Form 10-KSB

10KSB 1 d10ksb.htm FORM 10-KSB Form 10-KSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-KSB

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from , 20 , to , 20 .

Commission File Number

333-109118

Turbine Truck Engines, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

59-3691650

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

1301 International Speedway Boulevard, Deland, Florida 32724

(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:


$.001 par value preferred stock		Over the Counter Bulletin Board
$.001 par value common stock		Over the Counter Bulletin Board

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ¨

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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. x YES ¨ NO

Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB x

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

State issuer’s revenues for its most recent reporting period December 31, 2006.……$0

Aggregate market value of the voting stock held by non-affiliates of the registrant at December 31, 2006 was $5,978,948.

There were 13,286,552 shares of the Registrant’s $.001 par value common stock outstanding as of December 31, 2006.

Transitional Small Business Format (check one) Yes ¨ NO x

TURBINE TRUCK ENGINES, INC.

FORM 10-KSB - INDEX


Part I

Item 1.		Description of Business

Item 2.		Description of Property

Item 3.		Legal Proceedings

Item 4.		Submission of Matters to a Vote of Security Holders

Part II

Item 5.		Market for Common Equity and Related Stockholder Matters

Item 6.		Plan of Operation

Item 7.		Financial Statements

Item 8.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 8A.		Controls and Procedures

Item 8B		Other information

Part III

Item 9.		Directors and Executive Officers of the Registrant

Item 10.		Executive Compensation

Item 11.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12.		Certain Relationships and Related Transactions

Item 13.		Exhibits

Item 14.		Principal Accountant Fees and Services

		Signatures

		Certifications

TURBINE TRUCK ENGINES, INC.

This Annual Report on Form 10-KSB and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about Turbine Truck Engines Inc.’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements.

PART I

ITEM 1.

DESCRIPTION OF BUSINESS

We are a Delaware corporation, incorporated on November 27, 2000. Our authorized capital stock consists of 99,000,000 shares of common stock, par value $.001 each and 1,000,000 shares of preferred stock, par value $.001 each. The rights and preferences of the preferred shares will be designated by the Board of Directors.

On December 15, 2000, we acquired the option rights to the Alpha License and marketing survey data from our founder and principal, Michael Rouse, in exchange for 10,000,000 shares of our common stock and his promotional services and out-of-pocket expenses over the past 18 months in acquiring the option from Alpha. We reserved 10,000,000 shares of our restricted common stock for Alpha to acquire the license. In July 2002, Alpha modified the agreement to allow us to acquire the license agreement in advance of completing our registration statement and accepted a note as payment for the licensing fee and for the issuance of 5,000,000 shares of common stock in lieu of the original 10,000,000 shares. We exercised our option and acquired the licensing rights on July 22, 2002 with a $250,000 promissory note payable to Alpha and the stock on July 22, 2002. During 2005, the Company satisfied the $250,000 debt through the issuance of 125,000 shares of registered common stock valued at $2.00 per share. Michael Rouse, our CEO, and Alpha each returned 5,000,000 shares, which the Company retired. Alpha held the core rights to the licensed technology which was licensed to us. The novel patents are registered in the name of Robert L. Scragg, the majority shareholder of Alpha.

We utilized a Regulation D, Rule 506 offering to raise capital and we intended to raise $2 million in capital from an SB-2 registration followed by a private placement for a minimum of $10 million to meet the terms and conditions of the Alpha License option agreement. There is no assurance that we will be able to raise $10 million in the future. Failure to raise these funds would adversely affect us by causing delays in developing an engineered prototype which is necessary to secure a manufacturing partner for our engine. Alpha designs, constructs and tests prototypes derived from their core technology and license the technology to companies that have potential ability to commercialize the different applications. To date, Alpha has not licensed its technology to any company other than us, and there are no products on the market utilizing the Alpha technology.

Our major asset is the ownership of an exclusive License from Alpha for manufacturing and marketing heavy duty highway truck engines utilizing Alpha’s “Detonation Cycle Gas Turbine Engine” (“DCGT”) technology embodied in U.S. Patent No. 6,000,214 and other proprietary technology and rights owned by Alpha including Marketing Survey Data in the highway trucking industry. Detonation refers to an instant burning of a fuel-air mixture producing an explosion. Cycle refers to the explosion happening in one chamber and then in another chamber, repeating over and over again. Gas is the fuel which is in a gaseous state. Turbine is a rotating wheel or disk connected to a shaft spinning in one direction. This combined process along with the EIC process creates the high efficiency, low emission engine that we intend to bring to market.

On September 29, 2006 the Company and Alpha Engines Corporation settled the $416,667 of accrued royalty fees to date for a total of 100,000 shares of restricted common stock with registration rights.

On October 24, 2006, the Company entered into three separate consulting agreements which are intended to provide the Company with strategic financial and corporate development services. As consideration for entering into the consulting agreements, the Company has granted each consultant options to acquire up to 500,000 shares of the Company’s common stock at a price of $.50 per share based upon each respective consultant meeting specific milestones set forth in the consulting agreements.

On June 2, 2006, the Company and Dutchess Private Equities Fund, L.P. entered into an agreement (“the Agreement”), whereby the Company will, pursuant to terms and conditions of the Agreement, have access to a $10 million line of credit. As part of the Agreement, the Company is obligated to register additional shares of its common stock in order to have an adequate number of shares for issuance pursuant to the Registration Rights Agreement entered into as part of the Agreement.

Our Product

Our product will be a new energy-efficient, Detonation Cycle Gas Turbine Engine (“DCGT”) for heavy-duty highway trucks. To date, we have no marketable product and will rely on Alpha to continue the development and testing of a 540 horsepower prototype that will conform to our licensed application. Since our inception, we have continued to raise capital to bring this patented technology closer to where it can be utilized in a common market. The application demanding the most change is the highway trucking market.

Alpha has completed the design and prototype of a 540 hp engine for use in highway trucks. Therefore compliance with state and federal regulators will not be a factor until we have an engineered prototype in a test vehicle. The prototype phase of development is anticipated to continue for approximately three years from the completion of the funding of a public offering. Alpha completed all research and development in 1997, which resulted in a patent being issued in 1999. Alpha has completed the design for the truck engine. We need to complete the prototype and test an engine that meets our needs using the existing proven technology; however, this takes a considerable amount of money.

Alpha will continue to develop and test a 540 horsepower DCGT highway truck engine prototype at their facilities at Deland Industrial Center, 1601 Old Daytona Street, Deland, Florida 32724. All machine work is contracted out by Alpha while all component parts are purchased off the shelf or fabricated by Alpha at their facilities. Our company will be involved in this process only to the extent that we will receive ongoing status reports of Alphas’ progress. We will not participate in the design, construction and testing of the engine. Alpha may use independent contractors as it deems necessary to complete these functions. We are completely dependent on Alpha to complete this process (see “Risk Factors”.)

The patent is a novel patent with a 20-year life from the filing date of December 16, 1997. The patent was based on research and development beginning in 1984, which included the design, construction, and testing of four working prototypes. The patent attorneys were Schoemaker & Mattare Ltd. The inventor will file additional patents to protect any new developments in the engine technology. We will have access to any new patent filings on the highway truck engines as provided for in our licensing agreement.

This patent is impossible to describe in layman terms as to how it works; however, its simplicity makes it very unique. A detonation cycle gas turbine engine includes a turbine rotor contained in a housing. The exhaust ports of respective valveless combustion chambers are located on opposite sides of the rotor directing combustion gases toward the turbine. The chambers are connected by a valveless manifold fed with fuel and oxidizer. When combustible gases are detonated by an igniter in one of the combustion chambers, the back pressure from the detonation shuts off the fuel and oxidizer flow to that chamber and redirects the fuel and oxidizer to the opposite chamber, where detonation occurs. The process repeats cyclically. Power is taken off the rotor shaft mechanically or electrically.

The invention utilizes a water wheel as the turbine wheel which has blades that are positively displaced through a blade race by the rapid expansion of gases exiting from combustion chambers via nozzles, rather than pistons or gas turbines.

Our engine has a blower, rather than a compressor, to supply less air per horsepower hour than required by existing gas turbines or piston engines, thereby producing less exhaust gases per horsepower hour.

The blower supplies low pressure air via a single manifold to two combustion chambers simultaneously thereby requiring less work to complete a detonation cycle, resulting in higher thermo mechanical efficiencies than gas turbines or piston engines.

The engine manifolds, combustion chambers, and ignition system has the capability of cyclically detonating fuel-air mixtures without using valves. The engine uses a fuel pump and vaporizers to gasify wet fuels prior to mixing with combustion air in the manifolds to produce complete combustion of all fuel-air mixtures in the detonation process. The engine uses a plasma arc ignition, a visibly constant illuminating plasma flame between two electrodes to detonate fuel-air mixtures and does not require critical ignition timing.

Low pressure air and fuel mixtures are detonated instantaneously–in less than one millisecond–producing high velocity shock waves that kinetically compress inert gases resulting in higher working pressures than the pressures produced in constant pressure heating utilized in gas turbine engines, and Otto and Diesel cycle piston engines.

The detonation cycle engine uses less working fluid and produces less exhaust gas per horsepower hour than Brayton cycle turbines and Otto or Diesel cycle piston engines.

Alpha has developed four working prototypes as described below:

First engine was developed in 1987. The engine consisted of one 8-inch diameter, 26-pound turbine wheel, driven by two horizontally opposed combustion chambers. The engine produced 78 horsepower at 12,500 rpm.

This engine was developed in 1989. The engine consisted of two 5-inch diameter, 11-pound turbine wheels mounted on a single shaft, driven by four horizontally opposed combustion chambers. The engine produced 130 horsepower at 14,000 rpm.

This engine was developed in 1991. The engine consisted of two 7-inch diameter, 19.6 pound turbine wheels mounted on a single shaft, driven by four horizontally opposed combustion chambers. The engine produced 256 horsepower at 8,300 rpm.

This engine was developed in 1997. The engine consists of four 6-inch diameter, 12 pound turbine wheels mounted on a single shaft, driven by eight horizontally opposed combustion chambers. The engine produces 130 horsepower at 8,400 rpm. This engine is currently used for demonstration and can be seen by appointment.

With current data derived from testing previous prototypes, Alpha has designed a 540 horsepower engine that can power a highway truck. Preliminary design concepts estimate the engine will have six 15-inch diameter, 20-pound turbine wheels mounted on a single shaft, driven by 12 horizontally opposed combustion chambers producing 540 horsepower at 3,000 rpm.

The DCGT includes an Electromagnetic Isothermal Combustion (“EIC”) process that powers the engine. The EIC process produces complete combustion of fuel-oxidizer mixtures in cyclic detonations that negate unwanted nitrogen oxide and carbon monoxide emissions. The high pressure gases produced by the detonations drive a unique turbine producing shaft horsepower.

The EIC process enables the DCGT to operate with blower air at low static pressure, negating the necessity of compressing and preheating fuel-oxidizer mixtures prior to combustion. By eliminating the compression of fuel-oxidizer mixtures, the DCGT achieves higher thermal efficiencies in a simplified mechanical structure. The DCGT has the following proprietary and competitive advantages over current diesel, gasoline and gas turbine engines:

•

Air cooled - less than 2 pounds per horsepower

•

Fewer moving parts - less maintenance

•

Flex-fuel and mixed fuels capability

•

Operates on all hydrocarbon fuels, hydrogen and syn fuels

•

Cold start capability with any fuels

•

Burns 30% less fuel “Greenhouse exhaust gases”

•

Less nitrogen oxides and carbon monoxide exhaust emissions

•

Less hydrocarbon exhaust emissions

•

No lube oil, filters or pumps

Alpha has completed basic research, exploratory development, and advanced development with the design, construction and testing of four experimental prototype engines.

Our new energy efficient detonation cycle gas turbine can be designed and manufactured as a new or replacement engine for all heavy duty trucks that utilize engines ranging from 300 to 1,000 horsepower.

We intend to target 18 wheel class 8 vehicles commonly used for transporting goods throughout the United States for distribution of our engine. We will not require governmental approval until such time as the engine is placed in vehicles for use. Our engine will meet the new more stringent tailpipe emission requirements set forth by the Environmental Protection Agency (“EPA”).

Research and development of our engine was completed in 1998 with patents obtained in 1999. Through testing, we hope to be able to comply with existing and future environmental laws. We intend to supply our fuel efficient, lower emission engine to a marketplace that must comply with more stringent governmental regulations.

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

$250,000 licensing note payable August 23, 2005 or agreement is terminated

Eight percent (8%) of net sales royalty payment after manufacturing and sales commence

$250,000 minimum royalty payment each year after licensing note is settled

Additional contract fees will be paid to Alpha for design and engineering services.

During the year ended December 31, 2006, the Company issued 125,000 shares of common stock in satisfaction of the $250,000 note payable to Alpha and the accrual of minimum royalty fees began. As of December 31, 2006, the Company has accrued $62,500 of royalty fees related to this agreement. In addition, during the year ended December 31, 2006, the Company paid $416,667 of royalty fees through the issuance of 100,000 shares of common stock.

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

EMPLOYEES

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

ITEM 2.

DESCRIPTION OF PROPERTY

We occupy office space located at 1301 International Speedway, DeLand, Florida 32724. The facilities are leased month to month and the rent payment for these facilities is approximately $1,800.

ITEM 3.

LEGAL PROCEEDINGS

As of the date of this Report, neither we nor any of our officers or directors is involved in any litigation either as plaintiffs or defendants. As of this date, there is not any threatened or pending litigation against us or any of our officers or directors.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the year ended December 31, 2006, the Company did not submit any matters to a vote of its security holders.

PART II

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since the August 2004 closing of the Company’s initial public offering, the Company’s Common Stock has traded in the over-the-counter market on the National Association of Securities Dealers, Inc. OTC Bulletin Board System (“OTCBB”). under the symbol “TTEG.” The following table sets forth the range of high and low closing bid quotations of the Common Stock as reported by the OTCBB for each fiscal quarter for the past two fiscal years. High and low bid quotations reflect inter-dealer prices without adjustment for retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.


	Bid Prices
	High		Low
FISCAL 2006

First Quarter (January 1, 2006 through March 31, 2006)	$	3.00	$	1.95
Second Quarter (April 1, 2006 through June 30, 2006)	$	2.20	$	0.85
Third Quarter (July 1, 2006 through September 30, 2006)	$	1.45	$	0.60
Fourth Quarter (October 1, 2006 through December 31, 2006)	$	0.80	$	0.30

FISCAL 2005

First Quarter (January 1, 2005 through March 31, 2005)		N/A		N/A
Second Quarter (April 1, 2005 through June 30, 2005)		N/A		N/A
Third Quarter (July 1, 2005 through September 30, 2005)	$	2.25	$	1.95
Fourth Quarter (October 1, 2005 through December 31, 2005)	$	5.00	$	1.90

On February 27, 2007 the closing bid price of the Company’s Common Stock as reported by the OTCBB was $0.72 and there were approximately 150 shareholders of record.

DIVIDENDS

We have not paid any cash dividends on our common or preferred stock and do not anticipate paying any such cash dividends in the foreseeable future. Earnings, if any, will be retained to finance future growth. We may issue shares of our common stock and

preferred stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. Issuance and or sales of substantial amounts of common stock could adversely affect prevailing market prices in our common stock.

As of December 31, 2006 there were approximately 148 beneficial owners of our common stock with 13,286,552 shares issued and outstanding.

During the year ended December 31, 2006, 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 October 2006, the Company issued 16,000 shares of common stock to a qualified investor for $0.50 per share for a total of $8,000.

During October 2006, the Company issued 30,000 shares of common stock to qualified investors for services valued at $.50 per share for a total of $15,000.

During October 2006, the Company issued 15,000 shares of common stock to a qualified investor for services valued at $.67 per share for a total of $10,000.

During October 2006, the Company issued 300,000 options to employees, directors, and consultants to purchase common stock to qualified investors for services for a total of $155,185.

During November 2006, the Company issued 100,000 shares of common stock to a qualified investor for $0.50 per share for a total of $50,000.

During November 2006, the Company issued 188,000 shares of common stock to qualified investors for services valued at $.50 per share for a total of $94,000.

During November 2006, the Company issued 2,833 shares of common stock to a qualified investor for $0.60 per share for a total of $1,700.

The sale and issuance of securities above was deemed to be exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 506 of Regulation D promulgated there under.

ITEM 6.

PLAN OF OPERATION

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.

Background of our company

We are a development-stage company and not yet generating any revenues. We expect to continue the commercialization of our Detonation Cycle Gas Turbine Engine (“DCGT”) technology. The licensor of the acquired technology has passed the research and development phase and has designed a working prototype. We need to redesign an engine for our application based on this proven Core Technology. We are relying on Alpha to design, construct and test a 540 horsepower engine prototype for our licnesed application (see “Business of the Company”, “Our Product.”).

The financing for our development activities to date has come from the sale of common stock. We intend to finance our future development activities and working capital needs largely from the sale of public equity securities with additional funding from a private placement or secondary offering of up to $10 million and other traditional financing sources, including term notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements.

Since we have had a limited history of operations, we anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies commercializing new and evolving technologies such as the DCGT. In July 2002, we acquired the license for the DCGT technology for the manufacture and marketing of heavy-duty highway truck engine.

The following steps are required to demonstrate the viability of a final prototype engine:


Step 1		Complete the design and build prototype engine

Cost:		$75,000

Time frame:		Completed design of the prototype, 75% completion of the engine as of December 31, 2006

Step 2		Complete testing of engine

Cost:		$385,000

Time frame:		6 months from completion of Step 1

Step 3		Lease of office and demonstration facilities

Cost:		$48,000

Time frame:		New lease for office facilities initiated on January 1, 2007, leasing of demonstration facilities to be completed by March 31, 2007

Step 1 of this process will be completed by Alpha in connection with performing the design and construction of the prototype engine at their facilities at Deland Industrial Center, 1601 Old Daytona Street, Deland, FL 32724. In Step 2, we will also rely on Alpha to test the prototype engine at their facilities. Alpha will conduct test demonstrations to show the viability and function of the engine. In Step 3, we intend to lease our office and demonstration facilities. We will design a facility and hire a licensed general contractor to complete the project. All of these steps are intended to be funded from the proceeds of a public offering.

These initial steps are intended to be completed with the funds from a public offering. Should we be unable to raise the funds from an offering, we may attempt a private placement or other form of debt financing which would have to be obtained in order to continue as a going concern.

For the year ended December 31, 2006 compared to the year ended December 31, 2005:

Operating Costs – During the years ended December 31, 2006 and 2005, operating costs totaled $1,207,841 and $1,067,645, respectively. The increase of $140,196 was attributable principally to stock compensation expense for options issued to employees, directors and consultants.

Interest Expense - Net - During the years ended December 31, 2006 and 2005 net interest expense totaled $2,176 and $1,093, respectively. The increase of $1,083 was due to finance charges on outstanding payables during 2006.

The net loss for the years ended December 31, 2006 and 2005 was $(1,465,077) and $(1,068,738), respectively. The increase of $396,339 was mainly attributable to an increase in stock compensation expense and research and development costs during 2006.

Liquidity and capital resources

As shown in the accompanying financial statements, for the year ended December 31, 2006 and 2005 and since November 27, 2000 (date of inception) through December 31, 2006, the Company has had net losses of $1,465,077, $1,068,738 and $5,838,977, respectively. As of December 31, 2006, the Company has not emerged from the development stage. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed its activities principally from the sale of public equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements.

As previously mentioned, since inception, we have financed our operations largely from the sale of common stock. From inception through December 31, 2006 we raised cash of $652,363 net of issuance costs, through private placements of common stock financings and $62,250 through the issuance of convertible notes payable. During August, 2004 our Form SB-2 Registration Statement became effective and we raised an additional $123,753 through common stock sales, and offset $41,378 of offering costs against those proceeds. The proceeds from the sale of this common stock have been used for general and administrative expenses.

As of May 25, 2005, the Form SB-2 offering has been closed and the remaining deferred offering costs of $128,115 were written off and included in the Statement of Operations. In addition, the Company was offering 16 units under a Private Placement Memorandum with an effective date of July 28, 2005. Each unit consisted of 50,000 shares of convertible stock and 50,000 stock purchase warrants for $75,000 per unit in order to raise $1,200,000 for working capital and prototype development. The preferred

share would yield an annual dividened of 10% payable in either cash or stock at the Company’s discretion. As of December 31, 2005, no units were sold and the Private Placement Memorandum was terminated.

Since our inception through December 31, 2006 we have incurred approximately $5,771,336 of research and development costs and operating expenses. These expenses were principally related to the acquisition of a license agreement in July 2002 in the amount of $2,735,649, which was expensed to research and development costs for the DCGT technology and general and administrative expenses.

We have incurred significant net losses and negative cash flows from operations since our inception. As of December 31, 2006, we had an accumulated deficit of $5,838,977 and a working capital deficit of $461,037.

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

We will be dependent upon our existing cash, together with anticipated net proceeds from a public offering and future debt issuances and private placements of common stock and potential license fees, to finance our planned operations through the next 12 months. We will continue to proceed in the design and testing phase of the DCGT engine during the next 12 months and will require additional funding to continue operations. Based on our anticipated growth, we plan to add several employees to our staff.

Additional capital may not be available when required or on favorable terms. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders.

The Company may receive proceeds in the future from the exercise of warrants and options outstanding as of December 31, 2006 in accordance with the following schedule:


	Approximate Number of Shares	Approximate Proceeds
Non-Plan Options and Warrants	840,000	$	838,000

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 five 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 have been capitalized and will be charged against additional paid-in capital should common stock be issued. If there is no issuance of common stock, the costs incurred will be charged to operations.

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

New Accounting Pronouncements

In February 2006, FASB issued SFAS No. 155. This accounting standard permits fair value re-measurement for any hybrid financial instrument containing an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; establishes a requirement to evaluate interests in securitized financial assets to identify them as freestanding derivatives or as hybrid financial instruments containing an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument pertaining to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year beginning after September 15, 2006. We currently do not believe that SFAS No. 155 will have an impact on our results of operations and financial position.

In March 2006, the FASB issued SFAS No. 156, which addresses the accounting for servicing assets and liabilities. SFAS No. 156 is effective at the beginning of an entity’s first fiscal year beginning after September 15, 2006. We do not expect SFAS No. 156 to have a material effect on our results of operations or financial position.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), effective for fiscal years beginning after December 15, 2006. FIN 48 requires a two-step approach to determine how to recognize tax benefits in the financial statements where recognition and measurement of a tax benefit must be evaluated separately. A tax benefit will be recognized only if it meets a “more-likely-than-not” recognition threshold. For tax positions that meet this threshold, the tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. We are currently evaluating the impact of adopting FIN 48, and have not yet determined the significance of this new rule to our overall results of operations, cash flows or financial position.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of SFAS No. 157 to materially impact its financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Current Year Misstatements.” SAB No. 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides a one-time cumulative effect transition adjustment. SAB No. 108 is effective for the Company’s 2006 annual financial statements. The Company is currently assessing the potential impact that the adoption of SAB No. 108 will have on its financial statements. The adoption of SAB No. 108 is not expected to materially impact the financial statements.

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

ITEM 7.

FINANCIAL STATEMENTS

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

Report of Independent Registered Public Accounting Firm

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

Contents


Report of Independent Registered Public Accounting Firm		1

Financial Statements:

Balance Sheet		2
Statements of Operations		3
Statements of Changes in Stockholders’ Deficit		4
Statements of Cash Flows		10-11
Notes to Financial Statements		12-20

Report of Independent Registered Public Accounting Firm

Audit Committee

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

DeLand, Florida

We have audited the accompanying balance sheet of Turbine Truck Engines, Inc. (a development stage enterprise) as of December 31, 2006 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years ended December 31, 2006 and 2005 and the period from November 27, 2000 (Date of Inception) through December 31, 2006. These financial statements are the responsibility of the management of Turbine Truck Engines, Inc. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we expressed no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Turbine Truck Engines, Inc. as of December 31, 2006 and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005 and the period from November 27, 2000 (Date of Inception) through December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred a net loss of $1,465,077 during the year ended December 31, 2006 and has an accumulated deficit of $5,838,977 from inception to December 31, 2006. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Pender Newkirk & Company LLP

Certified Public Accountants

Tampa, Florida

March 12, 2007

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Balance Sheet

December 31, 2006


Assets
Current assets:
Cash	$	1,082

Total current assets		1,082

Furniture and equipment, net of accumulated depreciation of $5,687		2,602

	$	3,684


Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	54,690
Accrued expenses		142,105
Accrued interest		12,879
Accrued payroll		153,557
Accrued royalty fees		62,500
Due to related party		36,388

Total current liabilities	$	462,119


Note payable to related party	$	1,901


Stockholders’ deficit:
Preferred stock; $.001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding
Common stock; $.001 par value; 99,000,000 shares authorized; 13,286,552 shares issued and outstanding		13,287
Additional paid in capital		5,572,555
Deficit accumulated during development stage		(5,838,977	)
Prepaid consulting services paid with common stock		(207,111	)
Subscription receivable		(90	)

Total stockholders’ deficit		(460,336	)

	$	3,684


The accompanying notes are an integral part of the financial statements.		2

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Statements of Operations


	Years Ended December 31,						Period November 27, 2000 (Date of Inception) through December 31,
	2006			2005			2006
Research and development costs		255,060					$	2,990,709
Operating costs	$	1,207,841		$	1,067,645			2,780,667

		1,462,901			1,067,645			5,771,376

Interest expense		2,176			1,093			67,601

Net loss	$	1,465,077		$	1,068,738		$	5,838,977

Net loss per common share	$	(.12	)	$	(.09	)	$	(.53	)

Weighted average number of common shares		12,294,910			11,572,005			11,080,508

Diluted loss per common share	$	(.12	)	$	(.09	)	$	(.53	)

Weighted average number of common shares and common equivalent shares outstanding		12,294,910			11,572,005			11,080,508


The accompanying notes are an integral part of the financial statements.		3

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2006


	Common Stock
	Shares		Amount
Issuance of common stock for option to acquire license and stock subscription receivable, December 2000	10,390,000		$	10,390

Net loss for the period

Balance, December 31, 2000	10,390,000			10,390
Issuance of common stock for cash, February 2001*	10,000			10
Issuance of common stock for cash, March 2001*	10,000			10
Issuance of common stock for cash, August 2001*	10,000			10
Issuance of common stock for cash, September 2001*	55,000			55
Payment for common stock issued under subscription receivable

Net loss

Balance, December 31, 2001	10,475,000			10,475
Issuance of common stock for cash, January 2002*	5,000			5
Issuance of common stock for cash, February 2002*	10,000			10
Issuance of common stock for cash, April 2002*	25,000			25
Issuance of common stock for cash, May 2002*	65,000			65
Issuance of common stock for cash, June 2002*	70,000			70
Issuance of common stock for cash, August 2002*	10,000			10
Issuance of common stock for cash, October 2002*	10,000			10
Issuance of common stock to acquire licensing agreement, July 2002*	5,000,000			5,000
Shares returned to treasury by founding stockholder, July 2002	(5,000,000	)		(5,000	)

Net loss

Balance, December 31, 2002	10,670,000			10,670
Issuance of common stock for cash, February 2003*	207,000			207
Issuance of common stock for cash, September 2003*	30,000			30
Issuance of common stock for services, September 2003*	290,000			290
Payment for common stock issued under subscription agreement
Offering costs for private placement offering

Net loss

Balance, December 31, 2003	11,197,000		$	11,197
Issuance of notes payable with beneficial conversion feature
Issuance of common stock for services, September 2004 ($2.00 per share)	20,000			20
Conversion of notes payable, August 2004 ($2.00 per share)	31,125			31
Issuance of common stock for cash, September 2004 ($2.00 per share)	25,025			25
Issuance of common stock for cash, October 2004 ($2.00 per share)	1,000			1
Issuance of common stock for cash, November 2004 ($2.00 per share)	3,500			4
Issuance of common stock for cash, December 2004 ($2.00 per share)	3,000			3
Amortization of offering costs related to Form SB-2 filing
Amortization of stock for services related to Form SB-2 offering
Contribution from shareholder

Net loss

Balance, December 31, 2004	11,280,650		$	11,281

*	Common stock issued at $.50 per share.


The accompanying notes are an integral part of the financial statements.		4


Additional Paid-In Capital			Deficit Accumulated During Development Stage			Deferred Non-Cash Offering Costs			Prepaid Consulting Services Paid for with Common Stock	Subscription Receivable			Total
										$	(390	)	$	10,000
			$	(4,029	)									(4,029	)

				(4,029	)						(390	)		5,971
$	4,990													5,000
	4,990													5,000
	4,990													5,000
	27,445													27,500
											300			300
				(31,789	)									(31,789	)

	42,415			(35,818	)						(90	)		16,982
	2,495													2,500
	4,990													5,000
	12,475													12,500
	32,435													32,500
	34,930										(2,500	)		32,500
	4,990													5,000
	4,990													5,000
	2,495,000													2,500,000
	5,000
				(2,796,768	)									(2,796,768	)

	2,639,720			(2,832,586	)						(2,590	)		(184,786	)
	103,293													103,500
	14,970													15,000
	144,710					$	(74,850	)						70,150
											2,500			2,500
	(33,774	)												(33,774	)
				(190,567	)									(190,567	)

	2,868,919			(3,023,153	)		(74,850	)			(90	)		(217,977	)
	19,507													19,507
	39,980													40,000
	62,219													62,250
	50,025													50,050
	1,999													2,000
	6,996													7,000
	5,997													6,000
	(10,159	)												(10,159	)
	(6,317	)					6,317
	18,256													18,256
				(282,009	)									(282,009	)

$	3,057,422		$	(3,305,162	)	$	(68,533	)		$	(90	)	$	(305,082	)


		5

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2006


	Common Stock
	Shares	Amount
Issuance of common stock for services, January 2005 ($2.00 per share)	80,000	$	80
Issuance of common stock in satisfaction of a note payable, February 2005 ($2.00 per share)	125,000		125
Issuance of common stock for cash, February 2005 ($2.00 per share)	3,200		3
Issuance of common stock for cash, March 2005 ($2.00 per share)	1,500		1
Amortization of offering costs related to Form SB-2 filing
Amortization of stock for services related to Form SB-2 offering
Issuance of common stock for services, April 2005 ($2.00 per share)	5,000		5
Capital contribution from stockholder, May 2005
Issuance of common stock for cash, May 2005 ($2.00 per share)	15,550		16
Write off of stock for services related to Form SB-2 filing
Issuance of common stock for cash, June 2005 ($2.00 per share)	9,100		9
Issuance of common stock for services, June 2005 ($1.70 per share)	100,000		100
Capital contribution from stockholder, June 2005
Issuance of common stock for cash, August 2005 ($1.00 per share)	5,000		5
Issuance of common stock for services, July 2005 ($1.00 per share)	40,000		40
Amortization of prepaid services paid for with common stock
Write off prepaid services paid for with common stock due to terminated agreement
Issuance of common stock for cash, October ($1.00 per share)	25,000		25
Issuance of common stock for cash, November ($1.00 per share)	20,000		20
Issuance of common stock for cash, December ($1.00 per share)	5,000		5

Net loss

Balance, December 31, 2005	11,715,000	$	11,715
Issuance of common stock for cash, January ($1.00 per share)	65,000		65
Issuance of common stock for cash, February ($1.00 per share)	1,500		2
Amortization of prepaid services paid for with common stock
Issuance of common stock for cash, March ($1.00 per share)	1,675		2
Issuance of common stock for cash, April ($1.00 per share)	5,000		5
Issuance of common stock for services, May ($1.00 per share)	10,000		10
Issuance of common stock for services, May ($1.15 per share)	10,000		10
Issuance of common stock for cash, June ($.80 per share)	15,000		15
Issuance of common stock and warrants for cash, June ($.50 per share)	200,000		200
Issuance of common stock for services, June ($1.15 per share)	150,000		150
Issuance of common stock for services, July ($1.10 per share)	109,091		109
Issuance of common stock for services, July ($.50 per share)	30,000		30
Issuance of common stock for settlement of debt, August ($.85 per share)	125,253		125
Issuance of common stock for services, August ($.81 per share)	10,000		10
Issuance of common stock and warrants for cash, September ($.50 per share)	167,200		167
Issuance of common stock for services, September ($.50 per share)	210,000		210
Issuance of common stock for services, September ($.74 per share)	10,000		10
Issuance of common stock in settlement of a payable, September ($4.16 per share)	100,000		100
Issuance of options to employees, directors and consultants, September


The accompanying notes are an integral part of the financial statements.		6


Additional Paid-In Capital	Deficit Accumulated During Development Stage			Deferred Non-Cash Offering Costs		Prepaid Consulting Services Paid for with Common Stock			Subscription Receivable			Total
$ 159,920												$	160,000
249,875													250,000
6,397													6,400
2,999													3,000
(31,216)													(31,216	)
(19,413)				$	19,413
9,995													10,000
170,000													170,000
31,084													31,100
					49,120								49,120
18,191													18,200
169,900						$	(170,000	)
450													450
4,995													5,000
39,960							(40,000	)
							26,833						26,833
							161,500						161,500
24,975													25,000
19,980													20,000
4,995													5,000
	$	(1,068,738	)										(1,068,738	)

$3,920,509	$	(4,373,900	)	$		$	(21,667	)	$	(90	)	$	(463,433	)
64,935													65,000
1,498													1,500
							204,556						204,556
1,673													1,675
4,995													5,000
9,990													10,000
11,490													11,500
11,985													12,000
99,800													100,000
172,350							(172,500	)
119,891							(120,000	)
14,970							(5,000	)					10,000
106,341													106,466
8,065													8,075
83,433													83,600
104,790							(12,500	)					92,500
7,385													7,395
416,567													416,667
78,355													78,355


The accompanying notes are an integral part of the financial statements.		7

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficit

For Each of the Years From November 27, 2000 (Date of Inception) through December 31, 2006


	Common Stock
	Shares	Amount
Issuance of common stock for services, October ($0.50, per shares)	30,000		30
Issuance of options to employees, directors and consultants, October
Issuance of common stock for cash, October ($0.50 per share)	16,000		16
Issuance of common stock for services, October ($0.67, per shares)	15,000		15
Issuance of common stock for services, November ($0.50, per shares)	188,000		188
Issuance of common stock for cash, November ($0.50 per share)	100,000		100
Issuance of common stock for cash, November ($0.60 per share)	2,833		3

Net loss


Balance December 31, 2006	13,286,552	$	13,287


The accompanying notes are an integral part of the financial statements.		8


Additional Paid-In Capital		Deficit Accumulated During Development Stage			Deferred Non-Cash Offering Costs	Prepaid Consulting Services Paid for with Common Stock			Subscription Receivable			Total
	14,970												15,000
	155,185												155,185
	7,984												8,000
	9,985												10,000
	93,812						(80,000	)					14,000
	49,900												50,000
	1,697												1,700
			(1,465,077	)									(1,465,077	)

	$5,572,555	$	(5,838,977	)	$	$	(207,111	)	$	(90	)	$	(460,336	)


The accompanying notes are an integral part of the financial statements.		9

Turbine Truck Engines, Inc.

(A Development Stage Company)

Statements of Cash Flows


	Year Ended December 31,						Period November 27, 2000 (Date of Inception) through December 31, 2006
	2006			2005
Operating activities
Net loss	$	(1,465,077	)	$	(1,068,738	)	$	(5,838,977	)
Adjustments to reconcile net loss to net cash used by operating activities:
Common stock and long-term debt issued for acquisition of license agreement								2,735,649
Common stock issued for services and amortization of common stock issued for services		383,026			358,333			851,509
Options issued to employees, directors and consultants		233,540						233,540
Expenses paid by shareholder contribution					170,450			188,706
Write off of deferred offering costs					78,995			119,383
Write off of non-cash deferred offering costs					49,120			49,120
Depreciation		2,301			909			5,687
Amortization of discount on notes payable								33,858
Increase (decrease) in:
Accounts payable		4,782			(5,712	)		54,690
Accrued expenses		75,875			7,500			142,105
Accrued payroll		59,900			55,491			153,557
Accrued royalty fees		250,000			229,167			479,167
Accrued interest					660			12,879

Net cash used by operating activities		(455,653	)		(123,825	)		(779,127	)


Investing activities
Issuance of notes receivable from stockholders								(23,000	)
Repayment of notes receivable from stockholders								22,095
Advances to related party								805
Purchase of fixed assets		(3,094	)					(8,289	)

Net cash (used) by investing activities		(3,094	)					(8,389	)


Financing activities
Advances from stockholders, net		117,867			23,585			144,856
(Increase) decrease in deferred offering costs								(194,534	)
Proceeds from issuance of common stock		328,475			113,700			776,116
Proceeds from issuance of subscription								(90	)
Proceeds from issuance of notes payable								62,250

Net cash provided by financing activities		446,342			137,285			788,598


Net (decrease) increase in cash		(12,405	)		13,460			1,082

Cash at beginning of year/period		13,487			27


Cash at end of year/period	$	1,082		$	13,487		$	1,082

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


	Year Ended December 31,				Period November 27, 2000 (Date of Inception) through December 31, 2006
	2006		2005
Supplemental disclosures of cash flow information and non cash investing and financing activities:
Cash paid for interest	$	0	$	0	$	0

Subscription receivable for issuance of common stock	$	0	$	0	$	90

Option to acquire license for issuance of common stock	$	0	$	0	$	10,000

Deferred offering costs netted against issuance of common stock under private placement	$	0	$	0	$	33,774

Deferred offering costs netted against issuance of common stock	$	0	$	31,216	$	41,735

Value of beneficial conversion feature of notes payable	$	0	$	0	$	19,507

Deferred non-cash offering costs in connection with private placement	$	0	$	0	$	74,850

Application of amount due from shareholder Against related party debt	$	0	$	0	$	8,099

Amortization of offering costs related To stock for services	$	0	$	19,413	$	25,730
	$	0	$	19,413	$	25,730

Settlement of notes payable in exchange for common stock	$	106,466	$	250,000	$	356,466

Common stock issued in exchange for prepaid services	$	390,000	$	0	$	390,000

Common stock issued in exchange for accrued royalties	$	416,667	$	0	$	416,667

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

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

1.	Background Information

Turbine Truck Engines, Inc. (the “Company”) is a development stage enterprise that was incorporated in the state of Delaware on November 27, 2000. To date, the Company’s activities have been limited to raising capital, organizational matters, and the structuring of its business plan. The corporate headquarters is located in DeLand, Florida. The Company’s planned line of business will be the design, development, and testing of turbine truck engine technology licensed through Alpha Engines Corporation (“Alpha”). Alpha owns the patents to a new gas turbine engine system called Detonation Cycle Gas Turbine Engine. If the Company can successfully demonstrate a highway truck engine using the technology, the Company intends to form a joint venture with a major heavy duty highway truck manufacturer to manufacture, market, and sell turbine truck engines for use in heavy duty highway trucks throughout the United States.

2.	Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the year ended December 31, 2006 and since November 27, 2000 (date of inception) through December 31, 2006, the Company has had a net loss of $1,465,077 and $5,838,977, respectively. As of December 31, 2006, the Company has not emerged from the development stage. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed its activities principally from the sale of public equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient to fund working capital requirements.

3.	Significant Accounting Policies

The significant accounting policies followed are:

The Company’s financial instruments include cash, accounts payable, accrued liabilities and payables to related parties. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items. The carrying amount of the note payable approximates its fair value due to the use of market rates of interest.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

3.	Significant Accounting Policies (Continued)

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. The amounts charged for the year ended December 31, 2006 and 2005 and the period November 27, 2000 (date of inception) to December 31, 2006 amounted to $255,060, $0 and $2,990,709, respectively.

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 principal types of temporary differences between assets and liabilities for financial statements and tax return purposes are set forth in Note 12.

Earnings per common share are computed in accordance with SFAS No. 128, “Earnings Per Share,” which requires companies to present basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding and dilutive options outstanding during the year. Common stock equivalents for the years ended December 31, 2006 and 2005 and the period from November 27, 2000 (Date of Inception) through December 31, 2006 were anti-dilutive due to the net losses sustained by the Company during these periods. The diluted weighted average number of shares, including these common share equivalents would have been 12,529,075, 11,572,005 and 11,118,921 for the years ended December 31, 2006 and 2005 and the period from November 27, 2000 (Date of Inception) through December 31, 2006, respectively.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

3.	Significant Accounting Policies (continued)

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated 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). We adopted SFAS 123R effective beginning January 1, 2006. Prior to the adoption of SFAS 123(R) we did not issue any stock options.

As a result of adopting SFAS 123(R), our earnings before income taxes and net earnings and earnings per share for the year ended December 31, 2006 were $72,765 and $.01, respectively, lower than if we had accounted for stock based compensation under APB Opinion No. 25 for our stock option grants.

As of December 31, 2006, there was $620,738 of unrecognized stock-based compensation expense related to nonvested stock options. This amount will be recognized as certain performance criteria, as stated in the option agreements, are met.

The following table represents our nonvested stock options and warrant activity for the year ended December 31, 2006:


	Number of Options/Warrants		Weighted Average Grant Date Fair Value
Nonvested options - December31, 2005	—		$	—

Granted	2,040,000		$	0.47
Vested	(840,000	)	$	0.39
Forfeited	—		$	—

Nonvested options - December 31, 2006	1,200,000		$	0.52

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2006, based on the Company’s closing stock price of $.45 was $0. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options.

In February 2006, FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments-an amendment of SFAS Nos. 133 and 140”. This accounting standard permits fair value re-measurement for any hybrid financial instrument containing an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; establishes a requirement to evaluate interests in securitized financial assets to identify them as freestanding derivatives or as hybrid financial instruments containing an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends

SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument pertaining to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year beginning after September 15, 2006. We currently do not believe that SFAS No. 155 will have an impact on our results of operations and financial position.

In March 2006, the FASB issued SFAS No. 156 “Accounting for Servicing of Financial Assets-an amendment of SFAS No. 140”, which addresses the accounting and disclosure for servicing assets and liabilities. SFAS No. 156 is effective at the beginning of an entity’s first fiscal year beginning after September 15, 2006. We do not expect SFAS No. 156 to have a material effect on our results of operations or financial position.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

4.	Option to Acquire License

In July 2002, the Company exercised its option to obtain a license to commercially exploit certain turbine truck engine technology owned by Alpha. The original agreement required the Company to complete and file a registration statement with the Securities and Exchange Commission (SEC) and once the public offering was filed and declared effective by the SEC, Alpha was to grant the license in exchange for 10,000,000 shares of common stock of the Company and other licensing considerations as follows:

•

Licensing fee – $250,000 licensing note payable on August 23, 2005 or agreement is terminated;

•

Minimum royalties – $250,000 due minimum royalty payment each year once licensing note is settled;

•

Royalties – eight percent of net sales after manufacturing and sales commence; and

•

Contract fees for design and engineering services.

During the year ended December 31, 2005, the Company issued 125,000 shares of common stock in satisfaction of the $250,000 note and the accrual of the minimum royalty fees began. As of December 31, 2006, the Company has accrued $62,500 of royalty fees related to this agreement. In addition, during the year ended December 31, 2006, the Company paid $416,667 of royalty fees through the issuance of 100,000 shares of common stock.

In July 2002, Alpha modified the agreement to allow the Company to acquire the license agreement in advance of completing its registration statement and accepted a note as payment for the licensing fee and for the issuance of 5,000,000 shares of common stock in lieu of the original 10,000,000 shares. The value of these shares was based on $.50 per share, which was the issuance price for common stock under the Company’s private placement offering. In August 2003 and 2004, the agreement was further amended to extend the term of the note and to establish that minimum royalty payments shall begin after the note is settled.

Alpha owns the patents to a new gas turbine engine system called Detonation Cycle Gas Turbine Engine (DCGTE). Alpha is in the business of licensing the use of its DCGTE technology for many different applications, including the manufacture of heavy duty highway truck engines. Alpha and CNF Transportation (formerly Consolidated Freightways, Inc.) have an agreement to form and finance a potential 50/50 joint venture after the demonstration of a highway truck engine for the manufacture and marketing of heavy duty highway truck engines, both for the fleet of CNF Transportation and exclusive sales to the highway trucking industry. CNF Transportation is a large, over the road freight hauling company and manufacturer of heavy duty highway trucks. Upon the receipt of its licensing agreement with Alpha, the Company has assumed Alpha’s right to enter into this joint venture.

The Company has recognized $2,735,649 of research and development expense for the acquisition of the license agreement, as the license is exclusively for the development, manufacturing and sales of the DCGTE and has no future economic benefit relative to other research and development projects.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

5.	Private Placement Offering

Effective August 1, 2005, the Company entered into an agreement with U.S. Capital Partners, Inc. (“U.S. Capital”) to assist the Company on a “best efforts” basis in raising approximately $2 million in a private offering of a convertible debt instrument. U.S. Capital was entitled to 8% of the total proceeds raised from the sale of a equity security, 4% of the total proceeds resulting from the sale of debt of the Company and a 1% non-accountable expense allowance. Upon the first closing, U.S. Capital would also receive 2% of the Company’s outstanding shares of common stock at a price of $.01 per share. In the event the first closing is a partial close, U.S. Capital shares will be pro-rated and held in escrow until the final closing. The Company also agreed to cause the greater of two individuals or 30% of the number of directors to be elected to the board of directors for a period of 36 months from the close of the offering. Effective November 2, 2005, the agreement with US Capital Partners, Inc. was terminated.

The Company offered 16 units under a Private Placement Memorandum with an effective date of July 28, 2005. Each unit consisted of 50,000 shares of convertible preferred stock and 50,000 stock purchase warrants for $75,000 per unit in order to raise $1,200,000 for working capital and to develop a prototype. Currently, no units have been sold. The preferred shares would yield an annual dividend of 10% payable in either cash or stock at the Company’s discretion. The Private Placement Memorandum terminated on December 31, 2005.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

6.	Prepaid Consulting Services Paid with Common Stock

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 150,000 shares of common stock. These shares were valued at $172,500 to be amortized through June 2007 at $14,375 per month. For the year ended December 31, 2006, $93,438 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 150,000 shares of common stock. These shares were valued at $75,000 to be amortized through May 2007 at $12,500 per month. For the year ended December 31, 2006, $18,750 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 109,091 shares of common stock. These shares were valued at $120,000 to be amortized through July 2007 at $10,000 per month. For the year ended December 31, 2006, $55,000 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 10,000 shares of common stock. These shares were valued at $5,000 to be amortized through July 2007 at $417 per month. For the year ended December 31, 2006, $2,292 has been included in consulting expense.

During the year ended December 31, 2006, the Company entered into an agreement with a consultant to provide consulting services. In exchange for those services, the Company issued 10,000 shares of common stock. These shares were valued at $5,000 to be amortized through September 2007 at $455 per month. For the year ended December 31, 2006, $909 has been included in consulting expense.

During the year ended December 31, 2005, the Company entered into an agreement with a CPA Firm to provide consulting services. In exchange for those services, the Company issued 20,000 shares of common stock to the accounting firm and 20,000 shares of common stock to the individual providing the consulting services. These shares were valued at $40,000 have been included in consulting expense for the year ended December 31, 2006.

During year ended December 31, 2005, the Company entered into a 5 year consulting agreement with US Capital Partners Inc. In exchange for this agreement, the Company issued 100,000 shares of common stock valued at $170,000 to be amortized through July 2010 at $2,833 per month. During November 2005, the Company terminated the agreement with US Capital Partners Inc. and recognized the entire $170,000.

7.	Capital Stock

Effective August 10, 2005, the Company amended its Articles of Incorporation to change the total amount of authorized capital stock from 100,000,000 to 99,000,000 shares of common stock, par value $.001 each and 1,000,000 shares of preferred stock, par value $.001 each. The rights and preferences of the preferred shares will be designated by the Board of Directors.

8.	Options and warrants

During the year ended December 31, 2006, the Company issued 260,000 warrants in conjunction with the issuance of common stock. The warrants entitle the holder to purchase 260,000 shares of the Company’s common stock, at any time, at an exercise price of $2.00 per share and expire in 2011.

The Company’s 2006 Incentive Compensation Plan authorizes up to 2,000,000 shares of common stock to any employee or Consultant during any one calendar year for grants of both incentive stock options and non-qualified stock options to key employees, officers, directors, and consultants. Options granted under the Plan must be exercised within a term determined by the Board of Directors. The Option Price payable for the shares of Common Stock covered by any Option shall be determined by the Board of Directors, provided that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of the Option and shall not, in any event, be less than the par value of a Share on the date of grant of the Option.

The fair value of each option under the 2006 Incentive Compensation Plan was 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 weekly trading of the Company’s underlying common stock and other factors.


Expected volatility		120.7% - 138.3%
Expected dividends		0
Expected term		1 - 2.5 years
Risk-free rate		4.68% – 4.85%


	Shares	Range of Exercise Prices		Weighted Average Grant Date Fair Value
Outstanding and Exercisable
Outstanding at December 31, 2005	0
Options and warrants granted	2,040,000	$	.50 - $2.00	$	.47
Options and warrants cancelled or expired

Outstanding at December 31, 2006	2,040,000	$	.50 - $2.00	$	.47

Exercisable at December 31, 2006	840,000	$	.50 - $2.00	$	.39

The following table summarizes information about options and warrants outstanding and exercisable as of December 31, 2006:

Outstanding Options and Warrants

Exercisable Options and Warrants

Range of Exercise Price

Number
Outstanding

Weighted
Average
Remaining Life

Weighted
Average
Price

Weighted
Average
Remaining Life

Number
Exercisable

Weighted
Average
Price

$.50 - $2.00

2,040,000

2.18 Years

.70

2.67 Years

840,000

1.00

As of December 31, 2006 there were 840,000 options and warrants exercisable at a weighted average exercise price of $1.00. The intrinsic value of both the exercisable and outstanding options and warrants at December 31, 2006, based on the quoted market rate of $0.45 per common share is $0.

9.	Commitments and Contingencies

Once the Company becomes operational it will be obligated to pay production royalties to Alpha at the rate of eight percent of net sales of the Detonation Cycle Gas Turbine Engine. The minimum royalty amount is

$250,000 per year, and the Company began accruing for the fee in February 2005. The royalty fee will be reduced by production royalties paid. Unpaid royalty fees amounted to $62,500 as of December 31, 2006.

On September 25, 2001, the Company entered into a consulting agreement with Vladan Ivankovic whereby Mr. Ivankovic would act as intermediary on the European Union market, with interested manufacturers of trucks and truck engines, as well as manufacturers of other engines for all possible purposes, in order to locate partners interested in buying the Detonation Cycle Gas Turbine Engine license for production and distribution. Mr. Ivankovic will receive compensation in the amount of six percent of all equities raised by Mr. Ivankovic. In addition, for all mergers and acquisitions introduced to the Company, Mr. Ivankovic would receive payment based on a sliding scale starting at six percent of the first $25,000,000; five percent of the next $25,000,000; four percent of the next $25,000,000; and three percent of the remaining enterprise value. Mr. Ivankovic has been authorized to choose potential partners and to conduct negotiations on behalf of the Company. As of December 31, 2006, Mr. Ivankovic has not raised any funds nor has he located any partners or merger or acquisition targets for the Company.

On July 1, 2002, the Company entered into a consulting agreement with the inventor of the Detonation Cycle Gas Turbine Engine and majority stockholder of Alpha. In connection with the consulting agreement, a $2,500 retainer per month is due for consulting services rendered. This agreement was cancelled as of April 2005, however, the Company has accrued $62,500 for unpaid retainer fees as of December 31, 2006. In addition, the Company agreed to pay the inventor $1,000 per day plus all out-of-pocket expenses for design and engineering services rendered. The inventor has not provided any design or engineering services through December 31, 2006.

Effective December 1, 2005, the Company entered into an agreement with Laidlaw & Company (UK) Ltd. (Laidlaw) to assist the Company on a “best efforts” basis in raising approximately $10 million in a private offering of equity securities. Laidlaw is entitled to 8% of the total proceeds raised from the sale of the securities and reimbursement of expenses and legal fees up to $25,000. Upon the closing of the minimum amount of securities, the Company shall grant Laidlaw 5 year warrants for the purchase of a number of shares of common stock equal to 6% of the gross number of shares sold in the offering. The agreement will terminate 60 days following the commencement of the offering. No shares have been sold to date under this agreement.

On February 1, 2006, the Company entered into an agreement with Embry-Riddle Aeronautical University to complete a 3D model and certain modifications to the original Detonation Gas Turbine Engine in exchange for a fixed price amount. Currently, the Company has expensed $10,670 related to this agreement which expires on June 30, 2007.

On May 31, 2006, the Company entered into a $10 million investment agreement with Dutchess Private Equities Fund, L.P. (“Dutchess”). Pursuant to the terms of the investment agreement, over the next three years the Company may at its discretion periodically sell (or “put”) to Dutchess shares of its common stock having an aggregate purchase price of up to $10 million. For each share of common stock sold under the investment agreement, Dutchess agreed to pay the Company 93% of the lowest closing bid price of the Company’s common stock during the 5 trading days immediately following the applicable put notice date. The Company may elect not to sell any shares to Dutchess at a price that is less than 75% of the closing bid price for the (10) trading days immediately preceding the applicable put notice date.

Under the terms of the Investment Agreement the Company may, every 7 trading days, sell to Dutchess common stock with a value equal to either $250,000 or 200% of the average daily trading volume of the common stock for the 10 trading days prior to the applicable put notice date multiplied by the average of the three daily closing bid prices immediately preceding the put notice date. Dutchess’s obligation to purchase shares of the Company’s common stock is subject to certain conditions, including the Company obtaining an effective registration statement for shares of common stock to be sold under the Investment Agreement. As of December 31, 2006, there has been no activity under this agreement.

On August 22, 2006, the Company entered into an agreement with Renmark Financial Communications Financiers for consulting services in exchange for a monthly fee of 6,000 Canadian dollars. Currently, the Company has expensed $5,346 related to this agreement and is in the process of renegotiating the terms, therefore, no additional payments have been made.

During the year ended December 31, 2006, the Company entered into a one year strategic alliance agreement with UTEK Corporation to identify technology acquisition opportunities for the Company. In exchange for these services, the Company issued 109,091 shares of unregistered common stock valued at $120,000 to UTEK Corporation, which is being amortized to expenses at $10,000 per month. At December 31, 2006, the Company has expensed $55,000.

On August 2, 2006, the Company entered into an agreement with Standart Capital SA, Inc. to raise at least $1 million and not more than $5 million through the sale of the Company’s common stock and to assist in locating a merger candidate. In exchange for these services, the Company shall pay a $50,000 retainer fee, 8% commission of the gross proceeds from the Regulation D offering, 8% fee for any cash paid for a merger candidate and 8% of the securities resulting from the merger that will be issued and outstanding following the merger. Also, the Company will pay $5,000 per month for general business development consulting, strategic planning and other consulting work. As of December 31, 2006, the retainer has not been paid and there has been no activity under this agreement.

12.

Income Taxes

Deferred taxes are recorded for all existing temporary differences in the Company’s assets and liabilities for income tax and financial reporting purposes. Due to the valuation allowance for deferred tax assets, as noted below, there was no net deferred tax benefit or expense for the years ended December 31, 2006 or 2005.

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

12.

Income Taxes (continued)

There is no current or deferred income tax expense or benefit allocated to continuing operations for the years ended December 31, 2006 or 2005 or the period November 27, 2000 (Date of inception) through December 31, 2006.

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows:


	2006			2005
Tax expense (benefit) at U.S. statutory rate	$	(498,100	)	$	(363,000	)
State income tax expense (benefit), net of federal benefit		(44,600	)		(39,000	)
Stock option expense		79,400
Effect of non-deductible expenses		800			200
Change in valuation allowance		462,500			401,800

	$	—		$	—

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2006 are as follows:


Deferred tax assets (liability), noncurrent:
Depreciation		100
License agreement		712,700
Capitalized start up costs		1,365,900
Net operating loss		12,300
Contribution carryover		500
Valuation allowance		(2,091,500	)

	$	—

Turbine Truck Engines, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

For the Years Ended December 31, 2006 and 2005,

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

through December 31, 2006

12.

Income Taxes (continued)

Since management of the Company believes that it is more likely than not that the net deferred tax asset will not provide future benefit, the Company has established a 100 percent valuation allowance on the net deferred tax asset as of December 31, 2006.

As of December 31, 2006, the Company had federal and state net operating loss carry-forwards totaling approximately $32,961 which begin expiring in 2022.

13.

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 December 31, 2006 is $1,901. This note payable was unsecured, non-interest bearing and has no specific repayment terms.

The due to related party account is made up of advances from the majority shareholder to assist the Company with its financial obligations. These advances are non-interest bearing, unsecured and due on demand.

The above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties.

14.

Subsequent Event

Subsequent to year end, the Company issued 823,826 shares of restricted common stock for cash of $196,500 under stock subscription agreements.

ITEM 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our Management, including our Principal Executive Officer and Principal Accounting Officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined

in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, our Principal Executive Officer and Principal Accounting Officer concluded that our financial disclosure controls and procedures were not effective so as to timely identify, correct and disclose information required to be included in our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. Through the use of external consultants and the audit process, management believes that the financial statements and other information presented herewith are materially correct.

There have been no significant changes in the Company’s internal control over financial reporting or, to our knowledge, in other factors that could significantly affect the Company’s internal controls over financial reporting subsequent to the evaluation date.

ITEM 8B

OTHER INFORMATION

None

Part III

ITEM 9.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information concerning the directors and executive officers of the Company.


Name	Age	Position
Michael Rouse	50	Chief Executive Officer and Chairman of the Board (Principal Executive Officer And Principal Financial Officer)

James A. Teters, Jr.	50	President, COO and Director

Phyllis J. Rouse	48	Vice President, Secretary, Treasurer and Director

Biographies

Michael Rouse is the founder of the Company and currently serves as its Chairman and Chief Executive Officer. Mr. Rouse is Vice President of Cox-Rouse Construction & Development Corporation, a commercial real estate developer located in Deland, Florida. Mr. Rouse is a commercial building contractor and developer, and licensed commercial aircraft pilot. Mr. Rouse was President of M&D Aircraft Leasing and Skydive Palatka, a successful parachute center, from October 1995 to June 2002, until he sold Skydive Palatka. He received his schooling in Management Training at United States Steel Corporation in 1975; Computer Programming at Daytona Beach Community College in 1993; and Science, Art and Drafting at Valpraiso Industrial Arts School in 1973. He is a former Production Manager for United States Steel, and General Manager of Freefall Express, Inc., an airplane leasing company, from 1989 to 1990.

James A. Teters, Jr. serves as a Director. Currently, Mr. Teters is Vice President and Regional Sales Manager for Aurum Technology, Orlando, Florida, responsible for identifying, qualifying, and sales for a complete line of products to financial institutions from December 2002 to present. Mr. Teters was President of Turbine Truck Engines where he developed, implemented and executed marketing and sales strategy for VC presentations from May 2002 to November 2002. Mr. Teters was Vice President, Sales for Incurrent Solutions, Inc., Orlando, Florida, responsible for identifying, strategizing and closing sales for ASP and in-house Internet based customer care from January 2001 to April 2002. Mr. Teters started as Regional Manager; Strategic Business Development responsible for specialty sales generated to target banks with $1—$10 billion in assets with a focus on outsourced core processing and was promoted to National Sales, Senior Sales Executive responsible for identifying, qualifying, strategizing and managing in-house and service bureau sales from December 1999 – July 2000. Director of Business Development for Phoenix International, Inc., Heathrow, Florida, responsible for creating new sales opportunities and closing fourth generation client/server based banking software from January 1998 – December 1999.

Phyllis J. Rouse serves as the Company’s Vice President, Secretary, Treasurer and as a Director. From 1997 to present, Mrs. Rouse is a public school administrator at Yulee Elementary School in Yulee, Florida. She has extensive administrative experience and training in accountability for all budgets, curriculum, student performance, personnel, facilities, discipline, while supervising over 70 personnel and 650 students on a daily basis. Mrs. Rouse is the sister-in-law of Michael Rouse.

AUDIT COMMITTEE

The Audit Committee consists of Michael Rouse and Rebecca McDonald, Chief Accounting Officer. The Audit Committee selects the independent auditors; reviews the results and scope of the audit and other services provided by the Company’s independent auditors and reviews and evaluate the Company’s internal control functions. The board of directors has determined that Rebecca McDonald is the audit committee “financial expert”; as such term is defined under federal securities law, and is independent. Ms. McDonald is an expert by virtue of: (i) education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions; (ii) experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions; (iii) experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; and (iv) other relevant experience.

ITEM 10.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the aggregate compensation paid or to be paid by the Company to its executive officers.

SUMMARY COMPENSATION TABLE


Name and Principal Position	Year	Salary ($)		Bonus ($)	Stock Awards ($)		Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation ($)	All Other Compensation ($)	Total ($)
Michael Rouse CEO, Chairman of the Board	2006 2005	$ $	52,000 52,000	0 0		0 0	0 0	0 0	0 0	0 0	$ $	52,000 52,000

James A. Teters, Jr. President, COO and Director	2006 2005		0 0	0 0	$	27,987 0	0 0	0 0	0 0	0 0	$	27,987 0

Phyllis J. Rouse Vice President, Secretary, Treasurer and Director	2006 2005	$	0 10,000	0 0	$	27,987 0	0 0	0 0	0 0	0 0	$ $	27,987 10,000

Jay G. Hilden Former President	2006 2005		0 0	0 0		0 0	0 0	0 0	0 0	0 0		0 0

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006

Option Awards

Stock Awards

Name

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

Option
Exercise
Price ($

Option
Expiration
Date

Number
of
Shares
of
Stock
That
Have
Not
Vested
(#)

Market
Value
of
Shares
of
Stock
That
Have
Not
Vested
($)

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares or
Other
Rights
That
Have Not
Vested
(#)

Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares or
Other Rights That
Have Note Vested ($)

James A. Teters, Jr.

100,000

0.60

9/26/08

Phyllis J. Rouse

100,000

0.60

9/26/08

DIRECTOR COMPENSATION

Directors receive no compensation for serving on the Board. Some of the Company’s non-employee directors receive options to purchase shares of common stock at the market price on the date they are granted, reimbursement of expenses incurred consequential to their service and may receive additional options at the discretion of the Board.

The following table summarizes compensation paid to all of our non-employee directors:


Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)			Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
James A. Teters, Jr.	$	—	$	—	$	27,987	(1)	$	—	$	—	$	—	$	27,987
Phyllis J. Rouse	$	—	$	—	$	27,987	(1)	$	—	$	—	$	—	$	27,987

(1) Includes grants made on September 26, 2006 for 100,000 options each at a strike price of $.60 that expire September 26, 2008.

^(A)Reflects the grant date fair value calculated in accordance with FAS 123(R). The following assumptions were used for the year ended December 31, 2006 (1) risk-free interest rate of 4.68%, (2) no dividend yield, (3) expected lives of 1 year, and (4) volatility of 120.7%. Results may vary depending on the assumptions applied within the model. Compensation expense recognized in providing pro forma disclosures may not be representative of the effects on net income for future years.

ITEM 11.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of December 31, 2006, with respect to the beneficial ownership of our common stock by each beneficial owner of more than 5% of the outstanding shares of common stock of the Company, each director, each executive officer named in the “Summary Compensation Table” and all executive officers and directors of the Company as a group, and sets forth the number of shares of common stock owned by each such person and group. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.


Name of Beneficial Owner	Number of Shares Beneficially Owned	Percentage of Outstanding Common Stock Owned
Michael Rouse	4,669,555	35.14	%

Alpha Engines Corporation (1)	4,996,903	37.61	%

Phyllis J. Rouse (2)	150,000	1.13	%

James A. Teters, Jr.	100,000	.75	%

All directors and executive officers as a group (4 persons)	9,916,458	74.64	%

1.	Robert L. and Barbara J. Scragg are majority shareholders of Alpha, the Licensor of our company. Alpha Engines has granted Michael Rouse a proxy to vote all of its beneficially owned shares of the Company’s common stock.

2.	Phyllis J. Rouse is the sister-in-law of Michael Rouse.


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans not approved by security holders
2006 Incentive Compensation Plan	2,040,000	$	1.00	720,000

ITEM 12.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None

ITEM 13.

EXHIBITS

(a) Exhibits included herewith are:


31.1		Certification of the Chairman of the Board, Chief Executive Officer, and Chief Financial Officer (This certification required as Exhibit 31 under Item 601(a) of Regulation S-K is filed as Exhibit 99.1 pursuant to SEC interim filing guidance.) (2)


31.2		Certification of the Principal Accounting Officer (This certification required as Exhibit 31 under Item 601(a) of Regulation S-K is filed as Exhibit 99.2 pursuant to SEC interim filing guidance.) (2)

32		Written Statements of the Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer (This certification required as Exhibit 32 under Item 601(a) of Regulation S-K is furnished in accordance with Item 601(b)(32)(iii) of Regulation S-K as Exhibit 99.3 pursuant to SEC interim filing guidance.) (2)

(b) Reports on Form 8-K –

October 2, 2006 - On September 29, 2006 the Company and Alpha Engines Corporation settled for the payment of the accrued royalty fees of $416,666.67 for a total of 100,000 shares of restricted common stock with registration rights for total payment of the amount accrued.

October 26, 2006 - On October 24, 2006, the Company entered into three separate consulting agreements which are intended to provide the Company with strategic financial and corporate development services.

As consideration for entering into the consulting agreements, the Company has granted each consultant options to acquire up to 500,000 shares of the Company’s common stock at a price of $.50 per share based upon each respective consultant meeting specific milestones set forth in the consulting agreements.

On June 2, 2006, the Company & Dutchess Private Equities Fund, L.P. entered into an agreement, (the “Agreement”)whereby the company will, pursuant to the terms and conditions of the Agreement have access to a ten million dollar line of credit. As part of the Agreement the Company is obligated to register additional shares of its common stock to have in reserve for issuance pursuant to the Registration Rights Agreement entered into as part of this transaction.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

During 2006 and 2005, we were billed by our accountants, Pender Newkirk & Company, approximately $33,238 and $50,981 for audit and review fees associated with our 10-KSB and 10-QSB filings.

Tax Fees

During 2006 and 2005, we were billed by our accountants, Pender Newkirk & Company, approximately $0 and $1,346 for tax work.

All Other Fees

During 2006 and 2005, we were billed by our accountants, Pender Newkirk & Company, approximately $3,275 and $0 for other work.

Board of Directors Pre-Approval Process, Policies and Procedures

Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Board of Directors. Our principal auditors have informed our Board of Directors of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Board of Directors prior to commencing such services.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	TURBINE TRUCK ENGINES, INC.

Dated: March 26, 2006	By:	/s/ Michael Rouse
		Chief Executive Officer and Chairman of the Board (Principal Executive Officer and Principal Financial Officer)


Dated: March 26, 2006	By:	/s/ Rebecca A. McDonald
		Principal Accounting Officer