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

 
FORM 10-K
 
 
 

 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2009
 
Commission file number : 000-10210
 
 
 

TREE TOP INDUSTRIES, INC.
 
 
 

 
     
Nevada
 
83-0250943
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
511 Sixth Avenue, Suite 800, New York, New York
 
10011
(Address of principal executive offices)
 
(Zip Code)
     
 
(775) 261-3728
 
 
  Registrant’s telephone number, including area code:
 
 
 
Securities Registered Pursuant to Section 12(b) of the Act: None
 
Securities Registered Pursuant to Section 12(g) of the Act:
 
Common Shares, par value $0.001 per share
(Title of class)
 
 
 

 
 

 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨       No     x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨       No     x
 
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 past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes    √        No    ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K .  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (all as defined in Rule 12b-2 of the Act).
 

 
             
Large Accelerated filer
 
¨
  
Accelerated filer
 
¨
       
Non-accelerated filer
 
¨
  
Smaller reporting company
 
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No     x
 
The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $36,284,768 as of June 30, 2009 (computed by reference to the last sale price of a share of the registrant’s common stock on that date as reported by Financial Industry Regulatory Authority Bulletin Board).

There were 130,994,100 shares outstanding of the registrant’s common stock as of March 31, 2010.
 
 
 
 

 
 
  Table of Contents 
     
   
     
 Business 
 1
     
 Properties 
 5
     
 Legal Proceeding 
 5
     
 Submission of Matters to a Vote of Security Holders
 5
     
   
     
 Market for the Registrant's Common Equity and Related Shareholder Matters and Issuer Purchase of Equity Securities
 5
     
 Selected Financial Data
 6
     
 Management's Discussion and Analysis of Financial Condition and Results of Operations
 6
     
 Financial Statements and Supplementary Data
 9
     
   
     
 Controls and Procedures
 32
     
 Directors and Executive Officers of the Registrant
 34
     
 Executive Compensation
 38
     
 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
 40
     
 Certain Relationships and Related Transactions
 41
     
 Principal Accounting Fees and Services
 41
     
 Exhibits, Financial Statements Schedules
 42
     
 
 43
     
 
 Certifications
 44
 
 
 
 

 
 

 
 
PART I

ITEM 1.        BUSINESS
 
General

Tree Top Industries, Inc. (“TTI”, “Tree Top”, “we”. “our”, “us”, “the Company”, “management”) is a Nevada corporation that owns 100% of the issued and outstanding stock of BioEnergy Applied Technologies, Inc.   (“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.  The Company also owns NetThruster, Inc., a Nevada corporation (“NetThruster”), which was formally known as Ludicrous, Inc. (“Ludicrous”).  Tree Top was previously known as GoHealth.MD, Inc. (“GoHealth”).  GoHealth was incorporated in Nevada in May 2000.  GoHealth was a web based resource provider for certain alternative health-care oriented professionals. In January 2002, GoHealth. ceased these operations. Tree Top continued to exist as a public company with no active operations until 2007.  

Effective August 12, 2009, Tree Top completed a stock exchange with BAT, BioEnergy Systems Management Inc., Wimase Limited and Energetic Systems Inc., LLC.  Tree Top acquired all of the issued and outstanding shares of BAT.  BAT is now a wholly-owned subsidiary of Tree Top. Tree Top issued 3,500,000 shares of its common stock, par value $.001 per share, to the Stockholders in exchange for the transfer of all of the issued and outstanding shares of common stock of BAT by the 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.
 


History

Effective October 19, 2007, TTI entered into an Agreement and Plan of Reorganization (the “Agreement”) with all of the stockholders of Ludicrous,, pursuant to which TTI agreed to acquire all of the issued and outstanding common stock of Ludicrous from the stockholders in consideration for the issuance of a total of 68,000,000 newly issued shares of TTI’s common stock, allocated among the stockholders of Ludicrous on a pro rata basis.  Accordingly, after the closing of the stock exchange on November 1, 2007 as contemplated by the Agreement, Ludicrous became a wholly owned subsidiary of TTI, and the prior shareholders of Ludicrous became the majority shareholders of TTI.  In the Agreement, the stockholders of Ludicrous agreed to confer upon a designee of TTI, voting power over their shares of TTI’s common stock acquired by them for a period equal to the lesser of (i) two years or (ii) the sale of the common stock by the stockholder in accordance with Rule 144 of the Securities Act of 1933.  However, the shares of the two (2) largest stockholders, James Black, and The Davis Family, who held an aggregate of over 80% of the issued and outstanding shares of common stock of Ludicrous, were each required to execute a two (2) year lock-up agreement. The business combination between TTI and Ludicrous closed on November 1, 2007, and David Reichman, the Chief Executive Officer of TTI, was designated by TTI to be the voting trustee for 68,000,000 outstanding shares of TTI currently owned by the prior stockholders of Ludicrous.  Subsequently, due to the departure of James Black and the non-development and deployment of the technology, approximately 72% or 49,000,000 shares were cancelled and or returned to the company.


 

 
1

 
 
On April 24, 2009, Tree Top entered into a stock exchange agreement (the "Exchange Agreement") with BAT, BioEnergy Systems Management Inc ., Wimase Limited and Energetic Systems Inc., LLC.  Under the terms of the Exchange Agreement, the Company agreed to acquire, all of the issued and outstanding shares of BAT.   The acquisition resulted in BAT becoming a wholly-owned subsidiary of the Company . The Exchange Agreement called for the issuance of a total of 3,500,000 shares of common stock of the Company, par value $.001 per share, in exchange for the transfer of all of the issued and outstanding shares of common stock of BAT to the Company.

BAT is the originator and incubator of environmentally friendly technologies useful in the areas of energetic materials, chemicals and chemical processes, gasification, and the safe and novel destruction of biological and other hazardous wastes.  The Company has been focused on the incubation growth and commercialization of novel technology platforms designed to address the fundamental limitations of many of today’s technologies and businesses.  The Company and the newly announced acquisition will seek to provide key technologies to the biofuels sector, designed to help make biofuels more cost effective and of a higher quality.

BAT is also 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.

BAT was acquired by Tree Top in August of 2009 in order 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.


 
Research and Development

Although our staff is limited, we continue to monitor new developments and any emerging technologies.

Intellectual Property

Our success depends in part upon our ability to protect our core technology and other intellectual capital. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights, trademarks, domain registrations and contractual protections.

With the acquisition of BAT, Tree Top acquired fifteen (15) intellectual properties pertaining to the construction of the mobile configuration and operation of the glyd-arc medical waste destruction unit, as well as an enhanced configuration and novel method for coal gasification .


As of December 31, 2009, Tree Top had received no patents in the United States and no patents in foreign jurisdictions.  We have no pending patent applications in the United States and no pending patent applications in foreign jurisdictions.  We had received no trademarks and had no pending trademark applications in the United States. We had no pending trademark applications in foreign countries and no non-U.S. trademark applications had been issued.

We generally control access to and use of our software and other confidential information through (a) the use of internal and external controls, including physical and electronic security, contractual protections with employees, contractors, customers and partners, and (b) domestic and foreign copyright laws.

Government Regulation

BAT

According to the Environmental Protection Agency (“EPA”), no registration of the BAT system is required because the waste destruction process does not involve incineration.  Incineration processes are subject to regulation by the EPA.  However, any hazardous waste destruction system that is constructed will be subject to the state laws and regulations where the system is located, as well as any regulations pertaining to the storage, transporting and/or destroying hazardous waste.   BAT is also subject to government laws and regulations governing health, safety, working conditions, employee relations, wrongful termination, wages, taxes and other matters applicable to businesses in general. 

 
 
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NetThruster

NetThruster is subject to various federal, state and local laws affecting the telecommunications and Internet industries.  Laws and regulations that apply to communications and commerce conducted over the Internet are becoming more prevalent, both in the United States and internationally, and may impose additional burdens on companies conducting business online or providing Internet-related services such as ours The laws relating to the liability of private network operators for information carried on or disseminated through their networks are unsettled, both in the United States and abroad. Network operators have been sued in the past, sometimes successfully, based on the content of material disseminated through their networks. The Federal Trade Commission and equivalent state agencies regulate advertising and representations made by businesses in the sale of their products, which apply to us.  NetThruster is also subject to government laws and regulations governing health, safety, working conditions, employee relations, wrongful termination, wages, taxes and other matters applicable to businesses in general. 

Competition

BAT

There are currently no direct competitors offering this new and novel technology into the waste destruction market.   The major companies that deal in hazardous waste management are companies such as Waste Management, Inc.  Those companies treat, haul and store hazardous waste in landfills across the country.  Some companies destroy hazardous waste, or any carbon based waste in general, through incineration, which produces a significant carbon footprint and can be as expensive as the storing model.  The BAT technology would destroy the hazardous waste completely through the use of a chemical process, which involves minor energy output to begin, and produces no carbon footprint at the end.  The competitive disadvantage for the BAT process is that it is uncommercialized technology at present, which makes the process of acquiring adequate funding more difficult.

NetThruster

The content delivery network market is highly competitive and is characterized by constantly declining prices and multiple types of vendors offering varying combinations of computing and bandwidth to content providers. A few of our current competitors, as well as a number of our potential competitors, have longer operating histories, greater name recognition, broader customer relationships and industry alliances, and substantially greater financial, technical and marketing resources than we do. Our primary competitors include content delivery service providers such as Limelight Networks, Akamai, Level 3 Communications and Internap Network Services Corporation, which acquired VitalStream. Also, as a result of the growth of the content delivery market, a number of companies are attempting to enter the market, either directly or indirectly, some of which may become significant competitors in the future. Internationally, we compete with local content delivery service providers, many of which are very well positioned within their local markets.

We believe that the principal competitive factors affecting the content delivery market include such attributes as:

 
 
Performance, as measured by file delivery time and end-user media consumption rates;
   
 
 
Scalability; both in terms of average capacity and special event capacity;
   
 
 
Proprietary software designed to efficiently locate and deliver large media files;
   
 
 
Ease of implementation;
   
 
 
Flexibility in designing delivery systems for unique content types and mixes;
   
 
 
Reliability; and
   
 
 
Cost efficiency.
    
Because of the above situation, our continued inability to raise sufficient capital and our focus on the BAT technology, we have decided to place further development of the NetThruster technology on hold at this time.

  Employees

As of December 31, 2009, we employed two people on a full-time basis.   Both employees are in executive positions. We project that during the next 12 months, our workforce is likely to increase.  To support our need for technical staffing, we have established relationships with technical staffing organizations that continuously offer qualified personnel to meet our requirements.

Seasonality

Our operations are not expected to be affected by seasonal fluctuations, although our cash flow may be affected by fluctuations in the timing of cash receipts from our potential future customers.
 
 
 
3

 
 
ITEM 2.        PROPERTIES

Currently, TTI does not lease, rent or own any property.  
 
ITEM 3.        LEGAL PROCEEDINGS
 
TTI has filed suit in United States District Court against Dr. Steven Hoefflin for libel. The suit seeks redress in the form of enjoining the shareholder from any further harassment and in the form of damages from the shareholder and others who have allegedly abetted the shareholder’s actions.  This case was dismissed in New York and we are currently evaluating if it would be productive to file the claim in the Los Angeles County Federal Court.  In addition, we have recently become aware this same shareholder has filed a third party cross complaint against TTI and one of its officers, in Los Angeles Superior Court. TTI is confident of prevailing in this suit although there is no assurance regarding the results of litigation.
 
ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 

PART II
 
ITEM 5.        MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
 
TTI’s common stock is quoted through the over-the-counter market on the Financial Industry Regulatory Authority Bulletin Board (“OTC Bulletin Board”) under the symbol “TTII.”  Limited trading has occurred over the past several years.  The following table sets forth high and low sales prices of TTI common stock for each fiscal quarter for the last two fiscal years as reported by the OTC Bulletin Board, based on closing prices.  The prices in the table reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
 
Year Ended December 31, 2008
High
 
Low
 
         
First Quarter ended March 31, 2008
  $ 16.00     $ 5.75  
Second Quarter ended June 30, 2008 
  $ 15.00     $ 2.00  
Third Quarter ended September 30, 2008
  $ 8.75     $ 2.00  
Fourth Quarter ended December 31, 2008
  $ 4.00     $ 0.27  
                 
Year Ended December 31, 2009
 
High
  Low  
                 
First Quarter ended March 31, 2009
  $ 3.00     $ 0.20  
Second Quarter ended June 30, 2009
  $ 0.52     $ 0.20  
Third Quarter ended September 30, 2009
  $ 10.01     $ 0.52  
Fourth Quarter ended December 31, 2009
  $ 2.20     $ 0.52  
 
As of March 31, 2010, there were approximately 824 record holders of TTI’s common stock, not including shares held in “street name” in brokerage accounts which are unknown. As of March 31, 2010, there were approximately 130,994,100 shares of TTI’s common stock outstanding on record.
 
 
 
4

 
 
Dividends

TTI has not declared or paid any cash dividends on its common stock and do not anticipate paying dividends for the foreseeable future.

Transfer Agent and Registrar

The transfer agent and registrar for TTI’s common stock is ComputerShare Trust, 350 Indiana Street, Suite 800, Golden, Colorado 80401, telephone 303-262-0600 extension 5723.

Repurchases of Our Securities

None of the shares of our common stock were repurchased during the fiscal quarter ended December 31, 2008.

Sales of Our Unregistered Securities During 2009 Not Previously Disclosed

None.

ITEM 6.                      SELECTED FINANCIAL DATA

Balance Sheet
 
   
December 31,
2009
   
December 31,
2008
   
Change
 
                   
 Current Assets     
  $ 117,891     $ 5,827     $ 112,064  
 Property and Equipment   
    101,719       134,075       (32,356 )
 Other Assets  
    -       -       (12,424  
 Total Assets  
  $ 219,610     $ 139,902     $ 79,708  
                         
 Current Liabilities
  $ 2,487,720     $ 1,140,246     $ 1,347,474  
                         
 Stockholders’ (Deficit)
  $ (2,268,110 )   $ (1,000,344 )   $ (1,267,766 )
                         
 S tatement of Operations
                       
 Revenues 
  $ -     $ 2,967     $ (2,967 )
 Operating Expenses  
    61,460,167       4,136,423       57,323,744  
 Other Income (Expenses) 
    (13,686 )     (7,353 )     (6,333 )
                         
 Net Loss
  $ (61,473,853 )   $ (4,140,809 )   $ (57,333,044 )
                         
 Basic Loss Per Share 
  $ (0.92 )   $ (0.07 )   $ (0.85 )
 
 
ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Cautionary Statements

This Form 10-K may contain “forward-looking statements,” as that term is used in federal securities laws, aboutNetThruster’s consolidated financial condition, results of operations and business.  These statements include, among others:
 
 
 
5

 
 
 
·  
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 its stated goals include, but are not limited to, the following:


a)  
volatility or decline of TTI’s stock price;

b)  
potential fluctuation of quarterly results;

c)  
failure to earn revenues or profits;

d)  
inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its 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 or Ludicrous, 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-K, or to reflect the occurrence of unanticipated events.
 
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 waste cost approximately $ .30 per pound to incinerate or store, hazardous waste disposal has been calculated at upwards of $2.00 per pound. 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.
 
 
 
6

 
 
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.

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

We realized revenues of $-0-during the year ended December 31, 2009. We presently do not have a steady source of revenue. Our operating expenses increased from $4,136,423 in 2008 to $61,460,167 in 2009. The increase was primarily the result of stock compensation expenses to officers, directors and consultants. General and administrative expenses decreased from $1,512,222 to $561,814 or 63% because of a decrease in shares of common stock used to pay for services. Professional fees and officer compensation increased by $9,634,726 and $46,393,164, respectively.  Depreciation expense increased from $26,094 to $32,356 because of the purchase of office equipment in 2008.

Our net loss increased by $57,333,044 from $4,140,809 in 2008 to $61,473,853 in 2009. This translates to a $0.85 increase in loss per share from $(0.07) in 2008 to $(0.92) in 2009. Included in our net loss was $57,855,587 and $1,933,000 for the value of common stock and common stock purchase warrants and options which were issued in 2009 and 2008 respectively. Excluding these non cash expenses, our net loss would have been $3,618,266 and $2,207,809, 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.
 
 
 
7

 
 
LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2009 we had cash on hand of $104,891 compared to $663 at December 31, 2008. We used cash in our operations of $1,055,247 in 2009 compared to $1,233,124 in 2008. We also used cash of $-0- in 2009 in our investing activities compared to net cash used of $88,196 in 2008. We raised $110,500 and $725,000 from the sale of our common stock or exercises of stock options in 2009 and 2008, respectively. Additionally, we raised $862,638 and $155,000 from related party loans and $292,860 from other notes payable. We anticipate that we will continue to have a negative cash flow from operations of approximately $100,000 per month for 2010. We do not have sufficient cash on hand at December 31, 2009 to cover that negative cash flow. We will attempt to raise capital through the sale of our common stock or through debt financing.

All of Tree Top’s past due obligations, including our accounts payable, 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 for the immediate preceding five years and are therefore subject to being written off in accordance with applicable local law.  However, Tree Top has continued to carry these obligations and judgments in its quarterly and annual reports for the purpose of full disclosure.  Additionally, the aforementioned loan of $292,860 is subject to repayment after one year.  Complete terms of this loan are currently being negotiated.
 
OFF-BALANCE SHEET ARRANGEMENTS

None

CONTRACTUAL OBLIGATIONS

None

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, accounts receivable reserves, income and other taxes, stock-based compensation and equipment and contingent obligations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

We define our “critical accounting policies” as those U.S. generally accepted accounting principles that require us to make subjective estimates about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Our estimates are based upon assumptions and judgments about matters that are highly uncertain at the time the accounting estimate is made and applied and require us to continually assess a range of potential outcomes. A detailed discussion of the critical accounting policies that most affect our company is located in Footnote 2 of the notes to our financial statements.
 
 
 
8

 
 
ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
/Letterhead/
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
Tree Top Industries, Inc.
 
We have audited the accompanying consolidated balance sheets of Tree Top Industries, Inc. (a development stage company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended,  and for the period from inception on August 1, 2007 through December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tree Top Industries, Inc.(a development stage company) at December 31, 2009 and 2008, and the results of its consolidated operations and cash flows for the years then ended and for the period from inception on August 1, 2007 through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that Tree Top Industries, Inc. will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficit and is dependent of financing to continue operations. These issues raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
 
/s/Chisholm, Bierwolf, Nilson & Morrill
Chisholm, Bierwolf, Nilson & Morrill, LLC
Bountiful, UT
April 15, 2010


 
 
9

 

 
 
Tree Top Industries, Inc.
 
(A Development Stage Company)
 
Consolidated Balance Sheets
 
             
ASSETS
 
 
December 31,
 
December 31,
 
 
2009
 
2008
 
CURRENT ASSETS
           
Cash
 
$
104,891
   
$
663
 
Prepaid expenses
   
-
     
5,164
 
Advances
   
13,000
     
-
 
Total Current Assets
   
117,891
     
5,827
 
                 
PROPERTY AND EQUIPMENT, NET
   
101,719
     
134,075
 
                 
OTHER ASSETS
               
Technology, net
   
-
     
-
 
Total Other Assets
   
-
     
-
 
TOTAL ASSETS
 
$
219,610
   
$
139,902
 
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
 
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
 
$
669,916
   
$
385,102
 
Bank overdraft
   
-
     
6,125
 
Accrued interest payable
   
66,175
     
52,490
 
Due to officers and directors
   
1,345,769
     
583,529
 
Notes payable
   
405,860
     
113,000
 
Total Current Liabilities
   
2,487,720
     
1,140,246
 
                 
COMMITMENTNS AND CONTINGENCIES
 
$
-
   
$
-
 
                 
STOCKHOLDERS' (DEFICIT)
               
                 
Preferred stock, $0.001 par value, 50,000 shares authorized, -0- shares issued and outstanding
   
-
     
-
 
Common stock, $0.001 par value, 350,000,000 shares authorized, 130,994,100 and 48,828,400 shares issued
     and 127,494,100 and 48,828,400 outstanding, respectively
   
127,494
     
48,828
 
Additional paid-in capital
   
68,876,380
     
8,748,959
 
(Deficit) accumulated during the development stage
   
(71,271,984
)
   
(9,798,131
)
Total Stockholders' (Deficit)
   
(2,268,110
)
   
(1,000,344
)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
 
$
219,610
   
$
139,902
 
 
 
The accompanying notes are an integral part of these financial statements.
 
10

 
 
 
Tree Top Industries, Inc.
 
(A Development Stage Company)
 
Consolidated Statements of Operations
 
   
               
From Inception
 
   
For the
   
on August 1,
 
   
Years Ended
   
2007 through
 
   
December 31,
   
December 31,
 
   
2009
   
2008
   
2009
 
                   
REVENUES, net
 
$
-
   
$
2,967
   
$
2,967
 
                         
COST OF SALES, net
   
-
     
-
     
-
 
                         
GROSS PROFIT
   
-
     
2,967
     
2,967
 
                         
OPERATING EXPENSES
                       
                         
General and administrative
   
561,814
     
1,512,222
     
4,695,132
 
Officer compensation
   
48,791,138
     
2,397,974
     
53,716,822
 
Impairment of assets
   
2,240,000
     
-
     
2,240,000
 
Professional fees
   
9,834,859
     
200,133
     
10,541,130
 
Depreciation
   
32,356
     
26,094
     
60,059
 
                         
Total Operating Expenses
   
61,460,167
     
4,136,423
     
71,253,143
 
                         
OPERATING LOSS
   
(61,460,167
)
   
(4,133,456
)
   
(71,250,176
)
                         
OTHER INCOME (EXPENSES)
                       
                         
Interest income
   
-
     
9
     
9
 
Interest expense
   
(13,686
)
   
(7,362
)
   
(21,817
)
                         
Total Other Income (Expenses)
   
(13,686
)
   
(7,353
)
   
(21,808
)
                         
     
(61,473,853
)
   
(4,140,809
)
   
(71,271,984
)
LOSS BEFORE INCOME TAXES INCOME TAX EXPENSE
   
-
     
-
     
-
 
                         
NET LOSS
 
$
(61,473,853
)
 
$
(4,140,809
)
 
$
(71,271,984
)
                         
BASIC AND DILUTED LOSS PER SHARE
 
$
(0.92
)
 
$
(0.07
)
       
                         
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   
66,830,054
     
56,600,297
         
 
 
 
The accompanying notes are an integral part of these financial statements.
 
11

 
 
 
 
Tree Top Industries, Inc.  
(A Development Stage Company)  
Consolidated Statements of Stockholders' Equity (Deficit)  
For the period August 1, 2007 (inception) through December 31, 2009
 
           
                                              Deficit           
                                              Accumulated           
                                      Additional        During the           
      Preferred Stock       Comon Stock        Paid-In        Development           
      Shares        Amount        Shares        Amount        Capital        Stage        Total   
Balance, August 1, 2007 (inception)
    -     $ -       -     $ -     $ -     $ -     $ -  
                                                         
Issuance of founder shares at inception at $0.007 per share
    -       -       68,000,000       68,000       432,000       -       500,000  
                                                         
Shares issued in recapitalization
    -       -       987,791       988       (988 )     -       -  
                                                         
Stock options issued for services at $0.74 per share
    -       -       -       -       1,494,298       -       1,494,298  
                                                         
Stock options issued for cash at $0.10 per share
    -       -       -       -       200,000       -       200,000  
                                                         
Stock options issued for services at $0.85 per share
    -       -       -       -       126,210       -       126,210  
                                                         
Exercise of stock options at $0.25 per share
    -       -       500,000       500       124,500       -       125,000  
                                                         
Shares issued for services at $0.85 per share
    -       -       2,590,000       2,590       2,198,910       -       2,201,500  
                                                         
Shares issued for services at $2.00 per share
    -       -       250,000       250       499,750       -       500,000  
                                                         
Net loss for the year ended December 31, 2007
    -       -       -       -       -       (5,657,322 )     (5,657,322 )
 
The accompanying notes are an integral part of these financial statements.
 
12

 
 
 
Tree Top Industries, Inc.  
(A Development Stage Company)  
Consolidated Statements of Stockholders' Equity (Deficit)  
For the period August 1, 2007 (inception) through December 31, 2009  
           
                                              Deficit           
                                              Accumulated           
                                      Additional        During the           
      Preferred Stock       Comon Stock        Paid-In        Development           
      Shares        Amount        Shares        Amount        Capital        Stage        Total 
Balance, December 31, 2007
    -     $ -       72,327,791     $ 72,328     $ 5,074,680     $ (5,657,322 )   $ (510,314 )
                                                         
Fractional shares
    -       -       609       -       -       -       -  
                                                         
Exercise of stock options at $0.25 per share
    -       -       1,100,000       1,100       723,900       -       725,000  
                                                         
Common stock cancelled
    -       -       (24,600,000 )     (24,600 )     24,600       -       -  
                                                         
Stock options granted for services
    -       -       -       -       1,993,000       -       1,993,000  
                                                         
Exchange of Ludicrous, Inc. stock options for
     Tree Top stock options
    -       -       -       -       932,779       -       932,779  
                                                         
Net loss for the year ended December 31, 2008
    -       -       -       -       -       (4,140,809 )     (4,140,809 )
                                                         
Balance, December 31, 2008
    -       -       48,828,400       48,828       8,748,959       (9,798,131 )     (1,000,344 )
                                                         
Stock options granted for services
    -       -       -       -       18,933,587       -       18,933,587  
                                                         
Common stock issued for services
    -       -       74,850,000       74,850       38,847,150       -       38,922,000  
                                                         
Common stock issued for acquisition of subsidiary
    -       -       3,500,000       3,500       2,236,500       -       2,240,000  
                                                         
Common stock issued for cash
    -       -       315,700       316       110,184       -       110,500  
                                                         
Net loss for the year ended December 31, 2009
    -       -       -       -       -       (61,473,853 )     (61,473,853 )
                                                         
Balance, December 31, 2009
    -     $ -       127,494,100     $ 127,494     $ 68,876,380     $ (71,271,984 )   $ (2,268,110 )
 
 
 
The accompanying notes are an integral part of these financial statements.
 
13

 
 
 
Tree Top Industries, Inc.
 
(A Development Stage Company)
 
Consolidated Statements of Cash Flows
 
   
         
From Inception
 
   
For the
   
on August 1,
 
   
Years Ended
   
2007 through
 
   
December 31,
   
December 31,
 
   
2009
   
2008
   
2009
 
                   
CASH FLOW FROM OPERATING ACTIVITIES
                 
                   
Net loss
 
$
(61,473,853
)
 
$
(4,140,809
)
 
$
(71,271,984
)
  Adjustments to reconcile net loss to net
                       
   used by operating activities:
                       
Depreciation and amortization
   
32,356
     
26,094
     
60,059
 
Stock options granted for services rendered
   
18,933,587
     
2,925,779
     
23,479,874
 
Impairment of intangible assets
   
2,240,000
     
-
     
2,240,000
 
Common stock issued for services rendered
   
38,922,000
     
-
     
41,623,500
 
  Changes in operating assets and liabilities
                       
(Increase) decrease in prepaid expenses
   
(7,836
)
   
13,660
     
(13,000
)
Increase (decrease) in accounts payable
                       
  and accrued expenses
   
298,499
     
(57,848
)
   
895,388
 
                         
Net Cash Used in Operating Activities
   
(1,055,247
)
   
(1,233,124
)
   
(2,986,163
)
                         
CASH FLOW FROM INVESTING ACTIVITIES
                       
                         
Cash received in acquisition
   
-
     
-
     
44,303
 
Cash paid for property and equipment
   
-
     
(88,196
)
   
(161,778
)
                         
Net Cash Used in Investing Activities
   
-
     
(88,196
)
   
(117,475
)
                         
CASH FLOW FROM FINANCING ACTIVITIES
                       
                         
   Bank overdraft
   
(6,125
)
   
6,125
     
-
 
Cash received from issuance of common stock
   
110,500
     
725,000
     
1,660,500
 
Cash received from notes payable
   
292,860
     
-
     
292,860
 
Cash paid to related party loans
   
(100,398
)
           
(160,153
)
Cash received from related party loans
   
862,638
     
155,000
     
1,415,322
 
                         
Net Cash Provided by Financing Activities
   
1,159,475
     
886,125
     
3,208,529
 
                         
NET INCREASE (DECREASE) IN CASH
   
104,228
     
(435,195
)
   
104,891
 
CASH AT BEGINNING OF PERIOD
   
663
     
435,858
     
-
 
CASH AT END OF PERIOD
 
$
104,891
   
$
663
   
$
104,891
 
 
 

The accompanying notes are an integral part of these financial statements.
 
14

 

 
Tree Top Industries, Inc.
 
(A Development Stage Company)
 
Consolidated Statements of Cash Flows (Continued)
 
                   
           
From Inception
 
 
For the
 
on August 1,
 
 
For the Years Ended
 
2007 through
 
 
December 31,
 
December 31,
 
 
2009
 
2008
 
2009
 
                   
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                 
                   
CASH PAID FOR:
                 
                   
             Interest
 
$
-
   
$
-
   
$
-
 
             Income Taxes
   
-
     
-
     
-
 
                         
                         
  NON-CASH INVESTING AND FINANCING ACTIVITIES
                       
                         
  Common stock issued for acquisition of subsidiary
                       
  Common stock cancelled
 
$
2,240,000
   
$
-
   
$
2,240,000
 
     
(24,600
)
           
(24,600
)
                         
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these financial statements.
 
15

 

 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 1 - NATURE OF OPERATIONS

A) HISTORY

On November 10, 1999, Nugget Holding Company (“the Company”), a Nevada Corporation formed on July 24, 1980, merged into Tree Top Industries, Inc. (a Delaware corporation formed on February 23, 1999). As a result of this business combination, Tree Top Industries, Inc became a wholly-owned subsidiary of Nugget Exploration, Inc., but since its shareholders took control of Nugget Explorations, Inc., Tree Top Industries, Inc. was considered the accounting acquirer. On January 19, 2000, Nugget Exploration Inc. changed its name to GoHealth.MD, Inc. and then subsequently to Tree Top Industries, Inc.

Effective November 1, 2007, the Company closed an Agreement and Plan of Reorganization with Ludicrous Inc., pursuant to which the Company acquired all of the issued and outstanding shares of Ludicrous, Inc. At closing, the stockholders of Ludicrous, Inc received 68 million shares of the Company's common stock which represented 98.6% of the outstanding post-agreement common stock of the Company. Accordingly, Ludicrous, Inc. was considered the accounting acquirer and the business combination is accounted for as a reverse acquisition. All financial history prior to the reverse acquisition is that of the accounting acquirer, Ludicrous, Inc.

On April 24, 2009, the Company entered into a stock exchange agreement (the "Exchange Agreement") with BioEnergy Applied Technologies Inc., a Nevada corporation (“BAT”), BioEnergy Systems Management Inc., Wimase Limited and Energetic Systems Inc., LLC.  Under the terms of the Exchange Agreement, the Company acquired all of the issued and outstanding shares of BAT.  The acquisition resulted in BAT becoming a wholly-owned subsidiary of the Company. The Exchange Agreement called for the issuance of a total of 3,500,000 shares of common stock of the Company, par value $.001 per share, in exchange for the transfer of all of the issued and outstanding shares of common stock of BAT to the Company.

BAT is the originator and incubator of environmentally friendly technologies useful in the areas of energetic materials, chemicals and chemical processes, gasification, and the safe and novel destruction of biological and other hazardous wastes.  The Company has been focused on the incubation growth and commercialization of novel technology platforms designed to address the fundamental limitations of many of today’s technologies and businesses.  The Company and the newly announced acquisition will seek to provide key technologies to the biofuels sector, designed to help make biofuels more cost effective and of a higher quality.

The Company has not realized significant revenues as of December 31, 2009. and is classified as a development stage enterprise in accordance with ASC 915.

B)  GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss of $61,473,853 during the fiscal year ended December 31, 2009 and has an accumulated deficit of $71,271,984. During 2008 the Company incurred losses totaling $4,140,809 and is in default on several notes payable (see Note 10). The Company also has negative working capital of $2,369,829 and $1,134,419 and negative cash flow from operations of $1,055,247 and $1,233,124 as of and for the years ended December 31, 2009 and 2008, respectively.

Since inception (August 1, 2007) through December 31, 2009, the Company has not generated any significant business. Through the date of these financial statements viable operations have not been achieved and the Company has been unsuccessful in raising all the capital that it requires. The Company has had no revenues and requires substantial financing. Most of the financing has been provided by David Reichman, the present Chief Executive Officer and Chairman. . The Company is dependent upon his ability and willingness to continue to provide such financing which is required to meet reporting and filing requirements of a public company.


 
 
16

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008

NOTE 1 - NATURE OF OPERATIONS (CONTINUED)

B)  GOING CONCERN (CONTINUED)

In order for the Company to remain a going concern, it will need to continue to receive funds from the exercise of outstanding options or through other equity or debt financing. There can be no assurance that the Company will continue to receive any proceeds from the exercise of warrants or options or that the Company will be able to obtain the necessary funds to finance its operations. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

A) PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Ludicrous, Inc and BioEnergy Applied Technologies Inc. All significant inter-company balances and transactions have been eliminated.

B) USE OF MANAGEMENT'S ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

C) 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. At December 31, 2009 and 2008, no excess existed.

D) FIXED ASSETS

Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, ranging from 3 to 7 years for furniture, fixtures, machinery and equipment.  Leasehold improvements are amortized over the lesser of the term of the lease or the economic life of the asset.

E) INCOME TAXES

The Company applies ASC 740, which requires the asset and liability method of accounting for income taxes.  The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.


 
 
17

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

E) INCOME TAXES (CONTINUED)

The Company adopted ASC 740, at the beginning of fiscal year 2008. This interpretation requires recognition and measurement of uncertain tax positions using a “more-likely-than-not” approach, requiring the recognition and measurement of uncertain tax positions. The adoption of ASC 740 had no material impact on the Company’s financial statements. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are  reduced by a  valuation  allowance  when,  in the opinion  of  management,  it is more  likely  than not  that  some portion or all of the deferred  tax assets will to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

F) REVENUE RECOGNITION

We recognize service revenues in accordance with the SEC's 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 ceases recognizing revenue for continued services provided until cash is received.

G) 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 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 option-pricing models 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.

H) 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.
 
 
 
 
18

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

I) 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:

·  
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·  
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.

·  
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables 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 December 31, 2009 and 2008.

J) 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 give 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 2009 and 2008, 48,506,400 and 3,875,000, common equivalent shares were considered are excluded from the calculation as their effects are anti-dilutive, respectively.

 
For the Years Ended
 
 
December 31,
 
 
2009
 
2008
 
Loss (numerator)
  $ (61,473,853 )   $ (4,140,809 )
Shares (denominator)
    66,830,054       56,600,297  
Basic and diluted loss per share$
  $ (0.92 )   $ (0.07 )

K) RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
 
 
 
 
 
19

 

 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

K) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.

In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. The Company does not expect the provisions of ASU 2009-17 to have a material effect on the financial position, results of operations or cash flows of the Company.

In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. The Company does not expect the provisions of ASU 2009-16 to have a material effect on the financial position, results of operations or cash flows of the Company.

In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. The Company does not expect the provisions of ASU 2009-15 to have a material effect on the financial position, results of operations or cash flows of the Company.

In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.

In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.


 
 
 
20

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

K) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.

In April, 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 164, “Not-for-Profit Entities: Mergers and Acquisitions” )  which governs the information that a not-for-profit entity should provide in its financial reports about a combination with one or more other not-for-profit entities, businesses or nonprofit activities and sets out the principles and requirements for how a not-for-profit entity should determine whether a combination is in fact a merger or an acquisition. This standard is effective for mergers occurring on or after Dec. 15, 2009 and for acquisitions where the acquisition date is on or after the beginning of the first annual reporting period, beginning on or after Dec. 15, 2009. This standard does not apply to the Company since the Company is considered a for-profit entity

In May 2009, FASB issued FASB ASC 855-10 (Prior authoritative literature:  SFAS No. 165, "Subsequent Events" ). FASB ASC 855-10 establishes principles and requirements for the reporting of events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. FASB ASC 855-10 is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. As such, the Company adopted these provisions at the beginning of the interim period ended June 30, 2009. Adoption of FASB ASC 855-10 did not have a material effect on our financial statements.

In June 2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166, “ Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 ” ), which eliminates the concept of a qualifying special-purpose entity (“QSPE”), clarifies and amends the de-recognition criteria for a transfer to be accounted for as a sale, amends and clarifies the unit of account eligible for sale accounting and requires that a transferor initially measure at fair value and recognize all assets obtained and liabilities incurred as a result of a transfer of an entire financial asset or group of financial assets accounted for as a sale. This standard is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact of this standard on its financial statements, but does not expect it to have a material effect.

In June 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature:  SFAS No. 167, “ Amendments to FASB Interpretation No. 46 (R)   ” ) which amends the consolidation guidance applicable to a variable interest entity (“VIE”). This standard also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is therefore required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. Previously, the standard required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. This standard is effective for fiscal years beginning after November 15, 2009, and for interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements, but does not expect it to have a material effect.


 
 
21

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

K) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 2009, FASB issued ASC 105-10 (Prior authoritative literature:  SFAS No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162"   ). FASB ASC 105-10 establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. FASB ASC 105-10 is effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending September 30, 2009.  Adoption of FASB ASC 105-10 did not have a material effect on the Company’s financial statements.

NOTE 3 - RELATED PARTY TRANSACTIONS

The amount due to officers and directors as of December 31, 2009 and 2008 totals $1,345,769 and $583,529, respectively.  These balances consist of net cash advances, bonuses, unpaid wages and unpaid expense reimbursements due to David Reichman and Kathy Griffin. The payables are unsecured, due on demand and do not bear interest.

The Company has insufficient cash to pay current salaries and other operating costs, therefore the Company owes this money ($1.3 million dollars to officers and directors). Currently, there are no executed notes or other instruments in place.

NOTE 4 - FIXED ASSETS

Depreciation expense was $32,356 and $26,094 during the years ended December 31, 2009 and 2008, respectively.
Fixed assets consist of the following:

   
2009
   
2008
 
Computer equipment
 
$
126,278
   
$
126,278
 
Office equipment
   
22,600
     
22,600
 
Telephone equipment
   
12,900
     
12,900
 
     
161,778
     
161,778
 
Accumulated Depreciation
   
(60,059
)
   
(27,703
)
   
$
101,719
   
$
134,075
 
 
  
NOTE 5 - NOTES PAYABLE

Notes payable consist of various notes bearing interest at rates from 5% to 7%, are unsecured, with original due dates between August 2000 and December 2009.  The four notes with maturity dates are currently in default with the remaining note due on demand and thus all notes are classified as current liabilities.  At December 31, 2009, notes payable amounted to $405,860. Below is a table summarizing the notes owed by the Company.

           
Interest Expense
   
Principal
   
Interest Rate
   
12/31/2008
   
12/31/2009
 
Maturity
$
292,860
     
9.00
%
 
$
-
   
$
6,756
 
On Demand
 
18,000
     
6.00
%
   
1,080
     
1,080
 
9/1/2002
 
30,000
     
6.00
%
   
1,800
     
1,800
 
9/12/2002
 
25,000
     
5.00
%
   
1,250
     
1,250
 
8/31/2000
 
40,000
     
7.00
%
   
2,800
     
2,800
 
7/10/2002
$
405,860
           
$
6,930
   
$
13,686
   

At December 31, 2009 and 2008, accrued interest on the notes was $66,175 and $52,490, respectively. Interest expense on the notes amounted to $13,686 and $6,930 for the years ended December 31, 2009 and 2008.
 
The notes referenced in Note 5 were all issued prior to the terms of current management, for services rendered prior to 2003 to support the Companys’ business.  None of the holders of these notes are pursuing the Company at this time.
 
 
22

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 6 - INCOME TAXES

The FASB has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)).  FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes.  This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.  As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.  

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Deferred tax assets and the valuation account are as follows:

   
2009
   
2008
 
Deferred tax assets:
           
NOL carryover
 
$
1,473,329
   
$
995,635
 
Valuation allowance
   
(1,473,329
)
   
(995,635
)
Net deferred tax asset
 
$
-
   
$
-
 


The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2009 and 2008. The components of income tax expense are as follows:

   
2009
   
2008
 
Book loss
 
$
(23,974,800
)
 
$
(1,614,916
)
Common stock issued for services
   
22,623,506
     
1,140,054
 
Impairment of assets
   
873,600
     
-
 
Valuation allowance
   
477,694
     
474,862
 
   
$
-
   
$
-
 

The Company has adopted FASB ASC 740-10 to account for income taxes. The Company currently has no issues creating timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty of the utilization of net operating loss carry forwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate.  A provision for income taxes has not been made due to net operating loss carry-forwards of $4,189,293 and $2,964,435 as of December 31, 2009 and 2008, respectively, which may be offset against future taxable income through 2030. No tax benefit has been reported in the financial statements.

 
 
23

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 6 - INCOME TAXES (CONTINUED)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

   
December 31,
 
   
2009
   
2008
 
Beginning Balance
 
$
-
   
$
-
 
Additions based on tax positions related to current year
   
-
     
-
 
Additions for tax positions of prior years
   
-
     
-
 
Reductions for tax positions of prior years
   
-
     
-
 
Reductions in benefit due to income tax expense
   
-
     
-
 
Ending balance
 
$
-
   
$
-
 

The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes.  As of December 31, 2009 and 2008, the Company had no accrued interest or penalties related to uncertain tax positions.
 
The tax years that remain subject to examination by major taxing jurisdictions are for the years ended December 31, 2009, 2008 and 2007.

NOTE 7 - STOCKHOLDERS' DEFICIT

A) NUMBER OF SHARES AUTHORIZED

Under the Company's charter, 75,000,000 shares of $0.001 par value common stock were authorized as of December 31, 2006. On November 28, 2007, the stockholders approved the increase in the Company’s authorized shares of common stock from 75 million to 350 million shares, and 50,000 shares of $0.001 par value "blank check" preferred stock. As of December 31, 2009 and 2008, 130.994,100 and 48,828,400 shares of common stock are issued and 127,494,100 and 48,828,400 outstanding, respectively. The Company had issued 3,500,000 shares that are held in escrow that are not outstanding as of December 31, 2009.  There were no shares of preferred stock issued and outstanding.
 
B) PREFERRED STOCK

As described above, the stockholders voted to authorize 50,000 shares of "blank check" preferred stock. The terms, rights and features of the preferred stock will be determined by the Board of Directors upon issuance. Subject to the provisions of the Company’s certificate of amendment to the articles of incorporation and the limitations prescribed by law, the Board of Directors would be expressly authorized, at its discretion, to adopt resolutions to issue shares, to fix the number of shares and to change the number of shares constituting any series and to provide for or change the voting powers, designations, preferences and relative, participating, optional of other special rights, qualifications, limitations or restrictions thereof, including dividend rights (including whether the dividends are cumulative), dividend rates, terms of redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any series of the preferred stock, in each case without any further action or vote by the stockholders. The Board of Directors would be required to make any determination to issue shares of preferred stock based on its judgment as to the best interests of the Company ...

 
 
24

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008

NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

C) ISSUANCES OF COMMON STOCK

Effective  November  1,  2007,  the  Company  closed an Agreement and Plan of Reorganization  with  Ludicrous  and  the  stockholders  of  Ludicrous  received 68,000,000 shares of the Company's common stock. The disclosure of shares issued and outstanding for the Company has been restated to inception as though a forward stock split had occurred.
 
On December 6, 2007, the Board of Directors authorized the issuance of 200,000 shares of common stock to its directors, valued at $400,000, for services rendered to the Company.
 
On September 24, 2007, the Board of Directors authorized the issuance of 2.55 million shares of common stock to David Reichman, valued at $2,167,500, for services rendered to the Company. The shares were issued on November 1, 2007.
 
On September 24, 2007, the Board of Directors authorized the issuance of 40,000 shares of common stock to its directors, valued at $34,000, for services rendered to the Company. The shares were issued on November 1, 2007.
 
On December 6, 2007,  the Board of Directors  authorized  the issuance of 50,000 shares  of  common  stock to its  attorney,  valued at  $100,000,  for  services rendered to the Company.
 
On December 17, 2007, the Company issued 500,000 shares of common stock relating to the exercise of 500,000 options.  The Company received proceeds totaling $125,000.

Effective January 1, 2008, the Board of Directors authorized the issuance of stock options valued at $3,787,174 in exchange for services rendered to the Company which vest over a two year period. The Company recorded an expense of $1,465,195 for the year ended December 31, 2008 for the value of the options vested.

On January 16, 2008, the Board of Directors authorized the grant of 250,000 shares of common stock relating to the exercise of 250,000 options. The Company received proceeds totaling $62,500.

On March 26, 2008, the Board of Directors authorized the issuance of 850,000 shares of common stock relating to the exercise of 850,000 options. The Company received proceeds totaling $662,500.

During the year ended December 31, 2008, the Company authorized the grant of 1,000,000 of stock options. The Company recorded an expense of $527,805 at the date of grant.

During the year ended December 31, 2008, the Company cancelled 24,600,000 shares with a par value of $0.001.

During 2008 the Company authorized the exchange of options to purchase shares of Ludicrous common stock for options to purchase common stock of the Company.  The Company revalued the options and recorded $932,779 as additional compensation expense for incremental value of the Company’s options.

On February 13, 2009, the Board of Directors authorized the issuance of 12,500,000 shares of common stock to officers and directors, valued at $6,500,000, for services rendered to the Company.

On April 28, 2009, the Board of Directors authorized the issuance of 3,950,000 million shares of common stock to officers and directors and consultants, valued at $2,054,000, for services rendered to the Company.

On May 28, 2009, the Board of Directors authorized the issuance of 1,000,000 million shares of common stock to officers and directors and consultants, valued at $520,000, for services rendered to the Company.
 
 
 
25

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008

NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

C)  ISSUANCES OF COMMON STOCK (CONTINUED)

On July 9, 2009, the Board of Directors authorized the issuance of 3,500,000 shares of common stock, valued at $2,240,000, for the acquisition of BAT, including environmental remediation technology.

On August 21, 2009, the Board of Directors authorized the issuance of 1,000,000 shares of its common stock for legal services valued at $520,000.

On December 16, 2009, the Board of Directors authorized the issuance of 55,900,000 million shares of common stock to officers and directors and consultants, valued at $29,068,000, for services rendered to the Company.

On December 20, 2009, the Company issued 500,000 shares of common stock to consultants valued at $260,000.

During October and November 2009, the Company authorized the issuance of 315,700 shares of common stock for cash received, totaling $110,500.

D) 2007 OMNIBUS STOCK AND INCENTIVE PLAN

On September 24, 2007, the Board of Directors authorized the creation of the 2007 Omnibus Stock and Incentive Plan (the "2007 Plan"). The 2007 Plan was approved by the stockholders on November 28, 2007. An aggregate of 6 million shares of common stock are reserved for issuance and available for awards under the 2007 Plan.

Awards under the 2007 Plan may include non-qualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted shares of common stock, restricted units and performance awards. For a complete description of the Plan, see Tree Top's Form 8-K filed with the SEC on November 7, 2007.

E) STOCK BASED COMPENSATION

The stock options authorized by the Company prior to the acquisition of Ludicrous, Inc. are accepted by the combined company and included in the following disclosure. On October 1, 2007, the Company issued three-year options to purchase a total of 2 million shares of its common stock at an exercise price of $.25 per share to two outside consultants. Each stock option was sold for a price of $.10 per option for a total of $200,000. The options expire on September 30, 2010. The term of the options is divided into two periods, the Primary Option Period which is from October 1, 2007 through September 30, 2008 and the Secondary Option Period which is from October 1, 2008 through September 30, 2010. The exercise of the options has been restricted during the Primary Option Period. The option holders can only exercise a maximum of 250,000 shares during any calendar quarter through September 30, 2008. Therefore, during the entire Primary Option Period, the option holders can each exercise a maximum of 1 million shares of common stock. There are no restrictions during the Secondary Option period. The fair value of the options as calculated under the Black-Scholes model totaled $1,694,298. For the year ended December 31, 2007, the Company recognized $1,494,298 of compensation expense related to these options.

On October 1, 2007, pursuant to his employment agreement, the Company issued five year options to David Reichman to purchase 1.2 million shares of its common stock at an exercise price of $.55 per share. The shares vest in 24 equal installments of 50,000 stock options each, commencing on October 1, 2007. The fair value of the options as calculated under the Black-Scholes model totaled $1,009,678. For the years ended December 31, 2009 and 2008, the Company recognized $-0- and $504,839 of compensation expense, respectively.

The fair values of the 2007 options issued were determined using the following assumptions: risk free rate of 3.71% to 4.05%, no dividend yield, an expected life of three years and a volatility factor of 312.9% to 285.7%.

 
 
26

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008

NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

E) STOCK BASED COMPENSATION (CONTINUED)

Effective January 1, 2008, the Company's Board of Directors approved for issuance 250,000 stock options to each of its four directors, to be issued effective January 1, 2008, with an exercise price of $4.50 per share, expiring in 2018. The options vest 1/24th upon grant and then 1/24th each subsequent month. The fair value of the options as calculated under the Black-Scholes model totaled $3,787,174 which vested over a 2 year period. For the year ended December 31, 2009 and 2008, the Company recognized $1,893,587 and $1,893,587 of compensation expense related to these options, respectively. The fair value of these options was determined using the following assumptions: risk free rate of 3%, no dividend yield, an expected life of five years and a volatility factor of 202%.

During the year ended December 31, 2008, the Company recorded the value of 1,000,000 stock options issued to a shareholder with an exercise price of $1.00 per share, expiring in 2018. The fair value of the options as calculated under the Black-Scholes model totaled $527,805 which was recorded as compensation expense. The fair value of these options was determined using the following assumptions: risk free rate of 3.48%, no dividend yield, an expected life of five years and a volatility factor of 191%.

On January 31, 2009, the Company recorded the value of 5,000,000 stock options issued to members of the Board of Directors and a consultant with an exercise price of $1.20 per share, expiring in 2019. The fair value of the options as calculated under the Black-Scholes model totaled $2,550,000 which was recorded as compensation expense. The fair value of these options was determined using the following assumptions: risk free rate of 2.87%, no dividend yield, an expected life of ten years and a volatility factor of 291%.

On June 12, 2009, the Company recorded the value of 7,000,000 stock options issued to members of the Board of Directors and a consultant with an exercise price of $0.55 per share, expiring in 2019. The fair value of the options as calculated under the Black-Scholes model totaled $3,570,000 which was recorded as compensation expense. The fair value of these options was determined using the following assumptions: risk free rate of 3.71%, no dividend yield, an expected life of ten years and a volatility factor of 334%.

On December 16, 2009, the Company recorded the value of 21,000,000 stock options issued to members of the Board of Directors and a consultant with an exercise price of $0.52 per share, expiring in 2019. The fair value of the options as calculated under the Black-Scholes model totaled $10,920,000 which was recorded as compensation expense. The fair value of these options was determined using the following assumptions: risk free rate of 3.61%, no dividend yield, an expected life of ten years and a volatility factor of 210%.

Also, during the year ended December 31, 2009, the Company recorded the expense of options vested during the year.  This expense totaled $1,893,587.
 
 
 
27

 
 
TREE TOP INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009 and 2008
 
NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

E) STOCK BASED COMPENSATION (CONTINUED)

A summary of the Company’s stock option activity is as follows for the years ended December 31, 2009 and 2008:

   
Shares
   
Range of
Exercise Prices
Per Share
   
Weighted
Average
Exercise
Price
   
Remaining
Contractual
Life
(Years)
 
                         
Options outstanding at December 31, 2007
   
2,975,000
   
$
0.50-2.00
   
$
0.98
     
3.71
 
Granted
   
2,000,000
     
1.00-4.75
     
2.75
     
9
 
Exercised
   
(1,100,000
)
   
0.25-1.00
     
0.66
         
Expired
   
-
     
-
     
-
         
Options outstanding at December 31, 2008
   
3,875,000
   
$
1.00-2.00
     
1.98
     
6.82
 
Granted
   
33,000,000
     
0.52-1.20
     
0.85
     
9.58
 
Exercised
   
-
     
-
     
-
         
Expired
   
-
     
-
                 
Options outstanding at December 31, 2009
   
36,875,000
   
$
0.25-2.00
   
$
0.97
     
8.98
 

Information with respect to stock options outstanding at December 31, 2009 is as follows:

  Range of Exercise Prices
 
  Number Outstanding
 
  Number Exercisable
 
Average Remaining Contractual Term (Years)
 
Weighted Average
Exercise Price
 
  Aggregate Intrinsic Value
$
0.25-$0.55
 
275,000
 
275,000
 
0.1
 
$
1.36
 
862,500
$
1.00-$2.00
 
2,100,000
 
2,100,000
 
2.24
 
$
0.38
 
1,115,000
$
1.00
 
500,000
 
500,000
 
8.75
 
$
1.00
 
500,000
$
4.50
 
1,000,000
 
750,000
 
8.75
 
$
4.5
 
4,500,000
$
1.20
 
5,000,000
 
5,000,000
 
9.58
 
$
1.2
 
6,000,000
$
0.55
 
6,000,000
 
6,000,000
 
9.58
 
$
0.55
 
3,300,000
$
0.52
 
22,000,000
 
22,000,000
 
9.97
 
$
0.52
 
11,440,000