Novo Integrated Sciences, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2015

For the transition period from ______, 20___, to _____, 20___.

Commission File Number 333-109118

11120 NE 2nd Street, Suite 200, Bellevue, Washington 98004
(Address of Principal Executive Offices)

(206) 617-9797

(Registrant's Telephone Number, Including Area Code)

1575 Aviation Center Parkway, Suite 433, Daytona Beach, Florida 32114
(Former Address of Principal Executive Offices)

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 21,920,925 shares of the Registrant's $0.001 par value common stock outstanding as of October 26, 2015.

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, 2015 (unaudited) and December 31, 2014

and for the Three and Nine Months Ended September 30, 2015 and 2014 (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, 2015 and 2014

(unaudited)

1. Background Information

Turbine Truck Engines, Inc. ("TTE" or "the Company") was incorporated in Delaware on November 27, 2000. On February 20, 2008, the Company was re-domiciled to the State of Nevada. 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 Bellevue, Washington. The company has not yet generated any revenues since inception.

To date, the Company's principal operations are the development and ultimately the commercialization of the (a) Detonation Cycle Gas Turbine Engine ("DCGT"); (b) Gas to Liquid Technology Process technology ("GTL"); and (c) Hydrogen Production Burner System ("HPBS"). In addition, the Company is aggressively pursuing to either purchase or merge an intellectual property asset and/or an existing operational company asset. To date, TTE has not entered into a contractual commitment to complete an asset purchase or merger.

The Company will need to raise capital to support its 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.

On May 4, 2015 the Company received approval from the Financial Industry Regulatory Authority ("FINRA") to effectuate a one-for-twenty (1:20) reverse split of its common stock, par value $0.001 per share, for shareholders of record as of the close of business on May 4, 2015, with the market effective date of May 5, 2015, whereby for every twenty (20) shares of the Company's old common stock were converted into one (1) share of the Company's new common stock. As a result of the reverse stock split, the Company has retroactively adjusted prior period share amounts and earnings per share to reflect the effect of the reverse stock split, unless otherwise noted.

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, 2015 and 2014, (b) the financial position at September 30, 2015 and December 31, 2014, and (c) cash flows for the nine month periods ended September 30, 2015 and 2014, 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, 2014. The results of operations for the three and nine month periods ended September 30, 2015 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, 2015, the Company had a net loss of $2,735,351. As of September 30, 2015, the Company has a working capital deficit of $3,258. 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, 2015 and December 31, 2014. Insurance coverage was $250,000 per depositor at each financial institution. At September 30, 2015 and December 31, 2014, there were no amounts held in excess of federally insured limits.

The Company's financial instruments include cash and accounts payable. The carrying amounts of cash and accounts payable approximate their fair value, due to the short-term nature of these items.

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. During the nine months ended September 30, 2015 and 2014, the Company incurred $25,256 and $0 for research and development costs.

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, 2015 and December 31, 2014. 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 have been amortized as interest expense over the life of the notes which is five years. Foreign currency transaction gains and losses, when material, have been recorded as other income or loss. For the nine months ended September 30, 2015 the Company recorded a foreign currency transaction gain of $88,791. As of September 30, 2015, the Canadian company has converted all outstanding notes payable and related accrued interest into common stock, therefore, the remaining balance of the deferred non-cash offering issuance costs has been recorded as interest expense for the nine months ended September 30, 2015. (see Note 6)

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, 2015 and 2014 were anti-dilutive due to the net losses sustained by the Company during these periods. For the three months ended September 30, 2015 and 2014 potentially dilutive common stock options and warrants of 4,576,250 and 162,775, respectively, have been excluded from dilutive losses per share due to the Company's losses in all periods presented. For the nine months ended September 30, 2015 and 2014 potentially dilutive common stock options and warrants of 4,576,250 and 162,775, respectively, 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 and directors, 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 or director is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). Options issued for past services are vested immediately and are expensed at the time of issuance.

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.

Recent accounting pronouncements

Recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not or are not believed by management to have a material effect on the Company's financial statements.

5. Commitments

On June 3, 2015, TTE signed and executed a Services Agreement with Sahoma Controlware, LLC ("Sahoma") to provide the Company with engineering services for the design, modeling and simulation of Turbine Truck Engine's Gas-to-Liquid ("GTL") Process technology for converting Methane and Oxygen Gas into Methanol Liquid. The contract cash price to complete the design, modeling and simulation as defined under this Phase 1 agreement is $36,080 with payment determined by three separate milestones as follows: (1) $10,824 paid to Sahoma Controlware, on June 3, 2015 as milestone #1 upon executing the services agreement; (2) milestone payment #2 of $14,432 paid to Sahoma on September 11, 2015 upon Sahoma having submitted initial design & modeling documents; and (3) milestone payment #3 of $10,824, with a NET 30 days, to be paid upon submission, by Sahoma to the Company of all final design, modeling and simulation documents, drawings and electronic files. As of September 30, 2015, milestone #3 has not yet occurred. For the three and nine months ended September 30, 2015, the Company recognized $14,432 and $25,256 in research and development expense related to the agreement.

During the nine months ended September 30, 2015, the Company entered into a consulting agreement with a contractor to provide consulting services for a six month period in exchange for 250,000 shares of common stock valued at $15,000, which represented the fair value of the common stock at the commitment date. As of September 30, 2015, the Company has recognized $10,000 of consulting expenses.

6. Notes Payable, Related Party

On March 16, 2015, the Company's Board of Directors accepted an offer from 2367416 Ontario, Inc. (a Canadian corporation) to irrevocably convert eight separate Loan Agreements dated from June 19, 2013 through October 1, 2014, payable by the Company to 2367416 Ontario, Inc., with a cumulative principal balance of $499,585 and a cumulative accrued interest balance of $69,075 for a total amount of debt owed of $568,660 into 2,369,418 shares of the Company's common stock. The conversion price in this transaction was $0.24 per share. At the March 16, 2015 commitment date the conversion was not beneficial to 2367416 Ontario, Inc. accordingly, no beneficial conversion feature was recorded for this conversion. This conversion of debt into shares of common stock is full and final payment for the debt as evidenced by all eight Loan Agreements. The shares were issued on March 18, 2015. As part of the conversion of debt to common stock, at the March 16, 2015 conversion date, the Company also expensed the unamortized deferred non-cash offering costs of $2,379,075 to interest expense.

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 $2.00 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 73,950 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. There were no derivatives outstanding during 2015.

8. Options and warrants

The Company's 2008 Incentive Compensation Plan ("the 2008 Plan") authorizes up to 5,000,000 (not affected for the reverse stock split) shares of common stock to employees or consultants, unless contained in the written award approved by the Board of Directors.

During the year ended December 31, 2011, the Company adopted the 2011 Incentive Compensation Plan ("the 2011 Plan") which superseded the 2008 Plan. As a result, no future options are to be issued from the Company's 2008 Plan.

On September 8, 2015, the Company adopted the 2015 Incentive Compensation Plan ("the 2015 Plan") which authorizes up to 5,000,000 shares of common stock issuance to certain employees and consultants as defined in the 2015 Plan and approved by the Company's Board of Directors. The 2015 Incentive Compensation Plan supersedes the 2011 Compensation Plan. As a result, there are no future grants, awards, options or share issuance to be issued from the Company's 2011 Plan.

The Company's 2015 Incentive Compensation Plan authorizes up to 5,000,000 shares of common stock issuance to persons employed by the Company either as an employee, officer, director or independent consultant or other person employed by the Company, provided that no person can be granted shares under the 2015 Plan for services related to raising capital or promotional activities. There are no restrictions on resale upon the purchases of the stock from the employees or the consultants, unless contained in the written award approved by the Board of Directors. During 2015 and 2014, the Company did not grant any common stock warrants to consultants, directors and employees, respectively, related to either the 2011 Incentive Compensation Plan or the 2015 Incentive Compensation Plan. As of September 30, 2015 5,000,000 shares are available under the 2015 Plan for future grants, awards, options or share issuance.

The fair value of each option granted under the 2008 and 2011 Incentive Compensation Plans were estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table. Expected volatility is based on the Company's historical market price at consistent points in periods equal to the expected life of the options. The expected term of options granted is based on the Company's historical experience. The risk-free interest rate for the periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimates forfeitures; both at the date of grant as well as throughout the requisite service period, based on the Company's historical experience and future expectations.

The aggregate intrinsic value of options outstanding and exercisable at September 30, 2015, based on the Company's closing stock price of $0.05 was $0. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2014, based on the Company's closing stock price of $0.388 was $0. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options.

There were 4,500,000 options issued to 2 directors and 1 consultant for past services during the nine months ended September 30, 2015, which were issued outside of the 2011 and 2015 Incentive Compensation Plans. The Company recognized approximately $313,000 of stock based compensation for the nine months ended September 30, 2015. The grant date fair value of these options was $0.07 per share. The options vest immediately and expire 5 years from date of grant.

The weighted average assumptions made in calculating the fair value of options granted during the nine months ended September 30, 2015 are as follows:

The following table represents our stock option and warrant activity for the nine months ended September 30, 2015 (post reverse split):

The following table summarizes information about options and warrants outstanding and exercisable as of September 30, 2015:

Net cash proceeds from the exercise of options and warrants were $0 for each of the nine months ended September 30, 2015 and 2014.

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 a 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. To date, the Company's principal operations are the development and ultimately the commercialization of the (a) Detonation Cycle Gas Turbine Engine ("DCGT"); (b) the Gas to Liquid Technology; and (c) Hydrogen Production Burner System ("HPBS"). In addition, the Company is aggressively pursuing to either purchase or merge an intellectual property asset and/or an existing operational company asset. To date, TTE has not entered into a contractual commitment to complete an asset purchase or merger and no specific candidate has been identified at this time.

In August 2014, the Company changed a majority of its Board of Directors, management and corporate officer personnel to better position the Company to (a) access funding for operations and development; (b) increase its opportunity for the development of its core technologies; (c) pursue a contractual commitment for either the purchase or merger of an intellectual property asset and/or an existing operational company asset.

On May 4, 2015 the Company received approval from the Financial Industry Regulatory Authority ("FINRA") to effectuate a one-for-twenty (1:20) reverse split of its common stock, par value $0.001 per share, for shareholders of record as of the close of business on May 4, 2015, with the market effective date of May 5, 2015, whereby for every twenty (20) shares of the Company's old common stock were converted into one (1) share of the Company's new common stock. The new CUSIP number is 89989X 204. As a result of the reverse stock split, the Company has retroactively adjusted prior period share amounts and earnings per share to reflect the effect of the reverse stock split, unless otherwise noted.

On May 10, 2015, the Company's Board of Directors accepted the resignation of Michael Rouse as President and Board of Director member. The Company's Board of Directors elected Christopher David to serve as the Company's President while Mr. David remains the Company's Secretary-Treasurer and a Board of Directors member. Mr. Rouse's seat on the Company's Board of Directors will not be filled at this time.

PRODUCT STATUS AND DESCRIPTION

I. THE DCGT ENGINE TECHNOLOGY

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. On December 15, 2000, TTE acquired the option rights for an exclusive License from Alpha Engines Corporation ("Alpha"), a company owned by Robert and Barbara Scragg, for manufacturing and marketing heavy-duty highway truck engines utilizing Alpha's DCGT engine technology embodied in U.S. Patent No. 6,000,214 and other proprietary technology and rights owned by Alpha, at that time, including Marketing Survey Data in the highway trucking industry. TTE exercised its option and acquired the licensing rights on July 22, 2002.

Since the formation of Turbine Truck Engines, Inc., on November 27, 2000, the development of the DCGT Engine technology, for the application of heavy-duty highway trucks, has been at the core of the Company's business operations. Up to August 13, 2014, the Company had 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 engine technology, for heavy-duty truck application, 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 engine technology, for heavy-duty truck application, beyond the research and development phase. Additionally, to date, the DCGT engine technology is not ready for commercialization, for any application, and remains in the development and research phase.

Effective August 13, 2014, the Company changed a majority of its Board of Directors, management and corporate officer personnel. TTE's new management and Board of Directors, in coordination with the inventor of the DCGT engine technology, continue to believe the patented DCGT technology can be developed for commercialization, but have determined that the focus of research and development of the DCGT technology should be on designing a DCGT engine for applications directly related to power generation. Based on this new focus, TTE no longer intends to expend resources on the development of the DCGT engine technology for the heavy-duty truck engine application and will continue to pursue a path forward to develop the DCGT engine technology for other applications specifically related to power generation.

The Company believes that with ownership of all patents, intellectual property, trademarks, trade secrets, drawings and copyrights for the DCGT engine technology, the Company will have better leverage as it pursues both the necessary funding and development partners required to prove the technologies' viability and ultimate commercialization.

The DCGT engine technology inventor, Robert Scragg, agreed and on November 14, 2014, the parties closed on the Asset Purchase Agreement and a Technology Sale, Transfer, Assignment Agreement for all Intellectual Property, dated October 14, 2014 (the "Asset Purchase Agreement") between the Company, Robert and Barbara Scragg and Alpha Engines Corporation, settling and ending all licensing agreements between TTE and Alpha Engines Corporation and completing the purchase by the Company of all patents, Intellectual Property, trademarks, copyrights, trade secrets, rights, title, and interest for both (1) the DCGT technology; and (2) the electromagnetic process and apparatus for converting methane gas to liquid methanol, on a low-volume scale, also referred to as the Gas-to-Liquid process technology.

Under the terms of the Asset Purchase Agreement, all royalty payments due by TTE to Alpha Engines have been settled with no future royalty payments due. TTE owns the DCGT engine technology free and clear.

TTE has begun early stage discussions with a North American based entity to re-initiate research and development of the DCGT engine technology for applications directly related to turning a shaft for power generation.

II. THE SCRAGG PROCESS FOR GAS TO LIQUID

In addition to the DCGT engine technology, Robert Scragg is also the inventor of an expired patent for a process in which methane gas, the primary component of natural gas, is converted into liquid methanol. This process is referred to as the Gas-to-Liquid process technology ("GTL" or "the Scragg Process").

In 1983, Robert Scragg received patent protection for his "Electromagnetic Process and Apparatus for Making Methanol". Mr. Scragg's 1983 patent proved that gentle oxidation of methane gas, a hydrocarbon, using precise electromagnetic activation produces methanol gas which is then condensed in the reactor chamber to form liquid methanol. The Scragg process for gas to liquid conversion provides for production of methanol, on a low-volume scale, using an easily transportable apparatus and system.

Throughout the United States and the world, at sites where oil-drilling operations are producing natural gas as a by-product, a large portion of the natural gas is being flare burned, instead of being sold, as the site is either too far from a pipeline or the accessible pipeline has no additional capacity.

With the recent increase of drilling in the United States, including fracking, the production of natural gas as a by-product of drilling has increased. When taking into account cost analysis, environmental considerations and commodity pricing in today's marketplace, TTE believes the demand for an easily transportable, self-sustaining apparatus capable of converting gas to liquid, on a low-volume scale, has elevated. As a result of the market's willingness to consider other options, besides flare burning the on-site natural gas, several companies are working to develop a low-volume, easily transportable GTL apparatus for commercialization. To date, TTE is not aware of any company that has commercialized a low-volume, unmanned remote GTL system which has proved viable as a self-supporting, profitable business. 

As noted in Section I above, titled the DCGT Engine Technology, on November 14, 2014, the Company closed an Asset Purchase Agreement, with Robert and Barbara Scragg and Alpha Engines Corporation, completing the purchase, by Turbine Truck Engines, Inc. of all patents, intellectual property, trademarks, copyrights, trade secrets, rights, title, and interest for an electromagnetic process and apparatus for converting methane gas to methanol, the Scragg Process. While the Scragg Process patent has expired, certain intellectual property and trade secrets remain intact and protected and are now owned by TTE.

When the inventor received his patent for the GTL process 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. 

On June 3, 2015, Turbine Truck Engines signed and executed a Services Agreement with Sahoma Controlware, LLC to provide the Company with engineering services for the design, modeling and simulation of TTE's Gas-to-Liquid Process technology, to include the Electromagnetic Generator, Chemical Reactor and Process Gas Feed Systems products. Sahoma will develop individual product simulation models & analysis for flow, thermal, vibration, structural/stress and electrical while also developing simulation models for the entire GTL Reactor Process to determine maximum operational effectiveness and efficiency. Based on the final analysis of all data and drawings produced from the work performed under the Phase 1 agreement, the Company intends to validate and confirm the viability of expending additional Company resources to move the product development of its GTL process technology into Phase 2 which is defined by the Company as building a physical bench prototype based on the design, data and blueprints generated by Sahoma Controlware from the June 3, 2015 Phase 1 agreement.

On June 3, 2015, Turbine Truck Engines signed and executed a Consulting Services Agreement with Justin Dean, an individual, to retain Mr. Dean as the Project and Program Manager for Phase 1 of TTE's product development of its GTL process technology. This agreement further defines Mr. Dean's responsibilities to include conceptual design analysis, product development analysis, product commercialization analysis, business plan analysis, product application analysis, and industry use & application analysis.

Upon successful completion of both Phase 1 and Phase 2 for the development of the GTL Process technology, TTE will consider plans to pursue either a joint venture or a licensing agreement to continue the development of the technology for commercialization.

III. HYDROGEN PRODUCTION BURNER SYSTEMS (HPBS)

In 2010, TTE was working with various Chinese based partners to develop its licensed DCGT engine technology for use in various applications in Asia. At that time, TTE's CEO was introduced to Falcon Power Co. Ltd. ("Falcon"), a Taiwan based business, that was developing a technology focused on converting methanol to hydrogen, on-demand, using a proprietary technology now known as the Hydrogen Production Burner System ("HPBS"). One of the potential fuel sources for the DCGT engine technology is hydrogen, thus TTE and Falcon began a diligence phase to consider a collaborative effort to blend the 2 technologies having the HPBS produce hydrogen that could then provide a hydrogen fuel source for the DCGT engine.

Hydrogen (H2) is an ideal fuel for combustion — it burns easily and efficiently at very high temperatures and emits pure water vapor (H2O) as its only by-product. But the gas is a difficult fuel to work with. Existing methods for transporting and storing hydrogen (namely high-pressure compression and liquefaction) are complex, inefficient, and expensive. It's also the smallest molecule in existence and tends naturally to leak; only exacerbating these problems.

The Hydrogen Production Burner System is an efficient methanol-to-hydrogen production and burner integrated 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 use as a fuel source to a proprietary burner assembly. The inventor of the HPBS is located in Taiwan and has been developing the technology for over 9 years.

Having a technology available that can produce hydrogen on-demand and on-site eliminates the costly and difficult issues that surround the transportation and storage of hydrogen. Additionally, methanol (CH4O, also known as methyl alcohol or wood alcohol) is inexpensive, widely accessible, and easier to store, handle and transport. The HPBS technology provides a unique and marketable solution for those entities wanting to burn hydrogen as a thermal heat source.

The HPBS system offers the potential to integrate with a wide array of industrial boilers and steam generators as well as other various residential and commercial applications. The efficiency of the HPBS technology could save the end user 30-60% on energy costs as compared to current sources of energy such as electricity, heavy oils, coal, and natural gas.

The following historical information is presented for market clarity:

On May 25, 2010, TTE entered into a Strategic Alliance Agreement with Falcon for the purpose of a collaborative engineering, technical development and commercialization effort to further advance and modify the DCGT engine technology to integrate with Falcon's licensed HPBS technology for application possibilities in Taiwan, China and other markets to be defined in the future. Additionally, this agreement allowed for both TTE and Falcon to establish a Joint Venture to manufacture, market and sell the new product in Taiwan, China, and other appropriate countries once the new product was shown to be viable for commercialization. Both TTE and Falcon were to work independently and collectively, at their own expense, to aide in the design, modifications, construction and testing of their own devices, with integration costs to be shared equally by both parties. All designs, modifications and improvements jointly developed were to belong to both parties equally with any patent filing for patent protection to be indicated jointly. This Strategic Alliance agreement was terminated, by mutual consent, as defined in the June 16, 2011 Cooperation Agreement between TTE and Hydrogen Union Energy Co. Ltd.

On June 18, 2010, TTE and Falcon entered into an Exclusive Agency Agreement granting TTE the exclusive right to resell Falcons' product offerings, including the Hydrogen Production Burner System, in certain U.S. regions. The terms and conditions of this Exclusive Agency Agreement were assigned to the June 16, 2011 Cooperation Agreement between TTE and Hydrogen Union Energy Co. Ltd. ("HUE") as noted below.

On June 16, 2011, TTE entered into a Cooperation Agreement with HUE, a Taiwan subsidiary of Energy Technology Services Co. Ltd ("ETS"), also a Taiwan based business, which had obtained exclusive worldwide rights, from Falcon Power, to develop, market, manufacture and distribute the HPBS technology. By mutual consent this June 16, 2011 Cooperation Agreement terminated the May 25, 2010 Strategic Alliance Agreement, noted above. Additionally, the Exclusive Agency Agreement, between TTE and Falcon dated June 18, 2010, was assigned to HUE, by Falcon, and was now in-force under this June 16, 2011 Cooperation Agreement. Under certain terms and conditions of this June 16, 2011, TTE was to be granted first right of refusal to be the exclusive agent, throughout N. America, for the HPBS technology.

On March 15, 2012, TTE entered into a World Agency Agreement with ETS, the parent company of HUE, granting TTE full agency capacity worldwide to handle ETS's products, including the HPBS technology. This March 15, 2012 World Agency Agreement designated TTE agency rights as exclusive for North America and non-exclusive for other world markets.

On May 18, 2012, SGS, Inc., a world leader for independent testing, inspection and certification, hired by TTE and ETS to validate the HPBS's electricity consumption, methanol consumption and the concentration and flow rate of produced hydrogen gas, presented TTE and ETS with its report verifying the HPBS is converting methanol to hydrogen on-demand with specifications that support a potentially profitable venture.

July 11, 2012, TTE entered into a Joint Venture with ETS for the purpose of engaging both parties in the manufacture, leasing, sale, marketing, installation, training and maintenance of ETS's HPBS units throughout Asia. Under the terms of the Joint Venture, TTE was to purchase and own all equipment for lease or sale and would have final approval on all lease or sale contracts. Additionally, TTE would be the sole signatory of the Joint Venture bank accounts, while ETS would be responsible for sales/leasing, manufacture, installation, training and maintenance of each HPBS unit with all generated revenue and all approved reasonable expenses provided to the Joint Venture with ETS and TTE splitting net profit 50/50. On December 12, 2012, ETS and TTE consented to terminate all agreements between TTE, ETS and HUE, due to lack of performance to date, with no further obligations or liabilities existing between the parties.

In the spring of 2013, TTE and ETS agreed to re-initiate its business relationship to pursue the commercialization of the HPBS technology.

On May 28, 2013, TTE entered into a 7-year equipment lease contract with Fujian Xinchang Leather Co. Ltd, a Chinese company ("Fujian"), for the lease of a 200m3 HPBS unit. This lease with Fujian was brokered and presented to TTE by the principal partners of ETS.

On July 30, 2013, TTE completed a Loan Agreement with 2367416 Ontario, Inc., an Ontario, Canada corporation ("236"), whereby 236 agreed to provide financing to TTE in the initial sum of $450,000 (CAN) and a maximum amount of $10,000,000 (CAN) to be used solely and specifically related to the HPBS technology.

In September 2013, with financing available to TTE and an equipment lease contract for a 200m3 HPBS unit in place, TTE and ETS agree to renew the terms and conditions of the July 11, 2012 Joint Venture Agreement. A total of $300,000 (CAN) was provided to ETS, on behalf of TTE, by 236 under the terms and conditions of the TTE Loan Agreement with 236. ETS accepts the terms of TTE's June 2013 purchase order for the manufacture of a new 200m3 HPBS unit required for TTE to fulfill its conditions of the lease with Fujian.

On December 6, 2013, TTE and ETS amended the July 11, 2012 Joint Venture Agreement defining the terms and conditions for TTE to complete an Asset Purchase Agreement to acquire all Intellectual Property, rights, and trade secrets for the Hydrogen Production Burner System technology.

Despite positive status reports throughout the fall of 2013 and into January 2014 from ETS on the building of the new 200m3 HPBS unit to fulfill its obligations., ETS has never delivered a new 200m3 HPBS unit as paid for by TTE. In 2014, ETS refunded $50,000 (CAD), which was used to pay down loans to 236.

In spring 2014, TTE hired Formosan Brothers, a Taiwan based law firm, and filed a criminal complaint, with the DA's office in Taipei, Taiwan, seeking criminal charges against ETS and its principals for fraud. As of September 30, 2015, the Company remains active in providing documentation and information to Formosan Brothers in support of its ongoing work of filing legal briefs, representing TTE at hearings in Taiwan and providing any information or documentation requested by the Taiwan prosecutor's office.

As a result of ETS and HUE's failure to perform under the terms and conditions of their contractual obligations, all agreements in place between ETS, HUE and TTE are operationally terminated with TTE pursuing remedy against ETS for failure to perform. Additionally, the equipment lease contract with Fujian terminated of its own accord with no further obligation or liability for either party.

Since April 2014, the Company entered into direct negotiations with Dr. Ching-Chang Chang, the inventor of the HPBS technology, who claims to have title ownership of the HPBS technology. In October 2014, Dr. Chang presented TTE with both pictures and video of a new 60m3 HPBS unit he completed building, at his own expense. While TTE and Dr. Chang have negotiated proposed terms and conditions for TTE to acquire the HPBS technology, TTE is continuing to undergo extensive due diligence to validate and verify title ownership of the HPBS technology including any new information that may surface as part of the discovery phase under TTE's efforts to pursue criminal fraud charges against ETS and its principal partners. Until TTE is satisfied with title ownership of the HPBS technology, any final agreement to purchase the HPBS technology is pending.

FINANCING

The financing for our development activities to date has come from the sale of common stock and notes payable. 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, 2015 compared to the three months ended September 30, 2014

Operating Costs – During the three months ended September 30, 2015 and 2014, operating costs totaled $47,255 and $130,022, respectively. The decrease of $82,767 was mainly attributable to an approximately $59,400 decrease in bad debt expense, a $14,900 decrease in professional fees and 6,200 decrease in royalty expenses.

Other Income – During the three months ended September 30, 2015 and 2014, other income totaled $34,000 and $64,149, respectively. The decrease of $30,149 is due to more payables being settled or forgiven during the prior period.

Interest and Other Expenses - During the three months ended September 30, 2015 and 2014, net interest and other expenses totaled $0 and $142,993, respectively. The decrease of $142,993 was primarily due to the Company converting all outstanding debt and related accrued interest into common stock in 2015, which resulted in the accelerated amortization of the unamortized discounts.

The net loss for the three months ended September 30, 2015 and 2014 was $13,255 and $208,866, respectively. The decrease of $195,611 was mainly attributable to the decrease in operating costs and the decrease in interest and other expenses.

For the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014

Operating Costs – During the nine months ended September 30, 2015 and 2014, operating costs totaled $449,001 and $360,205, respectively. The increase of $88,796 was mainly attributable to an approximately $313,600 increase in stock based compensation, net of a $24,800 decrease in professional fees, $29,800 decrease in payroll expenses, a decrease of $16,600 in rent expense, a decrease of $18,800 of royalty fees, a decrease of $13,000 of consulting expense and a decrease of approximately $118,700 decrease in bad debt expense due to the prior year write off of the deposit. 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 and an increase in accounting fees.

Other Income – During the nine months ended September 30, 2015 and 2014, other income totaled $34,000 and $64,149, respectively. The decrease of $30,149 is due to more payables being settled or forgiven during the prior period.

Interest and Other Expenses - During the nine months ended September 30, 2015 and 2014, net interest and other expenses totaled $2,320,350 and $404,060, respectively. The increase of $1,916,290 was primarily due to the amortization of all deferred non cash offering costs as a result of the Company converting all outstanding debt and related accrued interest into common stock. Therefore, the Company fully amortized the balance of the unamortized deferred non-cash offering costs of $2,379,075 to interest expense. During the nine months ended September 30, 2015 and 2014, the Company recognized $88,791 and $0, respectively, of foreign currency transaction gain from transactions with 2367416 Ontario, Inc. The increase is the result of the reduction of the foreign exchange rate during the period.

The net loss for the nine months ended September 30, 2015 and 2014 was $2,735,351 and $705,245, respectively. The increase of $2,030,106 was mainly attributable to the increase in operating costs and the increase in interest and other expenses.

Liquidity and capital resources

As shown in the accompanying financial statements, for the nine months ended September 30, 2015 and 2014, the Company has had net losses of $2,735,351 and $705,254, respectively. As of September 30, 2015, 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, 2015 we raised cash of $150,000 through a common stock subscription agreement and $17,924 through the issuance of notes payable. During the nine months ended September 30, 2015, the Company converted all outstanding debt and related accrued interest into common stock, therefore, the Company fully amortized the balance of the deferred non-cash offering costs of $2,379,075 to interest expense.

We have incurred significant net losses and negative cash flows from operations since our inception. As of September 30, 2015, we had an accumulated deficit of $22,187,963.

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 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, 2015 in accordance with the following schedule:

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On September 22, 2015, the Company executed a common stock Subscription Agreement with 2367416 Ontario, Inc., a Canadian corporation, for the sale and issue of 312,500 shares of the common stock of the Company at a price of $0.16 per share for a total sum paid, by 2367416 Ontario, Inc. to Turbine Truck Engines, Inc., of $50,000 in cash which was disbursed on July 15, 2015 ($10,000), July 31, 2015 ($10,000), August 21, 2015 ($10,000), September 8, 2015 ($10,000) and September 21, 2015 ($10,000). The stock issuance of shares to 2367416 Ontario, Inc. is subject to both Rule 144 restrictions and control stock rules. The $50,000 was provided to fund the Companies' ongoing operational and product development expenses.

On June 22, 2015, the Company executed a common stock Subscription Agreement with 2367416 Ontario, Inc., a Canadian corporation, for the sale and issue of 125,000 shares of the common stock of the Company at a price of $0.16 per share for a total sum paid, by 2367416 Ontario, Inc. to Turbine Truck Engines, Inc., of $20,000 in cash which was disbursed on May 28, 2015 ($10,000) and June 19, 2015 ($10,000).This stock issuance of shares to 2367416 Ontario, Inc. is subject to both Rule 144 restrictions and control stock rules. The $20,000 was provided to fund the Companies' ongoing operational and product development expenses.

On May 20, 2015, the Company executed a common stock Subscription Agreement with 2367416 Ontario, Inc. a Canadian corporation, for the sale and issue of 406,250 shares of the common stock of the Company at a price of $0.16 per share for a total sum paid, by 2367416 Ontario, Inc. to Turbine Truck Engines, Inc., of $65,000 in cash which was disbursed on April 9, 2015 ($20,000), April 15, 2015 ($25,000), May 12, 2015 ($10,000) and May 19, 2015 ($10,000).The stock issuance of shares to 2367416 Ontario, Inc. is subject to both Rule 144 restrictions and control stock rules. The $65,000 was provided to fund the Companies' ongoing operational and product development expenses.

On May 4, 2015 the Company, upon receipt of approval from the Financial Industry Regulatory Authority ("FINRA"), effected a one-for-twenty (1:20) reverse split of its common stock, par value $0.001 per share, whereby each twenty (20) shares of the Company's old common stock was converted into one (1) share of the Company's new common stock.

On March 16, 2015, the Company executed a Subscription Agreement with 2367416 Ontario, Inc., a Canadian corporation, for the sale of 93,750 shares of the Companies' common stock at a price of $0.16 per share for a total sum paid, by 2367416 Ontario, Inc. to Turbine Truck Engines, Inc., of $15,000 in cash which was disbursed on March 20, 2015. The stock issuance of shares to 2367416 Ontario, Inc., dated March 20, 2015, is subject to both Rule 144 restrictions and control stock rules. The $15,000 was provided to fund the Companies' ongoing operational and product development expenses.

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.

The Company recognizes all share-based payments to employees and directors, 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 or director is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). Options issued for past services are vested immediately and are expensed at the time of issuance.

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.

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 issued by the FASB, the AICPA and the SEC did not or are not believed by management to have a material effect on the Company's financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

The Company's Board of Directors, Chief Executive Officer, President, Principal Accounting Officer and Secretary-Treasurer 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 Board of Directors, Chief Executive Officer, President, Principal Accounting Officer and Secretary-Treasurer 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 Principal 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 September 30, 2015, 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 the Company nor any of its officers or directors is involved in any litigation as defendants. During the quarter ended September 30, 2015, the Company, through its Taiwan legal team of Formosan Brothers Law Firm, filed a criminal complaint with the DA office in Taipei Taiwan, as a plaintiff, charging ETS and its principles of alleged fraud. The Company remains active in providing documentation and information to Formosan Brothers in support of its ongoing work of filing legal briefs, representing TTE at hearings in Taiwan and providing any information or documentation requested by the Taiwan prosecutor's office.

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 months ended September 30, 2015, 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.

On September 22, 2015, the Company executed a common stock Subscription Agreement with 2367416 Ontario, Inc., a Canadian corporation, for the sale and issue of Three Hundred Twelve Thousand Five Hundred (312,500) shares of the common stock of the Company at a price of sixteen cents ($0.16US) per share for a total sum paid by 2367416 Ontario, Inc., to Turbine Truck Engines, Inc., of Fifty Thousand Dollars ($50,000US) in cash as disbursed on July 15, 2015 ($10,000), July 31, 2015 ($10,000), August 21, 2015 ($10,000), September 8, 2015 ($10,000) and September 21, 2015 ($10,000). This stock issuance of shares to 2367416 Ontario, Inc. is subject to both Rule 144 restrictions and control stock rules. The $50,000 was provided to fund the Companies' ongoing operational and product development expenses.

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 three month period ended September 30, 2015.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits included herewith are:

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** 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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