-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LaMuLTkwRwqa7WLWYlk7tJHx3fZpB207T9//11CDZJDPgSzVKN8MmRfIBG/BYzQP uToS+Xo2i3v87M78prMp6w== 0001193125-09-069588.txt : 20090331 0001193125-09-069588.hdr.sgml : 20090331 20090331171035 ACCESSION NUMBER: 0001193125-09-069588 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090331 DATE AS OF CHANGE: 20090331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TURBINE TRUCK ENGINES INC CENTRAL INDEX KEY: 0001138978 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-109118 FILM NUMBER: 09720042 BUSINESS ADDRESS: STREET 1: 1200 FLIGHTLINE BLVD SUITE 5 CITY: DELAND STATE: FL ZIP: 32724 BUSINESS PHONE: 904-943-8358 10-K 1 d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

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, 2008

 

¨ 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)

917 Biscayne Boulevard Suite 6, Deland, Florida 32724

(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 preferred stock   Over the Counter Bulletin Board
$.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    x  NO

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    x  NO

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 past 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.    x  YES    ¨  NO

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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 “accelerated filer and large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    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    x  NO

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, 2008 was $1,456,388.

There were 21,859,764 shares of the Registrant’s $.001 par value common stock outstanding as of December 31, 2008.

 

 

 

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TURBINE TRUCK ENGINES, INC.

FORM 10-K INDEX

 

Part I   3
Item 1.   Description of Business   3
Item 1A.   Risk Factors   7
Item 1B.   Unresolved Staff Comments   7
Item 2.   Description of Property   7
Item 3.   Legal Proceedings   7
Item 4.   Submission of Matters to a Vote of Security Holders   7
Part II   8
Item 5.   Market for Common Equity and Related Stockholder Matters   8
Item 6.   Selected Financial Data   10
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   10
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk  
Item 8.   Financial Statements and Supplementary Data   16
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   49
Item 9A(T).   Controls and Procedures   49
Item  9B.   Other information   49
Part III   49
Item 10.   Directors, Executive Officers and Corporate Governance   49
Item 11.   Executive Compensation   50
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   52
Item 13.   Certain Relationships and Related Transactions, and Director Independence   53
Item 14.   Principal Accountant Fees and Services   53
Item 15.   Exhibits and Financial Statement Schedules   53
  Signatures   54
  Certifications  

 

2

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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.

PART I

 

ITEM 1. 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. 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 “Detonation Cycle Gas Turbine Engine” (“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 entered into a contractual agreement (the “Agreement”) dated July 1, 2008 with AbM Engineering, LLC for the purpose of the continued development and testing of the current 540 horsepower DCGT engine and a 70 horsepower/50kw generator combination. AbM is currently working in a collaborative effort with AMEC’s engineers to modify and test other DCGT engine applications.

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. We receive ongoing status reports of their progress but do not participate in the design, construction and/or testing of the engine. This new energy efficient detonation cycle gas turbine can be designed and manufactured as a new or replacement engine for all heavy duty trucks that utilize engines ranging from 300 to 1,000 horsepower. It is our intention to target 18 wheel class 8 vehicles commonly used for transporting goods throughout the United States for distribution of our engine.

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 EIC process creates the high efficiency, low emission engine that we intend to bring to market.

To date, we have no marketable product and but have completed initial testing of the 540 horsepower prototype. The Company has started demonstrating the engine to investors, and has begun demonstrating it to potential joint venture partners. The contract with Alpha has been completed and comprehensive testing and development of the 540 horsepower prototype is now moving forward at AbM Engineering’s facilities.

On October 24, 2006, the Company entered into three separate consulting agreements which were intended to provide the Company with strategic financial and corporate development services. As consideration for entering into the consulting agreements, the Company granted each consultant options to acquire up to 500,000 shares of the Company’s common stock at a price of $.50 per share based upon each respective consultant meeting specific milestones set forth in the consulting agreements. These options expired on October 26, 2008. During 2007, 300,000 and 100,000 of these options were earned and forfeited, respectively, and the Company recognized $155,188 in consulting expense. During 2008, 1,000,000 common stock options expired, and as of December 31, 2008, there are no common stock options outstanding under these consulting agreements. No compensation expense was recognized during 2008 relative to the above agreements.

 

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In June 2008, the Company issued a Convertible Debenture to Golden Gate Investors, Inc. (the “holder”) in the principal amount of $1,000,000, dated June 6, 2008, pursuant to Rule 506 promulgated by the Securities and Exchange Commission, for the purpose of accessing necessary funding to continue operations.

Pursuant to the terms of the Debenture, the related Securities Purchase Agreement, Secured Promissory Note and Stock Pledge Agreement, each executed in connection therewith, the Company has issued its $1,000,000 Convertible Debenture (the “Debenture”) for the payment by Golden Gate of $100,000 in cash and the execution and delivery by Golden Gate of a $900,000 Secured Promissory Note of even date (the “Note”), bearing interest at 8% per annum.

The Debenture bears interest at 7.75% per annum, payable monthly, maturing June 30, 2012, and was secured by a Continuing Personal Guaranty, whereby the Company’s Chief Executive Officer and majority shareholder guaranteed the Company’s obligations for a period of eight months. The Debenture Holder shall be entitled to convert into common stock of the company at the conversion price equal to the lesser of (i) $0.50, or (ii) 80% of the average of the 3 lowest Volume Weighted Average Prices during the 20 Trading Days prior to Holder’s election to convert, as such terms are defined in the Debenture. The Holder can only convert that amount of the Debenture that has actually been paid for by either cash at closing or principal pre-payments made on the Promissory Note.

Golden Gate’s Promissory Note is payable at the rate of 8% per annum, payable monthly and provides that for the prepayment of the Note in an amount not less than $200,000 monthly upon the triggering of certain events. It matures on June 30, 2012.

The Company entered into a Strategic Alliance Agreement (the “Agreement”) dated January 21, 2009 with Aerospace Machinery & Electric Co. Ltd., a Chinese corporation (“AMEC”) for the purpose of providing a framework for the collaboration between the two companies on the development and commercialization of the Detonation Cycle Gas Turbine Engine (“DCGT”) specifically for application opportunities in the Peoples Republic of China. The terms of the Agreement call for AMEC and TTE to collaborate on modifying and applying the DCGT engine technology to, among other things, create two new engine sizes: a 150hp engine for automobiles and a 400hp engine for buses. The Agreement also provides that the parties anticipate that, pursuant to AMEC’s participation and performance under this Agreement, that they will enter into a Joint Venture agreement in the future whereby TTE will grant AMEC the exclusive rights to manufacture, market and sell the DCGT engines in China.

The Agreement provides that each Company will work independently and collectively, at their own expense, in a friendly competitive manner towards the modification of the DCGT to see who can make the best design or give the best innovative ideas to the DCGT engines, with Michael Rouse, the Company’s CEO being the final decision maker on the ultimate design questions. Robert L Scragg, the inventor and patent holder has filed for patent protection in China under the PCT (Patent Cooperation Treaty). In conjunction with the Agreement, the parties also executed a Confidentiality Agreement of even date with the Agreement.

Our Product

Our product is slated to be a new energy-efficient, Detonation Cycle Gas Turbine Engine (“DCGT”) for heavy-duty highway trucks. To date, we have no marketable product and will rely on AbM & AMEC to continue the development and testing of a 540 horsepower 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. The application demanding the most change is the highway trucking market.

 

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Table of Contents

Alpha has completed the design and prototype of a 540 hp engine for use in highway trucks. Therefore compliance with state and federal regulators will not be a factor until we have an engineered prototype in a test vehicle. The prototype phase of development is anticipated to continue for approximately two years from the completion of the funding. Alpha completed all research and development in 1997, which resulted in a patent being issued in 1999. Alpha has completed the design for the truck engine. We need to complete the prototype and test an engine that meets our needs using the existing proven technology; however, this takes a considerable amount of money.

The patent 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 working prototypes. The patent attorneys were Schoemaker & Mattare Ltd. The inventor 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 is impossible to describe in layman terms as to how it works; however, 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 valveless combustion chambers are located on opposite sides of the rotor directing combustion gases toward the turbine. The chambers are connected by a valveless 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.

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 four working prototypes as described below:

 

  1. First engine was developed in 1987. The engine consisted of one 8-inch diameter, 26-pound turbine wheel, driven by two horizontally opposed combustion chambers. The engine produced 78 horsepower at 12,500 rpm.

 

  2. The second engine was developed in 1989. The engine consisted of two 5-inch diameter, 11-pound turbine wheels mounted on a single shaft, driven by four horizontally opposed combustion chambers. The engine produced 130 horsepower at 14,000 rpm.

 

5

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  3. The third engine was developed in 1991. The engine consisted of two 7-inch diameter, 19.6 pound turbine wheels mounted on a single shaft, driven by four horizontally opposed combustion chambers. The engine produced 256 horsepower at 8,300 rpm.

 

  4. The fourth engine was developed in 1997. The engine consists of four 6-inch diameter, 12 pound turbine wheels mounted on a single shaft, driven by eight horizontally opposed combustion chambers. The engine produces 130 horsepower at 8,400 rpm. This engine is currently used for demonstration and can be seen by appointment.

 

  5. With current data derived from testing previous prototypes, Alpha has designed a 540 horsepower engine that can power a highway truck. Preliminary design concepts estimate the engine will have six 15-inch diameter, 20-pound turbine wheels mounted on a single shaft, driven by 12 horizontally opposed combustion chambers producing 540 horsepower at 3,000 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:

 

  •  

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 syn 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

Alpha has completed basic research, exploratory development, and advanced development with the design, construction and testing of four experimental prototype engines.

Our new energy efficient detonation cycle gas turbine can be designed and manufactured as a new or replacement engine for all heavy duty trucks that utilize engines ranging from 300 to 1,000 horsepower.

We intend to target 18 wheel class 8 vehicles commonly used for transporting goods throughout the United States for distribution of our engine. We will not require governmental approval until such time as the engine is placed in vehicles for use. Our engine will meet the new more stringent tailpipe 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 (2) fiscal years, the Company has spent $136,088 (2008) and $291,395 (2007) on research and development

 

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We acquired our license from Alpha on July 22, 2002. The material terms of the license agreement, as amended, are as follows:

 

  1. $250,000 licensing note payable August 23, 2005 or agreement is terminated

 

  2. Eight percent (8%) of net sales royalty payment after manufacturing and sales commence

 

  3. $250,000 minimum royalty payment each year after licensing note is settled

 

  4. Additional contract fees will be paid to Alpha for design and engineering services.

During the year ended December 31, 2006, the Company issued 125,000 shares of common stock in satisfaction of the $250,000 note payable to Alpha and the accrual of minimum royalty fees began. As of December 31, 2008, the Company has accrued $562,500 of royalty fees related to this agreement. In addition, during the year ended December 31, 2006, the Company paid $416,667 of royalty fees through the issuance of 100,000 shares of common stock.

Other than being the licensor and a principal shareholder, we have no affiliation with Alpha.

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 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.

EMPLOYEES

We presently have two full-time, and one part time employee. 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 level of success of an offering. Our board of directors will determine the compensation of all new employees based upon job description.

 

ITEM 1A. RISK FACTORS

Not applicable.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases 3600 sq. ft. of space with Air Papa Bravo for an office/demonstration facility to house the development of the prototype. The lease agreement is for a two year period, expiring March 31, 2009 with an option to extend the lease for a second two year term. The base rent is $2,000 per month and the lease agreement contains an option to purchase the facility for $310,000 at the expiration of the lease. The Company has negotiated month to month terms at the end of this lease until a new lease can be negotiated.

 

ITEM 3. 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.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the year ended December 31, 2008, the Company did not submit any matters to a vote of its security holders.

 

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PART II

 

ITEM 5. 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 2008

      

First Quarter (January 1, 2008 through March 31, 2008)

    $ 0.435    $ 0.15

Second Quarter (April 1, 2008 through June 30, 2008)

    $ 0.25    $ 0.11

Third Quarter (July 1, 2008 through September 30, 2008)

    $ 0.185    $ 0.11

Fourth Quarter (October 1, 2008 through December 31, 2008)

    $ 0.17    $ 0.0765

FISCAL 2007

      

First Quarter (January 1, 2007 through March 31, 2007)

    $ 0.91    $ 0.49

Second Quarter (April 1, 2007 through June 30, 2007)

    $ 0.70    $ 0.39

Third Quarter (July 1, 2007 through September 30, 2007)

    $ 0.99    $ 0.37

Fourth Quarter (October 1, 2007 through December 31, 2007)

    $ 1.50    $ 0.40

On March 27, 2009 the closing bid price of the Company’s Common Stock as reported by the OTCBB was $0.10 and there were approximately 290 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

As of December 31, 2008 there were approximately 245 beneficial owners of our common stock with 21,859,764 shares issued and outstanding.

During the year ended December 31, 2008, there was no modification of any instruments 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 2008, the Company issued 3,750 shares of common stock to a qualified investor for $0.08 per share for a total of $300.

 

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During October 2008, the Company issued 40,000 shares of common stock to a qualified investor for $0.09 per share for a total of $3,600.

During October 2008, the Company issued 27,000 shares of common stock to qualified investors for $0.10 per share for a total of $2,700.

During November 2008, the Company issued 12,500 shares of common stock to a qualified investor for $0.08 per shares for a total of $1,000.

During November 2008, the Company issued 32,400 shares of common stock to a qualified investor for $0.10 per share for a total of $3,240.

During December 2008, the Company issued 12,500 shares of common stock to qualified investors for services valued at $0.07 per share for a total of $888.

During December 2008, the Company issued 161,250 shares of common stock to a qualified investor for $0.08 for a total of $12,900.

During December 2008, the Company issued 27,300 shares of common stock to qualified investors for $0.10 per share for a total of $2,630.

During December 2008, the Company issued 10,000 shares of common stock to a qualified investor for services valued at $0.09 per share for a total of $900.

During December 2008, the Company issued 500,000 shares of common stock to a qualified investor for prepaid services valued at $0.13 per share for a total of $65,000.

During December 2008, the Company issued 12,500 shares of common stock to a qualified investor for prepaid services valued at $0.17 per share for a total of $2,125.

During December 2008, the Company issued 100,000 shares of common stock to qualified investors for services valued at $0.195 per share for a total of $19,535.

During December 2008, the Company issued 26,297 shares of common stock to a qualified investor for $0.08 per share for a total of $2,000.*

During December 2008, the Company issued 270,468 shares of common stock to qualified investors for $0.074 per share for a total of $20,000.*

During December 2008, the Company issued 202,703 shares of common stock to a qualified investor for $0.074 per share for a total of $15,000.*

During December 2008, the Company issued 200,000 options to purchase common stock at an exercise price of $0.10. The options expire in 10 years and have immediate vesting. During 2008, the Company recognized approximately $30,000 in expense related to the issuance.

 

* Relates to debt that was converted to common stock.

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.

The Company’s 2006 Incentive Compensation Plan authorizes up to 2,000,000 shares of common stock to any employee or Consultant during any one calendar year for grants of both incentive stock options and non-qualified stock options to key employees, officers, directors, and consultants. Options granted under the Plan must be exercised within a term determined by the Board of Directors. The Option Price payable for the shares of Common Stock covered by any Option shall be determined by the Board of Directors, provided that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of the Option and shall not, in any event, be less than the par value of a Share on the date of grant of the Option.

 

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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 not approved by security holders 2006 Incentive Compensation Plan

    1,398,413    $ 0.68    671,400

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. As of December 31, 2008, no shares have been issued pursuant to the 2008 Plan. 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.

 

ITEM 6. SELECTED FINANCIAL DATA

Not required.

 

ITEM 7. 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.

 

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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.

Background of our company

We are a development-stage company and not yet generating any revenues. We expect to continue the commercialization of our Detonation Cycle Gas Turbine Engine (“DCGT”) technology. The licensor of the acquired technology has passed the research and development phase and has designed a working prototype. We need to redesign an engine for our application based on this proven Core Technology. We are relying on AbM Engineering in collaboration with AMEC to design, construct and test a 540 horsepower engine prototype for our licensed application (see “Business of the Company”, “Our Product.”).

The financing for our development activities to date has come from the sale of common stock. We intend to finance our future development activities and working capital needs largely from the sale of public equity securities with additional funding from a private placement or secondary offering of up to $10 million and 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.

Since we have had a limited history of operations, we anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies commercializing new and evolving technologies such as the DCGT. In July 2002, we acquired the license for the DCGT technology for the manufacture and marketing of heavy-duty highway truck engine.

The following steps have been or are being taken by the Company to demonstrate the viability of a final prototype engine:

Step 1 The completion of the design has been done and the prototype engine has been built

Step 2 The Company has leased its office and demonstration facilities

Step 3 The Engine is undergoing continuing testing and development, the cost of which is anticipated to be approximately $2,500,000

In Step 3, we will rely on AbM and AMEC to test the prototype engine at their facilities. AbM & AMEC will conduct test demonstrations to show the viability and function of the engine. The cost of the on-going testing is expected to be funded from the proceeds of a private placement offering.

For the year ended December 31, 2008 compared to the year ended December 31, 2007:

Research and Development Costs – During the years ended December 31, 2008 and 2007, research and development costs totaled $136,088 and $291,395, respectively. The decrease of $155,307 was mainly due to the completion of the accrual of amounts owed to Alpha for the design and testing of the prototype during 2007.

 

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Operating Costs – During the years ended December 31, 2008 and 2007, operating costs totaled $827,365 and $2,194,211, respectively. The decrease of $1,366,846 was mainly attributable to a decrease in consulting expense of $931,140 due to the Company not having the operating capital to enter into as many consulting agreements during 2008. The decrease is also due to a $197,822 decrease in payroll expenses because of the resignation of James Teeters and a reduction in annual salaries of the remaining officers. Finally, the Company decreased its stock for services expense by approximately $192,400.

Interest (Income) Expense - Net - During the years ended December 31, 2008 and 2007 net interest expense totaled $19,244 and $(15,254), respectively. The increase of $34,478 was due to the Company issuing a convertible debenture to Golden Gate Investors, Inc. and the amortization of the beneficial conversion feature associated with the debentures during 2008.

The net loss for the years ended December 31, 2008 and 2007 was $(982,677) and $(2,470,352), respectively. The decrease of $1,487,675 was mainly attributable to the decrease in operating costs and research and development expenses.

Liquidity and capital resources

As shown in the accompanying financial statements, for the year ended December 31, 2008 and 2007 and since November 27, 2000 (date of inception) through December 31, 2008, the Company has had net losses of $982,677, $2,470,352 and $9,292,006, respectively. As of December 31, 2008, 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. 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, 2008 we raised cash of $1,286,009 net of issuance costs, through private placements of common stock financings and $157,250 through the issuance of convertible notes payable. During August, 2004 our Form SB-2 Registration Statement became effective and we raised $123,753 through common stock sales, and offset $41,378 of offering costs against those proceeds. The proceeds from the sale of this common stock have been used for general and administrative expenses.

Since our inception through December 31, 2008 we have incurred $3,418,192 of research and development costs and operating expenses. 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.

We have incurred significant net losses and negative cash flows from operations since our inception. As of December 31, 2008, we had an accumulated deficit of $9,292,006 and a working capital deficit of $1,013,639.

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.

 

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On June 6, 2008, the Company issued a 7  3/4 Convertible Debenture to Golden Gate Investors, Inc. in the principal amount of $1,000,000, pursuant to Rule 506 promulgated by the Securities and Exchange Commission, for the purpose of accessing necessary funding to continue operations.

Pursuant to the terms of the Debenture, the related Securities Purchase Agreement, Secured Promissory Note and Stock Pledge Agreement, each executed in connection therewith, the Company has issued its $1,000,000 Convertible Debenture (the “Debenture”) for the payment by Golden Gate of $100,000 in cash and the execution and delivery by Golden Gate of a $900,000 Secured Promissory Note of even date (the “Note”), bearing interest at 8% per annum.

The Debenture bears interest at 7.75% per annum, payable monthly, maturing June 30, 2012, and is secured by a Continuing Personal Guaranty. by, Michael H. Rouse, the Company’s CEO. The Holder shall be entitled to convert into common stock of the company at the conversion price equal to the lesser of (i) $0.50, or (ii) 80% of the average of the 3 lowest Volume Weighted Average Prices during the 20 Trading Days prior to Holder’s election to convert, as such terms are defined in the Debenture. The Holder can only convert that amount of the Debenture that has actually been paid for by either cash at closing or principal pre-payments made on the Promissory Note.

Golden Gate’s Promissory Note is payable at the rate of 8% per annum, payable monthly and provides that for the prepayment of the Note in an amount not less than $200,000 monthly upon the happening of certain events. It matures on June 30, 2012.

Provided certain conditions are met, pursuant to the terms of the Securities Purchase Agreement executed between the parties, Golden Gate or its assigns has the right to enter into 4 additional Debentures with the Company upon similar terms. The Company incurred no additional expenses in this matter and the Company is utilizing the proceeds for its on-going working capital needs.

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.

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 entered into a Strategic Alliance Agreement (the “Agreement”) dated January 21, 2009 with Aerospace Machinery & Electric Co. Ltd., a Chinese corporation (“AMEC”) for the purpose of providing a framework for the collaboration between the two companies on the development and commercialization of the Detonation Cycle Gas Turbine Engine (“DCGT”) specifically for application opportunities in the Peoples Republic of China. The terms of the Agreement call for AMEC and TTE to collaborate on modifying and applying the DCGT engine technology to, among other things, create two new engine sizes: a 150hp engine for automobiles and a 400hp engine for buses. The Agreement also provides that the parties anticipate that, pursuant to AMEC’s participation and performance under this Agreement, that they will enter into a Joint Venture agreement in the future whereby TTE will grant AMEC the exclusive rights to manufacture, market and sell the DCGT engines in China.

The Agreement provides that each Company will work independently and collectively, at their own expense, in a friendly competitive manner towards the modification of the DCGT to see who can make the best design or give the best innovative ideas to the DCGT engines, with Michael Rouse, the Company’s CEO being the final decision maker on the ultimate design questions. Robert L Scragg, the inventor and patent holder has filed for patent protection in China under the PCT (Patent Cooperation Treaty). In conjunction with the Agreement, the parties also executed a Confidentiality Agreement of even date with the Agreement.

 

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The Company may receive proceeds in the future from the exercise of warrants and options outstanding as of December 31, 2008 in accordance with the following schedule:

 

     Approximate
Number of
Shares		    Approximate
Proceeds

2006 Non-Plan Options and Warrants

    1,398,413    $ 955,033

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.

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 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

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities. (“SFAS 161”). SFAS 161 requires additional disclosures related to the use of derivative instruments, the accounting derivatives and the financial statement impact of derivatives. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS 161 will not have a material impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal

 

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or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The adoption of this statement will not have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United Statements. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of this statement will not have a material effect on the Company’s financial statements.

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 present or future financial statements.

 

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

 

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ITEM 8. FINANCIAL STATEMENTS

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

Report of Independent Registered Public Accounting Firm

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

Contents

 

Report of Independent Registered Public Accounting Firm    18
Financial Statements:   

Balance Sheets

    19

Statements of Operations

    20

Statements of Changes in Stockholders’ Deficit

    21-28

Statements of Cash Flows

    29-30

Notes to Financial Statements

    31-48

 

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Report of Independent Registered Public Accounting Firm

Audit Committee

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

DeLand, Florida

We have audited the accompanying balance sheets of Turbine Truck Engines, Inc. (a development stage enterprise) as of December 31, 2008 and 2007 and the related statements of operations, changes in stockholders' deficit, and cash flows for the years ended December 31, 2008 and 2007 and the period from November 27, 2000 (Date of Inception) through December 31, 2008. 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 audits.

We conducted our audits 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 audits 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, 2008 and 2007 and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007 and the period from November 27, 2000 (Date of Inception) through December 31, 2008 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 $982,677 during the year ended December 31, 2008 and has an accumulated deficit of $9,292,006 from inception to December 31, 2008. 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 31, 2009

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Balance Sheets

 

     December 31,
2008		     December 31,
2007		  

Assets

     

Current assets:

     

Cash

    $ 2,857     $ 2,822  

Prepaid expenses

        2,330  

Loan costs net of accumulated amortization

      4,300    
                

Total current assets

      7,157       5,152  
                

Furniture and equipment, net of accumulated depreciation of $35,721 (2008) and $17,665 (2007)

      13,001       31,057  
                
   $ 20,158       36,209  
                

Liabilities and Stockholders’ Deficit

     

Current liabilities:

     

Accounts payable

    $ 145,579     $ 40,060  

Accrued expenses

      275,250       270,155  

Accrued interest

      13,113       12,879  

Accrued payroll

        11,488  

Accrued royalty fees

      562,500       312,500  

Due to related party

      23,854       39,500  

Note payable

      500    
                

Total current liabilities

      1,020,796       686,582  

Accrued payroll – long term

      386,846       340,174  

Convertible note payable net of unamortized discount of $13,544

      49,456    

Note payable to related party

      1,901       1,901  
                

Total liabilities

      1,458,999       1,028,657  

Stockholders’ deficit:

     

Preferred stock; $.001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding

     

Common stock; $.001 par value; 99,000,000 shares authorized; 21,859,764 (2008) and 17,349,346 (2007) shares issued and outstanding

     21,858       17,347  

Additional paid in capital

      8,099,730       7,484,124  

Deficit accumulated during development stage

      (9,292,006 )     (8,309,329 )

Prepaid consulting services paid with common stock

      (101,333 )     (17,500 )

Receivable for common stock

      (167,090 )     (167,090 )
                

Total stockholders’ deficit

      (1,438,841 )     (992,448 )
                
   $ 20,158     $ 36,209  
                

The accompanying notes are an integral part of the financial statements.

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Statements of Operations

 

     Years Ended December 31,     Period
November 27,
2000 (Date of
Inception) through
December 31,
2008		  
     2008     2007    

Research and development costs

    $ 136,088     $ 291,395     $ 3,418,192  

Operating costs

      827,365       2,194,211       5,802,243  
                        
     963,453       2,485,606       9,220,435  

Interest (income) expense

      19,224       (15,254 )     71,571  
                        

Net loss

    $ (982,677 )   $ (2,470,352 )   $ (9,292,006 )
                        

Net loss per share

    $ (0.05 )   $ (0.16 )   $ (0.74 )
                        

Weighted average number of common shares outstanding

      18,884,072       15,309,332       12,568,360  
                        

The accompanying notes are an integral part of the financial statements.

 

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Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2008

 

     Common Stock              
     Shares     Amount     Additional
Paid in
Capital		     Deficit
Accumulated
During
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.

 

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     Deferred
Non-Cash
Offering
Costs		     Prepaid
Consulting
Services
Paid for
with
Common
Stock		    Receivable
for
Common
Stock		    Subscription
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 )

 

22

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2008

 

     Common Stock             
     Shares    Amount    Additional
Paid in
Capital		     Deficit
Accumulated
During
Development
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.

 

23

Table of Contents
     Deferred
Non-Cash
Offering
Costs		    Prepaid
Consulting
Services
Paid for
with
Common
Stock		     Receivable
for
Common
Stock		    Subscription
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.

 

24

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2008

 

     Common Stock            
     Shares    Amount    Additional
Paid in
Capital		    Deficit
Accumulated
During
Development
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.

 

25

Table of Contents
     Deferred
Non-Cash
Offering
Costs		    Prepaid
Consulting
Services
Paid for
with
Common
Stock		     Receivable
for
Common
Stock		     Subscription
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  

 

26

Table of Contents

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 )   $ (167,000 )   $ (90 )   $ (992,448 )

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years from November 27, 2000 (Date of Inception) through December 31, 2008

 

     Common Stock            
     Shares    Amount    Additional
Paid in
Capital		    Deficit
Accumulated
During
Development
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   

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 ($0.07, 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

 

27

Table of Contents
     Deferred
Non-Cash
Offering
Costs		    Prepaid
Consulting
Services
Paid for
with
Common
Stock		     Subscription
Receivable		     Total  

Issuance of common stock and warrants for cash, January ($0.15, per shares)

             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 shares)

             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  

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 )
                               

 

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Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statements of Cash Flows

 

     Year Ended December 31,        
     2008     2007     Period
November 27,
2000 (Date of
Inception)
through
December 31,
2008		  

Operating activities

       

Net loss

    $ (982,677 )   $ (2,470,352 )   $ (9,292,006 )

Adjustments to reconcile net loss to net cash used by operating activities:

       

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

      216,936       1,148,628       2,217,073  

Options and warrants issued to employees, directors and consultants

      29,578       263,658       526,776  

Contribution from shareholder

          188,706  

Amortization of beneficial conversion feature

      11,456         11,456  

Amortization of deferred loan costs

      700         700  

Write off deferred offering costs

          119,383  

Write off of deferred non cash offering costs

          49,120  

Depreciation

      18,056       11,978       35,721  

Amortization of discount on notes payable

          33,858  

Decrease (increase) in prepaid expenses

      2,330       (2,330 )  

Increase (decrease) in:

       

Accounts payable

      105,519       (14,630 )     145,579  

Accrued expenses

      5,095       128,050       275,250  

Accrued payroll

      35,184       198,105       386,846  

Accrued royalty fees

      250,000       250,000       979,167  

Accrued interest

      234         13,113  
                        

Net cash used by operating activities

      (307,589 )     (486,893 )     (1,573,609 )
                        

Investing activities

       

Issuance of notes receivable from stockholders

          (23,000 )

Repayment of notes receivable from stockholders

          22,095  

Advances to related party

          805  

Purchase of fixed assets

        (35,433 )     (43,723 )
                        

Net cash used by investing activities

        (35,433 )     (43,823 )
                        

Financing activities

       

Repayment of stockholder advances

      (30,150 )     (40,333 )     (133,230 )

Advances from stockholders

      15,004       43,445       266,152  

Increase in deferred offering costs

          (194,534 )

Proceeds from issuance of common stock

      227,770       475,954       1,479,841  

Proceeds from exercise of options

        45,000       45,000  

Proceeds from issuance of subscription

          (90 )

Proceeds from issuance of notes payable

      95,000         157,250  
                        

Net cash provided by financing activities

      307,624       524,066       1,620,289  
                        

Net increase in cash

      35       1,740       2,857  

Cash at beginning of year/period

      2,822       1,082    
                        

Cash at end of year/period

    $ 2,857     $ 2,822     $ 2,857  
                        

The accompanying notes are an integral part of the financial statements.

 

29

Table of Contents
     Year Ended
December 31,		    Period
November
27, 2000
(Date of
Inception)
through
December 31,
     2008    2007    2008

Supplemental disclosures of cash flow information and non cash investing and financing activities:

         

Cash paid for interest

    $ 7,536    $ 748    $ 8,284
                    

Subscription receivable for issuance of common stock

    $ 0    $ 0    $ 90
                    

Option to acquire license for issuance of common stock

    $ 0    $ 0    $ 10,000
                    

Deferred offering costs netted against issuance of common stock under private placement

    $ 0    $ 0    $ 33,774
                    

Deferred offering costs netted against issuance of common stock

    $ 0    $ 0    $ 41,735
                    

Value of beneficial conversion feature of notes payable

    $ 0    $ 0    $ 19,507
                    

Deferred non-cash offering costs in connection with private placement

    $ 0    $ 0    $ 74,850
                    

Application of amount due from shareholder against related party debt

    $ 0    $ 0    $ 8,099
                    

Amortization of offering costs related to stock for services

    $ 0    $ 0    $ 25,730
                    

Settlement of notes payable in exchange for common stock

    $ 0    $ 0    $ 356,466
                    

Common stock issued in exchange for prepaid services

    $ 194,600    $ 700,500    $ 1,285,100
                    

Common stock issued in exchange for accrued royalties

    $ 0    $ 0    $ 416,667
                    

Receivable issued for exercise of common stock options

    $ 0    $ 167,000    $ 167,000
                    

Common stock issued in exchange for fixed assets

    $ 0    $ 5,000    $ 5,000
                    

Beneficial conversion feature on convertible notes payable

    $ 25,000    $ 0    $ 25,000
                    

Conversion of convertible debt to equity (499,468 shares of common stock)

    $ 37,000    $ 0    $ 37,000
                    

The accompanying notes are an integral part of the financial statements.

 

30

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

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. 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 DeLand, Florida. The Company’s planned line of business will be 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 entered into a Strategic Alliance Agreement (the “Agreement”) dated January 21, 2009 with Aerospace Machinery & Electric Co. Ltd., a Chinese corporation (“AMEC”) for the purpose of providing a framework for the collaboration between the two companies on the development and commercialization of the Detonation Cycle Gas Turbine Engine (“DCGT”) specifically for application opportunities in the Peoples Republic of China. The terms of the Agreement call for AMEC and TTE to collaborate on modifying and applying the DCGT engine technology to, among other things, create two new engine sizes: a 150hp engine for automobiles and a 400hp engine for buses. The Agreement also provides that the parties anticipate that, pursuant to AMEC’s participation and performance under this Agreement, that they will enter into a Joint Venture agreement in the future whereby TTE will grant AMEC the exclusive rights to manufacture, market and sell the DCGT engines in China.

The Agreement provides that each Company will work independently and collectively, at their own expense, in a friendly competitive manner towards the modification of the DCGT to see who can make the best design or give the best innovative ideas to the DCGT engines, with Michael Rouse, the Company’s CEO being the final decision maker on the ultimate design questions. Robert L Scragg, the inventor and patent holder has filed for patent protection in China under the PCT (Patent Cooperation Treaty). In conjunction with the Agreement, the parties also executed a Confidentiality Agreement of even date with the Agreement.

 

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, 2008 and since November 27, 2000 (date of inception) through December 31, 2008, the Company has had a net loss of $982,677 and $9,292,006, respectively. As of December 31, 2008, 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

 

31

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

2. Going Concern (Continued)

 

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.

 

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.

The Company’s financial instruments include cash, accounts payable, accrued liabilities, notes payable, and embedded derivatives related to the convertible note 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 fair value of the embedded derivatives are based on Level 3 inputs as discussed in Note 13.

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

 

32

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

3. Significant Accounting Policies (Continued)

 

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, 2008 and 2007 and the period November 27, 2000 (date of inception) to December 31, 2008 amounted to $136,088, $291,395 and $3,418,192, 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 9.

The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) on January 1, 2007. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. The adoption of FIN 48 did not have a material impact to the Company’s financial statements.

Earnings per common share are computed in accordance with SFAS No. 128, “Earnings Per Share,” which requires companies to present basic earnings per share and diluted earnings per share. 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, 2008 and 2007 and the period from November 27, 2000 (Date of Inception) through December 31, 2008 were anti-dilutive due to the net

 

33

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

3. Significant Accounting Policies (continued)

 

losses sustained by the Company during these periods. The diluted weighted average number of shares, including these common share equivalents would have been 20,282,485, 17,667,745 and 13,966,773 for the years ended December 31, 2008 and 2007 and the period from November 27, 2000 (Date of Inception) through December 31, 2008, respectively.

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 EITF 96-18 “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services”. Costs for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. 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 instruments is reached or (i) the date at which the counterparty’s performance is complete. For the periods ended December 31, 2008, and 2007 the Company recognized $29,578 and $155,188, respectively, in consulting expenses and a corresponding increase to additional paid-in-capital related to common stock options issued for these services. Additionally, the Company recognized $110,768 and $890,112 in consulting expense related to prepaid consulting services paid for with common stock for the periods ended December 31, 2008 and 2007, respectively.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated 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). We adopted SFAS 123R effective beginning January 1, 2006. Prior to the adoption of SFAS 123(R) we did not issue any stock options. The Company amortizes compensation expenses on a straight-line basis over the requisite service period. As of December 31, 2008, there was no unrecognized stock-based compensation expense related to nonvested stock options.

 

34

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

3. Significant Accounting Policies (continued)

 

The following table represents our nonvested stock option and warrant activity for the year ended December 31, 2008:

 

     Number of
Options/Warrants		     Weighted Average
Grant Date
Fair Value

Nonvested options - December 31, 2007

    800,000     $ 0.52

Granted

    —       $ —  

Vested

    —       $ —  

Forfeited

    (800,000 )   $ 0.52
            

Nonvested options - December 31, 2008

    —       $ —  
            

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS 159 permits the measurement of specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. There was no impact upon adoption of SFAS 159, as we did not elect the fair value provisions.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; 2) in a business combination achieved in stages, sometimes referred to as a step acquisition, recognizes the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values; 3) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS 141R establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008 adoption of SFAS 141R will have an impact on our accounting for future business combinations; however, the materiality of that impact cannot be determined.

 

35

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

3. Significant Accounting Policies (continued)

 

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (“SAB 110”) which allows companies that do not have sufficient historical experience for estimating the expected term of “plain vanilla” share option grants to provide a reasonable estimate and to continue use of the “simplified” method after December 31, 2008. SAB 110 extends the opportunity to use the “simplified” method beyond December 31, 2008, as was allowed by Staff Accounting Bulletin No. 107 (“SAB 107”). Adoption of SAB 110 will not impact our financial statements as we did not use the “simplified” method to estimate lives of share-based awards.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” or “SFAS No. 161.” SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Company does not expect SFAS No. 161 to have a material impact on its results of operations or financial condition.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The adoption of this statement will not have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United Statements. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of this statement will not have a material effect on the Company’s financial statements.

 

36

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

3. Significant Accounting Policies (continued)

 

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 present or future 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;

 

•  

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 $.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.

During the year ended December 31, 2005, the Company issued 125,000 shares of common stock in satisfaction of the $250,000 note and the accrual of the minimum royalty fees began. In addition, during the year ended December 31, 2006, the Company paid $416,667 of royalty fees through the issuance of 100,000 shares of common stock. As of December 31, 2008, the Company has accrued $562,500 of royalty fees related to this agreement.

 

37

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

4. Option to Acquire License (continued)

 

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 $2,735,649 of research and development expense for the acquisition of 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. Prepaid Consulting Services Paid with Common Stock

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 150,000 shares of common stock. These shares were valued at $172,500 to be amortized through June 2007 at $14,375 per month. For the year ended December 31, 2007, $79,062 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 150,000 shares of common stock. These shares were valued at $75,000 to be amortized through May 2007 at $12,500 per month. For the year ended December 31, 2007, $56,250 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 109,091 shares of common stock. These shares were valued at $120,000 to be amortized through July 2007 at $10,000 per month. For the year ended December 31, 2007 $65,000 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 10,000 shares of common stock. These shares were valued at $5,000 to be amortized through July 2007 at $417 per month. For the year ended December 31, 2007, $2,708 has been included in consulting expense.

 

38

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2006,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

5. Prepaid Consulting Services Paid with Common Stock (continued)

 

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 10,000 shares of common stock. These shares were valued at $5,000 to be amortized through September 2007 at $455 per month. For the year ended December 31, 2007, $4,091 has been included in consulting expense.

During the year ended December 31, 2007, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 25,000 shares of common stock. These shares were valued at $17,500 and were all expensed during the year ended December 31, 2008 when the services were provided.

During the year ended December 31, 2007, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 1,300,000 shares of common stock. These shares were valued at $650,000 to be expensed upon the achievement of certain goals set forth in the agreement. For the year ended December 31, 2007, $650,000 has been included in consulting expense.

During the year ended December 31, 2008, the Company entered into a consulting agreement for public relations services in exchange for 380,000 shares of common stock valued at $61,600 to be provided through October 2008. As of December 31, 2008, the Company has included $61,600 in consulting expense related to this agreement.

During the year ended December 31, 2008, the Company entered into a consulting agreement for consulting services in exchange for 100,000 shares of common stock valued at $20,000 to be provided through May 27, 2009. As of December 31, 2008, the Company has included $8,333 in prepaid consulting services paid with common stock. For the year ended December 31, 2008, the Company recognized $11,667 in consulting expense related to this agreement.

During the year ended December 31, 2008, the Company entered into a consulting agreement for various consulting services in exchange for 300,000 shares of common stock valued at $48,000. As of December 31, 2008, the Company has included $28,000 in prepaid consulting services paid with common stock. For the year ended December 31, 2008, the Company recognized $20,000 in consulting expense related to this agreement.

 

39

Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

5. Prepaid Consulting Services Paid with Common Stock (continued)

 

During the year ended December 31, 2008, the Company entered into a consulting agreement for various consulting services in exchange for 500,000 shares of common stock valued at $65,000 to be amortized through July 2009 at $9,286 per month. As of December 31, 2008, the Company has included $65,000 in prepaid consulting services paid with common stock.

 

6. Furniture and equipment

Furniture and equipment at December 31 consist of the following:

 

     2008    2007

Furniture and fixtures

    $ 1,505    $ 1,505

Equipment

      9,394      9,394

Leasehold improvements

      37,823      37,823
             
     48,722      48,722

Less accumulated depreciation and amortization

      35,721      17,665
             
   $ 13,001    $ 31,057
             

 

7. Options and warrants

During the year ended December 31, 2008, the Company issued 200,000 warrants for services rendered from a consultant. The warrants entitle the holder to purchase 200,000 shares of the Company’s common stock, at any time, at an exercise price of $0.10 per share and expire in 2018. For the period ended December 31, 2008, the Company recognized $29,578 in expense related to this issuance.

During the years ended December 31, 2008 and 2007, the Company issued 100,000 and 538,413 warrants, respectively, in conjunction with the issuance of common stock. The warrants entitle the holder to purchase 100,000 and 538,413 shares of the Company’s common stock, respectively, at any time, at exercise prices ranging from $0.30 to $1.00 per share, respectively and expire in 2010 and 2009, respectively.

For the periods ended December 31, 2008 and 2007, the Company recognized $29,578 and $263,658 in compensation expense related to stock options and warrants issued to consultants and employees, which is included in the statements of operations.

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

7. Options and warrants (continued)

 

The Company’s 2006 Incentive Compensation Plan authorized up to 2,000,000 shares of common stock to any employee or Consultant during any one calendar year for grants of both incentive stock options and non-qualified stock options to key employees, officers, directors, and consultants. Options granted under the Plan must be exercised within a term determined by the Board of Directors. The Option Price payable for the shares of Common Stock covered by any Option shall be determined by the Board of Directors, provided that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of the Option and shall not, in any event, be less than the par value of a Share on the date of grant of the Option.

The Company’s 2008 Incentive Compensation Plan authorizes up to 5,000,000 shares of common stock to restrictions on resale upon the purchasers of the Stock from the employees or the consultants, unless contained in the written award approved by the Board of Directors. As of December 31, 2008, no shares have been issued under this plan.

The fair value of each option under the 2006 Incentive Compensation Plan was 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 period 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.

 

     2008     2007  

Expected volatility

    146.8% - 148 %   129.1% -146.9 %

Expected dividends

    0     0  

Expected term

    2 - 10 years     2 years  

Risk-free rate

    2.09% - 2.18 %   3.04% -4.87 %

 

2006 Incentive Compensation Plan
     Shares     Range of Exercise
Prices 		   Weighted Average
Grant Date Fair
Value

Outstanding and Exercisable

        

Outstanding at December 31, 2007

    2,358,413     $ 0.43 – 2.00   

Options and warrants granted

    300,000     $ 0.10 – 0.30    $ 0.15

Options and warrants exercised

      $     

Options and warrants cancelled or expired

    (1,260,000 )   $ 0.50 – 0.60   
           

Outstanding at December 31, 2008

    1,398,413     $ .10 – $2.00   

Exercisable at December 31, 2008

    1,398,413     $ .10 – $2.00   

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

7. Options and warrants (continued)

 

The following table summarizes information about options and warrants outstanding and exercisable as of December 31, 2008:

 

     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

$.10 - $2.00

    1,398,413    2.23 Years    $ 0.68    2.23 Years    1,398,413    $ 0.68

As of December 31, 2008 there were 1,398,413 options and warrants exercisable at a weighted average exercise price of $0.68. The intrinsic value of both the exercisable and outstanding options and warrants at December 31, 2008, based on the quoted market rate of $0.08 per common share is $0. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options.

As of December 31, 2007 there were 1,558,413 options and warrants exercisable at a weighted average exercise price of $0.75. The intrinsic value of both the exercisable and outstanding options and warrants at December 31, 2007, based on the quoted market rate of $0.40 per common share is $0.

Net cash proceeds from the exercise of options and warrants were $0 and $45,000, respectively, for the years ended December 31, 2008 and 2007. The intrinsic value of options and warrants exercised was $0 and $0, respectively, for the years ended December 31, 2008 and 2007.

 

8. Commitments and Contingencies

Once the Company becomes operational it will be obligated to pay production royalties to Alpha at the rate of eight percent of net sales of the Detonation Cycle Gas Turbine Engine. The minimum royalty amount is $250,000 per year, and the Company began accruing for the fee in February 2005. The royalty fee will be reduced by production royalties paid. Unpaid royalty fees amounted to $562,500 and $312,500 as of December 31, 2008 and 2007, respectively.

On February 1, 2006, the Company entered into an agreement with Embry-Riddle Aeronautical University to complete a 3D model and certain modifications to the original Detonation Gas Turbine Engine in exchange for a fixed price amount. The Company has expensed $10,670 related to this agreement which expired on June 30, 2007. On August 31, 2007, the Company extended the original agreement through December 31, 2009 with a total additional amount not to exceed approximately $297,000. There have been no additional costs incurred during the years ended December 31, 2008 and 2007.

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

8. Commitments and Contingencies (continued)

 

The Company leases its corporate headquarters on a month-to-month basis. For the periods ended December 31, 2008 and 2007, rent expense was $33,600 and $41,800, respectively.

During the year ended December 31, 2007, the Company entered into a lease agreement with Air Papa Bravo, Corporation to lease an airplane hanger for the development of the prototype. The lease agreement is for a two year period expiring March 31, 2009 with an option to extend the lease for a second two year term. The base rent is $2,000 per month and the lease agreement contains an option to purchase the facility for $310,000 at the expiration of the lease. The Company has negotiated month to month terms at the end of this lease until a new lease can be negotiated.

Future minimum lease payments are $6,000 during the year ended December 31, 2009.

 

9. 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, 2008 or 2007.

There is no current or deferred income tax expense or benefit allocated to continuing operations for the years ended December 31, 2008 or 2007 or the period November 27, 2000 (Date of inception) through December 31, 2008.

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:

 

     2008     2007  

Tax expense (benefit) at U.S. statutory rate

    $ (334,100 )   $ (839,900 )

State income tax expense (benefit), net of federal benefit

      (35,000 )     (57,300 )

Stock option expense

      3,900       302,600  

Effect of non-deductible expenses

      2,800       (8,000 )

Change in valuation allowance

      362,400       602,600  
                
   $ —       $ —    
                

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

9. Income Taxes (continued)

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 are as follows:

 

Deferred tax assets (liability), noncurrent:

   

Depreciation

      7,100  

License agreement

      554,300  

Capitalized start up costs

      2,395,400  

Net operating loss

      13,600  

Stock compensation

      85,200  

Contribution carryover

      900  

Beneficial Conversion feature

      (5,100 )

Valuation allowance

      (3,051,400 )
        
   $ —    
        

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, 2008.

As of December 31, 2008, the Company had federal and state net operating loss carry-forwards totaling approximately $36,000 which begin expiring in 2022.

 

10. 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, 2008 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, 2009.

The due to related party account is made up of advances from the majority shareholder to assist the Company with its financial obligations. These advances are non-interest bearing, unsecured and due on demand.

As of December 31, 2008 and 2007, accounts payable included $25,150 and $18,250, respectively, for various accounting services, due to the Company’s Chief Accounting Officer who is also a director of the Company.

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.

 

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

11. Convertible Note Payable

In June 2008, the Company issued a Convertible Debenture to Golden Gate Investors, Inc. (the “holder”) in the principal amount of $1,000,000, dated June 6, 2008, pursuant to Rule 506 promulgated by the Securities and Exchange Commission, for the purpose of accessing necessary funding to continue operations.

Pursuant to the terms of the Debenture, the related Securities Purchase Agreement, Secured Promissory Note and Stock Pledge Agreement, each executed in connection therewith, the Company has issued its $1,000,000 Convertible Debenture (the “Debenture”) for the payment by Golden Gate of $100,000 in cash and the execution and delivery by Golden Gate of a $900,000 Secured Promissory Note of even date (the “Note”), bearing interest at 8% per annum. For financial statement purposes, these items have been netted, as the Company has the legal right of offset.

The Debenture bears interest at 7.75% per annum, payable monthly, maturing June 30, 2012, and was secured by a Continuing Personal Guaranty, whereby the Company’s Chief Executive Officer and majority shareholder guaranteed the Company’s obligations for a period of eight months. The Debenture Holder shall be entitled to convert into common stock of the company at the conversion price equal to the lesser of (i) $0.50, or (ii) 80% of the average of the 3 lowest Volume Weighted Average Prices during the 20 Trading Days prior to Holder’s election to convert, as such terms are defined in the Debenture. The Holder can only convert that amount of the Debenture that has actually been paid for by either cash at closing or principal pre-payments made on the Promissory Note.

Golden Gate’s Promissory Note is payable at the rate of 8% per annum, payable monthly and provides that for the prepayment of the Note in an amount not less than $200,000 monthly upon the triggering of certain events. It matures on June 30, 2012.

Related to the variability associated with the conversion price on the debenture, the Company considered the guidance in SFAS No. 133, and Emerging Issues Task Force 00-19, “Accounting for Derivative Financial Instructions Indexed To, and Potentially Settled In, a Company’s Own Stock.” The Company’s Chief Executive Officer and majority shareholder has the ability to increase the authorized shares of common stock of the Company to a level that would maintain the net share settlement of any potential conversion within the Company’s control. As a result, the embedded conversion option was determined to be a component of equity. Accordingly, the Company recorded a beneficial conversion feature (BCF) based on the intrinsic value of the Company’s common stock at the commitment date of the debenture. The debt discount associated with the BCF is being amortized over the life of the debt.

The agreement also calls for the Company to maintain timely filing of all reports required by the Securities and Exchange Commission (“SEC”). In the event the Company does not maintain

 

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Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

11. Convertible Note Payable (continued)

 

timely filings, the note calls for a default payment of 150% of the outstanding principle balance. Per the guidance in EITF 00-19, if the note holder’s require cash payments in the event the Company fails to make timely filings with the SEC, then the contract must be classified as an asset or a liability. The Company has not historically been late on its filings with the SEC, so the probability of the Company filing late is so remote as to make the fair value of the embedded derivative de minimus, therefore, the Company has not recorded an underlying asset or liability associated with this feature.

The debenture also has an interest rate adjustment indexed to changes in the Company’s common stock. In the event that the Company’s common stock trades at $0.049 or lower, at any time during the six month period from the date of the agreement, and ending on the six month anniversary date of the agreement, the interest rate increases to 9.75% for the remaining life of the debenture. The Company has determined that feature was a derivative liability. However, as of December 31, 2008, the derivative liability was determined to have no value.

The following table presents the activity during 2008 related to the debenture:

 

Principal balance of the debenture

    $ 100,000  

Less reduction for:

   

Intrinsic value of beneficial conversion feature

      (25,000 )
        

Recorded at closing

    $ 75,000  

Amounts converted into common stock

      (37,000 )

Amortization of beneficial conversion feature (interest expense) through December 31, 2008

      11,456  
        

Carrying value at December 31, 2008

    $ 49,456  
        

 

12. Fair Value Measurements

Effective January 1, 2008, we adopted SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

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Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

12. Fair Value Measurements (continued)

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The adoption of SFAS No. 157 did not have a material impact on our fair value measurements.

The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

 

          Fair Value Measurements at Reporting
Date Using		  

Description

    December
31, 2008		    Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)		    Significant
Other
Observable
Inputs
(Level 2)		    Significant
Unobservable
Inputs
(Level 3)		  

Liabilities

            

Convertible debenture embedded derivative related to timely filing (see note 10)

    $ —      $ —      $ —      $ 0 1

Convertible debenture embedded derivative related to interest rate adjustment

    $ —      $ —      $ —      $ 0 2
                             

Total Liabilities

    $ —      $ —      $ —      $ —    
                             

 

1

Due to low probability of late filing, value was determined to be de minimus as of December 31, 2008.

2

Event triggering interest rate adjustment has not occurred, therefore no value assigned as of December 31, 2008.

 

13. Subsequent Event

The Company entered into a Strategic Alliance Agreement (the “Agreement”) dated January 21, 2009 with Aerospace Machinery & Electric Co. Ltd., a Chinese corporation (“AMEC”) for the purpose of providing a framework for the collaboration between the two companies on the development and commercialization of the Detonation Cycle Gas Turbine Engine (“DCGT”) specifically for application opportunities in the Peoples Republic of China. The terms of the Agreement call for AMEC and TTE to collaborate on modifying and applying the DCGT engine technology to, among other things, create two new engine sizes: a 150hp engine for automobiles and a 400hp engine for buses. The Agreement also provides that the parties anticipate that, pursuant to AMEC’s participation and performance under this Agreement, that they will enter into a Joint Venture agreement in the future whereby TTE will grant AMEC the exclusive rights to manufacture, market and sell the DCGT engines in China.

 

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Table of Contents

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2008 and 2007,

and the Period November 27, 2000 (Date of Inception)

through December 31, 2008

 

13. Subsequent Event

 

The Agreement provides that each Company will work independently and collectively, at their own expense, in a friendly competitive manner towards the modification of the DCGT to see who can make the best design or give the best innovative ideas to the DCGT engines, with Michael Rouse, the Company’s CEO being the final decision maker on the ultimate design questions. Robert L Scragg, the inventor and patent holder has filed for patent protection in China under the PCT (Patent Cooperation Treaty). In conjunction with the Agreement, the parties also executed a Confidentiality Agreement of even date with the Agreement.

In January 2009, related to the convertible note payable described in Note 12, the holders converted $35,000 of convertible notes to 531,905 shares of common stock at conversion prices ranging from $0.06 to $0.09 per share. Additionally, in January 2009, the Company received $200,000 in cash proceeds from the holders on terms as more fully described in Note 11.

 

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Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

ITEM 9A(T). CONTROLS AND PROCEDURES

The Company’s Chief Financial Officer and acting 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, 2008 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 acting Chief Financial Officer does not relate to reporting periods after December 31, 2008.

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 Rules 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.

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 its 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 acting 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, 2008 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 the lack of an independent Audit Committee Chair, as well as a lack of segregation of duties, resulting from the Company’s limited resources.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2008, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B OTHER INFORMATION

None

Part III

 

ITEM 10. 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    52    President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer And Principal Financial Officer)
Phyllis J. Rouse    50    Vice President, Secretary, Treasurer and Director
John R. Dickinson    42    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

 

49

Table of Contents

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.

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.

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.

 

ITEM 11. 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 Board

    2008

2007

    $

$

 52,000

100,000

    0

0

     

 

 0

0

    0

0

    0

0

    0

0

    0

0

    $
$		 52,000
100,000

James A. Teters, Jr.
President, COO and Director

    2008

2007

    $

$

 0

52,000

    0

0

     

$

 0

27,987

    0

0

    0

0

    0

0

    0

0

    $

$

 0

79,9877

Phyllis J. Rouse
Vice President, Secretary, Treasurer and Director

    2008

2007

    $

$

 36,833

52,000

    0

0

    $

$

 0

27,987

    0

0

    0

0

    0

0

    0

0

    $

$

 36,833

79,987

 

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Table of Contents

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008

 

      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
($)		    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares or
Other
Rights
That
Have Not
Vested
(#)		    Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares or
Other
Rights
That
Have
Note
Vested
($)

not applicable

                           

 

51

Table of Contents

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

                     

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of December 31, 2008, 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

    4,300,055    19.67 %

Alpha Engines Corporation (1)

    4,939,803    22.59 %

Phyllis J. Rouse (2)

    150,000    0.68 %

All directors and executive officers as a group (4 persons)

    9,679,858    44.28 %

 

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.

 

52

Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

None

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

During 2008 and 2007, we were billed by our accountants, Pender Newkirk & Company, approximately $57,000 and $44,300 for audit and review fees associated with our 10-K, 10-KSB, 10-Q and 10-QSB filings.

Tax Fees

During 2008 and 2007, we were billed by our accountants, Pender Newkirk & Company, approximately $0 and $0 for tax work.

All Other Fees

During 2008 and 2007, we were billed by our accountants, Pender Newkirk & Company, approximately $0 and $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.

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Regulation

Number

   

Exhibit

  3.1

    Certificate of Incorporation, as amended (1)

  3.2

    Certificate of Amendment (2)

  3.3

    Bylaws (1)

31.1

    Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer

32.1

    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer and Chief Financial Officer

 

(1) Incorporated by reference to the exhibits filed with the registrant’s registration statement on Form 10-SB, file no. September 25, 2005.
(2) Incorporated by reference to the exhibits filed with the registrant’s amended current report on Form 8-K dated March 1, 2006, file no. 0-50993.

 

53

Table of Contents

SIGNATURES

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: March 31, 2009   By:  

/s/ Michael Rouse

    Chief Executive Officer and Chairman of the Board (Principal Executive Officer and Principal Financial Officer)
Dated: March 31, 2009   By:  

/s/ Rebecca A. McDonald

    Principal Accounting Officer

 

54

EX-31.1 2 dex311.htm SECTION 302 CEO AND CFO CERTIFICATION Section 302 CEO and CFO Certification

Exhibit 31.1

SECTION 302 CFO CERTIFICATION

EX-31.1 Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

I, Michael Rouse, certify that:

1. I have reviewed this annual report on Form 10-K of Turbine Truck Engines, Inc.:

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

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

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

 

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

 

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

 

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

 

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

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

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

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

 

Date: March 30, 2009

/s/ Michael Rouse

Chief Executive Officer and Chairman of the Board (Principal Executive Officer and Principal Financial Officer)

Exhibit 31.2

SECTION 302 CFO CERTIFICATION

EX-31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

I, Rebecca McDonald, certify that:

1. I have reviewed this annual report on Form 10-K of Turbine Truck Engines, Inc.:

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

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

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

Date: March 30, 2009

/s/ Rebecca A. McDonald

Principal Accounting Officer
 EX-32.1 3 dex321.htm SECTION 906 CEO AND CFO CERTIFICATION Section 906 CEO and CFO Certification

Exhibit 32.1

EX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Solely for the purposes of complying with 18 U.S.C. §1350, I, the undersigned Chief Executive Officer of Turbine Truck Engines, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-K of the Company for the year ended December 31, 2008, (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: March 30, 2009

/s/ Michael Rouse

Chief Executive Officer and Chairman of the Board (Principal Executive Officer and Principal Financial Officer)
Chief Executive Officer
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