the highway truck engines as provided for in our licensing agreement.
 
This patent in its simplicity makes it very unique. A detonation cycle gas turbine engine includes a turbine rotor contained in a housing. The exhaust ports of respective valve-less combustion chambers are located on opposite sides of the rotor directing combustion gases toward the turbine. The chambers are connected by a valve-less manifold fed with fuel and oxidizer. When combustible gases are detonated by an igniter in one of the combustion chambers, the back pressure from the detonation shuts off the fuel and oxidizer flow to that chamber and redirects the fuel and oxidizer to the opposite chamber, where detonation occurs. The process repeats cyclically. Power is taken off the rotor shaft mechanically or electrically.
 
The invention utilizes a water wheel as the turbine wheel which has blades that are positively displaced through a blade race by the rapid expansion of gases exiting from combustion chambers via nozzles, rather than pistons or gas turbines.
 
 
4
 
 
Our engine has a blower, rather than a compressor, to supply less air per horsepower hour than required by existing gas turbines or piston engines, thereby producing less exhaust gases per horsepower hour.
 
The blower supplies low pressure air via a single manifold to two combustion chambers simultaneously thereby requiring less work to complete a detonation cycle, resulting in higher thermo mechanical efficiencies than gas turbines or piston engines.
 
The engine manifolds, combustion chambers, and ignition system has the capability of cyclically detonating fuel-air mixtures without using valves. The engine uses a fuel pump and vaporizers to gasify wet fuels prior to mixing with combustion air in the manifolds to produce complete combustion of all fuel-air mixtures in the detonation process. The engine uses a plasma arc ignition, a visibly constant illuminating plasma flame between two electrodes to detonate fuel-air mixtures and does not require critical ignition timing.
 
Low pressure air and fuel mixtures are detonated instantaneously–in less than one millisecond–producing high velocity shock waves that kinetically compress inert gases resulting in higher working pressures than the pressures produced in constant pressure heating utilized in gas turbine engines, and Otto and Diesel cycle piston engines.
 
The detonation cycle engine uses less working fluid and produces less exhaust gas per horsepower hour than Brayton cycle turbines and Otto or Diesel cycle piston engines.
 
Alpha has developed six working prototypes over the course of the last 20 years, culminating in the development of the  6th generation prototype engine , which consists of two 7-inch, 8-pound turbine wheels mounted on a single shaft, driven by 4 horizontally opposed combustion chambers producing an estimated 70 horsepower at 20,000 rpm.
 
The DCGT includes an Electromagnetic Isothermal Combustion (“EIC”) process that powers the engine. The EIC process produces complete combustion of fuel-oxidizer mixtures in cyclic detonations that negate unwanted nitrogen oxide and carbon monoxide emissions. The high pressure gases produced by the detonations drive a unique turbine producing shaft horsepower.
 
The EIC process enables the DCGT to operate with blower air at low static pressure, negating the necessity of compressing and preheating fuel-oxidizer mixtures prior to combustion. By eliminating the compression of fuel-oxidizer mixtures, the DCGT achieves higher thermal efficiencies in a simplified mechanical structure. The DCGT has the following proprietary and competitive advantages over current diesel, gasoline and gas turbine engines that when completed, the EIC process is projected to have the following characteristics:
 
 
●
Air cooled - less than 2 pounds per horsepower
 
●
Fewer moving parts - less maintenance
 
●
Flex-fuel and mixed fuels capability
 
●
Operates on all hydrocarbon fuels, hydrogen and synthetic fuels
 
●
Cold start capability with any fuels
 
●
Burns 30% less fuel “Greenhouse exhaust gases”
 
●
Less nitrogen oxides and carbon monoxide exhaust emissions
 
●
Less hydrocarbon exhaust emissions
 
●
No lube oil, filters or pumps
 
We will not require governmental approval until such time as the engine is placed in use. Our engine will meet the new more stringent emission requirements set forth by the Environmental Protection Agency (“EPA”).
 
Research and development of our engine was completed in 1997 with patents obtained in 1999. Through testing, we hope to be able to comply with existing and future environmental laws. We intend to supply our fuel efficient, lower emission engine to a marketplace that must comply with more stringent governmental regulations. In each of the last two years, the Company has spent $0 (2012) and $146,779 (2011) on research and development.
 
 
5
 
 
TTE and Alpha entered into that certain License Agreement dated December 31, 2001, pursuant to which TTE had accrued debt to Alpha in the amount of $1,508,250 as of the date of the Agreement. The Company entered into a Debt Settlement Agreement dated April 27, 2012 with Alpha.
 
Pursuant to the terms of the Agreement, Alpha accepted 250,000 shares of the company common stock in full settlement of the Debt 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 was due January 1, 2013.
 
As of December 31, 2012, the Company had accrued $25,000 of royalty fees related to this agreement.
 
Other than being the licensor and a principal shareholder, we have no affiliation with Alpha.
 
HYDROGEN GENERATORS
 
The HUE hydrogen generator provides a unique marketable hydrogen generator, unlike anything currently in the commercial market. Hydrogen (H2) is an ideal fuel for combustion — it burns easily and efficiently at very high temperatures and emits pure water vapor (H2O) as its only by-product. But the gas is a difficult fuel to work with. Existing methods for transporting and storing hydrogen (namely high-pressure compression and liquefaction) are complex, inefficient, and expensive. It’s also the smallest molecule in existence and tends naturally to leak; only exacerbating these problems.
 
In contrast, Methanol (CH4O, also known as methyl alcohol or wood alcohol) is abundant, widely accessible, easy to handle, and inexpensive. Utilizing a gas reformation process employing a proprietary chemical catalyst and a unique low temperature pyrolytic reaction, HUE’s extraordinary generator converts common methanol into clean-burning hydrogen gas for immediate on-site use. The process removes all harmful emissions except for food grade carbon dioxide, which can be captured and sold to the food and beverage industry.
 
The hydrogen generator can be used in a wide range of residential and commercial applications. It is also ideal for use in industrial equipment such as boilers, steam generators, and dryers. On-demand hydrogen generation eliminates the need for operators to have expensive high pressure storage tanks and infrastructure while still providing the many environmental benefits of using hydrogen fuel. Operators additionally have seen savings of 30% to 60% of their energy costs as compared to using electricity or heavy oils do to the same job.
 
The Company entered into a Cooperation Agreement (the “Agreement”) with Hydrogen Union Energy Co., Ltd. (“HUE”) for the purpose of the joint development of the hydrogen generator. Under the terms of the Agreement, HUE will provide hydrogen generators at cost to the Company for demonstration purposes. Once the Company purchases the first H2 generator and pays 90% of the purchase price, the Company will be given first refusal to act as agent for any future business relating to hydrogen generators with HUE’s technology in North America. The Company was to pay the cost of production of a 200 cubic meter H2 generator at 10,000,000 TWD ($328,000 USD as of December 31, 2011) for up to two machines. As previously disclosed, the Company is continuing negotiations with payment terms and accordingly no equipment has been received and no liability has been recorded as of December 31, 2012.
 
The Company is continuing its pursuit of joint ventures and distributorship relationships to facilitate the expansion of this business line.
 
GAS TO LIQUID
 
Is an Electromagnetic Methanol Reactor System which produces Methanol in fewer steps.  At lower costs, and by a more environmentally acceptable technique than the present state-of-the-art process, and is not captive to major industrial areas of pipeline gas supply.
 
 
6
 
 
By the Scragg Process, the methane gas contained in natural gas is conveyed into an electromagnetic combustion and condensing chamber and combined with oxygen which has been passed through an electromagnetic field and preatomized. The atomized oxygen combines stoichiometric ally with the methane gas in an exothermic reaction to produce Methanol gas. The Methanol gas is then condensed in the reactor to form liquid Methanol.
The Scragg Process works on the basis that hydrocarbons are highly combustible substances which burn when vigorously oxidized to form carbon dioxide and water: however. If the oxidation is performed gently a number of Intermediate compounds may be formed. The mild oxidation of hydrocarbons is achieved by either inserting an oxygen atom into the molecule or by removing two hydrogen atoms from the molecule.
 
The Company (“TTE”) entered into a Binding Letter of Intent (the “Agreement”) dated January 23, 2013 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 has been agreed upon by the parties.
 
The parties have agreed to establish, at later date, a Joint Venture, wherein TTE will have 51% interest and BluGen will have a 49% interest, and into which the commercial application of the technology will be developed.
 
PATENTS AND LICENSE
 
To date there are no patents or patents pending for the Hydrogen Generator. However, in the future HUE and the Company propose to share in patent applications and approvals on any part of the Hydrogen Generator that is able to be patented.
 
The Scraggs process for converting Methane to Methanol was patented on Feb. 15, 1983 under US Patent # 4,374,288.  The patent has expired, however the process will be protected under Trade Secrets law.
 
COMPETITION
 
The Company has identified seven (7) major engine manufacturers, including Ford, Caterpillar, Cummins, Detroit Diesel, Mack Trucks, Navistar International and Volvo Truck that each manufacture heavy duty truck engines, both gasoline and diesel, which are likely to be the major competitors to our company as to the DCGT Engine, once our product is ready for market. To the Company’s knowledge, at this time, none of the Company’s major competitors are working on the development of a turbine engine that would be in direct competition to the Company’s engine, and although we would be competing with them for customers, the Company believes that the technological differences between its product and those that are currently on the market, will provide the Company with a market niche that it can expand upon, even in the face of such established competitors.
 
The Company has identified a handful of competitors, including Air-Gas, that manufacture hydrogen generators. There are however, three main types of hydrogen generators, those that (a) convert methane to hydrogen through a catalyst; (b) convert water through electrolysis; and (c) convert methanol through catalysis. There are commercialized units for each method, however, to our knowledge; there are no commercialized units, like the HUE generator that produce hydrogen on demand, without the safety issues involved with storage and transportation. In that regard, the Company considers itself uniquely positioned to provide the market with a hydrogen generator that is uniquely different than its competitors.
 
Methanex Corp. is the world’s largest producer of Methanol and will be our main competitor. The Scraggs process will enable production of methanol on a much smaller scale, there are many companies working on this process however to date none have proved viable.
 
The current state-of-the-art method of producing Methanol involves a low pressure process of preparing synthesis gas by steam reforming or partial oxidation of a gaseous hydrocar.bon feedstock or by direct combination of carbon dioxide with purified hydrogen rich gases. Typically, naptha or a natural gas feedstock is disulfurized. preheated. mixed with a superheated steam, and then reacted over a conventional catalyst in a multi-tubular reformer. After cooling, the synthesis gas is compressed to the required pressure and passed into a hot-wall converter over a low pressure Methanol synthesis catalyst at a temperature ranging from 250 to 270 degrees centigrade. The crude Methanol that is formed is condensed and separated from the uncondensed gases which are recycled with makeup synthesis gas and fed back into the converter. Historically, plants using the aforementioned process are, by necessity located in heavy industrial centers which permit the production of large quantities of hydrogen, carbon monoxide and/or carbon dioxide gases and are captive to pipeline gas supply. Depending upon the location of the plant, high transportation expenses can offset any cost savings resulting from increased production volumes of Methanol.
 
 
7
 
 
EMPLOYEES
 
We presently have three full-time employees. Staffing levels will be determined as we progress and grow. We also plan to add several employees to our staff. The level of employees is primarily contingent on the funds available for operations. Our board of directors will determine the compensation of all new employees based upon job description.
 
RISK FACTORS
 
Not applicable.
 
UNRESOLVED STAFF COMMENTS
 
None.
 
DESCRIPTION OF PROPERTY
 
The Company leases a 55 acre parcel located outside Paisley, Florida with two office buildings and one storage/demonstration facility from J.K. Schmale. The lease agreement is currently being extended on a month to month basis. Base rent is $25,000 per year and the lease agreement contains an option to purchase the property and all buildings located on the property.
 
LEGAL PROCEEDINGS
 
As of the date of this Report, neither we nor any of our officers or directors is involved in any litigation either as plaintiffs or defendants. As of this date, there is not any threatened or pending litigation against us or any of our officers or directors.
 
MINE SAFETY DISLCOSURE
 
None
 
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Since the August 2004 closing of the Company’s initial public offering, the Company’s Common Stock has traded in the over-the-counter market on the National Association of Securities Dealers, Inc. OTC Bulletin Board System (“OTCBB”) under the symbol “TTEG.” The following table sets forth the range of high and low closing bid quotations of the Common Stock as reported by the OTCBB for each fiscal quarter for the past two fiscal years. High and low bid quotations reflect inter-dealer prices without adjustment for retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.
 
                 
   
Bid Prices
  
   
High
    
Low
  
FISCAL 2012
                
     
First Quarter (January 1, 2012 through March 31, 2012)
  
$
0.2099
    
$
0.085
  
Second Quarter (April 1, 2012 through June 30, 2012)
  
$
0.148
    
$
0.048
  
Third Quarter (July 1, 2012 through September 30, 2012)
  
$
0.075
    
$
0.032
  
Fourth Quarter (October 1, 2012 through December 31, 2012)
  
$
0.035
    
$
0.0114
  
     
FISCAL 2011
                
     
First Quarter (January 1, 2011 through March 31, 2011)
  
$
0.24
    
$
0.12
  
Second Quarter (April 1, 2011 through June 30, 2011)
  
$
0.28
    
$
0.10
  
Third Quarter (July 1, 2011 through September 30, 2011)
  
$
0.19
    
$
0.10
  
Fourth Quarter (October 1, 2011 through December 31, 2011)
  
$
0.10
    
$
0.04
  
 
 
8
 
 
On March 29, 2013, the closing bid price of the Company’s Common Stock as reported by the OTCBB was $0.006 and there were approximately 461 shareholders of record.
 
DIVIDENDS
 
We have not paid any cash dividends on our common or preferred stock and do not anticipate paying any such cash dividends in the foreseeable future. Earnings, if any, will be retained to finance future growth. We may issue shares of our common stock and preferred stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. Issuance and or sales of substantial amounts of common stock could adversely affect prevailing market prices in our common stock.
 
Common Stock
 
During the year ended December 31, 2012, there was no modification of any instruments issued herein for the fourth quarter, defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
 
During October 2012, the Company issued 845,070 shares of common stock to a qualified investor for conversion of debt valued at $0.01 per share for a total of $12,000.
 
During December 2012, the Company issued 1,132,075 shares of common stock to a qualified investor for conversion of debt valued at $0.01 per share for a total of $12,000.
 
During December 2012, the Company issued 100,000 shares of common stock to a qualified investor for services valued at $0.01 per share for a total of $1,200.
 
The sale and issuance of securities above was deemed to be exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 506 of Regulation D promulgated there under.
 
SELECTED FINANCIAL DATA
 
Not required.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
 
 
9
 

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.

For the year ended December 31, 2012 compared to the year ended December 31, 2011:
Research and Development Costs – During the years ended December 31, 2012 and 2011, research and development costs totaled $0 and $146,779, respectively. The decrease of $146,779 was mainly attributable to pausing research and development while waiting for funding.

Operating Costs – During the years ended December 31, 2012 and 2011, operating costs totaled $818,532 and $2,224,215, respectively. The decrease of $1,405,683 was mainly attributable to a $308,000 decrease in payroll expenses, a $437,000 decrease in professional fees. $225,000 decrease in royalty fees, $437,000 decrease in stock based compensation expense, which were partially offset by an increase of $194,000 in consulting expense.

Interest (Income) Expense - Net - During the years ended December 31, 2012 and 2011 net interest expense totaled $165,826 and $15,540, respectively. The increase of $150,286 was primarily due to the amortization of the debt discounts related to the Company issuing additional convertible debentures of $187,500 in 2012.

The net loss for the years ended December 31, 2012 and 2011 was ($1,160,250) and ($2,238,011), respectively. The decrease of $1,077,761 was mainly attributable to the decrease in operating costs which was partially offset by the increase in interest expenses.

Liquidity and capital resources

As shown in the accompanying financial statements, for the years ended December 31, 2012 and 2011 and since November 27, 2000 (date of inception) through December 31, 2012, the Company has had net losses of $1,160,250, $2,238,011 and $17,531,408, respectively. As of December 31, 2012, the Company has not emerged from the development stage. 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. However, there can be no assurance that the Company will be able to raise capital or begin operations to achieve a level of profitability to continue as a going concern. 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.

As previously mentioned, since inception, we have financed our operations largely from the sale of common stock. From inception through December 31, 2012 we raised cash of approximately $4,251,143 net of issuance costs, through private placements of common stock financings and $1,082,250 through the issuance of convertible notes payable. Additionally, we have raised net proceeds from stockholder advances of $272,582.

Since our inception through December 31, 2012 we have incurred $3,882,494 of research and development costs. These expenses were principally related to the acquisition of a license agreement in July 2002 in the amount of $2,735,649, which was expensed to research and development costs for the DCGT technology and general and administrative expenses.
 
 
10
 
 
We have incurred significant net losses and negative cash flows from operations since our inception. As of December 31, 2012, we had an accumulated deficit of $17,531,408 and working capital deficit of $224,563.

We anticipate that cash used in product development and operations, especially in the marketing, production and sale of our products, will increase significantly in the future.

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 $43,562 of interest expense related to amortization during 2012. The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense.

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.  During the year ended December 31, 2012, the Company converted $24,000 of the debt into 707,244 shares of common stock.

In October 2012, $12,000 of convertible debt was converted into 845,070 shares of common stock.  In December 2012, $12,000 of convertible debt was converted into 1,132,075 shares of common stock.

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 April 12, 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.

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.

We will be dependent upon our existing cash, together with anticipated net proceeds from a public offering and future debt issuances and private placements of common stock and potential license fees, to finance our planned operations through the next 12 months. We will continue to proceed in the design and testing phase of the DCGT engine during the next 12 months and will require additional funding to continue operations. Based on our anticipated growth, we plan to add several employees to our staff.
 
 
11
 
 
Additional capital may not be available when required or on favorable terms. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders.

The Company may receive proceeds in the future from the exercise of warrants and options outstanding as of December 31, 2012 in accordance with the following schedule:

                 
   
Approximate
Number of
Shares
    
Approximate
Proceeds*
  
2006 Non-Plan Options and Warrants
    
5,405,413
    
$
1,544,033
  
*
Based on weighted average exercise price.

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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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 could differ from those estimates.
 
We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.

We account for stock option grants in accordance with ASC Topic 708 – Compensation – Stock Compensation. Stock-based compensation cost recognized during the years ended December 31, 2012 and 2011 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on their relative grant date fair values estimated in accordance with US GAAP. The Company recognizes compensation expenses on a straight-line basis over the requisite service period.

Determination of the fair values of stock option grants at the grant date requires judgment, including estimating the expected term of the relevant grants and the expected volatility of the Company’s stock. Additionally, management must estimate the amount of stock option grants that are expected to be forfeited. The expected term of options granted represents the period of time that the options are expected outstanding and is based on historical experience of similar grants, giving consideration to the contractual terms of the grants, vesting schedules and expectations of future employee behavior. The expected volatility is based upon our historical market price at consistent points in a period equal to the expected life of the options. Expected forfeitures are based on historical experience and expectations of future employee behavior.

Furniture and equipment are recorded at cost and depreciated on a declining balance and straight-line basis over their estimated useful lives, principally two to seven years. Accelerated methods are used for tax depreciation. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When furniture and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
 
 
12
 
 
The Company has incurred deferred offering costs in connection with raising additional capital through the sale of its common stock. These costs are capitalized and charged against additional paid-in capital when common stock is issued. If there is no issuance of common stock, the costs incurred are charged to operations.

Research and development costs are charged to operations when incurred and are included in operating expenses.

New Accounting Pronouncements

For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Significant Accounting Polices: Recent Accounting Standards” in Part II, Item 8 of this Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable.

FINANCIAL STATEMENTS
 
 
13
 
 
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Financial Statements
For the Years Ended December 31, 2012 and 2011,
and the Period November 27, 2000 (Date of Inception)
through December 31, 2012
Contents
         
   
15-16
  
   
Financial Statements:
        
   
   
17
  
   
18
  
   
19-40
  
   
41-42
  
   
43-53
  
 
 
14
 

Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Paisley, Florida

We have audited the accompanying balance sheet of Turbine Truck Engines, Inc. (a development stage enterprise) (“the Company”) as of December 31, 2012 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2012 and the period from November 27, 2000 (Date of Inception) through December 31, 2012. These financial statements are the responsibility of the management of Turbine Truck Engines, Inc. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we expressed no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Turbine Truck Engines, Inc. as of December 31, 2012 and the results of its operations and its cash flows for the year ended December 31, 2012 and the period from November 27, 2000 (Date of Inception) through December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred a net loss of $1,160,250 during the year ended December 31, 2012 and has an accumulated deficit of $17,531,408 since inception and has a working capital deficit of $224,563 as of December 31, 2012. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Warren Averett, LLC
Tampa, Florida
April 15, 2013
 
 
15
 
 
 
Board of Directors and Stockholders
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Paisley, Florida

We have audited the accompanying balance sheet of Turbine Truck Engines, Inc. (a development stage enterprise) (“the Company”) as of December 31, 2011 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2011. These financial statements are the responsibility of the management of Turbine Truck Engines, Inc. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we expressed no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Turbine Truck Engines, Inc. as of December 31, 2011 and the results of its operations and its cash flows for the year ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred a net loss of $2,238,011 during the year ended December 31, 2011 and has an accumulated deficit of $16,371,158 since inception and has a working capital deficit of $122,333 as of December 31, 2011. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Pender Newkirk & Company LLP
Certified Public Accountants
Tampa, Florida
March 30, 2012

 
16
 
 
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
 
   
December 31,
    
December 31,
  
   
2012
    
2011
  
ASSETS
            
             
CURRENT ASSETS:
            
Cash
   $ 6,293     $ 11,638  
Prepaid expenses
     10,705       7,118  
Total Current Assets
     16,998       18,756  
                 
Furniture and equipment, net of accumulated depreciation of $52,381 (2012) and  $47,863 (2011)
     17,538       7,056  
                 
                 
                 
TOTAL ASSETS
   $ 34,536     $ 25,812  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                
                 
CURRENT LIABILITIES:
                
Accounts payable, including related party payables of  $12,220 (2012) and $12,220 (2011)
   $ 118,098     $ 116,290  
Accrued interest
     20,684       14,955  
Accrued payroll
     5,512       1,029  
Convertible notes, net
     96,767       8,315  
Note payable
     500       500  
Total Current Liabilities
     241,561       141,089  
                 
LONG-TERM LIABILITIES:
                
Derivative liability
     123,272       40,756  
Accrued expenses - long term
     66,100       277,850  
Accrued payroll - long term
     372,628       585,827  
Accrued royalty fees
     25,000       1,301,500  
Note payable to related party
     3,331       6,901  
Total Long-Term Liabilities
     590,331       2,212,834  
                 
STOCKHOLDERS’ DEFICIT
                
Series A Convertible Preferred Stock; $0.001 par value; 1,000,000 shares authorized; 500,000 (2012) and 0 (2011) shares issued and outstanding
     500       -  
Common stock; $0.001 par value; 299,000,000 shares authorized; 69,169,111 (2012)  and 56,503,946 (2011) shares issued and outstanding
     69,168       56,503  
Additional paid in capital
     16,913,769       14,277,622  
Common stock payable
     20,000       3,650  
Prepaid consulting services paid with common stock
     (57,385 )     (82,728 )
Receivable for common stock
     (212,000 )     (212,000 )
Deficit accumulated during development stage
     (17,531,408 )     (16,371,158 )
Total Stockholders’ Deficit
     (797,356 )     (2,328,111 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
   $ 34,536     $ 25,812  
 
The accompanying notes are an integral part of the financial statements.
 
 
17
 
 
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
 
               
Period
  
               
November 27,
  
   
For the Years Ended December 31,
    
2000 (Date of Inception)
  
               
through December 31,
  
   
2012
    
2011
    
2012
  
                   
Research and development costs
   $ -     $ 146,779     $ 3,882,494  
Operating costs
     818,532       2,077,436       12,690,623  
      818,532       2,224,215       16,573,117  
                         
OTHER EXPENSE (INCOME)
                        
Change in fair value of derivative liability
     (21,608 )     (1,744 )     (23,352 )
Loss on investment
     197,500       -       197,500  
Interest expense
     165,826       15,540       784,143  
TOTAL OTHER EXPENSE (INCOME)
     341,718       13,796       958,291  
                         
NET INCOME (LOSS)
   $ (1,160,250 )   $ (2,238,011 )   $ (17,531,408 )
                         
 
                        
NET INCOME (LOSS) PER COMMON SHARE, BASIC
   $ (0.02 )   $ (0.04 )   $ (0.72 )
                         
WEIGHTED AVERAGE NUMBER OF
                        
COMMON  SHARES OUTSTANDING, BASIC
     65,849,823       52,412,362       24,235,182  
 
The accompanying notes are an integral part of the financial statements.

 
18
 
 
(A Development Stage Company)
Statement of Changes in Stockholders’ Deficit
For the Year Ended December 31, 2012 and
For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2012
 
                                 
                             
Deficit
  
                       
Additional
    
Accumulated
  
   
Preferred Stock
  
Common Stock
     Paid in    
During
  
   
Shares
  
Amount
  
Shares
    
Amount
    
Capital
    
Development Stage
  
Issuance of common stock for option to acquire license and stock subscription receivable, December 2000
             10,390,000     $ 10,390              
Net loss for the period
                                 $ (4,029 )
                                       
Balance, December 31, 2000
             10,390,000       10,390             (4,029 )
Issuance of common stock for cash, February 2001*
             10,000       10     $ 4,990          
Issuance of common stock for cash, March 2001*
             10,000       10       4,990          
Issuance of common stock for cash, August 2001*
             10,000       10       4,990          
Issuance of common stock for cash, September 2001*
             55,000       55       27,445          
Payment for common stock issued under subscription receivable
                                        
Net loss
                                     (31,789 )
                                         
Balance, December 31, 2001
             10,475,000       10,475       42,415       (35,818 )
Issuance of common stock for cash, January 2002*
             5,000       5       2,495          
Issuance of common stock for cash, February 2002*
             10,000       10       4,990          
Issuance of common stock for cash, April 2002*
             25,000       25       12,475          
Issuance of common stock for cash, May 2002*
             65,000       65       32,435          
Issuance of common stock for cash, June 2002*
             70,000       70       34,930          
Issuance of common stock for cash, August 2002*
             10,000       10       4,990          
Issuance of common stock for cash, October 2002*
             10,000       10       4,990          
Issuance of common stock to acquire licensing agreement, July 2002*
             5,000,000       5,000       2,495,000          
Shares returned to treasury by founding stockholder, July 2002
             (5,000,000 )     (5.000 )     5,000          
Net loss
                                     (2,796,768 )
                                         
Balance, December 31, 2002
             10,670,000       10,670       2,639,720       (2,832,586 )
Issuance of common stock for cash, February 2003*
             207,000       207       103,293          
Issuance of common stock for cash, September 2003*
             30,000       30       14,970          
Issuance of common stock for services, September 2003*
             290,000       290       144,710          
Payment for common stock issued under subscription agreement
                                        
Offering costs for private placement offering
                             (33,774 )        
Net loss
                                     (190,567 )
                                         
Balance, December 31, 2003
             11,197,000       11,197       2,868,919       (3,023,153 )
Issuance of notes payable with beneficial conversion feature
                             19,507          
Issuance of common stock for services, September 2004 ($2.00 per share)
             20,000       20       39,980          
Conversion of notes payable, August 2004 ($2.00 per share)
             31,125       31       62,219          
Issuance of common stock for cash, September 2004 ($2.00 per share)
             25,025       25       50,025          
Issuance of common stock for cash, October 2004 ($2.00 per share)
             1,000       1       1,999          
Issuance of common stock for cash, November 2004 ($2.00 per share)
             3,500       4       6,996          
Issuance of common stock for cash, December 2004 ($2.00 per share)
             3,000       3       5,997          
Amortization of offering costs related to Form SB-2 filing
                             (10,159 )        
Amortization of stock for services related to Form SB-2 offering
                             (6,317 )        
Contribution from shareholder
                             18,256          
Net loss
                                     (282,009 )
                                         
Balance, December 31, 2004
             11,280,650       11,281       3,057,422       (3,305,162 )
*Common stock issued at $.50 per share.
                                        
 
The accompanying notes are an integral part of the financial statements.
 
 
19
 
 
                   
Prepaid
                
                   
Consulting
                
           
Deferred
      
Services Paid
                
           
Non-Cash
  
Common
  
for with
                
           
Offering
  
Stock
  
Common
    
Subscription
          
           
Costs
  
Payable
  
Stock
    
Receivable
      
Total
  
Issuance of common stock for option to acquire license and stock subscription receivable, December 2000
                      
$
(390
)
  
$
10,000
  
Net loss for the period
                                
(4,029
)
                                     
Balance, December 31, 2000
                        
(390
)
    
5,971
  
Issuance of common stock for cash, February 2001*
                                
5,000
  
Issuance of common stock for cash, March 2001*
                                
5,000
  
Issuance of common stock for cash, August 2001*
                                
5,000
  
Issuance of common stock for cash, September 2001*
                                
27,500
  
Payment for common stock issued under subscription receivable
 
                  
300
      
300
  
Net loss
                                
(31,789
)
                                     
Balance, December 31, 2001
                        
(90
)
    
16,982
  
Issuance of common stock for cash, January 2002*
                                
2,500
  
Issuance of common stock for cash, February 2002*
                                
5,000
  
Issuance of common stock for cash, April 2002*
                                
12,500
  
Issuance of common stock for cash, May 2002*
                                
32,500
  
Issuance of common stock for cash, June 2002*
                        
(2,500
)
    
32,500
  
Issuance of common stock for cash, August 2002*
                                
5,000
  
Issuance of common stock for cash, October 2002*
                                
5,000
  
Issuance of common stock to acquire licensing agreement, July 2002*
 
 
                          
2,500,000
  
Shares returned to treasury by founding stockholder, July 2002
 
                              
Net loss
                                
(2,796,768
)
                                     
Balance, December 31, 2002
                        
(2,590
)
    
(184,786
)
Issuance of common stock for cash, February 2003*
                                
103,500
  
Issuance of common stock for cash, September 2003*
                                
15,000
  
Issuance of common stock for services, September 2003*
        
$
(74,850
)
                  
70,150
  
Payment for common stock issued under subscription agreement
 
                  
2,500
      
2,500
  
Offering costs for private placement offering
                                
(33,774
)
Net loss
                                
(190,567
)
                                     
Balance, December 31, 2003
          
(74,850
)
          
(90
)
    
(217,977
)
Issuance of notes payable with beneficial conversion feature
                                
19,507
  
Issuance of common stock for services, September 2004 ($2.00 per share)
                                
40,000
  
Conversion of notes payable, August 2004 ($2.00 per share)
                                
62,250
  
Issuance of common stock for cash, September 2004 ($2.00 per share)
                                
50,050
  
Issuance of common stock for cash, October 2004 ($2.00 per share)
                                
2,000
  
Issuance of common stock for cash, November 2004 ($2.00 per share)
                                
7,000
  
Issuance of common stock for cash, December 2004 ($2.00 per share)
                                
6,000
  
Amortization of offering costs related to Form SB-2 filing
                                
(10,159
)
Amortization of stock for services related to Form SB-2 offering
          
6,317
                        
Contribution from shareholder
                                
18,256
  
Net loss
                                
(282,009
)
                                     
Balance, December 31, 2004
          
(68,533
)
          
(90
)
    
(305,082
)
 
 
20
 
 
Turbine Truck Engines, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders’ Deficit
For the Year Ended December 31, 2012 and
For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2012
 
                                     
Deficit
  
                                     
Accumulated
  
                             
Additional
      
During
  
      Preferred Stock    
Common Stock
      
Paid in
      
Development
  
   
Shares
  
Amount
    
Shares
      
Amount
      
Capital
      
Stage
  
Issuance of common stock for services, January 2005 ($2.00 per share)
            
80,000
      
80
      
159,920
          
Issuance of common stock in satisfaction of a note payable, February 2005 ($2.00 per share)
            
125,000
      
125
      
249,875
          
Issuance of common stock for cash, February 2005 ($2.00 per share)
            
3,200
      
3
      
6,397
          
Issuance of common stock for cash, March 2005 ($2.00 per share)
            
1,500
      
1
      
2,999
          
Amortization of offering costs related to Form SB-2 filing
                            
(31,216
)
        
Amortization of stock for services related to Form SB-2 offering
                            
(19,413
)
        
Issuance of common stock for services, April 2005 ($2.00 per share)
            
5,000
      
5
      
9,995
          
Capital contribution from stockholder, May 2005
                            
170,000
          
Issuance of common stock for cash, May 2005 ($2.00 per share)
            
15,550
      
16
      
31,084
          
Write off of stock for services related to Form SB-2 filing
                                        
Issuance of common stock for cash, June 2005 ($2.00 per share)
            
9,100
      
9
      
18,191
          
Issuance of common stock for services, June 2005 ($1.70 per share)
            
100,000
      
100
      
169,900
          
Capital contribution from stockholder, June 2005
                            
450
          
Issuance of common stock for cash, August 2005 ($1.00 per share)
            
5,000
      
5
      
4,995
          
Issuance of common stock for services, July 2005 ($1.00 per share)
            
40,000
      
40
      
39,960
          
Amortization of prepaid services paid for with common stock
                                        
Write off prepaid services paid for with common stock due to terminated agreement
                                        
Issuance of common stock for cash, October ($1.00 per share)
            
25,000
      
25
      
24,975
          
Issuance of common stock for cash, November ($1.00 per share)
            
20,000
      
20
      
19,980
          
Issuance of common stock for cash, December ($1.00 per share)
            
5,000
      
5
      
4,995
          
Net loss
                                    
(1,068,738
)
                                         
Balance, December 31, 2005
            
11,715,000
      
11,715
      
3,920,509
      
(4,373,900
)
Issuance of common stock for cash, January ($1.00 per share)
            
65,000
      
65
      
64,935
          
Issuance of common stock for cash, February ($1.00 per share)
            
1,500
      
2
      
1,498
          
Amortization of prepaid services paid for with common stock
                                        
Issuance of common stock for cash, March ($1.00 per share)
            
1,675
      
2
      
1,673
          
Issuance of common stock for cash, April ($1.00 per share)
            
5,000
      
5
      
4,995
          
Issuance of common stock for services, May ($1.00 per share)
            
10,000
      
10
      
9,990
          
Issuance of common stock for services, May ($1.15 per share)
            
10,000
      
10
      
11,490
          
Issuance of common stock for cash, June ($.80 per share)
            
15,000
      
15
      
11,985
          
Issuance of common stock and warrants for cash, June ($.50 per share)
            
200,000
      
200
      
99,800
          
Issuance of common stock for services, June ($1.15 per share)
            
150,000
      
150
      
172,350
          
Issuance of common stock for services, July ($1.10 per share)
            
109,091
      
109
      
119,891
          
Issuance of common stock for services, July ($.50 per share)
            
30,000
      
30
      
14,970
          
Issuance of common stock for settlement of debt, August ($.85 per share)
            
125,253
      
125
      
106,341
          
Issuance of common stock for services, August ($.81 per share)
            
10,000
      
10
      
8,065
          
Issuance of common stock and warrants for cash, September ($.50 per share)
            
167,200
      
167
      
83,433
          
Issuance of common stock for services, September ($.50 per share)
            
210,000
      
210
      
104,790
          
Issuance of common stock for services, September ($.74 per share)
            
10,000
      
10
      
7,385
          
Issuance of common stock in settlement of a payable, September ($4.16 per share)
            
100,000
      
100
      
416,567
          
Issuance of options to employees, directors and consultants, September
                            
78,355
          
 
The accompanying notes are an integral part of the financial statements.
 
 
21
 
 
                         
Prepaid
                  
           
 
            
Consulting
                  
           
Deferred
            
Services Paid
                  
           
Non-Cash
    
Common
      
for with
                  
           
Offering
    
Stock
      
Common
      
Subscription
          
           
Costs
    
Payable
      
Stock
      
Receivable
      
Total
  
Issuance of common stock for services, January 2005 ($2.00 per share)
                                        
160,000
  
Issuance of common stock in satisfaction of a note payable, February 2005 ($2.00 per share)
                                        
250,000
  
Issuance of common stock for cash, February 2005 ($2.00 per share)
                                        
6,400
  
Issuance of common stock for cash, March 2005 ($2.00 per share)
                                        
3,000
  
Amortization of offering costs related to Form SB-2 filing
                                        
(31,216
)
Amortization of stock for services related to Form SB-2 offering
          
19,413
    
 
                          
Issuance of common stock for services, April 2005 ($2.00 per share)
                                        
10,000
  
Capital contribution from stockholder, May 2005
                                        
170,000
  
Issuance of common stock for cash, May 2005 ($2.00 per share)
                                        
31,100
  
Write off of stock for services related to Form SB-2 filing
          
49,120
    
 
                      
49,120
  
Issuance of common stock for cash, June 2005 ($2.00 per share)
                                        
18,200
  
Issuance of common stock for services, June 2005 ($1.70 per share)
                        
(170,000
)
                
Capital contribution from stockholder, June 2005
                                        
450
  
Issuance of common stock for cash, August 2005 ($1.00 per share)
                                        
5000
  
Issuance of common stock for services, July 2005 ($1.00 per share)
                        
(40,000
)
                
Amortization of prepaid services paid for with common stock
                        
26,833
              
26,833
  
Write off prepaid services paid for with common stock due to terminated agreement
                        
161,500
              
161,500
  
Issuance of common stock for cash, October ($1.00 per share)
                                        
25,000
  
Issuance of common stock for cash, November ($1.00 per share)
                                        
20,000
  
Issuance of common stock for cash, December ($1.00 per share)
                                        
5000
  
Net loss
                                        
(1,068,738
)
                                             
Balance, December 31, 2005
                        
(21,667
)
    
(90
)
    
(463,433
)
Issuance of common stock for cash, January ($1.00 per share)
                                        
65,000
  
Issuance of common stock for cash, February ($1.00 per share)
                                        
1,500
  
Amortization of prepaid services paid for with common stock
                        
204,556
              
204,556
  
Issuance of common stock for cash, March ($1.00 per share)
                                        
1,675
  
Issuance of common stock for cash, April ($1.00 per share)
                                        
5,000
  
Issuance of common stock for services, May ($1.00 per share)
                                        
10,000
  
Issuance of common stock for services, May ($1.15 per share)
                                        
11,500
  
Issuance of common stock for cash, June ($.80 per share)
                                        
12,000
  
Issuance of common stock and warrants for cash, June ($.50 per share)
                                        
100,000
  
Issuance of common stock for services, June ($1.15 per share)
                        
(172,500
)
                
Issuance of common stock for services, July ($1.10 per share)
                        
(120,000
)
                
Issuance of common stock for services, July ($.50 per share)
                        
(5,000
)
            
10,000
  
Issuance of common stock for settlement of debt, August ($.85 per share)
                                        
106,466
  
Issuance of common stock for services, August ($.81 per share)
                                        
8,075
  
Issuance of common stock and warrants for cash, September ($.50 per share)
                                        
83,600
  
Issuance of common stock for services, September ($.50 per share)
                        
(12,500
)
            
92,500
  
Issuance of common stock for services, September ($.74 per share)
                                        
7,395
  
Issuance of common stock in settlement of a payable, September ($4.16 per share)
                                        
416,667
  
Issuance of options to employees, directors and consultants, September
                                        
78,355
  
 
The accompanying notes are an integral part of the financial statements.
 
 
22
 

Turbine Truck Engines, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders’ Deficit
For the Year Ended December 31, 2012 and
For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2012
 
                                     
Deficit
  
                                     
Accumulated
  
                             
Additional
      
During
  
   
Preferred Stock
    
Common Stock
      
Paid in
      
Development
  
   
Shares
  
Amount
    
Shares
      
Amount
      
Capital
      
Stage
  
Issuance of common stock for services, October ($0.50, per shares)
            
30,000
      
30
      
14,970
          
Issuance of options to employees, directors and consultants, October
                            
155,185
          
Issuance of common stock for cash, October ($0.50 per share)
            
16,000
      
16
      
7,984
          
Issuance of common stock for services, October ($0.67, per shares)
            
15,000
      
15
      
9,985
          
Issuance of common stock for services, November ($0.50, per shares)
            
188,000
      
188
      
93,812
          
Issuance of common stock for cash, November ($0.50 per share)
            
100,000
      
100
      
49,900
          
Issuance of common stock for cash, November ($0.60 per share)
            
2,833
      
3
      
1,697
          
Net loss
                                    
(1,465,077
)
                                         
Balance December 31, 2006
            
13,286,552
      
13,287
      
5,572,555
      
(5,838,977
)
Issuance of options to consultants, January
                            
155,188
          
Issuance of common stock for cash, January ($0.50 per share)
            
26,000
      
26
      
12,974
          
Issuance of common stock for exercise of options, January ($0.50 per share)
            
300,000
      
300
      
149,700
          
Issuance of common stock for services, January ($0.66, per shares)
            
50,000
      
50
      
32,950
          
Issuance of common stock for services, January ($0.51, per shares)
            
10,000
      
10
      
5,090
          
Issuance of common stock for exercise of options, February ($0.50 per share)
            
100,000
      
100
      
49,900
          
Issuance of common stock for exercise of options, February ($0.60 per share)
            
20,000
      
20
      
11,980
          
Issuance of common stock for cash, February ($0.23 per share)
            
239,130
      
239
      
54,761
          
Issuance of common stock for services, February ($0.87, per shares)
            
50,000
      
50
      
43,200
          
Issuance of common stock for services, February ($0.72, per shares)
            
20,000
      
20
      
14,280
          
Issuance of common stock for cash, February ($0.23 per share)
            
558,696
      
559
      
127,941
          
Issuance of common stock for services, March ($0.65, per shares)
            
25,000
      
25
      
16,225
          
Issuance of common stock for services, March ($0.70, per shares)
            
25,000
      
25
      
17,475
          
Issuance of common stock for exchange of fixed assets, April ($0.50, per share)
            
2,000
      
2
      
998
          
Issuance of common stock for cash, May ($0.25, per share)
            
24,000
      
24
      
5,976
          
Issuance of common stock for cash, June ($0.25, per share)
            
26,000
      
26
      
6,474
          
Issuance of common stock for services, June ($0.43, per share)
            
75,000
      
75
      
32,175
          
Issuance of common stock for exchange of fixed assets, June ($0.50 per share)
            
8,000
      
8
      
3,992
          
Issuance of common stock for services, June ($0.44, per share)
            
100,000
      
100
      
43,900
          
Amortization of prepaid services paid for with common stock
                                        
Issuance of common stock and warrants for cash, July ($0.25, per share)
            
72,000
      
72
      
17,928
          
Issuance of common stock for services, August ($0.55, per share)
            
160,000
      
160
      
87,840
          
Issuance of common stock for services, August ($0.50, per share)
            
3,000
      
3
      
1,497
          
Issuance of common stock for services, August ($0.38, per share)
            
28,600
      
28
      
10,839
          
Issuance of common stock and warrants for cash, August ($0.25, per share)
            
270,000
      
270
      
67,230
          
Issuance of common stock for services, September ($0.50, per share)
            
1,300,000
      
1,300
      
648,700
          
Issuance of common stock for cash, September ($0.25, per share)
            
164,000
      
164
      
40,836
          
Issuance of common stock for cash, September ($0.30, per share)
            
26,666
      
26
      
7,973
          
Issuance of common stock for cash, September ($0.37, per share)
            
54,243
      
53
      
19,646
          
Issuance of options & warrants to employees & consultants, September
                            
108,470
          
Issuance of common stock for services, October ($0.25, per share)
            
6,000
      
6
      
1,494
          
Issuance of common stock for services, October ($0.56, per share)
            
2,700
      
3
      
1,497
          
Issuance of common stock for cash, October ($0.50, per
share)
            
55,000
      
55
      
27,445
          
Issuance of common stock for cash, October ($0.53, per share)
            
1,905
      
2
      
998
          
Issuance of common stock for cash, November ($0.28, per share)
            
125,291
      
125
      
34,956
          
Issuance of common stock for cash, November ($0.32, per share)
            
1,563
      
1
      
499
          
Issuance of common stock for cash, November ($0.37, per share)
            
40,000
      
40
      
14,760
          
Issuance of common stock for cash, November ($0.68, per share)
            
25,000
      
25
      
16,850
          
Issuance of common stock for cash, December ($0.25, per share)
            
68,000
      
68
      
16,932
          
Net loss
                                    
(2,470,352
)
                                         
Balance December 31, 2007
            
17,349,346
    
$
17,347
    
$
7,484,124
    
$
(8,309,329
)
  
The accompanying notes are an integral part of the financial statements.
 
 
23
 
 
                         
Prepaid
                  
                         
Consulting
                  
           
Deferred
            
Services Paid
                  
           
Non-Cash
    
Common
      
for with
                  
           
Offering
    
Stock
      
Common
      
Subscription
          
           
Costs
    
Payable
      
Stock
      
Receivable
      
Total
  
Issuance of common stock for services, October ($0.50, per shares)
                                        
15,000
  
Issuance of options to employees, directors and consultants, October
                                        
155,185
  
Issuance of common stock for cash, October ($0.50 per share)
                                        
8,000
  
Issuance of common stock for services, October ($0.67, per shares)
                                        
10,000
  
Issuance of common stock for services, November ($0.50, per shares)
                        
(80,000
)
            
14,000
  
Issuance of common stock for cash, November ($0.50 per share)
                                        
50,000
  
Issuance of common stock for cash, November ($0.60 per share)
                                        
1,700
  
Net loss
                                        
(1,465,077
)
                                             
Balance December 31, 2006
                        
(207,111
)
    
(90
)
    
(460,336
)
Issuance of options to consultants, January
                                        
155,188
  
Issuance of common stock for cash, January ($0.50 per share)
                                        
13,000
  
Issuance of common stock for exercise of options, January ($0.50 per share)
                                
(150,000
)
        
Issuance of common stock for services, January ($0.66, per shares)
                        
(33,000
)
                
Issuance of common stock for services, January ($0.51, per shares)
                                        
5,100
  
Issuance of common stock for exercise of options, February ($0.50 per share)
                                
(15,000
)
    
35,000
  
Issuance of common stock for exercise of options, February ($0.60 per share)
                                
(12,000
)
        
Issuance of common stock for cash, February ($0.23 per share)
                                        
55,000
  
Issuance of common stock for services, February ($0.87, per share)
                                        
43,250
  
Issuance of common stock for services, February ($0.72, per share)
                                        
14,300
  
Issuance of common stock for cash, February ($0.23 per share)
                                        
128,500
  
Issuance of common stock for services, March ($0.65, per shares)
                                        
16,250
  
Issuance of common stock for services, March ($0.70, per shares)
                        
(17,500
)
                
Issuance of common stock for exchange of fixed assets, April ($0.50, per share)
                                        
1,000
  
Issuance of common stock for cash, May ($0.25, per share)
                                        
6,000
  
Issuance of common stock for cash, June ($0.25, per share)
                                        
6,500
  
Issuance of common stock for services, June ($0.43, per share)
                                        
32,250
  
Issuance of common stock for exchange of fixed assets, June ($0.50 per share)
                                        
4,000
  
Issuance of common stock for services, June ($0.44, per share)
                                        
44,000
  
Amortization of prepaid services paid for with common stock
                        
890,111
              
890,111
  
Issuance of common stock and warrants for cash, July ($0.25, per share)
                                        
18,000
  
Issuance of common stock for services, August ($0.55, per share)
                                        
88,000
  
Issuance of common stock for services, August ($0.50, per share)
                                        
1,500
  
Issuance of common stock for services, August ($0.38, per share)
                                        
10,867
  
Issuance of common stock and warrants for cash, August ($0.25, per share)
                                        
67,500
  
Issuance of common stock for services, September ($0.50, per share)
                        
(650,000
)
                
Issuance of common stock for cash, September ($0.25, per share)
                                        
41,000
  
Issuance of common stock for cash, September ($0.30, per share)
                                        
7,999
  
Issuance of common stock for cash, September ($0.37, per share)
                                        
19,699
  
Issuance of options & warrants to employees & consultants, September
                                        
108,470
  
Issuance of common stock for services, October ($0.25, per share)
                                        
1,500
  
Issuance of common stock for services, October ($0.56, per share)
                                        
1,500
  
Issuance of common stock for cash, October ($0.50, per share)
                                        
27,500
  
Issuance of common stock for cash, October ($0.53, per share)
                                        
1,000
  
Issuance of common stock for cash, November ($0.28, per share)
                                        
35,081
  
Issuance of common stock for cash, November ($0.32, per share)
                                        
500
  
Issuance of common stock for cash, November ($0.37, per share)
                                        
14,800
  
Issuance of common stock for cash, November ($0.68, per share)
                                        
16,875
  
Issuance of common stock for cash, November ($0.25, per share)
                                        
17,000
  
Payment on receivable for common stock
                                
10,000
      
10,000
  
Net loss
                                        
(2,470,352
)
                                             
Balance December 31, 2007
        
$
            
$
(17,500
)
  
$
(90
)
  
$
(992,448
)
 
 
24
 
 
Turbine Truck Engines, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders’ Deficit
For the Year Ended December 31, 2012 and
For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2012
 
 
                                   
                                 
Deficit
  
                                 
Accumulated
  
                           
Additional
    
During
  
    Preferred Stock     Common Stock    
Paid in
    
Development
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Stage
  
Issuance of common stock and warrants for cash, January ($0.15, per shares)
                200,000      200      29,800        
Issuance of common stock for services, February ($0.38, per shares)
                     160,000       160       60,640        
Issuance of common stock for services, February ($0.26, per shares)
                     12,000       12       3,108        
Issuance of common stock for services, April ($0.12, per share)
                     210,000       210       24,990        
Issuance of common stock for services, May ($0.20, per share)
                     350,000       350       69,650        
Issuance of common stock for cash, May ($0.10, per share)
                     145,000       145       14,355        
Issuance of common stock for cash, June ($0.10, per share)
                     334,000       334       33,066        
Issuance of common stock for cash, June ($0.085, per share)
                     150,000       150       12,600        
Issuance of common stock for cash, June ($0.08, per share)
                     25,000       25       1,975        
Issuance of common stock for services, June ($0.16, per share)
                     300,000       300       47,700        
Amortization of prepaid services paid for with common stock
                                              
Value of the beneficial conversion feature for the issuance of convertible debt
                                      25,000        
Issuance of common stock for cash, July ($0.10, per share)
                     379,500       380       37,571        
Issuance of common stock for services, July ($0.15, per share)
                     30,000       30       4,470        
Issuance of common stock for cash, August ($0.10, per share)
                     101,000       101       9,999        
Issuance of common stock for cash, September ($0.10, per share)
                     369,000       369       36,531        
Issuance of common stock for cash, September ($0.08, per share)
                     306,250       306       24,194        
Issuance of common stock for cash, October ($0.08, per share)
                     3,750       4       296        
Issuance of common stock for cash, October ($0.09, per share)
                     40,000       40       3,560        
Issuance of common stock for cash, October ($0.10, per share)
                     27,000       27       2,673        
Issuance of common stock for cash, November ($0.08, per share)
                     12,500       13       987        
Issuance of common stock for cash, November ($0.10, per share)
                     32,400       32       3,208        
Issuance of common stock for services, December ($0.071, per share)
                     12,500       13       875        
 
 
25
 
 
Issuance of common stock for cash, December ($0.08, per share)
                     161,250       161       12,739        
Issuance of common stock for cash, December ($0.10, per share)
                     27,300       27       2,603        
Issuance of common stock for services, December ($0.09, per share)
                     10,000       10       890        
Issuance of common stock for services, December ($0.13, per share)
                     500,000       500       64,500        
Issuance of common stock for services, December ($0.17, per share)
                     12,500       13       2,112        
Issuance of common stock for services, December ($0.1954, per share)
                     100,000       100       19,435        
Issuance of common stock for conversion of notes, December ($0.08, per share)
                     26,297       26       1,974        
Issuance of common stock for conversion of notes, December ($0.07, per share)
                     270,468       270       19,730        
Issuance of common stock for conversion of notes, December ($0.10, per share)
                     202,703       203       14,797        
Issuance of warrants for services, December
                                     29,578        
Net loss
                                           (982,677 )
Balance December 31, 2008
                     21,859,764       21,858       8,099,730     (9,292,006 )
Amortization of prepaid services paid for with common stock
                                              
Issuance of common stock for conversion of notes, January ($0.06, per share)
                     255,965       256       14,744        
Issuance of common stock for cash, January ($0.50, per share)
                     200       1       98        
Issuance of common stock for cash, January ($0.07, per share)
                     294,999       295       20,355        
Issuance of common stock for cash, January ($0.08, per share)
                     12,500       12       988        
Issuance of common stock for cash, January ($0.10, per share)
                     255,000       255       25,245        
Issuance of common stock for conversion of notes, February ($0.06, per share)
                     166,739       167       9,833        
Issuance of common stock for conversion of notes, February ($0.09, per share)
                     221,984       222       19,778        
Issuance of common stock for cash, February ($0.07, per share)
                     526,927       527       36,358        
Issuance of common stock for cash, February ($0.10, per share)
                     110,500       110       10,940        
Issuance of common stock for services, March ($0.11, per share)
                     300,000       300       32,700        
Issuance of common stock for conversion of notes, March ($0.07, per share)
                     137,768       138       9,862        
Issuance of common stock for conversion of notes, March ($0.08, per share)
                     316,241       316       24,684        
Issuance of common stock for cash, March ($0.07, per share)
                     289,286       289       19,961        
Issuance of common stock for cash, March ($0.10, per share)
                     10,000       10       990        
Value of the beneficial conversion feature for the issuance of convertible debt
                                     149,750        
Issuance of warrants for services, January
                                     36,644        
Issuance of common stock for services, April ($0.09, per share)
                     20,000       20       1,780        
Issuance of common stock for services, April ($0.10, per share)
                     510,000       510       50,490        
Issuance of common stock for cash, April ($0.07, per share)
                     274,999       275       18,975        
Issuance of common stock for cash, April ($0.10, per share)
                     29,500       30       2,920        
Issuance of common stock for conversion of notes, April ($0.07, per share)
                     511,979       512       34,488        
Issuance of common stock for conversion of notes, April ($0.06, per share)
                     158,897       159       9,841        
Issuance of common stock for conversion of notes, May ($0.06, per share)
                     399,617       399       24,601        
Issuance of common stock for services, May ($0.09, per share)
                     60,000       60       5,090        
Issuance of common stock for cash, May ($0.07, per share)
                     77,000       77       5,313        
Issuance of common stock for conversion of notes, June ($0.06, per share)
                     381,098       381       24,619        
 
 
26
 
 
Issuance of common stock for conversion of notes, June ($0.07, per share)
                     934,516       935       54,065        
Issuance of common stock and warrants for cash, June ($0.07, per share)
                     582,142       582       40,168        
Issuance of common stock for cash, June ($0.08, per share)
                     420,000       420       34,562        
Issuance of common stock for cash, July ($0.07, per share)
                     976,250       976       67,361        
Issuance of common stock for cash, July ($0.065, per share)
                     215,500       216       13,792        
Issuance of common stock for cash, July ($0.10, per share)
                     20,000       20       1,980        
Issuance of common stock for cash, July ($0.26, per share)
                     3,846       4       996        
Issuance of common stock for conversion of notes, July ($0.065, per share)
                     153,941       154       9,846        
Issuance of common stock for cash, August ($0.07, per share)
                     130,000       130       8,970        
Issuance of common stock for cash, August ($0.085, per share)
                     58,822       59       4,941        
Issuance of common stock and warrants for cash, August ($0.10, per share)
                     1,480,000       1,480       146,520        
Issuance of common stock for cash, August ($0.11, per share)
                     10,000       10       1,090        
Issuance of common stock for cash, August ($0.12, per share)
                     100,000       100       11,900        
Issuance of common stock for cash, August ($0.24, per share)
                     152,498       153       36,447        
Issuance of common stock for cash, August ($0.26, per share)
                     140,384       140       36,360        
Issuance of common stock for cash, August ($0.28, per share)
                     16,785       17       4,683        
Issuance of common stock for cash, August ($0.30, per share)
                     164,000       164       49,036        
Issuance of common stock for cash, August ($0.33, per share)
                     6,363       6       2,094        
Issuance of common stock for services, August ($0.09, per share)
                     1,200,000       1,200       106,800        
Issuance of common stock for services, August ($0.25, per share)
                     100,000       100       24,900        
Issuance of common stock for services, August ($0.10, per share)
                     50,000       50       4,950        
Issuance of common stock for services, August ($0.16, per share)
                     100,000       100       15,900        
Issuance of common stock for cash, September ($0.10, per share)
                     20,000       20       1,980        
Issuance of common stock for cash, September ($0.20, per share)
                     40,000       40       7,960        
Issuance of common stock for cash, September ($0.22, per share)
                     286,361       286       62,714        
Issuance of common stock for cash, September ($0.23, per share)
                     126,086       126       28,874        
Issuance of common stock for cash, September ($0.235, per share)
                     29,787       30       6,970        
Issuance of common stock for cash, September ($0.25, per share)
                     46,000       46       11,454        
Issuance of common stock for cash, September ($0.26, per share)
                     84,230       84       21,816        
Issuance of common stock for cash, September ($0.30, per share)
                     21,333       21       6,379        
Issuance of common stock for cash, September ($0.325, per share)
                     1,230       1       399        
Issuance of common stock for cash, September ($0.33, per share)
                     67,000       67       22,043        
Issuance of common stock for cash, September ($0.375, per share)
                     10,000       10       3,740        
 
 
27
 
 
Issuance of common stock for services, September ($0.47, per share)
                     100,000       100       46,900          
Issuance of common stock for services, September ($0.61, per share)
                     500,000       500       304,500          
Issuance of common stock for services, September ($0.50, per share)
                     5,000       5       2,495          
Issuance of common stock and exercise of warrants for a reduction in a payable, September ($0.10, per share)
 
 
   350,000       350       34,650          
Issuance of common stock options, July
                                     40,706          
Issuance of common stock for cash, October ($0.22, per share)
                     11,363       11       2,489          
Issuance of common stock for cash, October ($0.18, per share)
                     246,107       246       44,054          
Issuance of common stock for cash, October ($0.17, per share)
                     25,882       26       4,374          
Issuance of common stock for cash, November ($0.18, per share)
                     98,775       99       17,681          
Issuance of common stock for cash, November ($0.20, per share)
                     167,500       168       33,332          
Issuance of common stock for cash, December ($0.19 per share)
                     2,500       3       472          
Issuance of common stock for cash, December ($0.16, per share)
                     100,000       100       15,900          
Issuance of common stock for cash, December ($0.17, per share)
                     5,882       6       994          
Issuance of common stock for cash, December ($0.18, per share)
                     102,111       102       18,278          
Issuance of common stock for cash, December ($0.20, per share)
                     10,000       10       1,990          
Issuance of common stock for cash, December ($0.30, per share)
                     1,100,000       1,100       328,900          
Issuance of common stock for services, October ($0.42, per share)
                     100,000       100       41,900          
Issuance of common stock for services, December ($0.38, per share)
                     345,000       345       130,755          
Issuance of common stock for conversion of notes, December ($0.1284, per share)
 
               1,495,327       1,495       190,505          
Value of the beneficial conversion feature for the issuance of convertible debt
 
                               100,921          
Issuance of warrants
                                     10,161          
Payment on stock subscription receivable
                                                
Net loss
                                             (2,271,917 ) 
Balance December 31, 2009
                     39,693,484     $ 39,692     $ 10,914,424     $ (11,563,923 )
Payment on stock subscription receivables
                                                
Amortization of prepaid services paid for with common stock
                                                
Issuance of common stock for cash, February ($0.15, per share)
                     135,000       135       20,115          
Issuance of common stock for cash, February ($0.16, per share)
                     318,420       318       50,629          
Issuance of common stock for cash, February ($0.17, per share)
                     159,647       160       26,980          
Issuance of common stock for cash, February ($0.18, per share)
                     10,000       10       1,790          
Issuance of common stock for cash, February ($0.23, per share)
                     553,261       553       126,697          
Issuance of common stock for settlement of accounts payable, February ($0.261, per share)
  
 
       121,212       120       31,504          
Issuance of common stock for cash, February ($0.30, per share)
                     101,000       101       30,199          
Issuance of common stock for cash, February ($0.333, per share)
                     100,000       100       33,233          
Issuance of common stock for cash, February ($0.42, per share)
                     33,000       33       13,827          
 
 
28
 
 
Issuance of common stock for services, February ($0.475, per share)
                     14,000       14       6,636          
Issuance of common stock for services, February ($0.575, per share)
                     20,000       20       11,480          
Issuance of common stock for cash, March ($0.18, per share)
                     10,000       10       1,790          
Issuance of common stock for cash, March ($0.21, per share)
                     4,761       5       995          
Issuance of common stock for cash, March ($0.28, per share)
                     357,142       357       99,643          
Issuance of common stock for cash, March ($0.294, per share)
                     6,803       7       1,993          
Issuance of common stock for cash, March ($0.30, per share)
                     152,666       153       45,647          
Issuance of common stock for cash, March ($0.35, per share)
                     6,000       6       2,094          
Issuance of common stock for cash, March ($0.37, per share)
                     13,514       14       4,986          
Issuance of common stock for cash, March ($0.38, per share)
                     50,000       50       18,950          
Issuance of common stock for cash, March ($0.39, per share)
                     1,025       1       399          
Issuance of common stock for cash, March ($0.40, per share)
                     3,000       3       1,197          
Issuance of common stock for settlement of accounts payable,
March ($0.269 per share)
               80,000       80       21,420          
Issuance of common stock for settlement of accounts payable,
March ($0.53, per share)
               3,774       4       1,996          
Issuance of common stock for services, March ($0.485, per share)
                     150,000       150       72,600          
Issuance of common stock for services, March ($0.49, per share)
                     600,000       600       293,400          
Write off uncollectible stock subscription receivable, March
                                      (155,000 )         
Value of the beneficial conversion feature for the issuance of
convertible debt
                               248,889          
Issuance of common stock for cash, April ($0.34, per share)
                     40,000       40       13,560          
Issuance of common stock for cash, April ($0.36, per share)
                     24,000       24       8,568          
Issuance of common stock for cash, April ($0.39, per share)
                     1,795       2       698          
Issuance of common stock for cash, April ($0.42, per share)
                     3,570       4       1,496          
Issuance of common stock for cash, April ($0.43, per share)
                     2,500       2       1,073          
Issuance of common stock for cash, April ($0.44, per share)
                     7,955       8       3,492          
Issuance of common stock for cash, April ($0.45, per share)
                     10,000       10       4,490          
Issuance of common stock for services, April ($0.49, per share)
                     55,000       55       26,895          
Issuance of common stock for cash, May ($0.35, per share)
                     28,572       29       9,971          
Issuance of common stock for cash, May ($0.40, per share)
                     14,000       14       5,586          
Issuance of common stock for cash, May ($0.44, per share)
                     116,500       116       51,144          
Issuance of common stock for cash, June ($0.28, per share)
                     25,000       25       6,975          
Issuance of common stock for cash, June ($0.30, per share)
                     11,000       11       3,289          
Issuance of common stock for cash, June ($0.31, per share)
                     1,000       1       309          
Issuance of common stock for cash, June ($0.32, per share)
                     3,750       4       1,196          
 
 
29
 
 
Issuance of common stock for services, June ($0.38, per share)
                     150,000       150       56,850          
Issuance of common stock for services, June ($0.41, per share)
                     100,000       100       40,400          
Payment received for stock subscription receivable, June
                                                
Issuance of common stock for cash, July ($0.21, per share)
                     76,190       76       15,924          
Issuance of common stock for conversion of notes, July ($0.24, per share)
                     207,727       208       49,792          
Issuance of common stock for cash, August ($0.19, per share)
                     65,788       66       12,434          
Issuance of common stock for conversion of notes, August ($0.19, per share)
                     393,288       393       74,607          
Issuance of common stock for cash, August ($0.20, per share)
                     22,500       23       4,477          
Issuance of common stock for cash, September ($0.17, per share)
                     1,500,000       1,500       253,500          
Issuance of common stock for conversion of notes, September ($0.18, per share)
                     269,472       269       49,731          
Forfeiture of common stock issued for services, September
                     (600,000 )     (600 )     (293,400 )        
Common stock commitment at $0.25 - $0.27
                                                
Issuance of common stock for cash, October ($0.17, per share)
                     20,589       21       3,479          
Issuance of common stock for cash, October ($0.18, per share)
                     20,000       20       3,580          
Issuance of common stock for cash, October ($0.19, per share)
                     52,632       53       9,947          
Issuance of common stock for cash, November ($0.14, per share)
                     2,000       2       278          
Issuance of common stock for cash, November ($0.15, per share)
                     1,333       1       199          
Issuance of common stock for cash, December ($0.104, per share)
                     10,000       10       1,030          
Issuance of common stock for conversion of notes, October ($0.155, per share)
                     258,732       259       39,741          
Issuance of common stock for conversion of notes, November ($0.156, per share)
                     244,059       244       37,756          
Issuance of common stock for services, November ($0.23, per share)
                     5,000       5       1,145          
Issuance of common stock for services, December ($0.15, per share)
                     2,500       2       373          
Issuance of warrants for services, December
                                     97,714          
Net loss
                                             (2,569,223 )
Balance December 31, 2010
                     45,844,161       45,843       12,526,812       (14,133,147 )
Issuance of common stock for settlement of accounts payable,
January ($0.15, per share)
               443,667       444       66,106          
Issuance of common stock for services, January ($0.15, per share)
                     2,500       3       373          
Issuance of common stock for accrued payroll, January ($0.10, per share)
                     150,000       150       14,850          
Issuance of common stock for services, January ($0.24, per share)
                     300,000       300       71,700          
Issuance of common stock for cash, February ($0.10, per share)
                     401,000       401       39,699          
Issuance of common stock for services, February ($0.25, per share)
                     700,000       700       174,300          
Issuance of common stock for services, February ($0.27, per share)
                     100,000       100       26,900          
Issuance of common stock for cash, March ($0.10, per share)
                     997,000       997       98,703          
 
 
30
 
 
Value of the beneficial conversion feature for the issuance of convertible debt
                                      7,000          
Issuance of common stock for conversion of note, March ($0.15, per share)
                     166,667       167       24,833          
Issuance of common stock for cash, April ($0.10, per share)
                     260,000       260       25,740          
Issuance of common stock for cash, April ($0.14, per share)
                     71,428       71       9,929          
Issuance of common stock for conversion of note, April ($0.15, per share)
                     166,667       167       24,833          
Issuance of common stock for cash, April ($0.17, per share)
                     82,353       82       13,918          
Issuance of common stock for services, April ($0.27, per share)
                     65,000       65       17,972          
Issuance of common stock for services, April ($0.15, per share)
                     3,000,000       3,000       447,000          
Issuance of common stock for cash, April ($0.13, per share)
                     106,154       106       13,694          
Issuance of common stock for cash, June ($0.10, per share)
                     6,000       6       594          
Issuance of common stock for services, June ($0.13, per share)
                     250,000       250       32,250          
Issuance of common stock for cash, June ($0.18, per share)
                     2,000       2       358          
Issuance of common stock for cash, July ($0.10, per share)
                     200,000       200       19,800          
Issuance of common stock for services, July ($0.14, per share)
                     250,000       250       34,750          
Issuance of common stock subscription, July
                                                
Issuance of common stock for settlement of accounts payable,
July ($0.14, per share)
               169,734       170       23,593          
Issuance of common stock for cash, August ($0.08, per share)
                     130,000       130       10,270          
Issuance of common stock for cash, September ($0.10, per share)
                     9,615       10       990          
Issuance of common stock for cash, September ($0.18, per share)
                     2,000       2       358          
Issuance of warrants for services, September
                                     104,778          
Issuance of common stock for services, October ($0.05, per share)
                     50,000       50       2,450          
Issuance of common stock for cash, October ($0.10, per share)
                     50,000       50       4,950          
Issuance of common stock for settlement of accounts payable,
October ($0.10, per share)
               578,000       578       57,222          
Issuance of common stock for services, October ($0.10, per share)
                     850,000       850       84,150          
Issuance of common stock for services, October ($0.14, per share)
                     100,000       100       13,900          
Issuance of common stock for services, October ($0.20, per share)
                     1,000,000       1,000       199,000          
Issuance of warrants for services, October
                                     83,847          
Commitment for common stock for cash, November ($0.05 per share)
                                                
Amortization of stock for services
                                                
Net loss
                                             (2,238,011 )
Balance December 31, 2011
                     56,503,946     $ 56,503     $ 14,277,622     $ (16,371,158 )
Issuance of common stock for cash, January ($0.05, per share)
                     173,000       173       8,477          
Issuance of common stock for cash, January ($0.06, per share)
                     66,666       67       3,933          
Issuance of common stock for cash, January ($0.04, per share)
                     25,000       25       975          
Issuance of common stock for cash, January ($0.03, per share)
                     4,000,000       4,000       116,000          
 
 
31
 
 
Issuance of common stock for cash, January ($0.10, per share)
                     1,395,000       1,395       138,105          
Issuance of common stock for cash, January ($0.112, per share)
                     589,285       589       65,411          
Issuance of common stock for services, February ($0.13, per share)
                     850,000       850       109,650          
Issuance of common stock for services, March ($0.13, per share)
                     500,000       500       64,500          
Issuance of common stock for cash, February ($0.05, per share)
                     100,000       100       4,900          
Issuance of common stock for services, February ($0.17, per share)
                     200,000       200       33,800          
Issuance of preferred stock for accrued payroll, March ($0.67, per share)
     500,000       500                       334,785          
Issuance of common stock for cash, April ($0.10, per share)
                     45,000       45       4,455          
Issuance of common stock for accrued royalties, April ($0.12, per share)
                     250,000       250       1,508,000          
Issuance of common stock for services, April ($0.13, per share)
                     500,000       500       64,500          
Issuance of common stock for services, April ($0.14, per share)
                     100,000       100       13,400          
Issuance of common stock for cash, April ($0.05, per share)
                     440,000       440       21,560          
Issuance of common stock for cash, May ($0.09, per share)
                     7,777       8       692          
Issuance of common stock for cash, May ($0.10, per share)
                     20,000       20       1,980          
Issuance of common stock for conversion of debt, June ($0.03, per share)
                     807,273       807       21,393          
Issuance of common stock for conversion of debt, June ($0.04, per share)
                     519,019       519       21,481          
Issuance of common stock for conversion of debt, October ($0.01, per share)
                     845,070       845       11,155          
Issuance of common stock for conversion of debt, December ($0.01, per share)
                     1,132,075       1,132       10,868          
Issuance of common stock for services, December ($0.01, per share)
                     100,000       100       1,100          
Value of the beneficial conversion feature for the issuance of convertible debt
                                     75,027          
Net loss
                                             (1,160,250 )
Balance December 31, 2012
     500,000       500       69,169,111     $ 69,168     $ 16,913,769     $ (17,531,408 )
 
 
32
 
 
               
Prepaid
              
   
Deferred
          
Consulting
                
   
Non-Cash
    
Common
    
Services Paid
                
   
Offering
       Stock    
for with
     Subscription          
      Costs       Payable    
Common Stock
       Receivable     Total  
Issuance of common stock and warrants for cash, January ($0.15, per share)
                                    
30,000
  
Issuance of common stock for services, February ($0.38, per shares)
                                    
60,800
  
Issuance of common stock for services, February ($0.26, per share)
                                    
3,120
  
Issuance of common stock for services, April ($0.12, per share)
                    
(20,000
)
            
5,200
  
Issuance of common stock for services, May ($0.20, per share)
                    
(61,600
)
            
8,400
  
Issuance of common stock for cash, May ($0.10, per share)
                                    
14,500
  
Issuance of common stock for cash, June ($0.10, per share)
                                    
33,400
  
Issuance of common stock for cash, June ($0.085, per share)
                                    
12,750
  
Issuance of common stock for cash, June ($0.08, per share)
                                    
2,000
  
Issuance of common stock for services, June ($0.16, per share)
                    
(48,000
)
                
Amortization of prepaid services paid for with common stock
                    
110,767
              
110,767
  
Value of the beneficial conversion feature for the issuance of convertible debt
                                    
25,000
  
Issuance of common stock for cash, July ($0.10, per share)
                                    
37,951
  
Issuance of common stock for services, July ($0.15, per share)
                                    
4,500
  
Issuance of common stock for cash, August ($0.10, per share)
                                    
10,100
  
Issuance of common stock for cash, September ($0.10, per share)
                                    
36,900
  
Issuance of common stock for cash, September ($0.08, per share)
                                    
24,500
  
Issuance of common stock for cash, October ($0.08, per share)
                                    
300
  
Issuance of common stock for cash, October ($0.09, per share)
                                    
3,600
  
Issuance of common stock for cash, October ($0.10, per share)
                                    
2,700
  
Issuance of common stock for cash, November ($0.08, per share)
                                    
1,000
  
Issuance of common stock for cash, November ($0.10, per share)
                                    
3,240
  
Issuance of common stock for services, December ($0.071, per share)
                                    
888
  
Issuance of common stock for cash, December ($0.08, per share)
                                    
12,900
  
Issuance of common stock for cash, December ($0.10, per share)
                                    
2,630
  
Issuance of common stock for services, December ($0.09, per share)
                                    
900
  
Issuance of common stock for services, December ($0.13, per share)
                    
(65,000
)
                
Issuance of common stock for services, December ($0.17, per share)
                                    
2,125
  
Issuance of common stock for services, December ($0.1954, per share)
                                    
19,535
  
Issuance of common stock for conversion of notes, December ($0.08, per share)
                                    
2,000
  
 
 
33
 
 
Issuance of common stock for conversion of notes, December ($0.07, per share)
                                    
20,000
  
Issuance of common stock for conversion of notes, December ($0.07, per share)
                                    
15,000
  
Issuance of warrants for services, December
                                    
29,578
  
Net loss
                                    
(982,677
)
Balance December 31, 2008
                    
(101,333
)
    
(167,090
)
    
(1,438,841
)
Amortization of prepaid services paid for with common stock
                    
571,625
              
571,625
  
Issuance of common stock for conversion of notes, January ($0.06, per share)
                                    
15,000
  
Issuance of common stock for cash, January ($0.50, per share)
                                    
99
  
Issuance of common stock for cash, January ($0.07, per share)
                                    
20,650
  
Issuance of common stock for cash, January ($0.08, per share)
                                    
1,000
  
Issuance of common stock for cash, January ($0.10, per share)
                                    
25,500
  
Issuance of common stock for conversion of notes, February ($0.06, per share)
                                    
10,000
  
Issuance of common stock for conversion of notes, February ($0.09, per share)
                                    
20,000
  
Issuance of common stock for cash, February ($0.07, per share)
                                    
36,885
  
Issuance of common stock for cash, February ($0.10, per share)
                                    
11,050
  
Issuance of common stock for services, March ($0.11, per share)
                    
(33,000
)
                
Issuance of common stock for conversion of notes, March ($0.07, per share)
                                    
10,000
  
Issuance of common stock for conversion of notes, March ($0.08, per share)
                                    
25,000
  
Issuance of common stock for cash, March ($0.07, per share)
                                    
20,250
  
Issuance of common stock for cash, March ($0.10, per share)
                                    
1,000
  
Value of the beneficial conversion feature for the issuance of convertible debt
                                    
149,750
  
Issuance of warrants for services, January
                                    
36,644
  
Issuance of common stock for services, April ($0.09, per share)
                                    
1,800
  
Issuance of common stock for services, April ($0.10, per share)
                    
(50,000
)
            
1,000
  
Issuance of common stock for cash, April ($0.07, per share)
                                    
19,250
  
Issuance of common stock for cash, April ($0.10, per share)
                                    
2,950
  
Issuance of common stock for conversion of notes, April ($0.07, per share)
                                    
35,000
  
Issuance of common stock for conversion of notes, April ($0.06, per share)
                                    
10,000
  
Issuance of common stock for conversion of notes, May ($0.06, per share)
                                    
25,000
  
Issuance of common stock for services, May ($0.09, per share)
                                    
5,150
  
Issuance of common stock for cash, May ($0.07, per share)
                                    
5,390
  
Issuance of common stock for conversion of notes, June ($0.06, per share)
                                    
25,000
  
Issuance of common stock for conversion of notes, June ($0.07, per share)
                                    
55,000
  
Issuance of common stock and warrants for cash, June ($0.07, per share)
                                    
40,750
  
 
 
34
 
 
Issuance of common stock for cash, June ($0.08, per share)
                                    
34,982
  
Issuance of common stock for cash, July ($0.07, per share)
                                    
68,337
  
Issuance of common stock for cash, July ($0.065, per share)
                                    
14,008
  
Issuance of common stock for cash, July ($0.10, per share)
                                    
2,000
  
Issuance of common stock for cash, July ($0.26, per share)
                                    
1,000
  
Issuance of common stock for conversion of notes, July ($0.065, per share)
                                    
10,000
  
Issuance of common stock for cash, August ($0.07, per share)
                                    
9,100
  
Issuance of common stock for cash, August ($0.085, per share)
                                    
5,000
  
Issuance of common stock and warrants for cash, August ($0.10, per share)
                                    
148,000
  
Issuance of common stock for cash, August ($0.11, per share)
                                    
1,100
  
Issuance of common stock for cash, August ($0.12, per share)
                                    
12,000
  
Issuance of common stock for cash, August ($0.24, per share)
                                    
36,600
  
Issuance of common stock for cash, August ($0.26, per share)
                                    
36,500
  
Issuance of common stock for cash, August ($0.28, per share)
                                    
4,700
  
Issuance of common stock for cash, August ($0.30, per share)
                                    
49,200
  
Issuance of common stock for cash, August ($0.33, per share)
                                    
2,100
  
Issuance of common stock for services, August ($0.09, per share)
                    
(108,000
)
                
Issuance of common stock for services, August ($0.25, per share)
                    
(25,000
)
                
Issuance of common stock for services, August ($0.10, per share)
                    
(5,000
)
                
Issuance of common stock for services, August ($0.16, per share)
                    
(16,000
)
                
Issuance of common stock for cash, September ($0.10, per share)
                                    
2,000
  
Issuance of common stock for cash, September ($0.20, per share)
                                    
8,000
  
Issuance of common stock for cash, September ($0.22, per share)
                                    
63,000
  
Issuance of common stock for cash, September ($0.23, per share)
                                    
29,000
  
Issuance of common stock for cash, September ($0.235, per share)
                                    
7,000
  
Issuance of common stock for cash, September ($0.25, per share)
                                    
11,500
  
Issuance of common stock for cash, September ($0.26, per share)
                                    
21,900
  
Issuance of common stock for cash, September ($0.30, per share)
                                    
6,400
  
Issuance of common stock for cash, September ($0.325, per share)
                                    
400
  
Issuance of common stock for cash, September ($0.33, per share)
                                    
22,110
  
Issuance of common stock for cash, September ($0.375, per share)
                                    
3,750
  
Issuance of common stock for services, September ($0.47, per share)
                                    
47,000
  
Issuance of common stock for services, September ($0.61, per share)
                    
(305,000
)
                
 
 
35
 
 
Issuance of common stock for services, September ($0.50, per share)
                    
(2,500
)
                
Issuance of common stock and exercise of warrants for a reduction in a payable, September ($0.10, per share)
                              
35,000
  
Issuance of common stock options, July
                                    
40,706
  
Issuance of common stock for cash, October ($0.22, per share)
                                    
2,500
  
Issuance of common stock for cash, October ($0.18, per share)
                                    
44,300
  
Issuance of common stock for cash, October ($0.17, per share)
                                    
4,400
  
Issuance of common stock for cash, November ($0.18, per share)
                                    
17,780
  
Issuance of common stock for cash, November ($0.20 per share)
                                    
33,500
  
Issuance of common stock for cash, December ($0.19, per share)
                                    
475
  
Issuance of common stock for cash, December ($0.16, per share)
                            
(16,000
)
        
Issuance of common stock for cash, December ($0.17, per share)
                            
(1,000
)
        
Issuance of common stock for cash, December ($0.18, per share)
                            
(12,000
)
    
6,380
  
Issuance of common stock for cash, December ($0.20, per share)
                                    
2,000
  
Issuance of common stock for cash, December ($0.30, per share)
                                    
330,000
  
Issuance of common stock for services, October ($0.42, per share)
                                    
42,000
  
Issuance of common stock for services, December ($0.38, per share)
                    
(5,700
)
            
125,400
  
Issuance of common stock for conversion of notes, December ($0.1284, per share)
                                    
192,000
  
Value of the beneficial conversion feature for the issuance of convertible debt
                                    
100,921
  
Issuance of warrants
                                    
10,161
  
Payment on stock subscription receivable
                            
90
      
90
  
Net loss
                                    
(2,271,917
)
Balance, December 31, 2009
                    
(79,908
)
    
(196,000
)
    
(885,715
)
Payment on stock subscription receivables
                            
29,000
      
29,000
  
Amortization of prepaid services paid for with common stock
                    
98,058
              
98,058
  
Issuance of common stock for cash, February ($0.15, per share)
                                    
20,250
  
Issuance of common stock for cash, February ($0.16, per share)
                                    
50,947
  
Issuance of common stock for cash, February ($0.17, per share)
                                    
27,140
  
Issuance of common stock for cash, February ($0.18, per share)
                                    
1,800
  
Issuance of common stock for cash, February ($0.23, per share)
                                    
127,250
  
Issuance of common stock for settlement of accounts payable, February ($0.261, per share)
                                  
31,624
  
Issuance of common stock for cash, February ($0.30, per share)
                                    
30,300
  
Issuance of common stock for cash, February ($0.333, per share)
                                    
33,333
  
Issuance of common stock for cash, February ($0.42, per share)
                                    
13,860
  
Issuance of common stock for services, February ($0.475, per share)
                    
(6,650
)
                
Issuance of common stock for services, February ($0.575, per share)
                    
(11,500
)
                
 
 
36
 
 
Issuance of common stock for cash, March ($0.18, per share)
                                    
1,800
  
Issuance of common stock for cash, March ($0.21, per share)
                                    
1,000
  
Issuance of common stock for cash, March ($0.28, per share)
                            
(100,000
)
        
Issuance of common stock for cash, March ($0.294, per share)
                                    
2,000
  
Issuance of common stock for cash, March ($0.30, per share)
                                    
45,800
  
Issuance of common stock for cash, March ($0.35, per share)
                                    
2,100
  
Issuance of common stock for cash, March ($0.37, per share)
                                    
5,000
  
Issuance of common stock for cash, March ($0.38, per share)
                                    
19,000
  
Issuance of common stock for cash, March ($0.39, per share)
                                    
400
  
Issuance of common stock for cash, March ($0.40, per share)
                                    
1,200
  
Issuance of common stock for settlement of accounts payable, March ($0.269 per share)
                                    
21,500
  
Issuance of common stock for settlement of accounts payable, March ($0.53, per share)
                                    
2,000
  
Issuance of common stock for services, March ($0.485, per share)
                                    
72,750
  
Issuance of common stock for services, March ($0.49, per share)
                    
(294,000
)
                
Write off uncollectible stock subscription receivable, March
                            
155,000
          
Value of the beneficial conversion feature for the issuance of convertible debt
                                    
248,889
  
Issuance of common stock for cash, April ($0.34, per share)
                                    
13,600
  
Issuance of common stock for cash, April ($0.36, per share)
                                    
8,592
  
Issuance of common stock for cash, April ($0.39, per share)
                                    
700
  
Issuance of common stock for cash, April ($0.42, per share)
                                    
1,500
  
Issuance of common stock for cash, April ($0.43, per share)
                                    
1,075
  
Issuance of common stock for cash, April ($0.44, per share)
                                    
3,500
  
Issuance of common stock for cash, April ($0.45, per share)
                                    
4,500
  
Issuance of common stock for services, April ($0.49, per share)
                                    
26,950
  
Issuance of common stock for cash, May ($0.35, per share)
                                    
10,000
  
Issuance of common stock for cash, May ($0.40, per share)
                                    
5,600
  
Issuance of common stock for cash, May ($0.44, per share)
                                    
51,260
  
Issuance of common stock for cash, June ($0.28, per share)
                                    
7,000
  
Issuance of common stock for cash, June ($0.30, per share)
                                    
3,300
  
Issuance of common stock for cash, June ($0.31, per share)
                                    
310
  
Issuance of common stock for cash, June ($0.32, per share)
                                    
1,200
  
Issuance of common stock for services, June ($0.38, per share)
                                    
57,000
  
Issuance of common stock for services, June ($0.41, per share)
                                    
40,500
  
 
 
37
 
 
Payment received for stock subscription receivable, June
                            
100,000
      
100,000
  
Issuance of common stock for cash, July ($0.21, per share)
                                    
16,000
  
Issuance of common stock for conversion of notes, July ($0.24, per share)
                                    
50,000
  
Issuance of common stock for cash, August ($0.19, per share)
                                    
12,500
  
Issuance of common stock for conversion of notes, August ($0.19, per share)
                                    
75,000
  
Issuance of common stock for cash, August ($0.20, per share)
                                    
4,500
  
Issuance of common stock for cash, September ($0.17, per share)
                                    
255,000
  
Issuance of common stock for conversion of notes, September ($0.18, per share)
                                    
50,000
  
Forfeiture of common stock issued for services, September
                    
294,000
                  
Common stock commitment at $0.25 - $0.27
            
274,000
      
(193,596
)
            
80,404
  
Issuance of common stock for cash, October ($0.17, per share)
                                    
3,500
  
Issuance of common stock for cash, October ($0.18, per share)
                                    
3,600
  
Issuance of common stock for cash, October ($0.19, per share)
                                    
10,000
  
Issuance of common stock for cash, November ($0.14, per share)
                                    
280
  
Issuance of common stock for cash, November ($0.15, per share)
                                    
200
  
Issuance of common stock for cash, December ($0.104, per share)
                                    
1,040
  
Issuance of common stock for conversion of notes, October ($0.155, per share)
                                    
40,000
  
Issuance of common stock for conversion of notes, November ($0.156, per share)
                                    
38,000
  
Issuance of common stock for services, November ($0.23, per share)
                                    
1,150
  
Issuance of common stock for services, December ($0.15, per share)
                                    
375
  
Issuance of warrants for services, December
                                    
97,714
  
Net loss
                                    
(2,569,223
)
Balance December 31, 2010
  
$
0
    
$
274,000
    
$
(193,596
)
  
$
(12,000
)
  
$
(1,492,089
)
Issuance of common stock for settlement of accounts payable, January ($0.15, per share)
                                    
66,550
  
Issuance of common stock for services, January ($0.15, per share)
                                    
376
  
Issuance of common stock for accrued payroll, January ($0.10, per share)
                                    
15,000
  
Issuance of common stock for services, January ($0.24, per share)
            
(72,000
)
                        
Issuance of common stock for cash, February ($0.10, per share)
                                    
40,100
  
Issuance of common stock for services, February ($0.25, per share)
            
(175,000
)
                        
Issuance of common stock for services, February ($0.27, per share)
            
(27,000
)
                        
Issuance of common stock for cash, March ($0.10, per share)
                                    
99,700
  
Value of beneficial conversion feature for the issuance of convertible debt
                                    
7,000
  
Issuance of common stock for conversion of note, March ($0.15, per share)
                                    
25,000
  
 
 
38
 
 
Issuance of common stock for cash, April ($0.10, per share)
                                    
26,000
  
Issuance of common stock for cash, April ($0.14, per share)
                                    
10,000
  
Issuance of common stock for conversion of note, April ($0.15, per share)
                                    
25,000
  
Issuance of common stock for cash, April ($0.17, per share)
                                    
14,000
  
Issuance of common stock for services, April ($0.27, per share)
                                    
18,037
  
Issuance of common stock for services, April ($0.15, per share)
                                    
450,000
  
Issuance of common stock for cash, April ($0.13, per share)
                                    
13,800
  
Issuance of common stock for cash, June ($0.10, per share)
                                    
600
  
Issuance of common stock for services, June ($0.13, per share)
                                    
32,500
  
Issuance of common stock for cash, June ($0.18, per share)
                                    
360
  
Issuance of common stock for cash, July ($0.10, per share)
                                    
20,000
  
Issuance of common stock for services, July ($0.14, per share)
                                    
35,000
  
Issuance of common stock subscription, July
                            
(200,000
)
    
(200,000
)
Issuance of common stock for settlement of accounts payable, July ($0.14, per share)
                                    
23,763
  
Issuance of common stock for cash, August ($0.08, per share)
                                    
10,400
  
Issuance of common stock for cash, September ($0.10, per share)
                                    
1,000
  
Issuance of common stock for cash, September ($0.18, per share)
                                    
360
  
Issuance of warrants for services, September
                                    
104,778
  
Issuance of common stock for services, October ($0.05, per share)
                                    
2,500
  
Issuance of common stock for cash, October ($0.10, per share)
                                    
5,000
  
Issuance of common stock for settlement of accounts payable, October ($0.10, per share)
                                  
57,800
  
Issuance of common stock for services, October ($0.10, per share)
                                    
85,000
  
Issuance of common stock for services, October ($0.14, per share)
                                    
14,000
  
Issuance of common stock for services, October ($0.20, per share)
                                    
200,000
  
Issuance of warrants for services, October
                                    
83,847
  
Commitment for common stock, November ($0.05 per share)
            
3,650
                      
3,650
  
Amortization of stock for services
                    
110,868
              
110,868
  
Net loss
                                    
(2,238,011
)
Balance December 31, 2011
  
$
0
    
$
3,650
    
$
               (82,728
 )   
$
                  (212,000
 )   
$
     (2,328,111
 ) 
Issuance of common stock for cash, January ($0.05, per share)
                                    
             8,650
  
Issuance of common stock for cash, January ($0.06, per share)
                                    
4,000
  
Issuance of common stock for cash, January ($0.04, per share)
                                    
              1,000
  
Issuance of common stock for cash, January ($0.03, per share)
                                    
         120,000
  
Issuance of common stock for cash, January ($0.10, per share)
                                    
         139,500
  
Issuance of common stock for cash, January ($0.112, per share)
                                    
          66,000
  
 
 
39
 
 
Issuance of common stock for services, February ($0.13, per share)
                                    
110,500
  
Issuance of common stock for services, March ($0.13, per share)
                                    
65,000
  
Issuance of common stock for cash, February ($0.05, per share)
                                    
             5,000
  
Issuance of common stock for services, February ($0.17, per share)
                                    
34,000
  
Issuance of preferred stock for accrued payroll, March ($0.67, per share)
                                    
        335,285
  
Issuance of common stock for cash, April ($0.10, per share)
                                    
    4,500
  
Issuance of common stock for accrued royalties, April ($0.12, per share)
                                    
     1,508,250
  
Issuance of common stock for services, April ($0.13, per share)
                                    
          65,000
  
Issuance of common stock for services, April ($0.14, per share)
                                    
           13,500
  
Issuance of common stock for cash, April ($0.05, per share)
                                    
          22,000
  
Issuance of common stock for cash, May ($0.09, per share)
                                    
                700
  
Issuance of common stock for cash, May ($0.10, per share)
                                    
             2,000
  
Issuance of common stock for conversion of debt, June ($0.03, per share)
                                    
          22,200
  
Issuance of common stock for conversion of debt, June ($0.04, per share)
                                    
          22,000
  
Issuance of common stock for conversion of debt, October ($0.01, per share)
                                    
12,000
  
Issuance of common stock for conversion of debt, December ($0.01, per share)
                                    
12,000
  
Issuance of common stock for services, December ($0.01, per share)
                                    
              1,200
  
Value of the beneficial conversion feature for the issuance of convertible debt
                                    
75,027
  
 Amortization of prepaid services
            
            16,350
      
                 25,343
              
           41,693
  
Net loss
                                    
    (1,160,250
 ) 
Balance December 31, 2012
  
$
                              -
    
$
           20,000
    
$
               (57,385
 )   
$
                  (212,000
 )   
$
      (797,356
 ) 
 
 
40
 
 
Turbine Truck Engines, Inc.
(A Development Stage Company)
 
               
Period
  
               
November 27,
  
   
For the Years Ended December 31,
    
2000 (Date of
  
               
Inception) through
  
   
2012
    
2011
    
December 31, 2012
  
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net loss
   $ (1,160,250 )   $ (2,238,011 )   $ (17,531,408 )
Adjustments to reconcile net loss to net cash used in operating activites:
                        
Common stock and long-term debt issued for acquisition of license agreement
     -       -       2,735,649  
Common stock issued for services and amortization of common stock issued for services
     330,893       1,038,270       5,371,683  
Loss on deposit
     197,500               197,500  
Contribution from shareholder
     -       -       188,706  
Unrealized gain on derivative liability
     (21,608 )     -       (21,608 )
Amortization of beneficial conversion feature
     -       15,315       539,876  
Amortization of deferred loan costs
     -       -       24,750  
Write off of deferred offering costs
             -       119,383  
Write off of deferred non cash offering costs
             -       49,120  
Gain on disposal of fixed assets
             -       (1,965 )
Depreciation
     4,518       3,838       55,464  
Amortization of agency fee
             -       100,000  
Amortization of discount on notes payable
     146,603       42,632       180,461  
Decrease (increase) in prepaid expenses
     (3,587 )     4,059       (10,705 )
Increase (decrease) in:
                        
Accounts payable
     1,808       72,722       326,936  
Accrued expenses
     (5,000 )     32,256       300,506  
Accrued payroll
     126,569       326,845       728,425  
Accrued royalty fees
     25,000       250,000       1,743,167  
Accrued interest
     7,429       237       22,384  
Net cash used by operating activities
     (350,125 )     (451,837 )     (4,881,676 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                        
Payment of agency fee rights
     -       -       (100,000 )
Issuance of notes receivable from stockholders
     -       -       (23,000 )
Deposit for Global Hydrogen Energy Corp.
     (197,500 )             (197,500 )
Repayment of notes receivable from stockholders
             -       22,095  
Advances to related party
             -       805  
Proceeds from sale of fixed assets
             -       2,500  
Purchase of fixed assets
     (15,000 )     (3,609 )     (68,538 )
Net cash used by investing activities
     (212,500 )     (3,609 )     (363,638 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                        
Repayment of stockholder advances
     (5,000 )     -       (162,084 )
Advances from stockholders
     1,430       5,000       272,582  
Increase in deferred offering cossts
             -       (194,534 )
Proceeds from issuance of common stock
     373,350       241,320       4,251,143  
Proceeds from exercise of options
             -       45,000  
Debt issuance costs
             -       (19,750 )
Repayment of convertible notes payable
             -       (23,000 )
Proceeds from issuance of convertible notes payable
     187,500       92,500       1,082,250  
Net cash provided by financing activities
     557,280       338,820       5,251,607  
                         
Net (decrease) increase in cash
     (5,345 )     (116,626 )     6,293  
                         
Cash, beginning of period
     11,638       128,264       -  
                         
Cash, end of period
   $ 6,293     $ 11,638     $ 6,293  
 
The accompanying notes are an integral part of the financial statements.
 
 
41
 
 
               
Period
  
               
November 27,
  
   
For the Years Ended December 31,
    
2000 (Date of
  
               
Inception) through
  
   
2012
    
2011
    
December 31, 2012
  
SUPPLEMENTAL CASH FLOW INFORMATION:
                        
Cash paid for interest
   $ 12,832     $ -     $ 34,309  
NON-CASH FINANCING AND INVESTING ACTIVITIES:
                        
Subscription receivable for issuance of common stock
   $ -     $ -     $ 29,090  
Option to acquire license for issuance of common stock
   $ -     $ -     $ 10,000  
Deferred offering costs netted against issuance of common stock under private placement
   $ -     $ -     $ 33,774  
Deferred offering costs netted against issuance of common stock
   $ -     $ -     $ 41,735  
Value of beneficial conversion feature of notes payable
   $ -     $ -     $ 19,507  
Deferred non-cash offering costs in connection with private placement
   $ -     $ -     $ 74,850  
Application of amount due from shareholder against related party debt
   $ -     $ -     $ 8,099  
Amortization of offering costs related to stock for services
   $ -     $ -     $ 25,730  
Settlement of notes payable in exchange for prepaid services
   $ -     $ -     $ 356,466  
Common stock issued in exchange for prepaid services
   $ 110,500     $ 99,000     $ 2,454,664  
Common stock issued in exchange for accrued royalties
   $ 1,301,500     $ -     $ 1,718,167  
Common stock issued for accruals
   $ 206,750     $       $ 206,750  
Receivable issued for exercise of common stock options
   $ -     $ 200,000     $ 367,000  
Common stock issued in exchange for fixed assets
   $ -     $ -     $ 5,000  
Acquisition of agency fee intangible through accrued expenses
   $ -     $ -     $ 900,000  
Beneficial conversion fetaure on convertible notes
   $ -     $ 7,000     $ 531,561  
Conversion of convertible debt to equity (7,340,152 shares since inception)
   $ -     $ 50,000     $ 772,000  
Conversion of convertible debt to equity (3,303,437 shares since inception)
   $ 66,500     $       $ 66,500  
Common stock issued for accounts payable
   $ -     $ 118,713     $ 208,838  
Common stock issued for accrued payroll
   $ -     $ 15,000     $ 15,000  
Preferred stock issued for accrued payroll
   $ 335,285     $       $ 335,285  
Common stock payable for prepaid services
   $ 245,000     $       $ 245,000  
Issuance of common stock to employees
   $       $       $ 274,000  
Common stock issued for accrued expenses
   $       $ 29,400     $ 29,400  
Derivative liability and debt discount
   $ 187,500     $ 42,500     $ 187,500  
Write off uncollectible stock subscription receivable
   $ -     $ -     $ 155,000  
Write off of intangible asset and agency fee payable
   $ -     $ 900,000     $ 900,000  
Conversion of accrued interest to common stock
   $ 1,700     $ -     $ 1,700  
 
The accompanying notes are an integral part of the financial statements.
 
 
42
 

(A Development Stage Enterprise)
Notes to Financial Statements
For the Years Ended December 31, 2012 and 2011,
and the Period November 27, 2000 (Date of Inception)
through December 31, 2012

1.
Background Information

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.

The Company’s planned lines of business are the design, development, and testing of turbine truck engine technology licensed through Alpha Engines Corporation (“Alpha”). Alpha owns the patents to a new gas turbine engine system called Detonation Cycle Gas Turbine Engine. If the Company can successfully demonstrate a highway truck engine using the technology, the Company intends to form a joint venture with a major heavy duty highway truck manufacturer to manufacture, market, and sell turbine truck engines for use in heavy duty highway trucks throughout the United States.

The Company also plans to commercialize a new hydrogen generation process for use in multiple industries.  The Company entered into a cooperation agreement with Hydrogen Union Energy Co., Ltd. for the purpose of a joint development of a hydrogen generator.

2.
Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended December 31, 2012 and since November 27, 2000 (date of inception) through December 31, 2012, the Company had a net loss of $1,160,250 and $17,531,408, respectively. As of December 31, 2012, the Company has not emerged from the development stage and has a working capital deficit of $224,563. 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.
 
 
43
 
 
3.
Significant Accounting Policies

The significant accounting policies followed are:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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 could differ from those estimates.

Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All of our non-interest bearing cash balances were fully insured at December 31, 2012 and 2011 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits. At December 31, 2012 and 2011, there were no amounts held in interest bearing accounts.

The Company’s financial instruments include cash, accounts payable, accrued liabilities and notes payable. The carrying amounts of cash, accounts payable and accrued liabilities approximate their fair value, due to the short-term nature of these items. The carrying amount of notes payable approximates their fair value due to the use of market rates of interest and maturity schedules for similar issues. The derivative liability is recorded at fair value (see Note 12).

Furniture and equipment are recorded at cost and depreciated on a declining balance and straight-line basis over their estimated useful lives, principally two to seven years. Accelerated methods are used for tax depreciation. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When furniture and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

The Company evaluates the recoverability of its long-lived assets or asset groups whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related assets may be less than previously anticipated. If the net book value of the related assets exceed the undiscounted future cash flows of the assets, the carrying amount would be reduced to the present value of their expected future cash flows and an impairment loss would be recognized. There have been no impairment losses in any of the periods presented.

Research and development costs are charged to operations when incurred and are included in operating expenses. The amounts charged for the year ended December 31, 2012 and 2011 and the period November 27, 2000 (date of inception) to December 31, 2012 amounted to $0, $146,779 and $3,882,494, respectively.

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending on the classification of the assets or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. The principal types of temporary differences between assets and liabilities for financial statements and tax return purposes are set forth in Note 8.

The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10), January 1, 2007. The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits at December 31, 2012 or 2011 and since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
 
 
44
 
 
Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding and dilutive options outstanding during the year. Common stock equivalents for the years ended December 31, 2012 and 2011 were anti-dilutive due to the net losses sustained by the Company during these periods. For the year’s ended December 31, 2012 and 2011 potentially dilutive common stock options and warrants of 5,405,413 and 5,405,413 have been excluded from dilutive earnings per share due to the Company’s losses in all periods presented. Additionally, convertible notes payable were convertible into approximately 25,714,286 shares of common stock based on the conversion price at December 31, 2012.  Potential common shares from convertible preferred stock are excluded from the computation of diluted earnings per share of 500,000 shares.

The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

There were no grants awarded in 2012.  The value of each grant for the year ended December 31, 2011 is estimated at the grant date using the Black-Scholes option model with the following:
 
       
   
Years Ended
December 31,
  
   
2011
  
Dividend rate
     0 %
      0.87 % -
Risk free interest rate
     2.21 %
Expected term
  
5 years
  
      119.6 % -
Expected volatility
     168.1 %
 
The basis for the above assumptions are as follows: the dividend rate is based upon the Company’s history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Company’s historical pattern of options granted and the period of time they are expected to be outstanding; expected volatility was based on the Company’s historical market price at consistent points in a period equal to the expected life of the options. The Company estimates forfeitures both at the date of grant as well as throughout the requisite service periods based on the Company’s historical experience and future expectations.

The Company issues common stock and common stock options and warrants to consultants for various services. For these transactions, the Company follows the guidance in FASB ASC Topic 505. Costs for these transactions are measured at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measureable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instrument is reached or (ii) the date at which the counterparty’s performance is complete. For the periods ended December 31, 2012 and 2011, the Company recognized approximately $331,000 and $838,000, respectively, in consulting expenses (see Note 7).
 
 
45
 
 
3.
Significant Accounting Policies (continued)

In September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 
●
  
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
●
  
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
●
  
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2012. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, accrued compensation and accrued expenses. The Company had a derivative liability associated with an embedded conversion option that is included as a level 2 input (see Note 12).

Recent accounting pronouncements

Other recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s financial statements.

4.
Option to Acquire License

In July 2002, the Company exercised its option to obtain a license to commercially exploit certain turbine truck engine technology owned by Alpha. The original agreement required the Company to complete and file a registration statement with the Securities and Exchange Commission (SEC) and once the public offering was filed and declared effective by the SEC, Alpha was to grant the license in exchange for 10,000,000 shares of common stock of the Company and other licensing considerations as follows:

●
  
Licensing fee – $250,000 licensing note payable on August 23, 2005 or agreement is terminated;
●
  
Minimum royalties – $250,000 due minimum royalty payment each year once licensing note is settled; this amount has been reduced to $25,000 per year effective January 1, 2012;
●
  
Royalties – eight percent of net sales after manufacturing and sales commence; and
●
  
Contract fees for design and engineering services.

In July 2002, Alpha modified the agreement to allow the Company to acquire the license agreement in advance of completing its registration statement and accepted a note as payment for the licensing fee and for the issuance of 5,000,000 shares of common stock in lieu of the original 10,000,000 shares. The value of these shares was based on $0.50 per share, which was the issuance price for common stock under the Company’s private placement offering. In August 2003 and 2004, the agreement was further amended to extend the term of the note and to establish that minimum royalty payments shall begin after the note is settled.
 
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 December 31, 2012 and 2011, the Company has accrued $25,000 and $1,301,500 of royalty fees related to this agreement, respectively.
 
 
46
 
 
Alpha owns the patents to a new gas turbine engine system called Detonation Cycle Gas Turbine Engine (DCGT). Alpha is in the business of licensing the use of its DCGT technology for many different applications, including the manufacture of heavy duty highway truck engines. Alpha and CNF Transportation (formerly Consolidated Freightways, Inc.) have an agreement to form and finance a potential 50/50 joint venture after the demonstration of a highway truck engine for the manufacture and marketing of heavy duty highway truck engines, both for the fleet of CNF Transportation and exclusive sales to the highway trucking industry. CNF Transportation is a large, over the road freight hauling company and manufacturer of heavy duty highway trucks. Upon the receipt of its licensing agreement with Alpha, the Company has assumed Alpha’s right to enter into this joint venture.

The Company has recognized $3,882,494 of research and development expense since inception related to the license agreement, as the license is exclusively for the development, manufacturing and sales of the DCGT and has no future economic benefit relative to other research and development projects.

5.
Furniture and equipment

Furniture and equipment at December 31 consist of the following:

                 
   
2012
    
2011
  
Furniture and fixtures
  
$
1,505
    
$
1,505
  
Equipment
    
18,091
      
18,091
  
Automobile
    
15,000
      
-
  
Leasehold improvements
    
35,323
      
35,323
  
     
69,919
      
54,919
  
Less accumulated depreciation and amortization
    
52,381
      
47,863
  
   
$
17,538
    
$
7,056
  

6.
Options and warrants

The Company’s 2008 Incentive Compensation Plan (the 2008 Plan) authorizes up to 5,000,000 shares of common stock to employees or consultants, unless contained in the written award approved by the Board of Directors. The Company granted 1,600,000 options to consultants under this plan during the year ended December 31, 2011. During the year ended December 31, 2011, the Company adopted the 2011 Incentive Compensation Plan (the 2011 Plan) which superseded the 2008 Plan. As a result, there are no future options are to be issued from the Company’s 2008 Plan.

The Company’s 2011 Plan authorizes up to 5,000,000 shares of common stock to persons employed by the Company either as an employee, officer, director or independent consultant or other person employed by the Company, provided that no person can be granted shares under the 2011 Plan for services related to raising capital or promotional activities. There are no restrictions on resale upon the purchases of the stock from the employees or the consultants, unless contained in the written award approved by the Board of Directors. During 2012 and 2011, the Company granted 0 and 850,000 common stock warrants to consultants, directors and employees, respectively, related to the Plan. As of December 31, 2012, 4,150,000 shares are available under the Plan for future grants.
 
The fair value of each option under the 2008 and 2011 Incentive Compensation Plans were estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table. Expected volatility is based on the Company’s historical market price at consistent points in periods equal to the expected life of the options. The expected term of options granted is based on the Company’s historical experience. The risk-free interest rate for the periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimates forfeitures; both at the date of grant as well as throughout the requisite service period, based on the Company’s historical experience and future expectations.
 
 
47
 
 
The aggregate intrinsic value of options outstanding and exercisable at December 31, 2012, based on the Company’s closing stock price of $0.012 was $0. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2011, based on the Company’s closing stock price of $0.04 was $0. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options.

During the year ended December 31, 2011, the Company issued 800,000 warrants in conjunction with the issuance of common stock. The warrants entitle the holder to purchase 800,000 shares of the Company’s common stock at any time, at an exercise price of $0.30 per share.  There were no warrants issued during the year ended December 31, 2012.

The following table represents our stock option and warrant activity for the years ended December 31, 2012:
                         
   
Shares
    
Range of Exercise
Prices
    
Weighted Average
Grant
Date
Fair Value
  
Outstanding and Exercisable
                        
Outstanding at December 31, 2010
    
3,215,413
    
$
0.10 – 2.00
          
Options and warrants granted
    
2,450,000
    
$
0.15 – 0.30
    
$
0.17
  
Options and warrants cancelled or expired
    
(260,000
)
  
$
2.00
          
Outstanding at December 31, 2011
    
5,405,413
    
$
0.10 – 2.00
          
Options and warrants granted
    
0
                  
Options and warrants cancelled or expired
    
0
                  
                         
Outstanding at December 31, 2012
    
5,405,413
    
$
0.10 – 2.00
          
Exercisable at December 31, 2012
    
5,405,413
    
$
0.10 – 2.00
          
Exercisable at December 31, 2011
    
5,405,413
    
$
0.10 – 2.00
          
The following table summarizes information about options and warrants outstanding and exercisable as of December 31, 2012:
                                     
   
Outstanding Options and Warrants
  
Exercisable Options and Warrants
  
Range of Exercise Price
  
Number
Outstanding
  
Weighted
Average
Remaining
Life
  
Weighted
Average
Price
  
Weighted
Average
Remaining
Life
  
Number
Exercisable
    
Weighted
Average
Price
  
$ 0.10 – $2.00
    
5,405,413
  
2.87 Years
  
$
0.29
  
2.87 Years
    
5,405,413
    
$
0.29
  
 
Net cash proceeds from the exercise of options and warrants were $0 for each of the years ended December 31, 2012 and 2011, respectively. During 2012 and 2011, the Company recognized approximately $0 and $200,000 in compensation expense related to stock option grants. As of December 31, 2012 unrecognized compensation expense related to common stock options was approximately $57,000, which is expected to be recognized over a weighted average period of 3 years.

During the year ended December 31, 2012, the Company’s Board of Directors approved an increase of common stock authorized to be issued to 299,000,000 shares.
 
 
48
 
 
7.
Commitments and Contingencies

The Company leased its corporate headquarters on a month-to-month basis. For the periods ended December 31, 2012 and 2011, rent expense was approximately $25,000 and $27,700, respectively.

During 2012, the Company issued common stock for various consulting services. The fair value of the services recorded was based on the fair value of the Company’s stock price at the commitment date for the respective services. The Company issued 2,250,000 shares of common stock at prices ranging between $0.01 and $0.13 per share, and recognized approximately $331,000 in consulting or professional expenses related to these agreements during 2012. All shares of common stock related to the above consulting services were issued and became fully vested during 2012.


On January 12, 2012, the Company entered into an “Investment Intent” agreement with Energy Technology Services Company, Ltd. Pursuant to the agreement, both parties agreed to form a company, Global Hydrogen Energy (“GHE”). The Company has the option to purchase ten percent of the shares of GHE for $450,000, and another option to purchase up to 20% of all shares of GHE. As of December 31, 2012, GHE has not been formed, and the Company’s good faith cash deposit of $197,500 has been written off as a loss on investment, which is included in the accompanying statements of operations.


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.

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.

8.
Income Taxes

Deferred taxes are recorded for all existing temporary differences in the Company’s assets and liabilities for income tax and financial reporting purposes. Due to the valuation allowance for deferred tax assets, as noted below, there was no net deferred tax benefit or expense for the years ended December 31, 2012, 2011 or the period November 27, 2000 (Date of Inception) through December 31, 2012.
 
There is no current or deferred income tax expense or benefit allocated to continuing operations for the years ended December 31, 2012 or 2011 or the period November 27, 2000 (Date of inception) through December 31, 2012.

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows:
 
   
2012
    
2011
  
Tax expense (benefit) at U.S. statutory rate
  
$
(394,500
)
  
$
(760,900
)
State income tax expense (benefit), net of federal benefit
    
(42,200
)
    
(81,700
)
Effect of non-deductible expenses
    
(7,900
)
    
500
  
Other
    
—
      
(200
)
Change in valuation allowance
    
444,600
      
842,300
  
   
$
—
    
$
—
  
 
 
49
 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011 are as follows:
 
   
2012
    
2011
  
Deferred tax assets (liability), noncurrent:
                
Depreciation
  
$
2,000
      
5,000
  
License agreement
    
237,600
      
316,700
  
Capitalized start up costs
    
4,906,000
      
4,612,600
  
Net operating loss
    
560,700
      
486,100
  
Stock compensation
    
104,400
      
114,400
  
Contribution carryover
    
2,700
      
2,700
  
Debt issuance
    
2,100
      
700
  
Amortization expense and beneficial conversion features
    
(25,100
)
    
(12,900
)
Valuation allowance
    
(5,969,900
)
    
(5,525,300
)
   
$
—
    
$
—
  

Change in valuation allowance:

   
2012
  
Balance, December 31, 2011
  
$
(5,525,300
)
Increase in valuation allowance
    
(444,600
)
Balance, December 31, 2012
    
(5,969,900
)

Since management of the Company believes that it is more likely than not that the net deferred tax assets will not provide future benefit, the Company has established a 100 percent valuation allowance on the net deferred tax assets as of December 31, 2012 and 2011.

As of December 31, 2012, the Company had federal and state net operating loss carry-forwards totaling approximately $1,521,000 which begin expiring in 2022.

We are subject to income tax audits by the Internal Revenue Service and the State of Florida for the years 2009 – 2011.

9.
Related Party Transactions

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 December 31, 2012 and 2011 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.
 
As of December 31, 2012 and 2011, 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.

During the year ended December 31, 2011, the Company’s President advanced the Company $5,000 with no specific repayment terms or stated interest.  During the year ended December 31, 2012, the $5,000 was repaid.

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.

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.

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.
 
 
50
 
 
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.
 
10.
Series A Convertible Preferred Stock
 
On March 16, 2012, the Company created the Series A Convertible Preferred Stock (“Series A”). The Series A has the following features:
 
 
●
Par value is $.001.
 
●
1,000,000 shares authorized.
 
●
Voting rights on each matter submitted to common shareholders; 306 votes per each share of preferred stock held.
 
●
Convertible after 6 months from the above date on a ratio of one-to-one into common shares at the option of the preferred share holder.

During the year ended December 31, 2012, the Company issued 500,000 shares of Series A Convertible Preferred Stock to the Company’s CEO in exchange for accrued payroll of $334,785.

11.
Convertible Notes and Derivative liability

In November 2011, 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 August 9, 2012. 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$42,000 and $49,000, respectively. The debt discount was amortized over the life of the note, and the Company recognized approximately $34,000 and $8,000 of interest expense related to amortization during 2012 and 2011, respectively. As of December 31, 2012 the discount related to the note was fully amortized. In June 2012, the convertible note converted into approximately 1,326,000 shares of common stock. At the conversion date, the amortized discount was fully recognized as interest expense. The derivative liability has been adjusted to fair value each reporting period, including the conversion date, with unrealized gain (loss) reflected in other income and expense.
 
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 $35,600 of interest expense related to amortization during 2012. During the year ended December 31, 2012, the Company converted $24,000 of debt into 1,977,145 shares of common stock.  The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense.
 
 
51
 
 
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. The debt discount will be amortized over the life of the note, and the Company recognized approximately $26,900 of interest expense related to amortization during 2012. The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense.
 
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.

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 $43,562 of interest expense related to amortization during 2012. The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense.

As of December 31, 2012, the unrealized gain on the above derivatives was approximately $22,000.

As a result of note conversions, $75,027 of the conversion option value was reclassified to equity.
Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2012 and 2011 related to the above derivative liability are as follows:
 
 
   
Fair Value
Measurements at
December 31, 2012 (1)
    
Fair Value
Measurements
at December 31, 2011(1)
  
   
Using Level 2
    
Total
    
Using Level 2
    
Total
  
Liabilities:
                        
Derivative liabilities
  
$
(123,272
)
  
$
(123,272
)
  
$
(40,756
)
  
$
(40,756
)
Total liabilities
  
$
(123,272
)
  
$
(123,272
)
  
$
(40,756
)
  
$
(40,756
)

 
(1)
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 December 31, 2012 or 2011.

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.
 
 
52
 
 
12.
Subsequent Events

The Company (“TTE”) entered into a Binding Letter of Intent (the “Agreement”) dated January 23, 2013 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 has been agreed upon by the parties.

The parties have agreed to establish, at later date, a Joint Venture, wherein TTE will have 51% interest and BluGen will have a 49% interest, and into which the commercial application of the technology will be developed.

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 on the maturity date of 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.

Subsequent to the year ended December 31, 2012, the Company issued 8,275,706 shares of common stock for the conversion of notes payable and accrued interest of $35,550 through March 31, 2013.

In February 2013, the Company issued 1,500,000 shares to one of its debt holders.
 
In April 2013, the Company issued 1,500,000 shares to one of its debt holders.
 
Subsequent to year end, the Company issued 4,000,000 shares to an investor to satisfy a common stock payable.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Previous Independent Auditors
As previously reported on Form 8K/A dated January 11, 2013, the Registrant (the “Company”) has been advised that effective January 1, 2013, Pender, Newkirk & Company LLP (“Pender Newkirk”) has discontinued its audit practice and that the partners and employees of Pender Newkirk have joined the firm Warren Averett, LLC (“Warren Averett”).  Warren Averett will serve as the Company’s principal independent auditing firm.  The decision to retain Warren Averett as the Company’s principal independent auditing firm has been approved by the Company’s Board of Directors (and Audit Committee).
 
CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending December 31, 2012 covered by this Annual Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer and acting Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a – 15(e) and 15d – 15(e) under the Exchange Act. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after December 31, 2012.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) and 15d – 15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
 
 
53
 
 
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2012 under the criteria set forth in the Internal Control – Integrated Framework.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that material weaknesses exist due to a lack of formalized controls and procedures as well as a lack of segregation of duties, as well as the absence of an independent audit committee chair, resulting from the Company’s limited resources.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
OTHER INFORMATION
 
None

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Set forth below is certain information concerning the directors and executive officers of the Company.
 
Name
  
Age
  
Position
Michael Rouse
  
56
  
President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer And Principal Financial Officer)
Phyllis J. Rouse
  
54
  
Vice President, Secretary, Treasurer and Director
Rebecca McDonald
  
46
  
Chief Accounting Officer
John R. Dickinson
  
46
  
Audit Committee Member
 
Biographies

Michael Rouse is the founder of the Company and currently serves as its Chairman and Chief Executive Officer. Mr. Rouse is Vice President of Cox-Rouse Construction & Development Corporation, a commercial real estate developer located in Deland, Florida. Mr. Rouse is a commercial building contractor and developer, and licensed commercial aircraft pilot. Mr. Rouse was President of M&D Aircraft Leasing and Skydive Palatka, a successful parachute center, from October 1995 to June 2002, until he sold Skydive Palatka. He received his schooling in Management Training at United States Steel Corporation in 1975; Computer Programming at Daytona Beach Community College in 1993; and Science, Art and Drafting at Valpraiso Industrial Arts School in 1973. He is a former Production Manager for United States Steel, and General Manager of Freefall Express, Inc., an airplane leasing company, from 1989 to 1990.
 
 
54
 
 
Phyllis J. Rouse serves as the Company’s Vice President, Secretary, Treasurer and as a Director. From 1997 to present, Mrs. Rouse is a public school administrator at Yulee Elementary School in Yulee, Florida. She has extensive administrative experience and training in accountability for all budgets, curriculum, student performance, personnel, facilities, discipline, while supervising over 70 personnel and 650 students on a daily basis. Mrs. Rouse is the sister-in-law of Michael Rouse.

Rebecca A. McDonald, is a Certified Public Accountant with over 18 years experience in accounting, information systems and taxation. She has been the owner and Vice President of the Certified Public Accounting firm of Dickinson & McDonald since January 2005. A CPA firm servicing central Florida, Dickinson & McDonald provides personal and confidential services including bookkeeping, financial statement preparation, corporate, individual, estate and trust tax preparation. From July 1996 to January 2005 she was a Senior Accountant with Cohen, Smith & Company, P.A. Ms. McDonald is a graduate of the University of Central Florida with a Bachelor of Science in Business Administration with a major in Accounting. She is a member of the Florida Institute of Certified Public Accountants.

John R. Dickinson, CPA serves as an independent member of the Company’s Audit Committee. Mr. Dickinson has spent over nineteen years in public accounting, including four years with the seventh largest CPA firm in the United States. During his career, he has gained extensive knowledge in individual and corporate taxation, financial reporting, and accounting information systems. His diverse background includes the performance of financial statement audits; litigation support services; mergers and acquisitions; business valuations; general business consulting; and tax compliance. After noticing a need for quality CPA firms in the Central Florida marketplace, Mr. Dickinson started a full service CPA firm in 2003. The firm has experienced significant growth since inception and is currently servicing a wide range of industries including construction, distribution, medical, insurance, individuals, litigation, manufacturing, technology, transportation, and non-profits. He is a Certified Public Accountant, and is a member of the Florida Institute of Certified Public Accountants. He is also very active in his community including the finance committee chairman of the DeLand First Presbyterian Church, treasurer of the Neighborhood Center, and sat on the board of directors for Hugh Ash Manor. In addition, he is a YMCA basketball coach, and member of the DeLand Quarterback Club.
Mr. Dickinson is a Cum Laud graduate of Geneva College with a Bachelor of Science degree in Business Administration and Accounting. Mr. Dickinson also attended Stetson University to obtain additional credit hours to meet Florida CPA licensing requirements.

AUDIT COMMITTEE

The Audit Committee consists of Michael Rouse, John R. Dickinson, CPA and Rebecca McDonald, Chief Accounting Officer. The Audit Committee selects the independent auditors; reviews the results and scope of the audit and other services provided by the Company’s independent auditors and reviews and evaluate the Company’s internal control functions. The board of directors has determined that John Dickinson is the audit committee “financial expert”; as such term is defined under federal securities law, and is independent. Mr. Dickinson is an expert by virtue of: (i) education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions; (ii) experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions; (iii) experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; and (iv) other relevant experience.

CODE OF ETHICS

We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrong doing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic.
 
 
55
 
 
EXECUTIVE COMPENSATION

The following table sets forth information concerning the aggregate compensation paid or to be paid by the Company to its executive officers.
SUMMARY COMPENSATION TABLE

Name and Principal Position
  
Year
    
Salary ($)
    
Bonus
($)
    
Stock
Awards
($)
    
Option
Awards
($)
    
Non-Equity
Incentive Plan
Compensation
($)
    
Nonqualified
Deferred
Compensation
($)
    
All Other
Compensation
($)
    
Total ($)
  
Michael Rouse, President,
CEO, Chairman of the
    
2012
    
$
52,000
      
0
    
$
335,285
      
0
      
0
      
0
      
0
    
$
387,285
  
Board (1)
    
2011
    
$
181,750
      
0
      
126,244
      
35,647
      
0
      
0
      
0
    
$
343,641
  
Phyllis J. Rouse Vice
    President, Secretary, Treasurer and
    
2012
    
$
52,000
      
0
    
$
0
      
0
      
0
      
0
      
0
    
$
52,000
  
Director (2)
    
2011
    
$
201,790
      
0
    
$
58,413
      
26,735
      
0
      
0
      
0
    
$
286,938
  
(1)
For the year ended December 31, 2012 and 2011, per Mr. Rouses’ employment agreement, his annual salary was $52,000.
(2)
For the year ended December 31, 2012 and 2011, per Ms. Rouses’ employment agreement, her annual salary was $52,000.

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2012
   
Option Awards
    
Stock Awards
  
Name
  
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    
Option
Exercise
Price ($)
    
Option
Expiration
Date
    
Number
of
Shares
of Stock
That
Have
Not
Vested
(#)
    
Market
Value
of
Shares
of
Stock
That
Have
Not
Vested
($)
    
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares or
Other
Rights
That
Have Not
Vested
(#)
    
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares or
Other
Rights
That
Have
Note
Vested
($)
  
Michael Rouse, President, CEO, Chairman of the Board
    
400,000
      
400,000
      
0*
    
$
0.25
      
10/1/2016
      
0*
      
0*
      
0*
      
0*
  
Phyllis Rouse, Vice President,
Secretary,
Treasurer and Director
    
800,000
      
800,000
      
0*
    
$
0.10 - $0.25
      
7/9/2014 - 10/1/2016
      
0*
      
0*
      
0*
      
0*
  
 
*All options and stock awards are fully vested and earned at the date of grant.
 
 
56
 
 
DIRECTOR COMPENSATION

Directors receive no compensation for serving on the Board.
The following table summarizes compensation paid to all of our non-employee directors:
Name
  
Fees
Earned
or Paid
in
Cash
($)
    
Stock
Awards
($)
    
Option
Awards
($)
    
Non-Equity
Incentive Plan
Compensation
($)
    
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
    
All Other
Compensation
($)
    
Total
($)
  
not applicable
                                                        

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Plan category
  
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
(a)
    
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
(b)
    
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
  
Equity compensation plans approved by security holders
    
0
    
$
0.00
      
0
  
Equity compensation plans not approved by security holders
    
5,405,413
    
$
0.29
      
1,567,569
  

The Company’s 2008 Incentive Compensation Plan (the “2008 Plan”) authorizes up to 5,000,000 shares of common stock to any person employed by the Company either as an employee, officer, director or independent consultant or other person employed by the Company, provided that no person can be granted shares under the 2008 Plan for services related to capital raising or promotional activities. There are no restrictions on resale upon the purchases of the stock from the employees or the consultants, unless contained in the written award approved by the Board of Directors. During the year ended December 31, 2011, the Company adopted the 2011 Incentive Compensation Plan (the “2011 Plan”) which superseded the 2008 Plan. As a result, there are no future options to be issued from the Company’s 2008 Plan.

The Company’s 2011 Plan authorizes up to 5,000,000 shares of common stock to any person employed by the Company either as an employee, officer, director or independent consultant or other person employed by the Company, provided that no person can be granted shares under the 2011 Plan for services related to raising capital or promotional activities. There are no restrictions on resale upon the purchases of the stock from the employees or the consultants, unless contained in the written award approved by the Board of Directors.
 
 
57
 
 
The following table sets forth certain information as of December 31, 2012, with respect to the beneficial ownership of our common stock by each beneficial owner of more than 5% of the outstanding shares of common stock of the Company, each director, each executive officer named in the “Summary Compensation Table” and all executive officers and directors of the Company as a group, and sets forth the number of shares of common stock owned by each such person and group. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.
 
Name of Beneficial Owner
  
Number of
Shares
Beneficially
Owned
    
Percentage
of
Outstanding
Common
Stock
Owned
  
Michael Rouse
    
5,418,555
      
9.6
%
Alpha Engines Corporation (1)
    
2,812,752
      
5.0
%
Phyllis J. Rouse (2)
    
950,000
      
1.7
%
     
All directors and executive officers as a group (4 persons)
    
9,181,307
      
16.2
%

1.
Robert L. and Barbara J. Scragg are majority shareholders of Alpha, the Licensor of our company. Alpha Engines has granted Michael Rouse a proxy to vote all of its beneficially owned shares of the Company’s common stock.
2.
Phyllis J. Rouse is the sister-in-law of Michael Rouse.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
None
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees
During 2012 we were billed by our accountants, Warren Averett LLC approximately $72,646 for audit and review fees associated with our 10-K and 10-Q filings.

During 2011 we were billed by our former accountants, Pender Newkirk & Company LLP approximately $69.000 for audit and review fees associated with our 10-K and 10-Q filings.

Tax Fees
During 2012 we were billed by our accountants, Warren Averett LLC $0 for tax work.

During 2011 we were billed by our former accountants, Pender Newkirk & Company LLP $0 for tax work.

All Other Fees
During 2012 we were billed by our accountants, Warren Averett LLC   $0  for other work.

During 2011 we were billed by our former accountants, Pender Newkirk & Company LLP, $0 for other work.

Board of Directors Pre-Approval Process, Policies and Procedures
Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Board of Directors. Our principal auditors have informed our Board of Directors of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Board of Directors prior to commencing such services.
 
 
58
 
 
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
Regulation
Number
  
Exhibit
31.1
  
Rule 13a-14(a) Certification
31.2
  
Rule 13a-14(a) Certification
32.1
  
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
  
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
TURBINE TRUCK ENGINES, INC.
  
       
Dated: April 15, 2013
By:
/s/ Michael Rouse
  
   
Chief Executive Officer, Chief Financial Officer and
Chairman of the Board
(Principal Executive Officer and Principal Financial Officer)
  
       
Dated: April 15, 2013
By:
/s/ Rebecca A. McDonald
  
   
Principal Accounting Officer
  

 
 
59