UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
o QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2013
or
þ 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) | ||
| (646) 240 4188 | ||
| 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 o No þ
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 | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | þ |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ NO o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
As of November 14, 2013, the number of shares outstanding of the registrant’s class of common stock was 7,875,089.
TABLE OF CONTENTS
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2
| (An Exploration Stage Company) | |||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||
| (Unaudited) | |||||||||||
| ASSETS |
| September 30, | December 31, | |||||||||
| 2013 | 2012 | |||||||||
| CURRENT ASSETS | ||||||||||
| Cash and cash equivalents | $ | 11,601 | $ | - | ||||||
| Accounts receivable | 11,209 | |||||||||
| Marketable securities | 50,232 | 54,624 | ||||||||
| Oil & Gas inventory | 6,807 | |||||||||
| Total Current Assets | 79,849 | 54,624 | ||||||||
| PROPERTY AND EQUIPMENT (NET) | 8,983 | 8,824 | ||||||||
| TOTAL ASSETS | $ | 88,832 | $ | 63,448 | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Accounts payable and accrued expenses | $ | 852,726 | $ | 949,933 | ||||||
| Accrued interest | 100,599 | 166,982 | ||||||||
| Deferred revenue | 6,807 | - | ||||||||
| Due to officers and directors | - | 3,853,391 | ||||||||
| Convertible Notes (Net of discount) | - | 100,000 | ||||||||
| Notes Payable | 101,840 | 88,000 | ||||||||
| Notes payable- in default | 305,000 | 597,860 | ||||||||
| Current portion of long-term debt | 84,901 | - | ||||||||
| Total Current Liabilities | 1,451,873 | 5,756,166 | ||||||||
| LONG-TERM LIABILITIES | ||||||||||
| Notes payable - related party (less current portion) | 676,749 | |||||||||
| Notes payable (less current portion) | 492,075 | - | ||||||||
| Total Liabilities | 2,620,697 | 5,756,166 | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||||
| Preferred Stock, par value $.001, 50,000 authorized, 0 issued | - | - | ||||||||
| Common stock, par value $0.001 per share, | ||||||||||
| 10,000,000 shares authorized; 8,675,089 and 6,680,613 | ||||||||||
| issued, 7,875,089 and 5,880,613 outstanding, respectively | 8,675 | 6,680 | ||||||||
| Additional paid-in-capital | 149,077,585 | 145,843,081 | ||||||||
| Stock payable | 22,181 | - | ||||||||
| Unearned ESOP shares | (2,176,000 | ) | (2,176,000 | ) | ||||||
| Accumulated other comprehensive income (loss) | 23,611 | - | ||||||||
| (Deficit) Accumulated During the Exploration Stage | (149,487,917 | ) | (149,366,479 | ) | ||||||
| Total Stockholders' Deficit | (2,531,865 | ) | (5,692,718 | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 88,832 | $ | 63,448 | ||||||
3
| (An Exploration Stage Company) |
| Condensed Consolidated Statements of Operations |
| (Unaudited) |
| From Inception | ||||||||||||||||||||||
| on August 1, | ||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | 2007 through | ||||||||||||||||||||
| September 30, | September 30, | September 30, | ||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | ||||||||||||||||||
| REVENUES | ||||||||||||||||||||||
| Crude oil sales | 42,552 | $ | - | 42,552 | $ | - | 42,552 | |||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||
| Oil & Gas operating costs | 25,357 | - | 29,619 | - | 32,300 | |||||||||||||||||
| Depreciation | 706 | 8,191 | 6,425 | 24,572 | 163,996 | |||||||||||||||||
| General and administrative | 35,720 | 146,532 | 81,995 | 222,948 | 6,162,337 | |||||||||||||||||
| Compensation and professional fees | 7,652 | 3,074,648 | 157,396 | 3,826,852 | 139,739,395 | |||||||||||||||||
| Impairment of assets | - | - | - | - | 2,788,538 | |||||||||||||||||
| Total Operating Expenses | 69,435 | 3,229,371 | 275,435 | 4,074,372 | 148,886,566 | |||||||||||||||||
| LOSS FROM OPERATIONS | (26,883 | ) | (3,229,371 | ) | (232,883 | ) | (4,074,372 | ) | (148,844,014 | ) | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||
| Loss on disposal of assets | - | - | - | - | (2,915 | ) | ||||||||||||||||
| Gain on debt forgiveness | - | - | 165,220 | - | 229,085 | |||||||||||||||||
| Interest income & other income | 2 | - | - | - | 2,978 | |||||||||||||||||
| Gain/(loss) on investments | - | - | 557 | - | (40,075 | ) | ||||||||||||||||
| Financing expenses | - | (400,000 | ) | - | (400,000 | ) | (400,000 | ) | ||||||||||||||
| Interest expense | (26,652 | ) | (53,585 | ) | (54,332 | ) | (117,339 | ) | (432,976 | ) | ||||||||||||
| Total Other Income (Expense) | (26,650 | ) | (453,585 | ) | 111,445 | (517,339 | ) | (643,903 | ) | |||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | (53,533 | ) | (3,682,956 | ) | (121,438 | ) | (4,591,711 | ) | (149,487,917 | ) | ||||||||||||
| PROVISION FOR INCOME TAXES | - | - | - | - | - | |||||||||||||||||
| NET INCOME (LOSS) | $ | (53,533 | ) | $ | (3,682,956 | ) | $ | (121,438 | ) | $ | (4,591,711 | ) | $ | (149,487,917 | ) | |||||||
OTHER COMPREHENSIVE INCOME /(LOSS) NET OF TAXES | ||||||||||||||||||||||
Unrealized income (loss) on held for sale marketable securities | 25,350 | - | 23,611 | - | 23,611 | |||||||||||||||||
| COMPREHENSIVE INCOME/(LOSS) | $ | (28,183 | ) | $ | (3,682,956 | ) | $ | (97,827 | ) | $ | (4,591,711 | ) | $ | (149,464,306 | ) | |||||||
| LOSS PER SHARE - BASIC & DILUTED | $ | (0.01 | ) | $ | (0.83 | ) | $ | (0.02 | ) | $ | (1.32 | ) | ||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 7,781,004 | 4,433,764 | 6,561,604 | 3,466,916 | ||||||||||||||||||
4
| (An Exploration Stage Company) |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| From Inception | ||||||||||||||
| on August 1, | ||||||||||||||
| For the Nine Months Ended | 2007 through | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2013 | 2012 | 2013 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net loss | $ | (121,438 | ) | $ | (4,591,711 | ) | (149,487,917 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||
| Bad debt expense | - | - | 192,000 | |||||||||||
| Depreciation and amortization | 6,425 | 24,570 | 163,996 | |||||||||||
| Stock issued for option cancellation | - | - | 115,201 | |||||||||||
| Stock issued for rent | - | 100,000 | 137,500 | |||||||||||
| (Gain) on debt settlement | (165,220 | ) | - | (229,085 | ) | |||||||||
| (Gain)/Loss on marketable securities | (557 | ) | - | 40,075 | ||||||||||
| 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 | 84,401 | 3,717,144 | 93,790,749 | |||||||||||
| Imputed interest on loan | 10,080 | 10,080 | 49,407 | |||||||||||
| Loss on diposal of fixed assets | - | - | 2,915 | |||||||||||
| Amortization of debt discount | - | 70,834 | 175,000 | |||||||||||
| Change in operating assets and liabilities, net of acquisition: | ||||||||||||||
| (Increase) decrease in current assets | (11,209 | ) | (11,209 | ) | ||||||||||
| Increase (decrease) in accounts payable and accrued expenses | 149,964 | 576,368 | 4,017,196 | |||||||||||
| Net Cash Used in Operating Activities | (47,554 | ) | (92,715 | ) | (3,385,094 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Cash advanced on note receivable | - | - | (192,000 | ) | ||||||||||
| Cash received in acquisition | - | - | 44,303 | |||||||||||
| Cash paid for investments | - | (95,256 | ) | (95,256 | ) | |||||||||
| Cash received from sale of investments | 28,561 | 28,561 | ||||||||||||
| Purchases of property and equipment | (6,584 | ) | - | (175,894 | ) | |||||||||
| Net Cash provided by (used in) Investing Activities | 21,977 | (95,256 | ) | (390,286 | ) | |||||||||
| 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 | 94,840 | 132,000 | 842,700 | |||||||||||
| Cash paid on notes payable | (12,000 | ) | (12,000 | ) | ||||||||||
| Cash paid to related party loans | (120,488 | ) | (80,775 | ) | (696,921 | ) | ||||||||
| Cash received from related party loans | 74,826 | 111,229 | 1,890,127 | |||||||||||
| Net Cash Provided by (Used in) Financing Activities | 37,178 | 187,454 | 3,786,981 | |||||||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 11,601 | (517 | ) | 11,601 | ||||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | - | 517 | - | |||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 11,601 | $ | - | $ | 11,601 | ||||||||
| 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 | ||||||||
| Note discount of beneficial conversion feature | $ | - | $ | 100,000 | $ | 100,000 | ||||||||
| Unrealized (gain)/ loss on marketable securities | $ | (23,611 | ) | $ | - | $ | (23,611 | ) | ||||||
| Conversion of Accrued interest | $ | 97,321 | $ | - | $ | 97,321 | ||||||||
| Stock issued to settle accounts payable | $ | 204,081 | $ | - | $ | 204,081 | ||||||||
| Contribution to capital from officers | $ | 3,108,133 | $ | - | $ | 3,108,133 | ||||||||
| Non-cash recording of deferred revenue | $ | 6,807 | $ | - | $ | 6,807 | ||||||||
5
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 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 September 30, 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 September 30, 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 third quarter 2013 that would have a material effect on the accounting policies of the Company when adopted.
6
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2013
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.
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.
The asset retirement obligation is as follows:
| 9/30/2013 | 12/31/2012 | |||||||
| Previous Balance | $ | 3,419 | -0- | |||||
| Increases/(decreases) current quarter | 5,314 | -0- | ||||||
| Ending Balance | $ | 8,733 | $ | -0- | ||||
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, September 30, 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 September 30, 2013:
| Balance at December 31, 2012: | $ | 54,624 | ||
| Sale of FB shares | (28,004 | ) | ||
| Change in market value at September 30, 2013 | 23,612 | |||
| Balance at September 30, 2013: | $ | 50,232 |
The Company realized cash in the amount of $28,561 from the sale of marketable securities during the 2nd quarter 2013, and recognized a gain on the sale of $557.
7
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 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:
| ο | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ο | 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. |
| ο | 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 September 30, 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 September 30, 2013 and December 31, 2012:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Marketable Securities – 2013 | 50,232 | -0- | -0- | |||||||||
| Marketable Securities – 2012 | 54,624 | -0- | -0- | |||||||||
| Notes payable - 2013 | -0- | -0- | 1,660,565 | |||||||||
| 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 September 30, 2013 and December 31, 2012:
| Notes payable | ||||
| Balance, December 31, 2012 | $ | 785,860 | ||
| Purchases, sales, issuances and settlements (net) | 874,705 | |||
| Balance, September 30, 2013 | $ | 1,660,565 | ||
8
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2013
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, NetThruster, Inc., BioEnergy Applied Technologies Inc., GoHealthMD, Inc., MLN, 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 except TTII Oil & Gas, Inc., 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 September 30, 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 2013 and 2012, no common equivalent shares were excluded from the calculation and as of September 30, 2013, there are not stock equivalents existing. The ESOP shares issued during 2012 and 2011 have also been excluded from the calculation as they were issued but not outstanding.
For the Nine Months EndedSeptember 30, 2013 | For the Nine Months Ended September 30, 2012 | |||||||
| Income (Loss) (numerator) | $ | (121,438 | ) | $ | (4,591,711 | ) | ||
| Shares (denominator) | 6,561,604 | 3,466,916 | ||||||
| Basic and diluted income (loss) per share | $ | (0.02 | ) | $ | (1.32 | ) | ||
For the Three Months Ended September 30, 2013 | For the Three Months Ended September 30, 2012 | |||||||
| Income (Loss) (numerator) | $ | (53,533 | ) | $ | (3,682,956 | ) | ||
| Shares (denominator) | 7,781,004 | 4,433,764 | ||||||
| Basic and diluted income (loss) per share | $ | (0.01 | ) | $ | (0.83 | ) | ||
9
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2013
Revenue Recognition
Service Fees
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.
Oil and Gas Revenues and Deferred Revenue
Revenue from sales of crude oil are recorded when deliveries have occurred and legal ownership of the commodity transfers to the customer. Title transfers for crude oil generally occur when a tanker lifting has occurred. Oil inventory in holding tanks at the period end are recorded as deferred revenue prior to tanker lifting.
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.
Oil & Gas Inventory
The Company accounts for the oil & gas extracted from the ground and held in holding tanks prior to pickup and sale as oil & gas inventory. It is computed using the measurement of barrels and is multiplied with the published oil purchase price from the customer that picks up and purchases our oil.
NOTE 4 - RELATED PARTY TRANSACTIONS
The balance due to related parties as of September 30, 2013 of $676,749 consisted of current and long term notes payable to David Reichman, the Company’s Chief Executive Officer of $470,079 and current and long term notes payable to Kathy Griffin, the Company’s President of $206,670. 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 nine month period ended September 30, 2013, Mr. Reichman advanced the company $74,826 and was repaid $120,488. The amounts due to the officers are due on June 30, 2014 in the amount of $17,795, and $658,991 due on December 31, 2015. The notes bear interest at 5%, monthly installments on the long-term notes in the amount of $4,000 on each note, begins January 1, 2015. Interest on various credit cards of Mr. Reichman, are being accrued at the applicable rates on the credit card accounts. The difference between the new note balances and the old liabilities of $3,108,133 was recorded to additional paid in capital due to the related party nature of the transaction.
On June 30, 2013, the Company negotiated the previous accrued wages, advances and expenses of David Reichman, CEO and Kathy Griffin, President, into long-term notes and short-term notes. Mr. Reichman and Mrs. Griffin, have negotiated down their liabilities in an attempt to make the Company more attractive to future investors and to make the Company more financially fit going forward. With the Company’s new direction as an oil and gas entity, it was necessary to clear away the old obligations and start anew. Because David and Kathy are major shareholders and officers/directors, accounting regulations require that these debt settlements not be recognized as income, or gains from debt settlement, but rather are recorded as shareholder contributions to capital. Mr. Reichman’s settlement included all liabilities being converted into a long-term note of $500,000 and a short-term note of $25,000. Mrs. Griffin’s liabilities were converted into a long-term note of $200,000 and a short-term note of $10,000. The difference between the new note balances and the old liabilities of $3,108,133 was recorded to additional paid in capital due to the related party nature of the transaction.
10
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2013
NOTE 5 - NOTES PAYABLE
| (a) | NOTES PAYABLE |
Notes payable consist of various notes bearing interest at rates from 5% to 7%, which are unsecured, with original due dates between August 2000 and December 2015. Four notes with maturity dates that have passed are currently in default with the remaining note due on dates as specified below. At September 30, 2013 and 2012, notes payable amounted to $1,660,565 and $597,860, respectively. Below is a table summarizing the notes owed by the Company.
| Interest | Interest Expense | Interest Expense | |||||||||||||
| Principal | Rate | 9/30/2013 | 9/30/2012 | Maturity | |||||||||||
| $ | 192,000 | 0 | % | 10,080 | 10,080 | On Demand(1) | |||||||||
| 18,000 | 6.00 | % | 810 | 810 | 9/1/2002 | ||||||||||
| 30,000 | 6.00 | % | 1,350 | 1,350 | 9/12/2002 | ||||||||||
| 25,000 | 5.00 | % | 939 | 939 | 8/31/2000 | ||||||||||
| 40,000 | 7.00 | % | 2,100 | 2,100 | 7/10/2002 | ||||||||||
| 19,000 | 6.00 | % | 855 | - | 8/13/2013 | ||||||||||
| 5,000 | 6.00 | % | 175 | - | 10/28/2013 | ||||||||||
| 10,000 | 6.00 | % | 341 | - | 11/16/2013 | ||||||||||
| 7,000 | 6.00 | % | 168 | - | 1/15/2014 | ||||||||||
| 16,640 | 5.00 | % | 355 | - | 1/15/2014 | ||||||||||
| 388,376 | 5.00 | % | 5,121 | - | 12/31/2015 | ||||||||||
| 100,000 | 5.00 | % | 1,318 | - | 12/31/2015 | ||||||||||
| 32,960 | 5.00 | % | 435 | - | 12/31/2015 | ||||||||||
| 32,746 | 5.00 | % | 431 | - | 12/31/2015 | ||||||||||
| 5,099 | 5.00 | % | 67 | - | 12/31/2015 | ||||||||||
| 458,991 | 5.00 | % | 5,452 | - | 12/31/2015 | ||||||||||
| 200,000 | 5.00 | % | 2,500 | - | 12/31/2015 | ||||||||||
| 11,125 | 5.00 | % | 937 | - | 06/30/2014 | ||||||||||
| 6,670 | 5.00 | % | 83 | - | 06/30/2014 | ||||||||||
| 6,000 | 6.00 | % | 84 | - | 03/03/2014 | ||||||||||
| 30,000 | 6.00 | % | 231 | - | 03/24/2014 | ||||||||||
| 8,200 | 6.00 | % | 105 | - | 03/12/2014 | ||||||||||
| $ | 1,660,565 | 33,937 | 15,279 | ||||||||||||
Note payable activity in the nine months ended September 30, 2013:
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.
During the 2nd quarter, a director and shareholder advanced $7,000 and received a note payable, bearing interest at 6%, unsecured and due in 8 months. Also during the quarter an individual advanced $28,640 and received a note bearing interest at 5%, unsecured and due in 8 months.
During the 3rd quarter, a director and shareholder advanced $6,000 and received a note payable, bearing interest at 6%, unsecured and due in 8 months. Also during the quarter a trust advanced $30,000, and an individual advanced $8,200, both received a note bearing interest at 6%, unsecured and due in 8 months.
During the nine months ended September 30, 2013, we also negotiated $3,843,133 in officer debt into long-term notes payable of $700,000 and short term notes of $35,000 and the remaining difference of $3,108,133 was a contribution to capital, due to the related party nature of the transaction. We also renegotiated $509,294 in notes payable and accrued interest into long term notes due December 31, 2015. Our current portion of this long-term debt is $45,641. There was no gain or loss on the conversion of these notes with accrued interest, because the old note balances with the associated accrued interest was combined and reclassified to long term debt.
| (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 third party 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 June 30, 2013 and December 31, 2012 was $0 and $100,000, respectively.
On June 26, 2013 this convertible note was renegotiated, and a non-convertible note was signed, bearing interest at 5%, with monthly payments beginning 1/1/2014, due on December 31, 2015.
11
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 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 June 30, 2013 and have been recorded as a stock payable contra-equity account on the financial statements. The share were valued at the market price on the day of grant of $22,181.
During each of the three quarters ended September 30, 2013, the Company recorded imputed interest on a non-interest bearing note in the amount of $3,360 per quarter, with an increase in paid in capital.
On June 20, 2013, the Board of Directors, authorized the issuance of 194,304 shares of common stock for the conversion of accounts payable in the amount of $204,081. The transaction was recorded at the market price of the stock on the day of issuance of $.20 per share. A gain on the settlement of this debt was recorded in the amount of $165,220.
On June 30, 2013, in connection with the settlement of the officer debt as described in the notes payable disclosure above, a contribution to paid in capital was recorded in the amount of $3,108,133.
On July 5, 2013, the officers of the company converted $17,205 of debt into 1,550,000 shares of common stock. No gain or loss was recorded in connection with this issuance, because the market value of the shares issued was equal to the amount converted.
Also on July 5, 2013, the board of directors authorized the issuance of 200,000 shares to the directors of the Company. The issuance was valued at $2,220, the market value of the stock on the day of issuance.
During the nine months ended September 30, 2013, the Company did not issue any stock options or warrants.
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, however the charges against the officers were subsequently dismissed with prejudice. A motion was also passed denying GeoGreen's motion to strike TTII's request for punitive damages.
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 |
12
TREE TOP INDUSTRIES, INC.
(An Exploration Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2013
(Unaudited)
| ● | 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.
During the nine months ended September 30, 2013, the company made application to the State of Kansas for recognition as a 75% working interest holder and was granted the right to continue oil production. It was determined that mechanic liens do not attach to the oil in the ground, or prevent the working interest holders from continuing operations. The Company, therefore, commenced the oil & gas operations once approval from the State was received.
During the nine months ended September 30, 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. At September 30, 2013, the company had extracted 600 barrels of oil. The Company recorded oil & gas inventory and deferred revenue on their books to reflect the oil extracted not yet delivered. The Company will have additional maintenance to perform on additional wells and water pumping systems, in order to bring all wells online.
NOTE 9 – GAIN ON SETTLEMENT OF TRADE PAYABLES
On June 20, 2013, the board of Directors, authorized the issuance of 194,304 shares of common stock for the conversion of accounts payable due to for professionals that previously worked for or are currently working for the Company. The accounts payable in the amount of $204,08 was negotiated and settled for the issuance of common stock. The share issuance was recorded at the market price of the stock on the day of issuance at $.20 per share, which resulted in a gain on the settlement of this debt in the amount of $165,220.
NOTE 10 – 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: NONE.
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Cautionary Statements
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-Q. 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-Q. 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 |
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.
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Organizational History
We were incorporated on July 24, 1980 under the laws of the State of Nevada under the name of Western Exploriation, Inc. 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. NetThruster, 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. are also wholly owned subsidiaries of Tree Top Industries, Inc. Several of these subsidiaries have been formed by us in the anticipation of technologies, products or services being acquired. Not all subsidiaries are currently active.
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 shares were valued at $1.10 per share, based on the weighted average trading price of the common stock over the ten trading days prior to the Closing Date. The assets purchased from ARUR include a 75% working interest in oil and gas leases in Kansas, as well as other oil field assets, a natural gas pipeline, currently shut down that is also located in Kansas, 25% interest in three other business entities operating in Kansas, and accounts receivables from two companies operating in Brazil in the amounts of $3,600,000 and$3,600,000 respectively. TTII Oil & Gas, Inc. also purchased three promissory notes in the amounts of $100,000, $100,000 and $350,000, as well an overdue contract for revenue in the amount of $1,000,000. Finally, a gun sight patent was also acquired from Century Technologies, Inc. TTII Oil & Gas, Inc. intends to pursue more opportunities in Kansas to expand the current leases, and to agressively continue pumping oil from the thirteen currently operating wells. At the same time, both Tree Top Industries, Inc. and TTII Oil & Gas, Inc. intend to aggressively pursue the two companies located in Brazil, who are responsible for the over $7,000,000 dollars in monies owed to TTII Oil & Gas, Inc.
Tree Top will pursue the oil and gas leasing production business they have acquired and will look to expand our oil and gas leasing business and a mining business on other properties in the United States.
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 September 30, 2013 and for the nine months then ended.
Overview of Business
The Company has recently begun it's oil and gas operations. It specializes in the utilization of modern technologies with known resources to enhance project output. The company has a working interest of 75% of a lease in S.E. Kansas. This lease has approximately 13 working wells and a natural gas pipeline that is currently shut down, that is also located in Kansas.
In May of 2013, TTII Oil and Gas Inc. with the help of its Operator, Randy Clark, opened up the wells on the Ownbey Lease for production. Upon opening up the lease for production, TTII Oil & Gas, Inc.’s Operator ran into several problems with the lease. It came to the company’s attention that the previous Operator, Aesir Energy Inc., owned and operated by Eric Oden, (son to the previous President and CEO, Fred Oden III, of American Resource Technologies, Inc.) had left the lease in sub-standard condition. Due to this fact, many repairs had to be made to the equipment on the lease that kept the company from being able to get the full benefit of the lease. As of the end of September, 2013, the wells produced approximately 600 barrels of oil.
TTII Oil & Gas, Inc. intends to pursue more opportunities in Kansas to expand the current leases, and to agressively continue pumping oil from the thirteen currently operating wells. At the same time, both Tree Top Industries, Inc. and TTII Oil & Gas, Inc. intend to aggressively pursue the two companies located in Brazil, who are responsible for the over $7,000,000 dollars in monies owed to TTII Oil & Gas, Inc.
15
Competitors
There are many competitors in the oil and gas industry that are larger than us and have better resources.
Suppliers and Customers
We have hired an operator who operates and services our wells. When our crude oil reaches a certain level, the operator orders a pickup by our local crude oil purchaser, who pickups up and delivers our crude oil to a refinery. We have only one company that currently purchases our crude oil, therefore we have a concentration risk attached to our revenue stream. Because there are several other crude oil purchasers in our region, we believe this risk will not affect our oil and gas operations.
Government and Environmental Regulation
Governmental authorities may in the future impose obstacles to the production and sale of oil and gas through laws or regulations. Recent tax and energy legislation has been enacted, the total effect of which is not yet known. Various types of mineral properties have come under attack in certain areas because of their potential impact upon the surrounding environment. Therefore, leases or production in which we may have an interest could be adversely affected by either governmental regulations or private litigation involving such environmental concerns. We are not able to predict the outcome of such controls, regulations or laws on its operations or on the operations of the Company.
Intellectual Property
Pursuant to the ARUR acquisition, the Company acquired a 25% ownership in an Oklahoma corporation that designed a new software for gamma ray survey interpretation. This new software interprets data accumulated during aerial or surface surveys and provides a 3D blueprint of the areas with the highest concentration of hydrocarbons and/or uranium, dependent upon the algorithm application. This intellectual property is not a significant asset of our business.
Employees
As of November 15, 2013, we have 2 full-time employees. We have not experienced any work stoppages and we consider relations with its employees to be good.
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012:
Tree Top Industries, Inc. has begun to generate continuous revenue for the first time since inception of the development stage on August 1, 2007. We realized revenues of $42,552 during the three months ended September 30, 2013 and -0- during the three months ended September 30, 2012. We also continue to recorded deferred revenue for oil that was extracted during the quarter ended September 30, 2013, and was in our holding tanks but was not sold. We therefore, have oil & gas inventory which was picked up and sold in Q4. Oil extraction will continue as a steady source of revenue going forward. Our oil operations expenses are now being reported and totaled $25,357 for the three months ended September 30, 2013 compared to -0- in the comparative quarter last year. Our general operating expenses decreased from $3,229,371 in 2012 to $69,435 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 $146,532 to $35,720 or 76%. Compensation and professional fees decreased by $3,066,996, due to the decrease in officer wages and stock based compensation given to employees and others. Depreciation expense decreased from $8,191 to $706.
Our net loss decreased by $3,629,423 from $(3,682,956) in 2012 to a loss of $(53,533) in 2013. The primary reason for this improvement was the decrease in expenses as disclosed above and the commencement of our oil and gas operation which generated revenues. This translates to an $.82 increase in earnings per share from $(0.83) in 2012 to $.(01) in 2013. Included in our net income (loss) was $2,220 and $3,014,286 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 income (loss) would have been $(51,313) and $(668,670), respectively. We expect that our losses will continue to be approximately $20,000 per month until we are able to establish a larger revenue flow from our oil & gas leases.
Results of Operations for the Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012:
We realized revenues of $42,552 during the nine months ended September 30, 2013 and -0- during the nine months ended September 30, 2012, as our oil and gas operations have commenced. Oil extraction will continue as a steady source of revenue going forward. Our oil extraction costs totaled $29,619 for the nine months ended September 30, 2013, compared to -0- for the same period in 2012. Our general operating expenses decreased from $4,074,372 in 2012 to $275,435 in 2013. The decrease was primarily the result of a decrease in compensation expenses and stock based compensation to officers, directors and consultants. General and administrative expenses decreased from $222,948 to $81,995 or 63%. Compensation and professional fees decreased by $3,669,456 due to the decrease in officer wages and stock based compensation given to employees and others. Depreciation expense decreased from $24,572 to $6,425.
Our net loss decreased by $4,470,273 from $(4,591,711) in 2012 to $(121,438) in 2013. The primary reason for this improvement was the recording of $165,220 gain on the settlement of accounts payable for common share, the decrease in expenses as disclosed above and the commencement of our oil and gas revenue stream. This translates to a $1.30 decrease in loss per share from $(1.32) in 2012 to $(.02) in 2013. Included in our net loss was $84,401 and $3,717,144 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 income (loss) would have been $(37,037) and $(874,567), respectively. We expect that our losses will continue to be approximately $20,000 per month until we are able to establish a larger revenue flow from our oil & gas leases.
16
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2013 we had cash on hand of $11,601 compared to $-0- at September 30, 2012. We used cash in our operations of $(47,554) in 2013 compared to cash used of $(92,256) in 2012, a 52% improvement. We sold a portion of our marketable securities and generated $28,561 in proceeds. 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 (paid back)/raised $(45,662) and $30,454 from related party loans in 2013 and 2012, and $82,840 and $132,000 from other notes payable, respectively. We anticipate that we will continue to have a negative cash flow from operations of approximately $15,000 per month for 2013. We do not have sufficient cash on hand at September 30, 2013 to cover our negative cash flow. We will attempt to increase our revenues from oil & gas extraction and raise capital through the sale of our common stock or through debt financing.
During the quarter ended June 30, 2013, the Company successfully negotiated the conversion of $204,081 in accounts payable into shares of common stock. A gain of $165,220 was realized on the settlement of the trade payables. We also negotiated 3,843,133 in officer debt into long-term notes payable of $700,000 and short term notes of $35,000. and the remaining difference of $3,108,133 was a contribution to capital, due to the related party nature of the transaction. We also renegotiated $509,294 in notes payable and accrued interest into long term notes. Our current portion of this long-term debt is $84,901.
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, and the statute of limitations has been exceeded for the creditors to seek legal action. Tree Top believes that these obligations will not be satisfied in the future because the statute of limitations has been exceeded, but is not allowed to remove them from our books and records due to accounting regulations.
During the nine months ended September 30, 2013, the Company successfully decrease our working capital deficit from $(5,701,542) to $(1,372,024), an improvement of 76%. If the old payables and notes that have exceeded the statute of limitations were removed from the calculation, the working capital deficit would be $(921,024), an 84% decrease.
Any remedy to our current lack of liquidity must take into account all the foregoing liabilities. Tree Top intends to continue its pursuit to increase revenues from our oil generating leases, and as necessary, 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 current note holders, 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 $(1,372,024) 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.
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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 September 30, 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 September 30, 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.
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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, however the charges against the officers were subsequently dismissed with prejudice. A motion was also passed denying GeoGreen's motion to strike TTII's request for punitive damages.
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.
The following shares of common stock were issued during the nine months ended September 30, 2013 without registration:
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 June 30, 2013 and have been recorded as a stock payable contra-equity account on the financial statements. The share were valued at the market price on the day of grant of $22,181.
On June 20, 2013, the Board of Directors, authorized the issuance of 194,304 shares of common stock for the conversion of accounts payable in the amount of $204,081. The transaction was recorded at the market price of the stock on the day of issuance of $.20 per share. A gain on the settlement of this debt was recorded in the amount of $165,220.
On June 30, 2013, in connection with the settlement of the officer debt as described in the notes payable disclosure above, a contribution to paid in capital was recorded in the amount of $3,108,133.
On July 5, 2013, the officers of the company converted $17,205 of debt into 1,550,000 shares of common stock. No gain or loss was recorded in connection with this issuance, because the market value of the shares issued was equal to the amount converted.
Also on July 5, 2013, the board of directors authorized the issuance of 200,000 shares to the directors of the Company. The issuance was valued at $2,220, the market value of the stock on the day of issuance.
There were no share issuances for cash during the nine months ended September 30, 2013.
| The Company has the following note payable obligations in default: | ||||
| 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 | $ | 305,000 | ||
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.
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Not Applicable
3. Exhibits
| 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 |
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_________________
| (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 |
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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: November 14, 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: November 14, 2013 | |
| David Reichman, Chairman of the Board, Chief | |||
| Executive Officer, Chief Financial Officer | |||
| and Principal Accounting Officer | |||
| By: | /s/ Kathy M. Griffin | Dated: November 14, 2013 | |
| Kathy M. Griffin, Director, President | |||
| By: | /s/ Frank Benintendo | Dated: November 14, 2013 | |
| Frank Benintendo, Director & Secretary | |||
| By: | /s/ Donald Gilbert, Phd. | Dated: November 14, 2013 | |
| Donald Gilbert, Director & Treasurer |
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