Novo Integrated Sciences, Inc. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2014

For the transition period from ______, 200 __, to _____, 200__.

Commission File Number 333-109118

1575 Aviation Center Parkway, Suite 433, Daytona Beach, Florida 32117 

(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 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 ¨

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 ¨

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):

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

There were 365,923,478 shares of the Registrant’s $0.001 par value common stock outstanding as of October 27, 2014.

Documents incorporated by reference: none

Turbine Truck Engines, Inc. 

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. 

Financial Statements

As of September 30, 2014 (unaudited) and December 31, 2013 and for the Three and Nine months ended September 30, 2014 and 2013 (unaudited)

Turbine Truck Engines, Inc. 

Balance Sheets

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

Turbine Truck Engines, Inc. 

Statements of Comprehensive Loss 

(unaudited)

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

Turbine Truck Engines, Inc. 

Statements of Cash Flows 

(unaudited)

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

Turbine Truck Engines, Inc.

Notes to Financial Statements

For the Three and Nine Months Ended September 30, 2014 and 2013

(unaudited)

1. Background Information

Turbine Truck Engines, Inc. (the “Company”) is a company 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 are located in Daytona Beach, Florida.

The Company is a business whose planned principal operations are the development of the (a) Detonation Cycle Gas Turbine Engine (DCGT); (b) Hydrogen Production Burner System (HPBS); and (c) the Gas to Methanol Technology (GTM). In addition, the Company is planning to pursue both intellectual property and/or operating company asset candidates to merge into the Company. No specific candidate has been identified at this time. The Company is in the process of raising capital to support these activities. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to commercialize the Company’s current technology before another company develops similar technology.

Effective August 29, 2013, the Company amended its Articles of Incorporation filed with the Nevada Secretary of State, to reflect the Board of Directors adoption of a resolution, consented to by those holding a majority of the common shareholder votes, which increased the authorized common stock of the company to 499,000,000 shares of common stock, having a par value of $0.001.

Effective June 18, 2014, the Company amended its Articles of Incorporation filed with the Nevada Secretary of State to reflect the Board of Directors adoption of a resolution to create “Series B Convertible Preferred Stock.” The Board of Directors designated 350,000 shares as Series B Convertible Preferred. The Series B Convertible Preferred, par value $0.001, provides for no voting rights and the shares are convertible after six months on a 20 to 1 ratio at the option of the preferred shareholder. As of September 30, 2014, no shares have been issued.

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 and nine month periods ended September 30, 2014 and 2013, (b) the financial position at September 30, 2014 and December 31, 2013, and (c) cash flows for the nine month periods ended September 30, 2014 and 2013, 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 (US GAAP) 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, 2013. The results of operations for the three and nine month periods ended September 30, 2014 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 nine months ended September 30, 2014, the Company had a net loss of $705,245. As of September 30, 2014, the Company has a working capital deficit of $248,121. 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. 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.

4. Significant Accounting Policies

The significant accounting policies followed are:

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

Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All of our non-interest bearing cash balances were fully insured at September 30, 2014 and December 31, 2013. Insurance coverage was $250,000 per depositor at each financial institution. At September 30, 2014 and December 31, 2013, there were no amounts held in excess of federally insured limits.

The Company’s financial instruments include cash, accounts payable, accrued liabilities and notes payable. The carrying amounts of cash, accounts payable and accrued liabilities approximate their fair value, due to the short-term nature of these items. The carrying amount of notes payable approximates their fair value due to the use of market rates of interest and maturity schedules for similar issues. The derivative liability is recorded at fair value (see Note 7).

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

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

Research and development costs are charged to operations when incurred and are included in operating expenses. There were no amounts charged to research and development for each of the three and nine month periods ended September 30, 2014 and 2013.

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

The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10), January 1, 2007. The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits at September 30, 2014 and December 31, 2013. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

The Company entered into various loan agreements with a Canadian company. In accordance with the loan agreements, the Company issued shares of common stock to the Canadian company as additional costs in obtaining the financing. These shares have been accounted for as contra-equity deferred non-cash offering issuance costs and they are being amortized as interest expense over the life of the notes which are five years. Foreign currency translation gains and losses, when material, have been recorded as other comprehensive income or loss.

Basic loss per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted losses per common share are computed by dividing net loss by the weighted average number of shares of common stock outstanding and dilutive options outstanding during the year. Common stock equivalents for the three and nine month periods ended September 30, 2014 and 2013 were anti-dilutive due to the net losses sustained by the Company during these periods. For the three months ended September 30, 2014 and 2013 potentially dilutive common stock options and warrants of 3,255,500 and 6,655,413 have been excluded from dilutive losses per share due to the Company’s losses in all periods presented.

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

The Company issues common stock and common stock options and warrants to consultants for various services. For these transactions, the Company follows the guidance in FASB ASC Topic 505. Costs for these transactions are measured at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measureable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instrument is reached or (ii) the date at which the counterparty’s performance is complete.

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

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, accrued compensation and accrued expenses. The Company had a derivative liability at December 31, 2013 associated with an embedded conversion option that was included as a level 2 input.

Recent accounting pronouncements

Recent accounting pronouncements other than below issued by the FASB (including its EITF), the AICPA and the SEC did not or are not believed by management to have a material effect on the Company’s present or future financial statements.

In June 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10, “Development Stage Entities (Topic 915) Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. This ASU does the following among other things: a) eliminates the requirement to present inception-to-date information on the statements of income, cash flows, and shareholders’ equity, b) eliminates the need to label the financial statements as those of a development stage entity, c) eliminates the need to disclose a description of the development stage activities in which the entity is engaged, and d) amends FASB ASC 275, Risks and Uncertainties, to clarify that information on risks and uncertainties for entities that have not commenced planned principal operations is required. The amendments in ASU No. 2014-10 related to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275 are effective for public companies for annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has evaluated this ASU and adopted beginning with the quarterly period ended June 30, 2014. The adoption of this ASU resulted in the Company no longer reporting inception-to-date financial reporting for the Company’s Statements of Comprehensive Loss, Statement of Changes in Stockholders’ Deficit and Statements of Cash Flows.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact the adoption of ASU 2014-15 will have on its financial statements.

5. Commitments and Contingencies

The Company leased its corporate headquarters on a month-to-month basis. For each of the three and nine months ended September 30, 2014 and 2013, rent expense was approximately $6,250, $18,750, $6,250 and $18,750, respectively.

Effective September 1, 2014, the Company has moved its primary corporate office to Daytona Beach, Florida and is paying $435 rent monthly on a month to month term.

A total of CAN $300,000 was advanced under the Loan Agreement with 2367416 Ontario, Inc, and was delivered to ETS, as the initial payment on the first machine to be delivered under a purchase order agreement for a Hydrogen Production Burner System (HPBS). Despite positive initial reports from ETS during the manufacturing of the Equipment, they did not deliver the machine as promised under the Agreement. The Company has declared ETS to be in default and the Company has asked to be refunded as per the purchase order agreement. 2367416 Ontario, Inc. has received CAN 50,000, directly from ETS, which has been recorded as a reduction in the outstanding note payable and the deposit. Both 2367416 Ontario, Inc. and the Company are in negotiations to receive the CAN 250,000 plus interest owed, which, when received, will also be shown as a reduction of the outstanding note payable and the deposit. During the quarter ended June 30, 2014, the Company filed a criminal complaint with the DA office in Taipei Taiwan charging ETS and its principles of alleged fraud. The Company provided a reserve in the amount of $118,708 against this deposit on its balance sheet on September 30, 2014.

The Company is now in final negotiations directly with the Inventor, Dr. Chang and his new Company ZHENG YU CO. (ZYC), to provide the Company with the equipment necessary to fulfill the Company’s business plan. ZYC has agreed to sell us the rights to the HPBS technology for $1.8 million upon independent testing and certification of the HPBS technology. Funding for the Company to purchase the HPBS machinery, as well as the HPBS technology, is provided for in the June 19, 2013 Loan Agreement, between the Company and 2367416 Ontario, Inc. which provides for financing of up to CAN $10,000,000. The Company is currently working to formalize this agreement with Dr. Chang and expects to do so in 2015.

The Company has entered into various other agreements that have been disclosed in previous Form 10K and Form 10Q filings. These agreements have been put on hold but will be further pursued as adequate funding is generated.

6. Notes Payable

On July 30, 2013, the Company signed an Agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the initial sum of CAN $450,000 and a maximum of CAN $10,000,000 in accordance with the terms of the Agreement. The financing to be provided is to be funded in tranches, and will have terms between three (3) and five (5) years, with each tranche being separately negotiated. As a part of the loan costs, 236 shall be issued restricted common stock equal to the issued and outstanding common shares of the Company at the time of the initial advance, with such shares being subject to a Lock Up/Leak Out Agreement to be negotiated between the parties. These shares are considered an additional cost in obtaining the financing and the value of these shares at the commitment date is recorded as a contra equity and amortized to interest expense over five years.

The initial advance of CAN $450,000 is covered by a Loan Agreement dated June 19, 2013, and was signed on July 30, 2013 (the “Loan Agreement”), which provides that (a) the interest rate shall be 20% per annum; and (b) CAN $90,000 shall be withheld by lender in interest rate reserve account for the payment of the first years interest. The total of CAN $300,000 under the Loan Agreement was received during the three months ended September 30, 2013 and delivered to Energy Technology Services Co., Ltd., (ETS) as the initial payment on the first machine to be delivered under a purchase order agreement. As of September 30, 2014, the Company has recorded $330,785 as a note payable and $118,706 as a deposit (net of the reserve of $118,708). During the nine months ended September 30, 2014, $48,385 was paid back from the deposit and applied towards the note.

During the year ended December 31, 2013, the Company, as part of the above agreement, is required to issue 124,000,000 shares of restricted common stock to 236. These shares were valued at $0.008 which was the share price at the commitment date. On March 1, 2014, 236 modified the required number of shares to be issued to include an additional 12,341,598 shares. These shares are valued at $0.07 which was the share price at commitment date on March 1, 2014. As of September 30, 2014, the Company has issued 136,341,598 shares to 236 and recorded $1,855,912 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt issuance costs at September 30, 2014 was $1,522,582. This modification did not have a material impact on the Company’s March 31, 2014 Form 10-Q and therefore did not need to be restated.

On August 1, 2013, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of CAN $25,000 for working capital needs. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company is required to issue 5,000,000 shares of restricted common stock to 236. These shares are valued at $0.02 which was the share price at commitment date. As of September 30, 2014, the Company recorded a note payable in the amount of $23,225 and $100,000 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt offering costs at September 30, 2014 was $76,712.

On August 22, 2013, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of CAN $50,000 to pay off a convertible note the Company owed. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company is required to issue 13,157,895 shares of restricted common stock to 236. These shares are valued at $0.01 which was the share price at commitment date. As of September 30, 2014, the Company recorded a note payable in the amount of $48,385 and $131,579 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt offering costs at September 30, 2014 was $102,451.

On October 20, 2013, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of CAN $25,000 for working capital needs. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company is required to issue 5,000,000 shares of restricted common stock to 236. These shares are valued at $0.008 which was the share price at commitment date. As of September 30, 2014, the Company recorded a note payable in the amount of $23,555 and $40,000 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt offering costs at September 30, 2014 was $32,438.

On December 3, 2013, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of CAN $20,000 for working capital needs. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company is required to issue 4,000,000 shares of restricted common stock to 236. These shares are valued at $0.015 which was the share price at commitment date. As of September 30, 2014, the Company recorded a note payable in the amount of $19,953 and $60,000 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt offering costs at September 30, 2014 was $50,104.

On April 15, 2014, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of CAN $50,000 for working capital needs. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company is required to issue 10,000,000 shares of restricted common stock to 236. These shares are valued at $0.037 which was the share price at commitment date. As of September 30, 2014, the Company recorded a note payable in the amount of $45,515 and $370,000 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt offering costs at September 30, 2014 was $335,940.

On August 5, 2014, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of US $50,000 for working capital needs. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company is required to issue 10,000,000 shares of restricted common stock to 236. These shares are valued at $0.0222 which was the share price at commitment date. As of September 30, 2014, the Company recorded a note payable in the amount of $50,000 and $222,000 in deferred non-cash debt offering costs which are amortized over five years. The balance of these deferred non-cash debt offering costs at September 30, 2014 was $215,188.

7. Convertible Notes and Derivative liability

On April 24, 2012 (the “Closing date”), the Company issued a convertible promissory note for $278,000. The lender funded $75,000 to the Company, and the lender at their discretion may fund additional amounts to the Company. The note matures one year from the closing date. If the Company pays the note within 90 days of the closing date, the interest rate is 0%. If the note is not paid within 90 days of the closing date, a one-time interest charge of 5% will be applied to the unpaid principal amount. The conversion option price associated with the note is the lesser of $0.10 or 70% of the lowest trade price in the 25 trading days previous to any conversion. The note is convertible at any time. As a result of the variable feature associated with the conversion option, pursuant to ASC Topic 815, the Company bifurcated the conversion option, and utilized the black Scholes model to determine the fair value of the conversion option. At the issuance date, the Company recorded a debt discount and derivative liability of $75,000 and $100,415, respectively. The debt discount was fully amortized since the Company fully converted the remaining principle of $10,356 into 1,479,000 shares of common stock during the nine months ended September 30, 2014. The derivative liability has been adjusted to fair value each reporting period with unrealized gain (loss) reflected in other income and expense and extinguished due to it being fully converted.

For the three and nine months ended September 30, 2014, the unrealized loss on the above derivatives was $0 and $5,129, respectively.

Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2014 and December 31, 2013 related to the above derivative liability are as follows:

__________

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.

8. 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 September 30, 2014 and December 31, 2013 is $0 and $1,901, respectively. This note payable was unsecured, non-interest bearing and has no specific repayment terms. During the nine months ended September 30, 2014, the Company received a letter relieving the Company of the obligation and the Company has recorded a gain included in other income in the Statement of Comprehensive Loss.

As of September 30, 2014 and December 31, 2013, accounts payable included $0 and $12,220, respectively, for various accounting services, due to the Company’s Chief Accounting Officer. During the nine months ended September 30, 2014, the Company received a letter relieving the Company of the payable and the Company has recorded a gain included in other income in the Statement of Comprehensive Loss.

During the year ended December 31, 2012, the Company’s CEO advanced the Company $1,430 with no specific terms of repayment and no stated interest rate. During the nine months ended September 30, 2014, the Company repaid the advance.

In July 2014, the Company executed a Settlement and Release Agreement with the Chief Executive Officer, President and Director to terminate his 2011 Employment Agreement, effective July 1, 2014, which was set to expire September 30, 2014. This agreement provides that the employee shall continue to hold and perform the duties and responsibilities for the positions of Chief Executive Officer, President, Director with the Company with the employee agreeing to specifically forego any salary and/or other compensation for such Positions from and after the date of July 1, 2014, serving in such positions without compensation until such time as the Board of Directors may determine, in their sole and absolute direction.

In July 2014, the Company executed a Settlement and Release Agreement with the Vice-President, Secretary-Treasurer and Director to formally terminate her 2013 Employment Agreement which expired December 31, 2013. This agreement provides that the employee shall continue to hold and perform the duties and responsibilities for the positions of Director, Secretary & Treasurer with the Company with the employee agreeing to specifically forego any salary and/or other compensation for such Positions from and after the date of January 1, 2014, serving in such Positions without compensation until such time as the Board of Directors may determine, in their sole and absolute discretion.

In July 2014, the Company executed a Settlement and Release Agreement with the former Chief Information Officer to formally terminate his 2013 Employment Agreement which expired December 31, 2013.

In July 2014, the Company executed Settlement and Release Agreements with the CEO-President, Vice-President/Secretary-Treasurer and the former Chief Information Officer to forgive a total of $513,424 of accrued salary and payroll taxes. The Company recorded the forgiveness of accrued salary and payroll taxes of $513,424 as a contribution to capital in the third quarter. These agreements stipulate no additional accrual of salary for all 3 employees effective July 1, 2014.

In July 2014, the Company executed Settlement and Release Agreements with the CEO-President, Vice-President/Secretary-Treasurer and the former Chief Information Officer rescinding the rights for stock option compensation issued in 2011 and 2013, under separate Employment Agreements, for a cumulative total of 2,100,000 shares.

In July 2014, the Company executed a Settlement and Release Agreement with the Chief Executive Officer that rescinds the CEO’s rights to receive 5,000,000 common shares of termination compensation as defined under Section 7 of the CEO’s October 2011 Employment Agreement.

In July 2014, the Chief Executive Officer elected to convert 500,000 shares of Series A Convertible Preferred Stock into 500,000 shares of common stock. As of September 30, 2014, the common stock has not been issued and is included in common stock payable.

On August 13, 2014, Michael Rouse resigned his position as the Company's Chairman of the Board and Chief Executive Officer and Phyllis Rouse resigned her position as the Company's Secretary-Treasurer and member of the Board of Directors. Michael Rouse retains his duties and responsibilities as a member of the Company's Board of Directors and President.

The Company appointed Enzo Cirillo, a majority shareholder in the Company, as its Chairman of the Board and Interim Chief Executive Officer. Also, the Company appointed Christopher David, a shareholder, to serve as both a member of the Company's Board of Directors and the Company's Secretary-Treasurer.

The Company has a release from a consultant, who is also a stockholder, for the relief of $62,500 of accrued consulting fees. For the nine months ended September 30, 2014, the Company has recorded this amount as a capital contribution.

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.

9. Subsequent Events

On October 1, 2014, the Company entered into a note agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the amount of $50,000 (US) for working capital needs. The agreement provides for interest rate at 20% per annum, with interest payable monthly and principle is due five years from the date of advance. As part of the above agreement, the Company issued 10,000,000 shares of restricted common stock to 236. These shares are valued at $0.0193 which was the share price at commitment date. As of October 1, 2014, the Company recorded a note payable in the amount of $50,000 and $193,000 in deferred non-cash debt offering costs which are amortized over five years.

On October 17, 2014, the Company signed an Asset Purchase Agreement and a Technology Sale/Transfer/Assignment for all Intellectual Property (IP) Agreement, with Robert & Barbara Scragg as well as Alpha Engines, Inc. (the Sellers), for the Company to obtain all rights, title, interest, patents, trademarks, and inventor notes for both the Detonation Cycle Gas Turbine Engine and Gas-to-Liquid (GTL) technologies.

The closing of the October 17, 2014 DCGT & GTL Asset Purchase Agreement and IP Agreement has entered into an escrow period, defined as on or before November 20, 2014, pending the satisfaction of certain guarantees provided by the Sellers to the Company that both assets are free and clear of any liens or encumbrances and all previous licensing agreements originated by the Sellers, for either the DCGT or GTL technologies, are terminated. The purchase price and terms of the Asset Purchase Agreement are confidential and will be released upon closing. These agreements, when completed, will supersede and replace the previous worldwide exclusive licensing agreement the Company had in place for the DCGT to include settlement of any and all accrued royalty payments and future financial considerations that might exists under the current exclusive licensing agreement with Alpha Engines, Inc.

The Company has begun early stage discussions with several separate North American based entities to re-initiate research and development of the DCGT engine technology upon the successful completion of the purchase of the patented DCGT engine technology.

On October 24, 2014, the Company sent Notice of Termination, to BluGen, Inc., a California corporation, that the Company exercised its right to terminate the Binding Letter of Intent (LOI) and all rights and obligations created thereunder, based upon the fact that none of the steps outlined in the LOI have been completed, and upon the lack of pursuit of those steps or the formalization of a Joint Venture Agreement as provided by the LOI.

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.

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

Turbine Truck Engines, Inc. is an American clean-air technology company dedicated to identifying, developing and commercializing important scientific innovations designed to dramatically enhance both environmental conservation and cost savings in how the world consumes energy.

The Company has not yet generated any revenues. We are currently working on the development of three (3) separate technologies: (a) Detonation Cycle Gas Turbine Engine (DCGT); (b) Hydrogen Production Burner System (HPBS); and (c) the Gas To Liquid Technology (GTL). In addition, the Company is planning to pursue both intellectual property and/or operating company asset candidates to merge into the Company. No specific candidate has been identified at this time.

In August 2014, the Company changed its Board of Directors and management to better position the Company’s access to both the funding and development partners required to prove the viability and ultimate commercialization of the DCGT, the HPBS and the GTL.

HYDROGEN PRODUCTION BURNER SYSTEMS (HPBS)

The HPBS is an efficient methanol to hydrogen production technology which utilizes a steam reformation process, employs a proprietary chemical catalyst and a unique low temperature pyrolytic reaction to convert common methanol into clean-burning hydrogen gas on-demand for immediate on-site use – no storage of hydrogen required.

This hydrogen generator system is applicable to a wide array of industrial boilers and steam generators as well as other various residential and commercial applications. The efficiency of the Hydrogen Generator and burner unit could save the end user 30-60% on their energy costs as compared to the current sources of energy such as electricity, heavy oils or natural gas. The hydrogen generator also eliminates the cost and need for high pressure storage tanks as it generates the hydrogen on demand.

On June 28, 2012, the Company entered into a joint venture with Energy Technology Services Co., Ltd., ("ETS"), a Taiwan corporation, whose principal partners hold the exclusive worldwide agency rights for the HPBS from its inventor, for the manufacture, distribution, leasing/sale, installation and maintenance of ETS’s Hydrogen Generator Burning Systems. Under the final structure of the joint venture, the Company is the managing partner and ETS is the operational partner and managing agent in Asia for all business conducted on behalf of the joint venture. All revenue and contracts from the joint venture will be booked by Turbine Truck Engines with a 50/50 sharing of net profit between the Company and ETS after “reasonable expenses”. Based on the joint venture agreement, the Company will purchase and own all assets, leases and contracts generated by the joint venture.

On July 30, 2013, the Company signed an Agreement with 2367416 Ontario, Inc., a Canadian company (“236”), whereby 236 agrees to provide financing to the Company in the initial sum of CAN $450,000 and a maximum of CAN $10,000,000 in accordance with the terms of the Agreement. The financing to be provided is to be funded in tranches, and will have terms between three (3) and five (5) years, with each tranche being separately negotiated. As a part of the loan costs, 236 shall be issued restricted common stock equal to the issued and outstanding common shares of the Company at the time of the initial advance, with such shares being subject to a Lock Up/Leak Out Agreement to be negotiated between the parties. These shares are considered an additional cost in obtaining the financing and the value of these shares at the commitment date is recorded as a contra equity and amortized over five years.

A total of CAN $300,000 was advanced under the Loan Agreement with 2367416 Ontario, Inc., and was delivered to ETS, as the initial payment on the first machine to be delivered under a purchase order agreement for a Hydrogen Production Burner System (HPBS). Despite positive initial reports from ETS during the manufacturing of the Equipment, they did not deliver the machine as promised under the Agreement. The Company has declared ETS to be in default and the Company has asked to be refunded as per the purchase order agreement the Company has received CAN 50,000 and are in negotiations to receive the CAN 250,000 plus interest owed. During the nine months ended September 30, 2014, the Company filed a criminal complaint with the DA office in Taipei Taiwan charging ETS and its principles of alleged fraud. The Company provided a reserve in the amount of $118,708 against this deposit on its balance sheet on September 30, 2014.

The Company is now in final negotiations directly with the Inventor, Dr. Chang and his new Company ZHENG YU CO. (ZYC), to provide the Company with the equipment necessary to fulfill the Company’s business plan. ZYC has agreed to sell us the rights to the HPBS technology for $1.8 million upon independent testing and certification of the HPBS technology. Funding for the Company to purchase the HPBS machinery, as well as the HPBS technology, is provided for in the June 19, 2013 Loan Agreement, between the Company and 2367416 Ontario, Inc. which provides for financing of up to CAN $10,000,000. The Company is currently working to formalize this agreement with Dr. Chang and expects to do so in 2015.

Currently, Dr. Chang has notified the Company that he is building a new HPBS unit that incorporates a number of advancements to previous HPBS operational units. Once Dr. Chang provides notice to the Company that his new HPBS unit is operational and has passed certain longevity testing, the Company will hire an independent third party to conduct operational testing and collect a wide and deep set of data which will provide the Company with credible evidence of the operation and long-term viability of the HPBS. Dr. Chang has indicated he expects delivery of his newly built HPBS for the Company to commence independent testing during the fourth quarter 2014.

DETONATION CYCLE GAS TURBINE ENGINE (DCGT)

The DCGT Engine technology was successfully patented in December 1999 by the inventor, Robert Scragg, whom had earlier issued a master license for all rights and potential applications for the DCGT to his majority owned corporation, Alpha Engines, Inc. In 2002, the Company acquired a worldwide exclusive licensing agreement from Alpha Engines, Inc. to research, develop, market, manufacture and distribute the Detonation Cycle Gas Turbine Engine (DCGT) technology specific to the heavy-duty truck industry.

Through September 30, 2014, the Company has funded the building and testing of Prototype #5, a 540HP 12-cylinder engine and Prototype #6, a 70HP 4-cylinder engine for the purpose of sufficiently advancing the research and development of the DCGT to a point of entering into a joint venture agreement with a heavy-duty truck engine manufacturer. To date, the Company has been unable to gather acceptable and reliable data required to advance the DCGT technology beyond the research and development phase.

Management and the Board of Directors of the Company, in coordination with the Inventor of the DCGT, continue to believe the patented DCGT technology can be developed for commercialization for not only the heavy-duty truck engine, but for other applications specifically related to power generation. The Company and Robert Scragg agree on the value and importance of the Company having ownership, versus licensing rights, of both the DCGT and the GTL technologies as the Company pursues the best path forward to develop and commercialize the DCGT technology. The Company believes that with ownership of all patents, intellectual property, trademarks and copyrights for the DCGT technology, the Company will have better leverage as it pursues both the funding and the development partners required to prove the technologies’ viability and ultimate commercialization.

On October 17, 2014, the Company signed an Asset Purchase Agreement and a Technology Sale/Transfer/Assignment for all Intellectual Property (IP) Agreement, with Robert & Barbara Scragg as well as Alpha Engines, Inc. (the Sellers), for the Company to obtain all rights, title, interest, patents, trademarks, and inventor notes for both the Detonation Cycle Gas Turbine Engine and Gas-to-Liquid (GTL) technologies.

The closing of the October 17, 2014 DCGT & GTL Asset Purchase Agreement and IP Agreement has entered into an escrow period, defined as on or before November 20, 2014, pending the satisfaction of certain guarantees provided by the Sellers to the Company that both assets are free and clear of any liens or encumbrances and all previous licensing agreements originated by the Sellers, for either the DCGT or GTL technologies, are terminated. The purchase price and terms of the Asset Purchase Agreement are confidential and will be released upon closing. These agreements, when completed, will supersede and replace the previous worldwide exclusive licensing agreement the Company had in place for the DCGT to include settlement of any and all accrued royalty payments and future financial considerations that might exists under the current exclusive licensing agreement with Alpha Engines, Inc.

The Company has begun early stage discussions with several separate North American based entities to re-initiate research and development of the DCGT engine technology upon the successful completion of the purchase of the patented DCGT engine technology.

GAS TO LIQUID TECHNOLOGY (GTL)

In addition to the DCGT Engine technology, Robert Scragg is also the inventor of an expired patent for a process in which methane gas is conveyed into an electromagnetic combustion and condensing chamber, combined with oxygen, that is passed through an electromagnetic field and pre-atomized. The atomized oxygen combines stoichiometrically with the methane gas in an exothermic reaction to produce Methanol gas. The Methanol gas is then condensed in the reactor to form liquid Methanol. This process is referred to as Gas-to-Liquid (GTL).

As noted above in the section on the Detonation Cycle Gas Turbine Engine, on October 17, 2014, the Company signed an Asset Purchase Agreement and a Technology Sale/Transfer/Assignment for all Intellectual Property (IP) Agreement, with Robert & Barbara Scragg as well as Alpha Engines, Inc. (the Sellers), for the Company to obtain all rights, title, interest, patents, trademarks, and inventor notes for both the Detonation Cycle Gas Turbine Engine and Gas-to-Liquid (GTL) technologies.

The closing of the October 17, 2014 DCGT & GTL Asset Purchase Agreement and IP Agreement has entered into an escrow period, defined as on or before November 20, 2014, pending the satisfaction of certain guarantees provided by the Sellers to the Company that both assets are free and clear of any liens or encumbrances and all previous licensing agreements originated by the sellers, for either the DCGT or GTL technologies, are terminated. The purchase price and terms of the Asset Purchase Agreement are confidential and will be released upon closing.

When the inventor received his patent for the GTL technology, he created a working GTL prototype for presentation to the U.S. Patent office. Today, that prototype no longer exists and a new prototype has to be built using the inventor’s notes, drawings and data collection to prove the viability of the GTL technology. TTE intends on pursuing a research and development partner that will work directly with the inventor to review and understand the inventor’s previous work, drawings and notes on the GTL technology and then build a working GTL prototype.

FINANCING

The financing for our development activities to date has come from the sale of common stock. The Company is looking to the credit facility provided by 236 for financing the Company’s immediate ongoing operations, in addition to securing ownership and development of the DCGT engine technology, the GTL technology and the HPBS Equipment development. The Company’s working capital needs will continue to be funded largely from the sale of public equity securities with additional funding from a private placement or secondary offering 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 ours.

For the three months ended September 30, 2014 compared to the three months ended September 30, 2013

Operating Costs – During the three months ended September 30, 2014 and 2013, operating costs totaled $70,668 and $102,993, respectively. The decrease of $32,325 was mainly attributable to an approximately $43,800 decrease in payroll expenses, net of an increase of approximately $10,400 in professional fees The decrease in payroll expenses is due to the elimination of all employment agreements and the increase in professional fees is due to additional legal fees involved in the settlement agreements.

Bad debt expense – During the three months ended September 30, 2014 and 2013, bad debt expense totaled $59,354 and $0, respectively. The increase in bad debt expense is due the increase in the reserve for the deposit.

Other income - During the three months ended September 30, 2014 and 2013, other income totaled $64,149 and $0, respectively. The increase of $64,149 was primarily due to forgiveness of certain accounts payable.

Interest Expense - During the three months ended September 30, 2014 and 2013, net interest expense totaled $142,993 and $99,045, respectively. The increase of $43,948 was primarily due to the Company issuing notes payable during 2014 and 2013 with interest at 20% and through the amortization of deferred non cash offering costs.

The net loss for the three months ended September 30, 2014 and 2013 was $208,866 and $169,483, respectively. The increase of $39,383 was mainly attributable to the increase in operating expenses, bad debt expense and interest expenses, net of other income as discussed above.

For the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013

Operating Costs – During the nine months ended September 30, 2014 and 2013, operating costs totaled $241,497 and $371,020, respectively. The decrease of $129,523 was mainly attributable to an approximately $92,300 decrease in payroll expenses, a decrease of approximately $12,000 in professional fees and a decrease of approximately $11,900 in stock compensation expense. The decrease in payroll expenses is due to the elimination of all employment agreements.

Bad debt expense – During the nine months ended September 30, 2014 and 2013, bad debt expense totaled $118,708 and $0, respectively. The increase in bad debt expense is due the increase in the reserve for the deposit.

Other income - During the nine months ended September 30, 2014 and 2013, other income totaled $64,149 and $0, respectively. The increase of $64,149 was primarily due to forgiveness of certain accounts payable.

Interest Expense - During the nine months ended September 30, 2014 and 2013, net interest expense totaled $404,060 and $204,299, respectively. The increase of $199,761 was primarily due to the Company issuing notes payable during 2014 and 2013 with interest at 20% and through the amortization of deferred non cash offering costs.

The net loss for the nine months ended September 30, 2014 and 2013 was $705,245 and $695,319, respectively. The increase of $9,926 was mainly attributable to the increase in interest expenses, bad debt expense and other income, net of the decrease in operating costs, and the decrease in the change in fair value of derivative liability.

Liquidity and capital resources

As shown in the accompanying financial statements, for the nine months ended September 30, 2014 and 2013, the Company has had net losses of $705,245 and $695,319, respectively. As of September 30, 2014, the Company has not generated any revenues. 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.

As previously mentioned, since inception, we have financed our operations largely from the sale of common stock and the issuance of notes payable. During the nine months ended September 30, 2014 we raised cash of $72,849 through private placements of common stock financings and $95,515 through the issuance of notes payable, of which $60,000 was used to reduce accounts payable and accruals directly.

We have incurred significant net losses and negative cash flows from operations since our inception. As of September 30, 2014, we had an accumulated deficit of $19,124,325.

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

We will be dependent upon the 236 Loan Agreement, our existing cash, together with anticipated net proceeds from any 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.

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 September 30, 2014 in accordance with the following schedule:

___________

In July 2014, the Company executed Settlement and Release Agreements with the CEO-President, Vice-President/Secretary-Treasurer and the former Chief Information Officer to forgive a total of $513,424 of accrued salary and payroll taxes. The Company recorded the forgiveness of accrued salary and payroll taxes of $513,424 as a contribution to capital in the third quarter. These agreements stipulate no additional accrual of salary for all 3 employees effective July 1, 2014.

In July 2014, the Company executed Settlement and Release Agreements with the CEO-President, Vice-President/Secretary-Treasurer and the former Chief Information Officer rescinding the rights for stock option compensation issued in 2011 and 2013, under separate Employment Agreements, for a cumulative total of 2,100,000 shares.

In July 2014, the Company executed a Settlement and Release Agreement with the Chief Executive Officer that rescinds the CEO’s rights to receive 5,000,000 common shares of termination compensation as defined under Section 7 of the CEO’s October 2011 Employment Agreement.

In July 2014, the Chief Executive Officer elected to convert 500,000 shares of Series A Convertible Preferred Stock into 500,000 shares of common stock. As of September 30, 2014, the common stock has not been issued and is included in common stock payable.

Under the above noted October 17, 2014 Asset Purchase Agreement and IP Transfer/Sale/Assignment Agreement for the DCGT and GTL technologies, these agreements, when completed, will supersede and replace the previous worldwide exclusive licensing agreement the Company had in place for the DCGT to include settlement of any and all accrued royalty payments and future financial considerations that might exist under the current exclusive worldwide licensing agreement with Alpha Engines, Inc.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

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

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

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

The Company incurred deferred loan offering costs in connection with entering into note agreements with its lender. These costs are paid with the Company’s restricted common shares and are valued at the commitment dates. They are recorded as a contra-equity and are amortized as interest expense over the life of the notes, which is five years.

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

New Accounting Pronouncements

Recent accounting pronouncements, other than the ones listed below issued by the FASB (including its EITF), the AICPA and the SEC did not or are not believed by management to have a material effect on the Company’s present or future financial statements.

In June 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10, “Development Stage Entities (Topic 915) Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. This ASU does the following among other things: a) eliminates the requirement to present inception-to-date information on the statements of income, cash flows, and shareholders’ equity, b) eliminates the need to label the financial statements as those of a development stage entity, c) eliminates the need to disclose a description of the development stage activities in which the entity is engaged, and d) amends FASB ASC 275, Risks and Uncertainties, to clarify that information on risks and uncertainties for entities that have not commenced planned principal operations is required. The amendments in ASU No. 2014-10 related to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275 are effective for public companies for annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has evaluated this ASU and adopted beginning with the quarterly period ended June 30, 2014. The adoption of this ASU resulted in the Company no longer reporting inception-to-date financial reporting for the Company’s Statements of Comprehensive Loss, Statement of Changes in Stockholders’ Deficit and Statements of Cash Flows.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact the adoption of ASU 2014-15 will have on its 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 nine months ended September 30, 2014, 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 defendants. During the quarter ended September 30, 2014, the Company filed a criminal complaint with the DA office in Taipei Taiwan, as a plaintiff, charging ETS and its principles of allege fraud.

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 nine month period ended September 30, 2014, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.

During August 2014, the Company issued 10,000,000 shares of common stock in connection with deferred offering costs at a price of $0.0222 per share.

During August 2014, the Company issued 4,000,000 shares of common stock for cash at a price of $0.005 per share.

During September 2014, the Company issued 250,000 shares of common stock in relief of $7,946 of accounts payable.

During September 2014, the Company issued 750,000 shares of common stock in relief of $44,000 of accounts payable and to pay for $17,700 of future professional services.

The Company issued the common stock described above without registration pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

Item 3. Defaults upon Senior Securities

There have been no defaults in any material payments during the covered period.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

The Company does not have any other material information to report with respect to the nine month period ended September 30, 2014.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits included herewith are:

___________

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

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:

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