Notes to Financial Statements
For the Three Month Periods Ended March 31, 2017 and 2016
(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, engaging in research and development, testing its technology, 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 research and development operations have been directed at the potential commercialization, of its (a) Detonation Cycle Gas Turbine Engine technology ("DCGT"); its (b) Gas-to-Liquid Conversion Process technology ("GTL"); and the (c) Hydrogen Production Burner System ("HPBS"). In addition, the Company continues to conduct diligence to either purchase or merge an intellectual property asset and/or an existing operational company asset.
On January 2, 2017, TTE entered into a non-binding Letter-of-Intent (the “LOI”) with Novo Healthnet Limited (“NHL”), a limited liability company incorporated under the laws of Ontario, Canada, pursuant to which TTE and NHL agreed to pursue, in good-faith, negotiations for the entry into a definitive agreement for the acquisition, by TTE, of all the issued and outstanding shares of NHL, such that NHL would become a wholly owned foreign subsidiary of the Company.
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.
2.
Financial Statements
In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended March 31, 2017 and 2016, (b) the financial position at March 31, 2017 and December 31, 2016, and (c) cash flows for the three month periods ended March 31, 2017 and 2016, 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, 2016. The results of operations for the three-month period ended March 31, 2017 are not necessarily indicative of those to be expected for the entire year.
3.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three month period ended March 31, 2017, the Company had a net loss of $37,023. As of March 31, 2017, the Company had an accumulated deficit of ($22,425,236). 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 March 31, 2017 and December 31, 2016. Insurance coverage was $250,000 per depositor at each financial institution. At March 31, 2017 and December 31, 2016, 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.
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 exceeds 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 three month periods ended March 31, 2017 and 2016, the Company did not incur any costs 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 March 31, 2017 and December 31, 2016. 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.
Basic loss per share is computed by dividing net loss 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 month periods ended March 31, 2017 and 2016 were anti-dilutive due to the net losses sustained by the Company during these periods. For the three month periods ended March 31, 2017 and 2016 potentially dilutive common stock options and warrants of 5,610,000 and 2,308,000, 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 measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity 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 and Contingencies
On June 3, 2015, the Company signed and executed a Services Agreement with Sahoma Controlware, LLC ("Sahoma") to provide the Company with 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, upon executing the services agreement (Milestone #1); (2) $14,432 paid to Sahoma on September 11, 2015 upon Sahoma having submitted initial design & modeling documents (Milestone #2); and (3) $10,824, to be paid upon submission, by Sahoma to the Company of all final design, modeling and simulation documents, drawings and electronic files (Milestone #3). For the year ended December 31, 2015, the Company recognized $25,256 in research and development expense related to the agreement.
On February 19, 2016, the Company executed Settlement Agreements with both Sahoma and Justin Dean, under which the Company has no further obligation to pay Sahoma the Milestone payment of $10,824.
The Company has entered into various other agreements that have been disclosed in previous 10-K and 10-Q filings. These agreements have been either terminated or put on hold and may be reinitiated based on both adequate funding and a viable product development and commercialization plan being approved by the Companies' Board of Directors.
6.
Common Stock, Related Party
During the three month period ended March 31, 2017, 2367416 Ontario, Inc. purchased 33,333 restricted shares of common stock at $0.45 per share for cash proceeds of $15,000.
7. Options and warrants
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 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, or otherwise as provided by law. During the three month periods ended March 31, 2017 and 2016, the Company did not grant any common stock options or warrants to consultants, directors and employees under the 2015 Plan. As of March 31, 2017, 4,987,500 shares are available under the 2015 Plan for future grants, awards, options or share issuance.
There were 500,000 options granted to an officer for past services during the three month period ended March 31, 2016. These options were issued outside of the 2015 Plan, have an exercise price of $0.16 per share, fully vested on the grant date, expire 5 years from the date of grant and have a grant date fair value of $0.06 per share.
In addition, during the three month period ended March 31, 2016, the officer was also granted an additional 500,000 options at an exercise price of $0.16 per share. As of March 31, 2017, these options fully vested on February 19, 2017, have a grant date fair value of $0.06 per share and expire 5 years from the vesting date.
The fair value of each option granted is 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 following table represents our stock option and warrant activity for the three month period ended March 31, 2017:
|
|
Shares
|
|
|
Weighted
Average Exercise
Prices
|
|
|
Weighted Average
Remaining Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
5,610,000
|
|
|
$
|
0.17
|
|
|
|
3.62
|
|
|
|
-
|
|
Options and warrants granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options and warrants cancelled or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2017
|
|
|
5,610,000
|
|
|
$
|
0.17
|
|
|
|
3.38
|
|
|
|
2,934,000
|
|
Exercisable at March 31, 2017
|
|
|
5,610,000
|
|
|
$
|
0.17
|
|
|
|
3.38
|
|
|
|
2,934,000
|
|
Net cash proceeds from the exercise of options and warrants were $0 for each of the three month periods ended March 31, 2017 and 2016. Stock based compensation was $4,024 and $33,750 for the three month periods ended March 31, 2017 and 2016, respectively.