UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2013
or
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______________ to ______________
| Commission File Number: | 000-10210 |
| TREE TOP INDUSTRIES, INC. | |
| (Exact name of registrant as specified in its charter) | |
| NEVADA | 83-0250943 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
511 Sixth Avenue, Suite 800, New York, NY 10011 | ||
| (Address of principal executive offices) (Zip Code) | ||
| (775) 261-3728 | ||
| Registrant's telephone number, including area code | ||
| _____________________________________________________________ | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One).
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |
Non-accelerated filer (Do not check if a smaller reporting company) | ¨ | Smaller reporting company | þ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o NO þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
As of May 15, 2013, the number of shares outstanding of the registrant’s class of common stock was 5,930,786.
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| TREE TOP INDUSTRIES, INC. |
| (A Development Stage Company) |
| (Unaudited) |
| ASSETS | ||||||||
| March 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | - | - | ||||||
| Total Current Assets | - | - | ||||||
| PROPERTY AND EQUIPMENT (NET) | 5,527 | 8,824 | ||||||
| MARKETABLE SECURITIES | 52,491 | 54,624 | ||||||
| TOTAL ASSETS | $ | 58,018 | $ | 63,448 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | 977,254 | 949,933 | ||||||
| Accrued interest | 176,691 | 166,982 | ||||||
| Due to officers and directors | 3,843,133 | 3,853,391 | ||||||
| Convertible Notes (Net of discount) | 100,000 | 100,000 | ||||||
| Notes Payable | 103,000 | 88,000 | ||||||
| Notes payable- in default | 597,860 | 597,860 | ||||||
| Total Current Liabilities | 5,797,938 | 5,756,166 | ||||||
| Total Liabilities | 5,797,938 | 5,756,166 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Common stock, par value $0.001 per share, | ||||||||
| 10,000,000 shares authorized; 6,730,786 and 6,680,613 | ||||||||
| issued, 5,930,786 and 5,880,613 outstanding, respectively | 6,730 | 6,680 | ||||||
| Additional paid-in-capital | 145,906,391 | 145,843,081 | ||||||
| Stock payable | 22,181 | - | ||||||
| Unearned ESOP shares | (2,176,000 | ) | (2,176,000 | ) | ||||
| Accumulated other comprehensive income | (2,133 | ) | - | |||||
| (Deficit) Accumulated During the Development Stage | (149,497,089 | ) | (149,366,479 | ) | ||||
| Total Stockholders' Deficit | (5,739,920 | ) | (5,692,718 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 58,018 | $ | 63,448 | ||||
| TREE TOP INDUSTRIES, INC. |
| (Unaudited) |
| From Inception | ||||||||||||
| on August 1, | ||||||||||||
| For the Three Months Ended | 2007 through | |||||||||||
| March 31, | March 31, | |||||||||||
| 2013 | 2012 | 2013 | ||||||||||
| REVENUES | $ | - | $ | - | $ | 2,967 | ||||||
| COST OF SALES | - | - | - | |||||||||
| GROSS PROFIT (LOSS) | - | - | 2,967 | |||||||||
| OPERATING EXPENSES | ||||||||||||
| General and administrative | 25,047 | 38,588 | 6,107,932 | |||||||||
| Impairment of assets | - | - | 2,788,538 | |||||||||
| Compensation and professional fees | 85,018 | 487,216 | 139,667,154 | |||||||||
| Depreciation | 3,296 | 8,191 | 160,867 | |||||||||
| Total Operating Expenses | 113,361 | 533,995 | 148,724,491 | |||||||||
| LOSS FROM OPERATIONS | (113,361 | ) | (533,995 | ) | (148,721,524 | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Loss on disposal of assets | - | - | (2,915 | ) | ||||||||
| Gain on debt forgiveness | - | - | 63,865 | |||||||||
| Interest income | - | - | 9 | |||||||||
| Gain/(loss) on investments | - | (40,632 | ) | |||||||||
| Financing expenses | - | (400,000 | ) | |||||||||
| Interest expense | (17,249 | ) | (15,476 | ) | (395,892 | ) | ||||||
| Total Other Income (Expense) | (17,249 | ) | (15,476 | ) | (775,565 | ) | ||||||
| NET LOSS BEFORE INCOME TAXES | (130,610 | ) | (549,471 | ) | (149,497,089 | ) | ||||||
| PROVISION FOR INCOME TAXES | - | - | - | |||||||||
| NET LOSS | $ | (130,610 | ) | $ | (549,471 | ) | $ | (149,497,089 | ) | |||
| LOSS PER SHARE - BASIC & DILUTED | $ | (0.02 | ) | $ | (0.16 | ) | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 5,910,786 | 3,426,515 | ||||||||||
| TREE TOP INDUSTRIES, INC. |
| (Unaudited) |
| From Inception | ||||||||||||
| on August 1, | ||||||||||||
| For the Three Months Ended | 2007 through | |||||||||||
| March 31, | March 31, | |||||||||||
| 2013 | 2012 | 2013 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | (130,610 | ) | $ | (549,471 | ) | (149,497,089 | ) | ||||
| Adjustments to reconcile net loss to net cash used | ||||||||||||
| in operating activities: | ||||||||||||
| Bad debt expense | - | - | 192,000 | |||||||||
| Depreciation and amortization | 3,296 | 8,191 | 160,867 | |||||||||
| Stock issued for option cancellation | - | - | 115,201 | |||||||||
| Stock issued for rent | - | - | 137,500 | |||||||||
| Gain on debt settlement | - | - | (63,865 | ) | ||||||||
| Loss on marketable securities | - | - | 40,632 | |||||||||
| Stock options granted for services rendered | - | - | 44,870,540 | |||||||||
| Impairment of long lived assets | - | - | 513,538 | |||||||||
| Impairment of intangible assets | - | - | 2,275,000 | |||||||||
| Common stock issued for services rendered | 82,180 | 301,858 | 93,788,528 | |||||||||
| Shares issued for finance charges | - | - | ||||||||||
| Imputed interest on loan | 3,360 | 3,360 | 42,687 | |||||||||
| Loss on diposal of fixed assets | - | - | 2,915 | |||||||||
| Amortization of debt discount | - | - | 175,000 | |||||||||
| Change in operating assets and liabilities, net of acquisition: | ||||||||||||
| Increase (decrease) in accounts payable and accrued expenses | 41,214 | 199,764 | 3,908,446 | |||||||||
| Net Cash Used in Operating Activities | (560 | ) | (36,298 | ) | (3,338,100 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Cash advanced on note receivable | - | - | (192,000 | ) | ||||||||
| Cash received in acquisition | - | - | 44,303 | |||||||||
| Cash paid for investments | - | (95,256 | ) | |||||||||
| Purchases of property and equipment | - | - | (169,310 | ) | ||||||||
| Net Cash Used in Investing Activities | - | - | (412,263 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Cash contribution from shareholders | - | - | 50,375 | |||||||||
| Cash received from issuance of common stock | - | 25,000 | 1,712,700 | |||||||||
| Cash received from notes payable | 15,000 | - | 762,860 | |||||||||
| Cash paid to related party loans | (15,145 | ) | (34,340 | ) | (591,578 | ) | ||||||
| Cash received from related party loans | 705 | 45,568 | 1,816,006 | |||||||||
| Net Cash Provided by Financing Activities | 560 | 36,228 | 3,750,363 | |||||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 0 | (70 | ) | - | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | - | 517 | - | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 0 | $ | 447 | $ | - | ||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||||||
| Cash paid for interest | $ | - | $ | - | $ | - | ||||||
| Cash paid for income taxes | $ | - | $ | - | $ | - | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Common stock issued for acquisition of sub | $ | - | $ | - | $ | 2,275,000 | ||||||
| Common stock issued to ESOP | $ | - | $ | - | $ | 2,176,000 | ||||||
| Conversion of Debentures | $ | - | $ | 50,000 | $ | 75,000 | ||||||
| Unrealized loss on marketable securities | $ | 2,133 | $ | - | $ | 2,133 | ||||||
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
March 31, 2013
(Unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by Tree Top Industries, Inc. (“the Company”) without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2013, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2012 audited financial statements. The results of operations for the period ended March 31, 2013 are not necessarily indicative of the operating results for the full year.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as disclosed in Item 2 below. All significant inter-company balances and transactions have been eliminated.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Use of 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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Beneficial Conversion Feature of Debentures and Convertible Notes Payable
In accordance with FASB ASC 470-20, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, we recognize the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert his debt into common stock at a price per share that is less than the trading price to the public on the day the loan is made to us. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of the debentures and related accruing interest, and is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the straight line method.
Recent Accounting Pronouncements
No accounting pronouncements were issued during the first quarter 2013 that would have a material effect on the accounting policies of the Company when adopted.
Oil and Gas Interests
The Company utilizes the full cost method of accounting for oil and gas activities. Under this method, subject to a limitation based on estimated value, all costs associated with property acquisition, exploration and development, including costs of unsuccessful exploration; are capitalized within a cost center. No gain or loss is recognized upon the sale or abandonment of undeveloped or producing oil and gas interests unless the sale represents a significant portion of oil and gas interests and the gain significantly alters the relationship between capitalized costs and proved oil and gas reserves of the cost center. Depreciation, depletion and amortization of oil and gas interests is computed on the units of production method based on proved reserves. Amortizable costs include estimates of future development costs of proved undeveloped reserves.
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
March 31, 2013
(Unaudited)
Capitalized costs of oil and gas interests may not exceed an amount equal to the present value, discounted at 10%, of the estimated future net cash flows from proved oil and gas reserves plus the cost, or estimated fair market value, if lower, of unproved interests. Should capitalized costs exceed this ceiling, an impairment is recognized. The present value of estimated future net cash flows is computed by applying average prices, in the preceding twelve months, of oil and gas to estimated future production of proved oil and gas reserves as of year-end, less estimated future expenditures to be incurred in developing and producing the proved reserves and assuming continuation of existing economic conditions.
Asset Retirement Obligation
The Company follows FASB ASC 410-20 "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.
FASB ASC 410-20 requires recognition of the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The liability is capitalized as part of the related long-lived asset's carrying amount.
Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. The Company's asset retirement obligations are related to the plugging, dismantlement, removal, site reclamation and similar activities of its oil and gas exploration activities.
Investments at Cost
The Company accounts for its investment in private entities using the equity method for investments where the Company’s shares held are in excess of 20% of the outstanding shares of the investee. The Company acquired a 25% equity investment in three entities from Brazil as part of the assets of the ARUR acquisition in December 2012. Due to the inactivity of the entities, the Company did not allocate any purchase price to these investments. The Company evaluates its cost in investments for impairment of value annually. If cost investments become marketable they are reclassified to Marketable Securities-Available for Sale.
| Investments are as follows: | ||||
| Balance, December 31, 2012 | $ | -0- | ||
| Realized gains and losses | -0- | |||
| Unrealized gains and losses | -0- | |||
| Balance, March 31, 2013 | $ | -0- | ||
Marketable Securities-Available for Sale
The Company purchased marketable securities during 2012. The Company's marketable securities are classified as "available for sale". Accordingly, the Company originally recognizes the shares at the market value purchased. The shares are evaluated quarterly using the specific identification method. Any unrealized holding gains or losses are reported as Other Comprehensive Income and as a separate component of stockholder's equity. Realized gains and losses are included in earnings. Also other than temporary impairments are recorded as a loss on marketable securities in the statements of operations.
| Marketable securities are as follows at March 31, 2013: | ||||
| Balance at December 31, 2012: | $ | 54,624 | ||
| Change in market value at March 31, 2013 | (2,133 | ) | ||
| Balance at March 31, 2013: | $ | 52,491 | ||
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2013
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
On January 1, 2008, the Company adopted ASC 820, “Fair Value Measurements” ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| o | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| o | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| o | Level 3 inputs to the valuation methodology are unobservable and significant to the fair measurement. |
The carrying amounts reported in the balance sheets for cash and cash equivalents, and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of March 31, 2013 and December 31, 2012. Marketable securities are reported at the quoted and listed market rates of the securities held at the period end.
The following table presents the Company’s Marketable securities and Notes Payable within the fair value hierarchy utilized to measure fair value on a recurring basis as of March 31, 2013 and December 31, 2012:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Marketable Securities – 2013 | 52,491 | -0- | -0- | |||||||||
| Marketable Securities – 2012 | 54,624 | -0- | -0- | |||||||||
| Notes payable - 2013 | -0- | -0- | $ | 800,860 | ||||||||
| Notes payable - 2012 | -0- | -0- | $ | 785,860 | ||||||||
The following table presents a Level 3 reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs as of March 31, 2013 and December 31, 2012:
| Notes payable | ||||
| Balance, December 31, 2012 | $ | 785,860 | ||
| Purchases, sales, issuances and settlements (net) | 15,000 | |||
| Balance, March 31, 2013 | $ | 647,860 | ||
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2013
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Ludicrous, Inc., BioEnergy Applied Technologies Inc., GoHealthMD, Inc., MLN, Inc., Universal Energy and Services Group, Inc. Sky Entertainment, Inc., Eye Care Centers International, Inc., GoHealthMD Nano Pharmaceuticals, Inc., TTI Strategic Acquisitions and Equity Group, Inc. and TTII Oil & Gas, Inc.. All subsidiaries of the Company currently have no financial activity. All significant inter-company balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained with major financial institutions in the U S. Deposits held with these banks at times exceed $250,000 of insurance provided on such deposits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on cash and cash equivalents. There were no cash equivalents at March 31, 2013 and December 31, 2012.
Stock Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of ASC 718. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the reward- known as the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments are estimated using the Black Scholes option-pricing model adjusted for the unique characteristics of those instruments.
Equity instruments issued to non-employees are recorded at their fair values as determined in accordance with ASC 718 and ASC 595, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services”, and are periodically revalued as the stock options vest and are recognized as expense over the related service period.
Basic and Diluted Loss per Share
The Company calculates earnings per share in accordance with ASC 260, “Computation of Earnings Per Share.” Basic loss per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share gives effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period; only in periods in which such effect is dilutive. For 2012 and 2011, no common equivalent shares were excluded from the calculation. The ESOP shares issued during 2012 and 2011 have also been excluded from the calculation as they were issued but not outstanding.
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2013 | 2012 | |||||||
| Loss (numerator) | $ | (130,610 | ) | $ | (549,471 | ) | ||
| Shares (denominator) | 5,910,786 | 3,426,515 | ||||||
| Basic and diluted loss per share | $ | (0.02 | ) | $ | (0.16 | ) | ||
Revenue Recognition
We recognize service revenues in accordance with ASC 605 Revenue Recognition and Revenue Arrangements with Multiple Deliverables. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. At the inception of a customer contract for service, we make an assessment as to that customer’s ability to pay for the services provided. If we subsequently determine that collection from that customer is not reasonably assured, we record an allowance for doubtful accounts and bad debt expense for all of that customer’s unpaid invoices and cease recognizing revenue for continued services provided until cash is received.
Intangible Assets and Business Combinations
The Company adopted ASC 805, “Business Combinations”, and ASC 350, “Goodwill and Other Intangible Assets”, effective June 2001 and revised in December 2007. ASC 805 requires the use of the purchase method of accounting for any business combinations initiated after June 30, 2002, and further clarifies the criteria to recognize intangible assets separately from goodwill. Under ASC 350, goodwill and indefinite−life intangible assets are no longer amortized, but are reviewed for impairment annually.
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2013
NOTE 4 - RELATED PARTY TRANSACTIONS
The balance due to related parties as of March 31, 2013 of $3,843,133 consisted of advances, payables and accrued wages to David Reichman, the Company’s Chief Executive Officer of $3,294,375 and accrued wages to Kathy Griffin, the Company’s President of $548,758. As of December 31, 2012, the related party balance was $3,853,391, consisting of a balance due David Reichman of $3,304,634, and a balance due Kathy Griffin of $548,757. During the three month period ended March 31, 2013, Mr. Reichman advanced the company $705 and was repaid $15,145. The amounts due to the officers are due on demand, have no formal agreements, and accrue interest equal to that being charged individually on the debt. Interest accrued during the three months ended March 31, 2013 was $4,180, for credit cards used on the Company’s behalf.
NOTE 5 - NOTES PAYABLE
| (a) | NOTES PAYABLE |
Notes payable consist of various notes bearing interest at rates from 5% to 9%, which are unsecured, with original due dates between August 2000 and November 2013. Five notes with maturity dates that have passed are currently in default with the remaining note due on demand and thus all notes are classified as current liabilities. At March 31, 2013 and 2012, notes payable amounted to $700,860 and $597,860, respectively. Below is a table summarizing the notes owed by the Company.
| Interest Expense | |||||||||||||||
| Principal | Interest Rate | 3/31/2013 | 3/31/2012 | Maturity | |||||||||||
| $ | 292,860 | 9.00 | % | $ | 6,589 | $ | 6,589 | 6/27/2010 | |||||||
| 192,000 | 0% | 3,360 | 3,360 | On Demand(1) | |||||||||||
| 18,000 | 6.00 | % | 270 | 270 | 9/1/2002 | ||||||||||
| 30,000 | 6.00 | % | 450 | 450 | 9/12/2002 | ||||||||||
| 25,000 | 5.00 | % | 313 | 313 | 8/31/2000 | ||||||||||
| 40,000 | 7.00 | % | 700 | 700 | 7/10/2002 | ||||||||||
| 12,000 | 6.00 | % | 180 | - | 4/28/2013 | ||||||||||
| 20,000 | 6.00 | % | 300 | - | 5/17/2013 | ||||||||||
| 12,000 | 6.00 | % | 180 | - | 6/19/2013 | ||||||||||
| 20,000 | 6.00 | % | 300 | - | 7/2/2013 | ||||||||||
| 5,000 | 6.00 | % | 75 | - | 8/3/2013 | ||||||||||
| 19,000 | 6.00 | % | 285 | - | 8/13/2013 | ||||||||||
| 5,000 | 6.00 | % | 25 | - | 10/28/2013 | ||||||||||
| 10,000 | 6.00 | % | 41 | - | 11/16/2013 | ||||||||||
| $ | 700,860 | $ | 13,068 | $ | 11,682 | ||||||||||
On February 28, 2013, and March 6, 2013, the Company received proceeds from notes payable lenders. The note amounts were $5,000 and $10,000 respectively, and both bear interest at 6%. The notes mature on 10/28/13 and 11/16/13, respectively, and are unsecured.
| (1) | Imputed interest due to 0% interest rate |
| (b) | CONVERTIBLE NOTES PAYABLE: |
On April 12, 2012, the Company engaged in a note agreement with a Company for $100,000. The note is convertible into common shares of the Company at a rate of $.005, to include all fees and interest. The Company recorded a $100,000 discount on the Convertible Note due to this beneficial conversion feature. The discount was accreted over the term of the note, and the net note balance at March 31, 2013 and December 31, 2012 was $100,000, respectively.
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2013
(Unaudited)
NOTE 6 - STOCKHOLDERS' DEFICIT
ISSUANCES OF COMMON STOCK
On January 28, 2013, the Board of Directors authorized the issuance of 50,000 shares of common stock to an attorney for services performed. The shares were valued at the market price on the day of issuance, in the amount of $60,000.
Also on January 28, 2013, the Board of Directors authorized the issuance of 18,484 shares to our corporate council, however the shares were not issued at March 31, 2013 and have been recorded as a stock payable liability on the financial statements. The share were valued at the market price on the day of grant of $22,181.
During the three months ended March 31, 2013, the Company recorded imputed interest on a non-interest bearing note in the amount of $3,360, with an increase in paid in capital.
During the three months ended March 31, 2013, the Company did not issue any stock options or warrants.
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2013
(Unaudited)
NOTE 7 - LEGAL ACTIONS
During April 2012, the Company filed suit in Los Angeles Superior Court against GeoGreen Biofuels, Inc. and related parties, relating to GeoGreen's failure to repay $192,000 advanced pursuant to a Bridge Loan Term Sheet. Although litigation is inherently unpredictable, TTI is confident in its position, and intends to pursue the action aggressively. GeoGreen has filed a cross-complaint against the Company and its two officers, the Chief Executive Officer and the President.
During March 2013, the Company was named in an action pertaining to the 75% working interest in the Ownbey Lease. Subsequent to the Company’s purchase of the assets and the termination of the operator, a mechanics lien was filed against the property claiming approximately $200,000 in fees are due to the previous operator. The Company is aggressively defending the action.
NOTE 8 - ASSET PURCHASES AND OIL & GAS PROPERTIES
On December 31, 2012, Tree Top and its new subsidiary, TTII Oil & Gas, Inc., a Delaware corporation, signed a binding asset purchase agreement with American Resource Technologies, Inc. (“ARUR”), a Kansas corporation, to acquire all of the assets of ARUR for a purchase price of $513,538, which was paid in the form of 466,853 shares of Tree Top’s common stock as described in the asset purchase agreement. The assets purchase from ARUR are as follows:
| ● | 75% working interest in the Ownbey Oil & Gas leases in Chautauqua County Kansas, with associated equipment and oil field assets |
● | A 1 to 2 mile shut down natural gas pipeline located in Montgomery County Kansas |
● | Common Stock interest representing 25% of the common stock of Brasil Asset Management, Inc. |
● | Common Stock interest representing 25% of the common stock of Thor Geotrac. |
● | Common Stock interest representing 25% of the common stock of Ameribras Oklahoma. |
● | Account receivable from skyberCorp do Brasil (Ameribras) due1/1/2011 in the amount of $3,600,000 |
● | Account receivable from Brasil Asset Management Projectos Limitada (BAMB) due 1/1/2012 in the amount of $3,600,000 |
● | Promissory Note Receivable from Ameribras Energy, Inc, due 5/13/2010, in the amount of $100,000 |
● | Promissory Note Receivable from Ameribras Energy, Inc, due 6/15/2010, in the amount of $100,000 |
● | Promissory Note Receivable from Brasil Asset Management, Inc, due 3/26/2011, in the amount of $350,000 |
● | Contract for Revenue with Brasil Asset Mangement, Inc. (BAMO), in the amount of $1,000,000 due and payable on or before 1/30/11. |
● | Gun sight patent acquired from Century Technologies, Inc. |
Although no liabilities were assumed in the purchase agreement, a contingent liability is attached if the receivables are collected by the Company. The contingent liabilities are approximately $400,000. The Company has not recorded the liability because the event precipitating the liability has not occurred and is not likely to occur in the future and the fair value is zero.
The assets were purchased with the issuance of 466,853 shares and were valued at market value at the grant date as $513,538. The allocation of the purchase price is as follows:
| 75% working interest in Oil & Gas lease: | $ | 513,538 | ||
| Recorded value | 513,538 |
All accounts and notes receivable were deemed uncollectable due to the age and circumstances, and therefore were assessed no value in the asset purchase. The equity ownerships were also deemed to be impaired due to the inactive nature of the entities, and were not allocated any value. The gun sight patent was also not readily assessable as to value and no purchase price was allocated to this asset.
Subsequent to the Company’s purchase of the assets and the termination of the operator, a mechanics lien was filed against the property claiming approximately $200,000 in fees are due to the previous operator. The Company is aggressively defending the action, however at December 31, 2012, due to the lien and loss of title to the assets, the Company impaired the recorded cost, leaving no value associated with the acquisition. The Company recorded an impairment on long lived assets in the amount of $513,538.
Because of the mechanics lien which impaired the title to the Oil and Gas properties, the Company has not recorded any asset retirement obligations or assets related to this transaction.
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2013
(Unaudited)
NOTE 9 – SUBSEQUENT EVENTS
In accordance with ASC 855-10 Company management reviewed all material events through the date of this report and there are no material subsequent events to report except as follows:
During the first quarter 2013, the Company hired an interim operator, mechanic and electrician to repair and maintain the oil & gas equipment on the Ownbey Lease. The operator was able to repair and maintain the equipment on 11 of the 13 wells, and on May 9, 2013, they were successful in getting 11 of the 13 wells operational and pumping oil. The Company will have additional maintenance to perform on additional wells and water pumping systems, however, we expect to report revenues from the oil production of these wells during the 2nd quarter 2013.
13
This Form 10-Q may contain “forward-looking statements,” as that term is used in federal securities laws, about Tree Top’s consolidated financial condition, results of operations and business. These statements include, among others:
| ● | statements concerning the potential benefits that may be experienced from business activities and certain transactions contemplated or completed; and |
| ● | statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “opines,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following: |
| a) | volatility or decline of Tree Top’s stock price; potential fluctuation of quarterly results; |
| b) | Potential fluctuation of quarterly results; |
| c) | failure to earn revenues or profits; |
| d) | inadequate capital to continue or expand our business, and inability to raise additional capital or financing to implement our business plans; |
| e) | failure to commercialize our technology or to make sales; |
| f) | decline in demand for our products and services; |
| g) | Rapid adverse changes in markets; |
| h) | litigation with or legal claims and allegations by outside parties against TTI, including but not limited to challenges to intellectual property rights; |
| i) | insufficient revenues to cover operating costs; and |
| j) | failure of the BAT technology to function properly. |
There is no assurance that we will be profitable, we may not be able to successfully develop, manage or market our products and services, we may not be able to attract and retain qualified executives and technology personnel, we may not be able to obtain customers for our products or services, our products and services may become obsolete, government regulation may hinder our business, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and other risks inherent in our businesses.
Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-K. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events.
Current Overview and History
Tree Top Industries, Inc. (“TTI”, “Tree Top”, “we”. “our”, “us”, “the Company”, “management”) is a Nevada corporation which has been operating under several different names since 1980.
Western Exploration, Inc., a Nevada corporation, was formed on July 24, 1980. In 1990, Western Exploration, Inc. changed its name to Nugget Exploration, Inc. On November 10, 1999, a wholly owned subsidiary of Nugget Exploration, Inc., Nugget Holdings Corporation merged with and into GoHealthMD, Inc., a Delaware corporation. Shortly thereafter, Nugget Exploration, Inc. changed its name to GoHealthMD, Inc. a Nevada corporation.
On August 18, 2004, GoHealthMD, Inc., the Nevada Corporation, changed its name to Tree Top Industries, Inc. GoHealthMD, Inc. continues to exist as a Delaware corporation and wholly owned subsidiary of Tree Top Industries, Inc. MLN, Inc., BioEnergy Applied Technologies, Inc. (“BAT”),, Eye Care Centers International, Inc., GoHealthMD Nano Pharmaceuticals, Inc., TTI Strategic Acquisitions and Equity Group, Inc. and TTII Oil & Gas, Inc., a Delaware corporation are also wholly owned subsidiaries of Tree Top Industries, Inc. Several of these subsidiaries have been formed by Tree Top in the anticipation of technologies, products or services being acquired. Not all subsidiaries are currently active.
Effective August 12, 2009, Tree Top completed a stock exchange with BAT, BioEnergy Systems Management Inc., Wimase Limited and Energetic Systems Inc., LLC. whereby Tree Top acquired 100% of the issued and outstanding stock of BAT. BAT is the originator of various proprietary, clean-tech, environmentally friendly technologies and intellectual properties in the areas of hazardous waste destruction, energetic materials, chemical recycling processes, and coal gasification. BAT also maintains unique electrolytic technology that simplifies the production of bio fuels, specifically biodiesel and its byproducts. Tree Top acquired all of the issued and outstanding shares of BAT. Tree Top issued 35,000 shares of its common stock, par value $.001 per share, to the stockholders of BAT in exchange for the transfer of all of the issued and outstanding shares of common stock of BAT by such stockholders.
BAT was acquired to exploit its key intellectual properties, which have been applied to the construction of systems and equipment designed to facilitate the destruction of pharmaceutical, medical, biological, chemical, red bag and other hazardous wastes, with clean reusable energy produced as a byproduct. The system utilizes cold plasma technology to initiate a chemical reaction inside the unit. The chemical reaction causes enough heat to facilitate the waste destruction, resulting in a drastically reduced carbon footprint, as no incineration is needed. The energy needed to start the process is the equivalent of only five light bulbs, resulting in a significantly lower cost of operation. The unit is relatively compact, can be retrofitted into existing structures or made mobile for smaller venues, and can be scaled up to meet the hazardous waste destruction needs of almost any user. Tree Top is actively engaged in developing a business platform to showcase the BAT technologies, and will spend the majority of its resources in support of this opportunity.
The Company also owns NetThruster, Inc., a Nevada corporation (“NetThruster”), which was formally known as Ludicrous, Inc. (“Ludicrous”). On January 28, 2011, the Board of Directors of Tree Top adopted resolutions approving the disposition by the Company of all of the common stock of its wholly-owned subsidiary, NetThruster, Inc., a Delaware corporation (“NetThruster”), in a spin-off to Tree Top’s shareholders on a pro rata basis (the “Spin-Off”). Thereafter, NetThruster would be owned by Tree Top’s shareholders. David Reichman, the CEO of Tree Top was named Chairman of the Board, CEO and CFO of NetThruster. Kathy M. Griffin was named a Director and corporate secretary. The Board of Directors of NetThruster is comprised of David Reichman and Kathy Griffin. On February 9, 2011, Tree Top entered into a distribution agreement with NetThruster (the “Distribution Agreement”). The Spin-Off is governed by the Distribution Agreement. A copy of the Distribution Agreement is attached hereto as exhibit 10.5. The Spin-Off was disclosed in a Form 8-K, filed on February 9, 2011, which announced that the NetThruster division would be spun-off into a separate entity.
Tree Top owns all of the issued and outstanding shares of common stock of NetThruster. NetThruster currently had no shares of preferred stock issued or outstanding. Pursuant to the Distribution Agreement, Tree Top had agreed to distribute all of the common stock of NetThruster to Tree Top’s shareholders, such that each shareholder of record of Tree Top common stock on February 14, 2011 (the “Distribution Record Date”) would receive one share of the common stock of NetThruster for every share of Tree Top’s common stock owned by such shareholder. Each Tree Top shareholder must have proof of ownership of the Tree Top common stock in order to be eligible to receive the distribution of the common stock of NetThruster in the Spin-Off. Tree Top expected to make the distribution for the Spin-Off on or before March 10, 2011. Subsequent to that date, Tree Top, upon authorization and a resolution from the Board of Directors, decided to postpone the spin-off indefinitely until management had more time and the information needed to effectively calculate the cost and possible result of such spin-off.
On April 18, 2011, Tree Top signed a non-binding term sheet agreement with Sky Corporation, doo, a Belgrade, Serbia based event production and management company. Sky Corporation is a distributor of professional musical equipment across the Adriatic region, and is the largest retailer of musical instruments and equipment in Serbia. Sky Corporation is a distributor for over 80 brands in the fields of music and light equipment. Sky Solutions doo, a division of Sky Corporation, is one of the largest production companies in Eastern Europe. Adriatic Region Distribution doo, a division of Sky Corporation, is a regional distribution company for musical and sound/light equipment. Sky Music, doo is another division of Sky Corporation. Sky Music, doo’s main activity is selling professional audio and light equipment, as well as installing it in discothèques, clubs, public institutions, venues, and concert halls. Sky Corporation’s growth plan calls for double digit growth over the next three years and a planned expansion into the rest of Eastern Europe and eventually to Western Europe. The term agreement expired on July 18, 2011, but Tree Top and Sky Corporation signed an extension to the Letter of Intent on November 15, 2011. The extension has since expired.
On May 24, 2011, Tree Top signed an engagement letter with PIN Financial, LLC. PIN Financial was engaged by Tree Top to use their best efforts to successfully complete a private placement of the securities of Tree Top for the purposes of a bridge loan and a capital raise. On January 9, 2012, Tree Top disengaged with PIN Financial, for lack of performance on the part of PIN Financial. No payment was made by Tree Top to PIN Financial and the two parties mutually disengaged on the above mentioned date.
On May 25, 2011, Tree Top signed a licensing agreement with WorldWithoutBlindness (“WWB”) for the right to market and sell their patented eye screening equipment on a global basis outside the United States, for a period of two years. Eye Care Centers International, Inc . was formed to support the further growth and development of (“WWB”), an organization whose primary mission is to bring patented eye screening equipment to the developing world. The WWB technology uses objective parameters instead of traditional subjective eye chart examinations, to screen children as young as six months old. The screening can accurately indicate predisposition for glaucoma and other eye diseases which can lead to blindness, as well as a host of other possible diseases, completely unrelated to eyesight. Tree Top’s management, upon approval by the board of directors, made a trip to Canar, Ecuador, among other cities, to observe how how the test markets would be set up. The Company is currently formulating the test results from the past year to evaluate it’s economic viability.
On October 12, 2011, Tree Top signed a binding term sheet agreement with Adesso Biosciences, Ltd. to acquire 93% of the outstanding stock of Adesso Diagnostics, LLC and 47.5% of the outstanding stock of Adeda Therapeutics, Ltd., both subsidiaries of Adesso Biosciences Ltd. Adesso Diagnostics is the holder of an exclusive license with Columbia University for two patents in the fields of molecular science and nanoscience. Adeda Therapeutics is involved in the development of a novel sinus medication system. Tree Top and Adesso Biosciences engaged in the mutual due diligence phase of the acquisition; as of yet, the expected acquisition has not closed, nor is it expected to close in the first quarter of 2013.
On December 31, 2012, Tree Top and its new subsidiary, TTII Oil & Gas, Inc., a Delaware corporation, signed a binding asset purchase agreement with American Resource Technologies, Inc. (“ARUR”), a Kansas corporation, to acquire all of the assets of ARUR for a purchase price of $513,538, which was paid in the form of shares of Tree Top’s common stock as described in the asset purchase agreement, which was disclosed in an 8 – K and is attached as an exhibit incorporated by reference. Subsequent to the Company’s purchase of the assets and the termination of the operator, a mechanics lien was filed against the property claiming approximately $200,000 in fees are due to the previous operator. The Company is aggressively defending the action, however at December 31, 2012, due to the lien, the Company impaired the recorded cost, leaving no value associated with the acquisition. As discussed in the subsequent events section in the notes to the financial statements, the Company was able to resolve administrative issues relative to the oil & gas properties, and was able to bring 11 of the 13 wells into operation. They began producing oil on May 9, 2013.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.
Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require us to apply significant judgment in their application. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumption and estimates. Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to our critical accounting policies as of March 31, 2013 and for the three months then ended.
PLAN OF OPERATIONS
In considering the entire waste destruction business and analyzing where the opportunities can be found, it is apparent that the pharmaceutical, medical, biological, chemical, and red bag waste industries should be the best fit for the BAT technology, both from an environmental and a cost structure perspective.
While municipal, restaurant and/or household wastes cost upwards of $ .30 per pound to incinerate or store, hazardous waste disposal has been calculated at upwards of $2.00 per pound, without taking the volatility of the price of fuel into account. This is because, in order to comply with governmental and environmental regulations, a work-intensive system of processing, handling, storing, transporting, and finally burying hazardous waste is required at most pharmaceutical companies. Once hazardous waste has been produced, its disposition is the responsibility of the producer thereafter. If there is an environmental issue resulting from hazardous waste production, the waste generator is solely responsible.
In spite of this, many companies who produce hazardous waste in the pharmaceutical industry and biological / hospital red bag waste area currently use conventional haul-destroy companies and methods to eliminate the waste. This exposes them to several increased costs, including:
| ● | environmental costs |
| ● | transportation costs |
● | insurance costs |
| ● | storage costs |
| ● | overall handling costs |
The BAT technology allows companies to destroy hazardous material streams in-line before they exit the consolidated system, and therefore such companies never become hazardous waste generators. This provides a commercial solution for the processing of hazardous waste in-house and on demand at local sites. Byproducts from the system are essentially water and carbon dioxide, plus trace amounts of organics. The system specifically eliminates oxides of nitrogen, chlorine gas, and other toxic gasses typically produced by conventional incinerators. The process is completely “green”, converting all the waste into water, carbon dioxide and nitrogen. And, the technology allows for the potential capturing of reusable energy. This excess energy, in the form of heat, can be utilized within other facility operations.
In the next twelve months, Tree Top plans to target the pharmaceutical industry on a global basis. In the United States alone, the top pharmaceutical companies produce upwards of 600,000,000 pounds of active pharmaceutical intermediates waste per year. That translates into over $1.2 billion dollars of cost connected to the management of hazardous waste. Tree Top will be taking steps to produce several working demonstration units that can be showcased to the pharmaceutical industry. We will be actively seeking partners who may want to share the cost of building the units and testing them at their facilities. On the international side, we have acquired a strategic partner, Asia Pacific Capital, who will be making introductions for us to industry insiders in Vietnam and China. We are also actively pursuing, through partnerships with other individuals, government agencies to position us in front of possible funding partners.
Management also expects to assess our oil and gas properties and formulate a plan to rework various wells to bring them online and generate monthly oil production. The Company will also assess the potential expansion of additional wells in order to increase the oil production and revenue source.
This plan is totally dependent on the Chairman, David Reichman’s continued support, as well as our ability to raise capital. Execution of the business plan is subject to this constraint as well as the finding of sufficient funding.
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012:
We realized revenues of $-0- during the three months ended March 31, 2013 and 2012. We presently do not have a steady source of revenue. Our operating expenses decreased from $533,995 in 2012 to $113,361 in 2013. The decrease was primarily the result of a decrease in compensation expenses to officers, directors and consultants. General and administrative expenses decreased from $38,588 to $25,047 or 35%. Compensation and professional fees decreased by $402,198, due to the decrease in officer wages and stock based compensation given to employees and others. Depreciation expense decreased from $8,191 to $3,296.
Our net loss decreased by $418,861 from $549,471 in 2012 to $130,610 in 2013. This translates to a $.14 decrease in loss per share from $(0.16) in 2012 to $(.02) in 2013. Included in our net loss was $60 ,000 and $301,858 for the value of common stock and common stock purchase warrants and options which were issued in 2013 and 2012 respectively. Excluding these non cash expenses, our net loss would have been $70 ,610 and $247,613, respectively. We expect that our losses will continue to be approximately $100,000 per month until we are able to establish a reliable revenue flow.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2013 we had cash on hand of $0 compared to $447 at March 31, 2012. We used cash in our operations of $560 in 2013 compared to $36,298 in 2012, a 98% decrease. We raised $0 and $25,000 from the sale of our common stock or exercises of stock options in 2013 and 2012, respectively. Additionally, we raised $705 and $45,568 from related party loans in 2013 and 2012, and $15,000 and $0 from other notes payable, respectively. We anticipate that we will continue to have a negative cash flow from operations of approximately $100,000 per month for 2013. We do not have sufficient cash on hand at March 31, 2013 to cover our negative cash flow. We will attempt to raise capital through the sale of our common stock or through debt financing.
Some of Tree Top’s past due obligations, including $338,000 of accounts payable, and $113,000 of notes payable and judgments, some of which are duplicative, were incurred or obtained prior to 2005. No actions have been taken by any of the applicable creditors. Action by any such creditor would materially decrease our liquidity. Tree Top has no credit facilities with which to resolve these outstanding obligations from prior years, but will fully resolve them upon a successful capital raise and monetary action of the business. This may have a negative impact on our future liquidity in the event we must prioritize the repayment of these obligations when capital becomes available. Tree Top shall attempt to negotiate favorable repayment schedules, if and when any applicable creditor takes any collection related actions. In addition, there is an amount due to officers and Directors equal to $3,843,133 as of March 31, 2013 and $3,853,391 as of December 31, 2012 respectively, which may increase if such officers and/or Directors continue to provide additional sums of money and/or services that are payable upon demand. Our liquidity would decrease materially if any such officer or Director demanded repayment. These loans must be considered in any capital raise and could continue to restrict our liquidity upon such capital raise if repayment is thereby demanded. Tree Top shall attempt to cause these officers and Directors to request repayment in a way as to not materially harm Tree Top’s liquidity.
Any remedy to our current lack of liquidity must take into account all the foregoing liabilities. Tree Top intends to continue its pursuit to raise capital in order to monetize its business and pay all its liabilities. Capital raise plans are under consideration but it cannot be assured that they will materialize in the current economic environment. Currently, Tree Top is without adequate financing or assets. Because no actions have been taken on the aforementioned past due obligations and demand has not been made by the applicable officers or Directors, we are unable to accurately quantify the effect the overdue accounts have on Tree Top’s financial condition, liquidity and capital resources. However, in the event that all of these obligations and notes payable were required to be paid in an amount equal to the full balance of each, Tree Top would not be able to meet the obligations based upon its current financial status. The liquidity shortfall of $5,797,938 would cause Tree Top to default and, further, would put our continued viability in jeopardy.
CONTRACTUAL OBLIGATIONS
None
Going Concern Qualification
The Company has incurred significant losses from operations, and such losses are expected to continue. The Company's auditors have included a "Going Concern Qualification" in their report for the year ended December 31, 2012. In addition, the Company has limited working capital. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. Management's plans include seeking additional capital and/or debt financing. There is no guarantee that additional capital and/or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The "Going Concern Qualification" may make it substantially more difficult to raise capital.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Not Applicable.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information we are required to disclose is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Commission. David Reichman, our Chief Executive Officer and our Principal Accounting Officer, is responsible for establishing and maintaining our disclosure controls and procedures.
Under the supervision and with the participation of our management, including the Chief Executive Officer and Principal Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Principal Accounting Officer has concluded that, as of March 31, 2013 these disclosure controls and procedures were ineffective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s controls are not effective due to a lack of the segregation of duties. The Company lacks the appropriate personnel to handle all the varying recording and reporting tasks on a timely basis. The Company plans to address these material weaknesses as resources become available by hiring additional professional staff, such as a Chief Financial Officer, as funding becomes available, outsourcing certain aspects of the recording and reporting functions, and separating responsibilities. The Company believes that it would require approximately $250,000 per year in available funds in order to retain the qualified personnel required for effective disclosure controls and procedures.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ¨ | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
| ¨ | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
| ¨ | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
Changes in Internal Controls over Financial Reporting
There were no additional changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations over Internal Controls
TTI’s management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within TTI have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Our disclosure controls and procedures are designed to provide reasonable assurance of that our reports will be accurate. Our Chief Executive Officer and Principal Accounting Officer concludes that our disclosure controls and procedures were ineffective at that reasonable assurance level, as of the end of the period covered by this Form 10-Q. Our future reports shall also indicate that our disclosure controls and procedures are designed for this reason and shall indicate the related conclusion by the Chief Executive Officer and Principal Accounting Officer as to their effectiveness.
The following shares of common stock were issued during the three months ended March 31, 2013 without registration:
There were no share issuances for cash during the quarter ended March 31, 2013.
| The Company has the following note payable obligations in default: | ||||
| Note payable to RA Beeso due June 27, 2010, with interest accrued at 9% per annum, unsecured , unpaid to date and in default. | 292,860 | |||
| Note payable to Facts and Comparisons due September 1, 2002, with interest accrued at 6% per annum, unsecured, in settlement of a trade payable; unpaid to date and in default | 18,000 | |||
| Note payable to Luckysurf.com due September 12, 2002 with interest accrued at 6% per annum, unsecured, in settlement of a trade payable; unpaid to date and in default | 30,000 | |||
| Note payable to Michael Marks (a shareholder) due August 31, 2000 with interest accrued at 5% per annum, unsecured; unpaid to date and in default | 25,000 | |||
| Note payable to Steven Goldberg (a former consultant) due July 10, 2002, unsecured with interest of 7% accrued if unpaid at due date, in settlement of liability; unpaid to date and in default | 40,000 | |||
| Note payable to Highest Star Investment due on demand, unsecured with no stated interest rate, unpaid To date and in default | 192,000 | |||
| Totals | $ | 597,860 | ||
None of these notes have been paid, and management has indicated that no demand for payment for any of these notes has been received by the Company. However, the Company received a notice of motion from Luckysurf.com dated October 22, 2002, seeking entry of a judgment for $30,000. No further information or action has been received by the Company relating to this note.
| EXHIBIT NO. | DESCRIPTION | |
| 3.1 | Articles of incorporation of Tree Top Industries, as amended (1) | |
| 3.2 | By-Laws (2) | |
| 10.1 | Employment Agreement, dated October 1, 2007, by and between Tree Top Industries, Inc. and David Reichman (3) | |
| 10.2 | Employment Agreement, dated April 1, 2009, by and between Tree Top Industries Inc. and Kathy Griffin (4) | |
| 10.3 | Bridge Loan Term Sheet, dated January 11, 2010, by and between Tree Top Industries, Inc. and GeoGreen Biofuels, Inc.(5) | |
| 10.4 | Business and Financial Consulting Agreement, dated February 22, 2010 by and between Tree Top Industries, Inc. and Asia Pacific Capital Corporation(6) | |
| 10.5 | Distribution Agreement, by and between Tree Top Industries, Inc. and NetThruster, Inc., dated February 9, 2011(7) | |
| 10.6 | Term Agreement by and between Tree Top Industries, Inc. and Sky Corporation, doo, dated April 18, 2011 (8) | |
| 10.7 | Term Agreement by and between Tree Top Industries, Inc. and Adesso Biosciences, Ltd, dated October 12, 2011(9) | |
| 10.8 | Term Agreement by and between Tree Top Industries, Inc. and Stemcom, LLC d/b/a Pipeline Nutrition, dated March 1, 2012(10) | |
| 10.9 | Mutual disengagement agreement by and between Tree Top Industries, Inc. and Stemcom, LLC d/b/a Pipeline Nutrition, dated March 23, 2012(11) | |
| 10.10 | Reserve Equity financing agreement by and between Tree Top Industries, Inc. and AGS Capital Group, dated August 15, 2012.(12) | |
| 10.11 | Asset purchase Agreement by and between TTII Oil & Gas, Inc. a subsidiary of Tree Top Industries, Inc. and American Resource Technologies, Inc.(13) | |
| 10.12 | Resignation of Mr. Robert Hantman, Esq. as a member of the board of directors(14) | |
| Subsidiaries of the registrant | ||
| Section 302 Certification of Chief Executive Officer and Chief Financial Officer | ||
| Section 906 Certification of Chief Executive Officer |
_________________
| (1) | Filed November 13, 2009, as an exhibit to a Form 10-Q and incorporated herein by reference. Filed January 3, 2012, as an exhibit to an 8 – K and incorporated herein by reference. Filed April 12, 2013, as an exhibit to an 8 – K and incorporated herein by reference. |
| (2) | Filed July 19, 2010, as an exhibit to a Form 10-K/A and incorporated herein by reference. |
| (3) | Filed November 7, 2007, as an exhibit to a Form 8-K and incorporated herein by reference. |
| (4) | Filed March 25, 2010, as an exhibit to a Form 8-K and incorporated herein by reference. |
| (5) | Filed January 19, 2010, as an exhibit to a Form 8-K and incorporated herein by reference. |
| (6) | Filed July 19, 2010, as an exhibit to a Form 10-Q/A and incorporated herein by reference. |
| (7) | Filed February 9, 2011, as an exhibit to a Form 8-K and incorporated herein by reference. |
| (8) | Filed April 19, 2011, as an exhibit to a Form 8 - K and incorporated herein by reference. |
| (9) | Filed October 18, 2011 as an exhibit to a Form 8 - K and incorporated herein by reference. |
| (10) | Filed March 6, 2012 as an exhibit to a Form 8 – K and incorporated herein by reference. |
| (11) | Filed March 23, 2012 as an exhibit to a Form 8 – K and incorporated herein by reference. |
| (12) | Filed August 21, 2012 as an exhibit to a Form 8 – K and incorporated herein by reference. |
| (13) | Filed January 8, 2013 as an exhibit to a Form 8 – K and incorporated herein by reference. |
| (14) | Filed January 8, 2013 as an exhibit to a Form 8 – K and incorporated herein by reference. |
| (a) | Exhibits |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: May 17, 2013 | TREE TOP INDUSTRIES, INC. | ||
| By: | /s/ David Reichman | ||
David Reichman, Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ David Reichman | Dated: May 17, 2013 | |
| David Reichman, Chairman of the Board, Chief | |||
| Executive Officer, Chief Financial Officer | |||
| and Principal Accounting Officer | |||
| By: | /s/ Kathy M. Griffin | Dated: May 17, 2013 | |
| Kathy M. Griffin, Director, President | |||
| By: | /s/ Frank Benintendo | Dated: May 17, 2013 | |
| Frank Benintendo, Director & Secretary | |||
| By: | /s/ Donald Gilbert, Phd. | Dated: May 17, 2013 | |
| Donald Gilbert, Director & Treasurer |
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