Novo Integrated Sciences, Inc. - Quarter Report: 2012 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended March 31, 2012
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the transition period from , 200 , to , 200 .
Commission File Number 333-109118
Turbine Truck Engines, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Nevada
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59-3691650
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number)
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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:
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$.001 par value preferred stock
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Over the Counter Bulletin Board
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|||||
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$.001 par value common stock
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Over the Counter Bulletin Board
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There were 64,401,396 shares of the Registrant’s $0.001 par value common stock outstanding as of May 10, 2012.
Documents incorporated by reference: none
Turbine Truck Engines, Inc.
(A Development Stage Company)
Contents
PART I—FINANCIAL INFORMATION
Statements in this Form 10-Q Quarterly Report may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks discussed in this Form 10-Q Quarterly Report, under “Management’s Discussion and Analysis of Financial Condition or Plan of Operation” and in other documents which we file with the Securities and Exchange Commission.
In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors that affect our industry, market and customer acceptance, changes in technology, fluctuations in our quarterly results, our ability to continue and manage our growth, liquidity and other capital resource issues, competition, fulfillment of contractual obligations by other parties and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q Quarterly Report, except as required by law.
Item 1. Financial Statements
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Financial Statements
As of March 31, 2012 (unaudited) and December 31, 2011 and
for the three months ended March 31, 2012 and 2011 (unaudited)
and the Period November 27, 2000 (Date of Inception)
through March 31, 2012 (unaudited)
Contents
Financial Statements:
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2
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3
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4
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6
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Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Balance Sheets
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March 31,
2012
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December 31,
2011
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|||||||
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(unaudited)
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||||||||
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Assets
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Current assets:
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||||||||
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Cash
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$ | 11,480 | $ | 11,638 | ||||
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Prepaid expenses
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10,832 | 7,118 | ||||||
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Total current assets
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22,312 | 18,756 | ||||||
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Deposit for Global Hydrogen Energy Corp.
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197,500 | |||||||
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Furniture and equipment, net of accumulated depreciation of $48,645 (2012) and $47,863 (2011)
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6,274 | 7,056 | ||||||
| $ | 226,086 | 25,812 | ||||||
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Liabilities and Stockholders’ Deficit
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||||||||
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Current liabilities:
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||||||||
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Accounts payable, including related party payables of $12,220 (2012) and $12,220(2011)
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$ | 74,591 | $ | 116,290 | ||||
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Accrued interest
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14,955 | 14,955 | ||||||
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Accrued payroll
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892 | 1,029 | ||||||
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Convertible note, net
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22,328 | 8,315 | ||||||
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Note payable
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500 | 500 | ||||||
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Total current liabilities
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113,266 | 141,089 | ||||||
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Accrued expenses – long term
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311,326 | 318,606 | ||||||
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Accrued payroll – long term
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261,745 | 585,827 | ||||||
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Accrued royalty fees
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1,364,000 | 1,301,500 | ||||||
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Note payable to related party
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4,631 | 6,901 | ||||||
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Total liabilities
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2,054,968 | 2,353,923 | ||||||
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Stockholders’ deficit:
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||||||||
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Series A Convertible Preferred stock; $0.001 par value; 1,000,000 shares authorized; 500,000 (2012) and 0 (2011) shares issued and outstanding
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500 | |||||||
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Common stock; $0.001 par value; 99,000,000 shares authorized; 64,401,396 (2012) and 56,503,946 (2011) shares issued and outstanding
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64,402 | 56,503 | ||||||
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Additional paid in capital
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15,158,159 | 14,277,622 | ||||||
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Deficit accumulated during development stage
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(16,779,768 | ) | (16,371,158 | ) | ||||
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Common stock payable
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310,000 | 3,650 | ||||||
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Prepaid consulting services paid with common stock
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(370,175 | ) | (82,728 | ) | ||||
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Receivable for common stock
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(212,000 | ) | (212,000 | ) | ||||
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Total stockholders’ deficit
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(1,828,882 | ) | (2,328,111 | ) | ||||
| $ | 226,086 | $ | 25,812 | |||||
The accompanying notes are an integral part of the financial statements.
2
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Statements of Operations
(unaudited)
| Period November 27, 2000 (Date of Inception) through March 31, 2012 |
||||||||||||
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Three Months Ended March 31,
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2012
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2011
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Research and development costs
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$
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$
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16,373
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$
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3,882,494
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Operating costs
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401,877
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815,032
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12,273,968
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401,877
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831,405
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16,156,462
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Unrealized gain on derivative
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(7,280
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)
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(9,024
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)
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Interest expense
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14,013
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3,563
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632,330
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Net loss
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$
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(408,610
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)
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$
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(834,968
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)
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$
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(16,779,768
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)
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|||
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Net loss per share
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$
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(0.01
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)
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$
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(0.02
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)
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$
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(0.78
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)
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|||
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Weighted average number of common shares outstanding
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62,443,596
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47,334,304
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21,399,681
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The accompanying notes are an integral part of the financial statements.
3
Turbine Truck Engines, Inc.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
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Three Months Ended
March 31,
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Period
November 27,
2000 (Date of
Inception)
through
March 31, 2012
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2012
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2011
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Operating activities
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Net loss
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$ | (408,610 | ) | $ | (834,968 | ) | $ | (16,779,768 | ) | |||
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Adjustments to reconcile net loss to net cash used by operating activities:
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Common stock and long-term debt issued for acquisition of license agreement
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2,735,649 | |||||||||||
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Common stock, options and warrants issued for services and amortization of common stock issued for services
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228,404 | 508,316 | 5,269,194 | |||||||||
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Contribution from shareholder
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188,706 | |||||||||||
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Amortization of beneficial conversion feature
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3,575 | 539,876 | ||||||||||
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Amortization of deferred loan costs
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24,750 | |||||||||||
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Write off deferred offering costs
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119,383 | |||||||||||
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Write off of deferred non cash offering costs
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49,120 | |||||||||||
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Gain on disposal of fixed assets
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(1,965 | ) | ||||||||||
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Depreciation
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782 | 1,277 | 51,728 | |||||||||
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Amortization of agency fee
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50,000 | 100,000 | ||||||||||
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Amortization of discount on notes payable
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14,013 | 47,871 | ||||||||||
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Decrease (increase) in prepaid expenses
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(3,714 | ) | (17,790 | ) | (10,832 | ) | ||||||
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Increase (decrease) in:
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||||||||||||
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Accounts payable
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(41,699 | ) | (43,217 | ) | 283,429 | |||||||
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Accrued expenses
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(7,280 | ) | 298,226 | |||||||||
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Accrued payroll
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11,066 | 79,769 | 612,922 | |||||||||
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Accrued royalty fees
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62,500 | 62,500 | 1,780,667 | |||||||||
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Accrued interest
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14,955 | |||||||||||
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Net cash used by operating activities
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(144,538 | ) | (190,538 | ) | (4,676,089 | ) | ||||||
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Investing activities
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Payments for agency rights
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(100,000 | ) | ||||||||||
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Issuance of notes receivable from stockholders
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(23,000 | ) | ||||||||||
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Deposit for Global Hydrogen Energy Corp.
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(197,500 | ) | (197,500 | ) | ||||||||
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Repayment of notes receivable from stockholders
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22,095 | |||||||||||
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Advances to related party
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805 | |||||||||||
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Proceeds from sale of fixed assets
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2,500 | |||||||||||
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Purchase of fixed assets
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(43,345 | ) | (53,538 | ) | ||||||||
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Net cash used by investing activities
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(197,500 | ) | (43,345 | ) | (348,638 | ) | ||||||
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Financing activities
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Repayment of stockholder advances
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(2,270 | ) | (159,354 | ) | ||||||||
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Advances from stockholders
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271,152 | |||||||||||
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Increase in deferred offering costs
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(194,534 | ) | ||||||||||
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Proceeds from issuance of common stock
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344,150 | 139,799 | 4,221,943 | |||||||||
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Proceeds from exercise of options
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45,000 | |||||||||||
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Debt issuance costs
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(19,750 | ) | ||||||||||
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Repayment of convertible notes payable
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(23,000 | ) | ||||||||||
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Proceeds from issuance of convertible notes payable
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50,000 | 894,750 | ||||||||||
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Net cash provided by financing activities
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341,880 | 189,799 | 5,036,207 | |||||||||
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Net (decrease) increase in cash
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(158 | ) | (44,084 | ) | 11,480 | |||||||
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Cash at beginning of year/period
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11,638 | 128,264 | ||||||||||
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Cash at end of year/period
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11,480 | 84,180 | 11,480 | |||||||||
4
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Three Months Ended
March 31,
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Period
November 27,
2000 (Date of
Inception)
through
March 31,
2012
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2012
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2011
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Supplemental disclosures of cash flow information and non cash investing and financing activities:
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Cash paid for interest
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$
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0
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$
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0
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$
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21,477
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||||||
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Subscription receivable for issuance of common stock
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$
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0
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$
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0
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$
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29,090
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||||||
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Option to acquire license for issuance of common stock
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$
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0
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$
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0
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$
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10,000
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||||||
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Deferred offering costs netted against issuance of common stock under private placement
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$
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0
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$
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0
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$
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33,774
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||||||
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Deferred offering costs netted against issuance of common stock
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$
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0
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$
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0
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$
|
41,735
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||||||
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Value of beneficial conversion feature of notes payable
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$
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0
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$
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0
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$
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19,507
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||||||
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Deferred non-cash offering costs in connection with private placement
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$
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0
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$
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0
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$
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74,850
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Application of amount due from shareholder against related party debt
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$
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0
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$
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0
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$
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8,099
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||||||
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Amortization of offering costs related to stock for services
|
$
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0
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$
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0
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$
|
25,730
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||||||
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Settlement of notes payable in exchange for common stock
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$
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0
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$
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0
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$
|
356,466
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||||||
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Common stock issued in exchange for prepaid services
|
$
|
117,000
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$
|
0
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$
|
2,461,164
|
||||||
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Common stock issued in exchange for accrued royalties
|
$
|
0
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$
|
0
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$
|
416,667
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||||||
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Receivable issued for exercise of common stock options
|
$
|
0
|
$
|
0
|
$
|
367,000
|
||||||
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Common stock issued in exchange for fixed assets
|
$
|
0
|
$
|
0
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$
|
5,000
|
||||||
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Acquisition of agency fee intangible through accrued expenses
|
$
|
0
|
$
|
0
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$
|
900,000
|
||||||
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Beneficial conversion feature on convertible notes payable
|
$
|
0
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$
|
7,000
|
$
|
531,561
|
||||||
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Conversion of convertible debt to equity since inception (7,340,152 shares of common stock)
|
$
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0
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$
|
25,000
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$
|
772,000
|
||||||
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Common stock issued for accounts payable
|
$
|
0
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$
|
66,550
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$
|
208,838
|
||||||
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Common stock issued for accrued payroll
|
$
|
0
|
$
|
15,000
|
$
|
15,000
|
||||||
|
Write off uncollectible stock subscription receivables
|
$
|
0
|
$
|
0
|
$
|
155,000
|
||||||
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Write off intangible asset and agency fee payable
|
$
|
0
|
$
|
0
|
$
|
900,000
|
||||||
|
Issuance of common stock payable to employees
|
$
|
0
|
$
|
0
|
$
|
274,000
|
||||||
|
Common stock issued for accrued expenses
|
$
|
0
|
$
|
0
|
$
|
29,400
|
||||||
|
Common stock payable for prepaid services
|
$
|
225,000
|
$
|
0
|
$
|
225,000
|
||||||
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Derivative liability and debt discount
|
$
|
0
|
$
|
0
|
$
|
42,500
|
||||||
|
Preferred stock issued for accrued payroll
|
$
|
335,285
|
$
|
0
|
$
|
335,285
|
||||||
The accompanying notes are an integral part of the financial statements.
5
Turbine Truck Engines, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
For the Three Months Ended March 31, 2012 and 2011,
and the Period November 27, 2000 (Date of Inception)
through March 31, 2012
1. Background Information
Turbine Truck Engines, Inc. (the “Company”) is a development stage enterprise that was incorporated in the state of Delaware on November 27, 2000, and converted to a Nevada corporation in 2008 To date, the Company’s activities have been limited to raising capital, organizational matters, and the structuring of its business plan. The corporate headquarters is located in Paisley, Florida.
The Company’s planned lines of business are the design, development, and testing of turbine truck engine technology licensed through Alpha Engines Corporation (“Alpha”). Alpha owns the patents to a new gas turbine engine system called Detonation Cycle Gas Turbine Engine. If the Company can successfully demonstrate a highway truck engine using the technology, the Company intends to form a joint venture with a major heavy duty highway truck manufacturer to manufacture, market, and sell turbine truck engines for use in heavy duty highway trucks throughout the United States.
2. Financial Statements
In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended March 31, 2012 and 2011 and the period November 27, 2000 (Date of Inception) through March 31, 2012, (b) the financial position at March 31, 2012 and December 31, 2011, and (c) cash flows for the three month periods ended March 31, 2012 and 2011, and the period November 27, 2000 (Date of Inception) through March 31, 2012, have been made.
The unaudited financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended December 31, 2011. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of those to be expected for the entire year.
3. Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended March 31, 2012 and since November 27, 2000 (date of inception) through March 31, 2012, the Company has had a net loss of $408,610 and $16,779,768, respectively. These factors raise doubt about the Company’s ability to continue as a going concern. As of March 31, 2012, the Company has not emerged from the development stage. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations and to achieve a level of profitability. 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.
6
4. Commitments and Contingencies
The Company leased its corporate headquarters on a month-to-month basis. For the three months ended March 31, 2012 and 2011, rent expense was approximately $12,500 and $25,000, respectively.
The Company entered into a Cooperation Agreement (the “Agreement”) with Hydrogen Union Energy Co., Ltd. (“HUE”) for the purpose of the joint development of the hydrogen generator. Under the terms of the Agreement, HUE will provide hydrogen generators at cost to the Company for demonstration purposes. Once the Company purchases the first H2 generator and pays 90% of the purchase price, the Company will be given first refusal to act as agent for any future business relating to hydrogen generators with HUE’s technology in North America. The Company was to pay the cost of production of a 200 cubic meter H2 generator at 10,000,000 TWD ($338,000 USD as of March 31, 2012) for up to two machines. As previously disclosed, the Company is continuing negotiations with payment terms and accordingly no equipment has been received and no liability has been recorded as of March 31, 2012. At period end the Company was in negotiations with HUE’s parent corporation Energy Technology Services Co., Ltd. (“ETS”) and all agreements with ETS may potentially impact or supersede the agreement with HUE.
On January 12, 2012, the Company entered into an “Investment Intent” agreement with Energy Technology Services Company, Ltd. Pursuant to the agreement, both parties agreed to form a company, Global Hydrogen Energy (“GHE”). The Company has the option to purchase ten percent of the shares of GHE for $450,000, and another option to purchase up to 20% of all shares of GHE. As of March 31, 2012, GHE has not been formed, and the Company has made a good faith cash deposit of $197,500, which is included as a non-current asset at March 31, 2012. The Company does not have a firm commitment to fund the remaining option amount, and accordingly, a commitment liability was not recorded as of March 31, 2012 related to this agreement.
5. 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 March 31, 2012 and December 31, 2011 is $1,901. This note payable was unsecured, non-interest bearing and has no specific repayment terms, however, payment is not expected prior to March 31, 2013.
As of March 31, 2012 and December 31, 2011, accounts payable included $12,220 due to a director of the Company for various accounting services.
During the year end December 31, 2011, the Company’s President advanced the Company $5,000 with no specific repayment terms or stated interest, as of March 31, 2012 $2,730 remains unpaid.
On March 15, 2012, the Board of Directors resolved to issue 500,000 shares of Series A Convertible Preferred shares to Michael Rouse, the Company’s President and CEO, in exchange for $335,285 of unpaid and accrued salary.
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.
6. 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.
7
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. 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.
During 2012 and since inception, the Company has drawn $0 and $795,000 in proceeds related to the note, respectively. During 2012 and since inception, the Holder has converted $0 and $772,000 in convertible notes into 0 and 7,340,152 common shares, respectively. As of March 31, 2012, the Company has $205,000 available to draw on the convertible debenture.
In December 2009, the convertible debenture agreement was amended. As a result of the amendment, effective January 15, 2010, the conversion price has a $0.15 fixed floor price that limits the number of common shares upon conversion to an amount that is substantially below the Company’s authorized common shares that can be issued. Additionally, the penalty associated with the default provision to maintain timely filings of all reports required by the Securities and Exchange Commission was removed. Lastly, the default provision related to the interest rate adjustment indexed to changes in the Company’s common stock was removed. In the event of certain defaults, the Company would pay a default fixed interest rate of 9.75% per annum.
7. Earnings per Share
Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered antidilutive and thus are excluded from the calculation. For the three month periods ended March 31, 2012 and 2011 and for the period from November 27, 2000 (Date of Inception) through March 31, 2012, the Company had 5,405,413, 4,015,413 and 5,405,413 potentially dilutive common stock options and warrants, respectively, which were not included in the computation of loss per share. Additionally, a convertible note with a face amount of $42,500 can convert into approximately 527,000 shares of common stock at March 31, 2012.
8. Common stock for services
During the three months ended March 31, 2012, the Company issued 1,550,000 shares of common stock to consultants and employees for various services. The Company recorded the stock issuances for services based on the fair value of the common stock at the respective commitment dates. For the three months ended March 31, 2012 and 2011, the Company recognized approximately $228,000 and $508,000 in compensation expense related to these issuances, respectively. The shares related to these agreements were fully vested as March 31, 2012. Additionally, as of March 31, 2012, included in common stock payable, are commitments to issue 1,500,000 shares of common stock. The amortization expense related to these commitments are included in the above compensation expense.
9. Series A Convertible Preferred Stock
On March 16, 2012, the Company created the Series A Convertible Preferred Stock (“Series A”). The Series A has the following features:
|
|
●
|
Par value is $.001.
|
|
|
●
|
1,000,000 shares authorized.
|
|
|
●
|
Voting rights on each matter submitted to common shareholders; 306 votes per each share of preferred stock held.
|
|
|
●
|
Convertible after 6 months from the above date on a ratio of one-to-one into common shares at the option of the preferred share holder.
|
8
|
10.
|
Derivative liability
|
In November 2011, the Company issued a convertible promissory note for $42,500. The note pays interest at 8% per annum, and principal and accrued interest is due on the maturity date of August 9, 2012. The conversion option price associated with the note has a 41 percent discount to the market price of the stock. The market price is based on the average of the three lowest trading prices during a ten day period prior to conversion. The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the conversion option. At the issuance date, the Company recorded a debt discount and derivative liability of approximately$42,000 and $49,000, respectively. The debt discount will be amortized over the life of the note, and the Company recognized approximately $14,000 of interest expense related to amortization during 2012. As of March 31, 2012 the unamortized discount related to the note was approximately $20,200. The derivative liability will be adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense. The unrealized gain associated with the derivative liability was approximately $7,300 at March 31, 2012.
Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2012 and 2011 related to the above derivative liability are as follows:
|
Fair Value
Measurements at March 31, 2012 (1) |
Fair Value
Measurements at December 31, 2011(1) |
|||||||||||||||
|
Using Level 2
|
Total
|
Using Level 2
|
Total
|
|||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivative liabilities
|
$
|
(33,476
|
)
|
$
|
(33,476
|
)
|
$
|
(40,756
|
) |
$
|
(40,756
|
)
|
||||
|
Total liabilities
|
$
|
(33,476
|
)
|
$
|
(33,476
|
)
|
$
|
(40,756
|
) |
$
|
(40,756
|
) | ||||
|
(1)
|
The Company did not have any assets or liabilities measured at fair value using Level 1 or Level 3 of the fair value hierarchy as of March 31, 2012 or 2011.
|
The Company’s derivative liabilities are classified within Level 2 of the fair value hierarchy. The Company utilizes the Black-Scholes Option Pricing Model to value the derivative liabilities utilizing observable inputs such as the Company’s common stock price, the exercise price of the warrants, and expected volatility, which is based on historical volatility. The Black-Scholes model employs the market approach in determining fair value.
|
11.
|
Subsequent Events
|
The Company entered into a Debt Settlement Agreement (the “Agreement”) dated April 27, 2012 with Alpha Engines Corporation (“Alpha”). TTE and Alpha entered into that certain License Agreement dated December 31, 2001, pursuant to which TTE has accrued debt to Alpha in the amount of $1,508,250 as of the date of the Agreement.
Pursuant to the terms of the Agreement, Alpha agrees to accept 250,000 shares of the company common stock in full settlement of the Debt and further agreed to reduce the annual license royalty payable under the License Agreement from $250,000 per year to $25,000 per year, retroactive to January 1, 2012, with the first payment being due January 1, 2013.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
9
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
OVERVIEW OF THE 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.
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.
For the three months ended March 31, 2012 compared to the three months ended March 31, 2011
Research and Development Costs – During the three months ended March 31, 2012 and 2011, research and development costs totaled $0 and $16,373, respectively. The decrease of $16,373 was mainly attributable to additional costs incurred for the testing of the DCGT engine in 2011.
Operating Costs – During the three months ended March 31, 2012 and 2011, operating costs totaled $401,877 and $815,032, respectively. The decrease of $413,155 was mainly attributable to an approximate $127,700 decrease in payroll expenses due to a decrease in salaries and employees and an approximately $178,200 decrease in Professional Fees and Consulting Expenses and a decrease of approximately $44,000 in stock based compensation. As previously disclosed, the Company entered into new employment agreements with the executives at lower base salaries. As a result, the Company expects the trend in salary expense to be lower relative to comparable periods in 2011.
10
Interest (Income) Expense - Net - During the years three months ended March 31, 2012 and 2011, net interest expense totaled $14,013 and $3,563, respectively. The decrease of $10,450 was primarily due to the Company amortizing the discount on convertible debt to interest expense during 2012.
The net loss for the three months ended March 31, 2012 and 2011 was $408,610 and $834,968, respectively. The decrease of $426,358 was mainly attributable to the decrease in operating expenses as discussed above.
Liquidity and capital resources
As shown in the accompanying financial statements, for the three months ended March 31, 2012 and 2011 and since November 27, 2000 (date of inception) through March 31, 2012, the Company has had net losses of $408,610, $834,968 and $16,779,768, respectively. As of March 31, 2012, the Company has not emerged from the development stage. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations and to achieve a level of profitability. However, there can be no assurance that the Company will be able to raise capital or begin operations to achieve a level of profitability to continue as a going concern. Since inception, the Company has financed its activities principally from the sale of public equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements.
As previously mentioned, since inception, we have financed our operations largely from the sale of common stock. From inception through March 31, 2012 we raised cash of approximately $4,027,409 net of issuance costs, through private placements of common stock financings and $894,750 through the issuance of convertible notes payable. Additionally, we have raised net proceeds from stockholder advances of $111,798.
Since our inception through March 31, 2012 we have incurred $3,882,494 of research and development costs. These expenses were principally related to the acquisition of a license agreement in July 2002 in the amount of $2,735,649, which was expensed to research and development costs for the DCGT technology and general and administrative expenses.
We have incurred significant net losses and negative cash flows from operations since our inception. As of March 31, 2012, we had an accumulated deficit of $16,779,768 and working capital deficit of ($90,954).
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 7¾ 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.
11
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 2012 and since inception, the Company has drawn $0 and $795,000, respectively, in proceeds related to the note. During 2012 and since inception, the Holder has converted $0 and $747,000 in convertible notes into 0 and 7,340,152 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 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 March 31, 2012 in accordance with the following schedule:
|
Approximate
Number of
Shares
|
Approximate
Proceeds*
|
|||||||
|
Non-Plan Options and Warrants
|
5,405,413
|
$
|
1,567,570
|
|||||
|
*
|
Based on weighted average exercise price.
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.
We account for stock option grants in accordance with US GAAP. Stock-based compensation cost recognized during the periods ended March 31, 2012 and 2011 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on their relative grant date fair values estimated in accordance with US GAAP. The Company recognizes compensation expenses on a straight-line basis over the requisite service period.
12
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.
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
Other recent accounting standards issued by the FASB (including EIFTs), the AICPA and the Securities and Exchange Commission did and are not believed by management to have a material impact on the Company’s present or future financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4T. Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have 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 and for the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective. The controls were determined to be ineffective due to the lack of segregation of duties. Currently, management contracts with an outside CPA to perform the duties of the Chief Financial Officer and Principle Accounting Officer and an outside consultant to assist with the preparation of the filings. However, until the Company has received additional funding, they are unable to remediate the weakness.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the three months ended March 31, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this Quarterly 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three month period ended March 31, 2012, 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.
13
During January 2012, the Company issued 4,000,000 shares of common stock for cash at a price of $0.03 per share.
During January 2012, the Company issued 25,000 shares of common stock for cash at a price of $0.04 per share.
During January 2012, the Company issued 173,000 shares of common stock for cash at a price of $0.05 per share.
During January 2012, the Company issued 66,666 shares of common stock for cash at a price of $0.06 per share.
During January 2012, the Company issued 1,395,000 shares of common stock for cash at a price of $0.10 per share.
During January 2012, the Company issued 589,285 shares of common stock for cash at a price of $0.11 per share.
During February 2012, the Company issued 100,000 shares of common stock for cash at a price of $0.05 per share.
During February 2012, the Company issued 850,000 shares of common stock for services valued at a price of $0.13 per share.
During February 2012, the Company issued 200,000 shares of common stock for services valued at a price of $0.17 per share.
During March 2012, the Company issued 500,000 shares of common stock for services valued at a price of $0.13 per share.
Item 3. Defaults upon Senior Securities
There have been no defaults in any material payments during the covered period.
Item 4. Removed and Reserved
Item 5. Other Information
The Company does not have any other material information to report with respect to the three month period ended March 31, 2012.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herewith are:
|
31.1
|
Certification of the Chairman of the Board, Chief Executive Officer, and Principal Financial Officer (This certification required as Exhibit 31 under Item 601(a) of Regulation S-K
|
|
|
31.2
|
Certification of the Principal Accounting Officer (This certification required as Exhibit 31 under Item 601(a) of
Regulation S-K
|
|
|
32.1
|
Written Statements of the Chief Executive Officer, This certification required as Exhibit 32 under Item 601(a) of Regulation S-K is furnished in accordance with Item 601(b)(32)(iii) of Regulation S-K
|
|
|
32.2
|
Written Statements of the Chief Financial Officer and Principal Accounting Officer (This certification required as Exhibit 32 under Item 601(a) of Regulation S-K is furnished in accordance with Item 601(b)(32)(iii) of Regulation S-K
|
|
14
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized:
|
TURBINE TRUCK ENGINES, INC.
|
||||||
|
Dated: May 15, 2012
|
By:
|
/S/ Michael Rouse
|
||||
|
Chief Executive Officer and Chairman of the
Board (Principal Executive Officer and
Principal Financial Officer)
|
||||||
|
Dated: May 15, 2012
|
By:
|
/S/ Rebecca A. McDonald
|
||||
|
Principal Accounting Officer
|
||||||
15