Novo Integrated Sciences, Inc. - Annual Report: 2010 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2010

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)

46600 Deep Woods Road, Paisley Florida 32767

(Address of Principal Executive Offices)

(386) 943-8358

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months.    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x

The Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2010 was $14,555,992.

There were 47,941,827 shares of the Registrant’s $0.001 par value common stock outstanding as of March 18, 2011.

Documents incorporated by reference: none

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TURBINE TRUCK ENGINES, INC.

FORM 10-K INDEX

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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

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.

AbM AGREEMENT

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 developed by Alpha 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 the 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 was our initial intention to solely target 18 wheel class 8 vehicles commonly used for transporting goods throughout the United States for distribution of our engine, however, based on the opportunities presented to the Company in China, the Company now intends to expand that goal by the licensing of other applications of the DCGT engine technology as deemed necessary and appropriate to further the development and commercialization of the engine for different applications.

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AMEC AGREEMENT

The Company entered into a Strategic Alliance 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 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 AMEC 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.

As of December 31, 2010, AMEC has completed their comprehensive investigation of the DCGT technology and believes the technology can be commercialized for a heavy duty truck application and has notified the Company that it is moving forward with acquiring the right private and governmental funding partners and securing the best divisions of Aerospace to facilitate the project. AMEC provided the Company with an introduction to Beijing Royal Aerospace Facilities Co., Ltd., a PRC corporation (“Beijing Royal”), a private Chinese Company, for the purpose of proceeding forward.(SEE BELOW)

TIANJIN AGREEMENT

The Company entered into a Strategic Alliance Agreement dated August 10, 2009 with Tianjin Out Sky Technology, Co. Ltd., a Chinese corporation (“TIANJIN”). The Company entered into the Agreement for the purpose of collaborating on the engineering, technical development and commercialization of the DCGT for motorcycle engine applications; and for the subsequent manufacturing, marketing and sale of the DCGT engines in China once commercial market potential has been achieved.

The Tianjin Agreement provides in material part that the Company will (a) provide TIANJIN with milestones and get them up to speed on the current status of the development; (b) file for patent protection in China under the Patent Cooperation Treaty; and (c) file for a new engine application with the World Intellectual Property Organization. In addition, the Company and TIANJIN intend to form a joint venture whereby TIANJIN will be licensed to manufacture market and sell DCGT motorcycle engines in China.

TIANJIN and the Company have agreed to work in good faith towards modifying the engine for motorcycle engine applications. TIANJIN committed to fund up to 10 million US dollars over the 18 months commencing with the execution of the Tiangin Agreement for project development costs and working with the Company’s development partners to aid in the development of a viable motorcycle application for the DCGT. TIANJIN’s Agreement also called for the purchase of up to 5% of the Company’s common stock on the open market.

As of December 31, 2010 TIANJIN and their engineering team have been working at their own expense and have submitted Phase One design drawings for a motorcycle DCGT engine to the Company. The Company is currently reviewing the designs. After designs are approved, the next phase involves the development of a working prototype that achieves efficiencies meeting the applications requirements. There is no formal timeline for this phase, however, it is proceeding as anticipated. Funding under this agreement would be predicated upon achievement of a working prototype.

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GUOHAO AGREEMENT

The Company entered into a LOI Joint Venture Agreement dated September 7, 2009 with GENES GUOHAO TECHNOLOGY, Co., Ltd., a Chinese corporation (“GUOHAO”) for the purpose of providing a framework for the collaboration between the two companies on the modification of the DCGT engine for coal fired power generation engine applications. The terms of the Agreement call for GUOHAO to fully fund the project and devote all available resources towards the development of the new fuel source and to work in collaboration with all of the Company’s development partners in the design modifications, construction, and testing for a dry coal slurry fuel for the DCGT. Upon completion, GUOHAO will form a new corporation to Joint Venture with TURBINE. TURBINE, in return will then license the DCGT to the new entity for a 49% ownership interest. The Joint Venture, the terms of which are to be determined at a later date, will license the entity to manufacture and sell the DCGT coal fired engines in Mongolia. As contemplated under the LOI, as of December 31, 2010 ABM engineering has conducted research into the use of coal slurries as a fuel source for the DCGT. ABM is set to complete the research upon receipt of further funding from GUOHAO. The research phase is projected to last 6 months, whereupon completion, ABM intends to conduct preliminary testing to demonstrate its viability. The Company believes that progress under this LOI is going according to schedule.

BEIJING ROYAL AGREEMENT

The Company entered into a Cooperative Agreement dated April 27, 2010 with Beijing Royal Aerospace Facilities Co., Ltd., a PRC corporation (“Beijing Royal”), 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 (“DGCT”) specifically for application to heavy duty trucks, with Beijing Royal to be the Company’s exclusive development partner with respect to 300 – 600 HP DCGT in the People’s Republic of China. The terms of the agreement replace the terms of the agreement dated January 21, 2009 with Aerospace Machinery and Electric Co., Ltd. The terms of the agreement call for the Company to complete the design plan for the 540 HP DCGT engine within three (3) months and submit it to Beijing Royal for further submission to PRC regulatory authorities for review and approval. The parties have agreed to execute a more detailed joint development contract upon the approval of the DCGT project by PRC regulatory authorities to specify the details of their cooperation on the development of the DCGT. The Beijing Royal Agreement further provides that all documentation provided by the Company to Beijing Royal at this stage shall be solely for the purpose of making a funding application, and that any further use shall be by agreement of the parties only. The intellectual properties jointly developed under the Agreement would be owned by both parties equally. As of December 31, 2010, no funding application has yet been made under this Agreement.

KINGTEC AGREEMENT

The Company entered into a Share Purchase Agreement in May 2010 with Hua Tec Enterprise Co. LTD, an international company incorporated in the Independent State of Samoa. HUA TEC owns all of the issued and outstanding shares of Guandong Kingtec Electrical Co., LTD, a wholly foreign owned enterprise established under the laws of the People’s Republic of China. Kingtec is primarily engaged in the business of manufacturing and selling automobile starters, generators and other accessories in the People’s Republic of China. The closing of this purchase agreement is contingent upon certain conditions as outlined in the agreement, the terms of which are currently being negotiated.

FALCON POWER AGREEMENT

The Company has also entered into a Strategic Alliance Agreement dated June 18, 2010, with Falcon Power Co., Ltd., a Taiwan limited by share company for the purpose of collaborating on the engineering, technical development and commercialization of the Detonation Cycle Gas Turbine Engine (“DCGT”) and the Hydrogen Generator specifically for application opportunities in Taiwan, China and other markets. The terms of the Agreement call for Falcon and TTE to collaborate on modifying and applying the DCGT engine technology to integrate with Falcon’s Hydrogen Generator, for the purpose of allowing Falcon to be able to design a suitable device for the anticipated Joint Venture.

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The Company also entered into an Exclusive Agency Agreement with Falcon Power Co., Ltd. dated June 18, 2010. This Agreement grants TTE the exclusive right to resell Falcons’ Products in the State of New York, State of Florida, State of Oklahoma and State of Colorado. As part of this Agreement the company was to pay an Agency fee to Falcon in the amount of $1,000,000, with $100,000 due within three days of the agreement and the reminder to be paid within three months following execution of the agreement. During the year ended December 31, 2010 the Company paid $100,000 of the Agency fee, which has been included as an agency fee on the accompanying balance sheet and will be amortized over the five year term of the Agreement. The remaining $900,000 of the Agency fee was to be paid from future product sales, however, in October 2010, the Agreement was amended and the Company became obligated to pay the $900,000 Agency fee in cash on June 18, 2011. As of December 31, 2010, the Company has recorded an agency fee intangible of approximately $943,000 related to these agreements.

Amortization related to these agreements was approximately $57,000 for the year ended December 31, 2010. Further amortization expense related to these agreements for the years 2011 to 2014 will be approximately $209,000 annually, and approximately $107,000 in 2015.

The Company also entered into a Share Subscription Agreement (the “Agreement”) dated July 6, 2010 with Falcon Power Co., Ltd., a Taiwan limited by share company (“Falcon”) wherein the Company and Falcon each agree to subscribe to each other’s common stock. Pursuant to the terms of the Agreement, on the Closing Date, Falcon and the Company will each subscribe to the common shares of the other, with each company purchasing One Million Five Hundred Thousand Dollars US (US $1,500,000) worth of restricted shares. The Closing Date shall be set by mutual agreement of the parties. The shares will be subject to a restriction on resale for a period of three (3) years. As of the filing date, the sale has not been consummated and no closing date has been set.

PRODUCT STATUS

To date, we have no marketable product but have completed initial testing of the 5th generation prototype. The Company has started demonstrating the engine to investors, has entered into a number of Strategic Alliance Agreements to expand the utilization of the engine, and has begun demonstrating it to potential joint venture partners. The contract with Alpha has been completed and comprehensive testing and development of the 5th generation prototype is now moving forward at AbM Engineering’s facilities. We are currently finalizing plans with ABM to construct our 6^th generation prototype. We expect for it to be built by late 1Q 2011 and testing to start in 2Q 2011.

The agreements with GUOHAO, TIANJIN, and BEIJING ROYAL are based on the company building, testing, and demonstrating a prototype that will meet the efficiencies required to commercialize the engine for their respective products. Once the company has demonstrated that it can produce an engine with the power output and efficiencies required, the time line set in the original agreements for the respective companies to fulfill their agreements and fund the company to bring the engine to full commercialization for that product will start at that time.

GOLDEN GATE

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 issued $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. As of December 31, 2010, the Company has $255,000 available to draw on the Convertible Debenture.

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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. Originally, the Debenture Holder was 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. Effective January 15, 2010, the agreement was amended with the Holder and the conversion price has a $0.15 fixed floor price that limits the number of common shares that can be issued upon conversion to a fixed amount. 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 secured Promissory Note is payable at the rate of 8% per annum with interest, payable monthly and provides for the prepayment of the Note in an amount not less than $200,000 upon the triggering of certain events. It matures on June 30, 2012. During 2010, the Company has drawn $250,000 in proceeds related to the note and converted $253,000 in convertible notes into 1,373,278 common shares. For financial statement purposes, the Securities Purchase Agreement and the Convertible Promissory Note have been netted, as the Company has the legal right of offset.

OUR PRODUCT

Our product is slated to be a new energy-efficient, Detonation Cycle Gas Turbine Engine (“DCGT”) for heavy-duty highway trucks as well as other potential applications. To date, we have no marketable product and will rely on AbM & AMEC and our Strategic Alliance partners 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.

Detonation refers to an instant burning of a fuel-air mixture producing an explosion. Cycle refers to the explosion happening in one chamber and then in another chamber, repeating over and over again. Gas is the fuel which is in a gaseous state. Turbine is a rotating wheel or disk connected to a shaft spinning in one direction. This combined process along with the Electromagnetic Isothermal Combustion “(EIC”) process creates the high efficiency, low emission engine that we intend to bring to market.

Alpha 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 here in the United States. 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.

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 was our initial intention solely to target 18 wheel class 8 vehicles commonly used for transporting goods throughout the United States for distribution of our engine, however, based on the agreements with the Chinese company’s discussed above, the Company now intends to expand that goal by the licensing of other applications of the DCGT engine technology as deemed necessary and appropriate to further the development and commercialization of the engines.

PATENTS AND LICENSE

Patent #6000214 is a novel patent with a 20-year life from the filing date of December 16, 1997. The patent was based on research and development beginning in 1984, which included the design, construction, and testing of four (4) working prototypes. The patent attorneys were Schoemaker & Mattare Ltd. The inventor 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.

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This patent in its simplicity makes it very unique. A detonation cycle gas turbine engine includes a turbine rotor contained in a housing. The exhaust ports of respective 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:

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.

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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:

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 are currently exploring additional applications.

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 years, the Company has spent $208,565 (2010) and $108,958 (2009) on research and development.

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

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. 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, 2010, the Company has accrued $1,051,500 of royalty fees related to this agreement.

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

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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 four full-time employees. Staffing levels will be determined as we progress and grow. We also plan to add several employees to our staff. The level of employees is primarily contingent on the level of success of an offering. Our board of directors will determine the compensation of all new employees based upon job description.

Not applicable.

None.

The Company leases a 55 acre parcel located outside Paisley, Florida with two home/office buildings and one storage/demonstration facility from J.K. Schmale. The lease agreement is for one year expiring 12/31/2011 with an option to extend the lease for an additional 1 year term. Base rent is $25,000 per year and the lease agreement contains an option to purchase the property and all buildings located on the property.

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.

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PART II

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.

On March 18, 2011 the closing bid price of the Company’s Common Stock as reported by the OTCBB was $0.19 and there were approximately 408 shareholders of record.

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DIVIDENDS

We have not paid any cash dividends on our common or preferred stock and do not anticipate paying any such cash dividends in the foreseeable future. Earnings, if any, will be retained to finance future growth. We may issue shares of our common stock and preferred stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. Issuance and or sales of substantial amounts of common stock could adversely affect prevailing market prices in our common stock.

Common Stock

During the year ended December 31, 2010, there was no modification of any instruments issued herein for the fourth quarter, defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.

During October 2010, the Company issued 20,589 shares of common stock to a qualified investor for $0.17 per share for a total of $3,500.

During October 2010, the Company issued 20,000 shares of common stock to a qualified investor for $0.18 per share for a total of $3,600.

During October 2010, the Company issued 52,632 shares of common stock to qualified investors for $0.19 per share for a total of $10,000.

During November 2010, the Company issued 2,000 shares of common stock to a qualified investor for $0.14 per shares for a total of $280.

During November 2010, the Company issued 1,333 shares of common stock to a qualified investor for $0.15 per share for a total of $200.

During December 2010, the Company issued 10,000 shares of common stock to qualified investors for $0.104 per share for a total of $1,040.

During November 2010, the Company issued 5,000 shares of common stock to a qualified investor for services valued at $0.23 per share for a total of $1,150.

During December 2010, the Company issued 2,500 shares of common stock to a qualified investor for services valued at $0.15 per share for a total of $375.

During October 2010, the Company issued 258,732 shares of common stock to a qualified investor for $0.155 per share for a total of $40,000.*

During November 2010, the Company issued 244,059 shares of common stock to a qualified investor for $0.156 per share for a total of $38,000.*

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.

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Not required.

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.

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

For the year ended December 31, 2010 compared to the year ended December 31, 2009:

Research and Development Costs – During the years ended December 31, 2010 and 2009, research and development costs totaled $208,565 and $108,958, respectively. The increase of $99,607 was mainly attributable to additional costs incurred for the testing of the DCGT engine in 2010.

Operating Costs – During the years ended December 31, 2010 and 2009, operating costs totaled $2,121,168 and $1,871,243, respectively. The increase of $249,925 was mainly attributable to a $360,340 increase in payroll expenses due to additional employees, a $197,981 increase in Professional Fees (Accounting, Legal, Public Relations, and Marketing), a $65,732 increase in Travel and Lodging fees related to the Kingtec agreement and an increase of $117,287 in stock based compensation. These increases in expenses were offset by the $482,855 decrease in consulting expenses.

Interest (Income) Expense - Net - During the years ended December 31, 2010 and 2009 net interest expense totaled $239,490 and $291,716, respectively. The decrease of $52,226 was primarily due to the Company issuing less convertible debentures to Golden Gate Investors, Inc. of $250,000 in 2010 and $395,000 in 2009.

The net loss for the years ended December 31, 2010 and 2009 was ($2,569,223) and ($2,271,917), respectively. The increase of $297,306 was mainly attributable to the increase in research and development expenses, operating costs and interest expenses.

Liquidity and capital resources

As shown in the accompanying financial statements, for the years ended December 31, 2010 and 2009 and since November 27, 2000 (date of inception) through December 31, 2010, the Company has had net losses of $2,569,223, $2,271,917 and $14,133,147, respectively. As of December 31, 2010, the Company has not emerged from the

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development stage. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations and to achieve a level of profitability. However, there can be no assurance that the Company will be able to raise capital or begin operations to achieve a level of profitability to continue as a going concern. Since inception, the Company has financed its activities principally from the sale of public equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements.

As previously mentioned, since inception, we have financed our operations largely from the sale of common stock. From inception through December 31, 2010 we raised cash of approximately $3,442,000 net of issuance costs, through private placements of common stock financings and $745,000 through the issuance of convertible notes payable. Additionally, we have raised net proceeds from stockholder advances of approximately $109,000.

Since our inception through December 31, 2010 we have incurred $3,735,715 of research and development costs. These expenses were principally related to the acquisition of a license agreement in July 2002 in the amount of $2,735,649, which was expensed to research and development costs for the DCGT technology and general and administrative expenses.

We have incurred significant net losses and negative cash flows from operations since our inception. As of December 31, 2010, we had an accumulated deficit of $14,133,147 and working capital deficit of $844,979.

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

On 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 issued $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. Originally, the Holder was 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. Effective January 15, 2010 the agreement was amended with the Holder and the conversion price having a $0.15 fixed floor price that limits the number of common shares upon conversion of a fixed amount. 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 secured 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. During 2010 and since inception, the Company has drawn $250,000 and $745,000, respectively, in proceeds related to the note. During 2010 and since inception, the Holder has converted $253,000 and $722,000 in convertible notes into 1,373,278 and 7,006,818 common shares, respectively.

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

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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 may receive proceeds in the future from the exercise of warrants and options outstanding as of December 31, 2010 in accordance with the following schedule:

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.

We account for stock option grants in accordance with US GAAP. Stock-based compensation cost recognized during the years ended December 31, 2010 and 2009 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on their relative grant date fair values estimated in accordance with US GAAP. The Company recognizes compensation expenses on a straight-line basis over the requisite service period.

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

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

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The Company has incurred deferred offering costs in connection with raising additional capital through the sale of its common stock. These costs are capitalized and charged against additional paid-in capital when common stock is issued. If there is no issuance of common stock, the costs incurred are charged to operations.

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

New Accounting Pronouncements

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

Not applicable.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Financial Statements

For the Years Ended December 31, 2010 and 2009,

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

through December 31, 2010

Contents

Report of Independent Registered Public Accounting Firm

Board of Director’s and Stockholders

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) (“the Company”) as of December 31, 2010 and 2009 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years ended December 31, 2010 and 2009 and the period from November 27, 2000 (Date of Inception) through December 31, 2010. 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

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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, 2010 and 2009 and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009 and the period from November 27, 2000 (Date of Inception) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred a net loss of $2,569,223 during the year ended December 31, 2010 and has an accumulated deficit of $14,133,147 since inception and has a working capital deficit of $844,979 as of December 31, 2010. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida

March 30, 2011

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Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Balance Sheets

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

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 the Year Ended December 31, 2010 and

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2010

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 the Year Ended December 31, 2010 and

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2010

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

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