SilverSun Technologies, Inc. - Quarter Report: 2009 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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(MARK
ONE)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 31, 2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ______________ to
______________
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COMMISSION
FILE NUMBER: 000-50302
Trey
Resources, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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16-1633636
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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5 Regent Street, Suite 520,
Livingston, NJ 07039
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
Telephone Number, Including Area Code: (973) 758-9555
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated files, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the exchange act:
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer
o Smaller reporting company
x
Indicate
by check mark whether the registrant has submitted electronically and posted on
its Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files). Yes o No x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
Number of
shares of Class A, common stock, par value
$.00001, outstanding as of May 19, 2009: 4,105,473,533
TABLE OF
CONTENTS
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Page
No.
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PART
I. FINANCIAL INFORMATION
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Item
1.
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2
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3
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4
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6-14
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Item
2.
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16
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Item
4T.
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18
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PART
II. OTHER INFORMATION
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Item
5.
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18
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Item
6.
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18
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TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March
31,
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December
31,
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|||||||
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2009
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2008
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|||||||
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ASSETS
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||||||||
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CURRENT
ASSETS
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||||||||
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Cash
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$ | 86,182 | $ | 420,042 | ||||
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Accounts
receivable, net of allowance for doubtful accounts of $265,201
and $163,193, respectively
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738,303 | 566,084 | ||||||
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Inventory
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- | 34,565 | ||||||
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Prepaid
expenses and other current assets
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37,369 | 73,599 | ||||||
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Total current
assets
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861,854 | 1,094,290 | ||||||
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PROPERTY
AND EQUIPMENT, net of accumulated depreciation of $361,194 and
$337,294, respectively
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172,381 | 191,451 | ||||||
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OTHER
ASSETS
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||||||||
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Intangible
assets, net of accumulated amortization of $540,763 and
$491,520, respectively
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52,468 | 101,711 | ||||||
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Deposits
and other assets
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30,907 | 25,105 | ||||||
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Total
other assets
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83,375 | 126,816 | ||||||
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TOTAL
ASSETS
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$ | 1,117,610 | $ | 1,412,557 | ||||
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LIABILITIES AND STOCKHOLDERS'
DEFICIT
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||||||||
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CURRENT
LIABILITIES
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||||||||
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Accounts
payable and accrued expenses
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$ | 1,674,870 | $ | 1,860,610 | ||||
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Due
to related parties
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1,828,051 | 1,711,477 | ||||||
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Convertible
debentures payable, net of discounts of $0 and $0,
respectively
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1,574,100 | 1,574,100 | ||||||
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Derivative
liability
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740,233 | 857,236 | ||||||
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Current
portion of notes payable and capital leases
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73,980 | 92,828 | ||||||
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Warrant
liability
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- | 75,450 | ||||||
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Notes
payable to related parties
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291,877 | 321,063 | ||||||
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Deferred
revenue
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161,855 | 174,104 | ||||||
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Total
current liabilities
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6,344,966 | 6,666,958 | ||||||
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COMMITMENTS
AND CONTINGENCIES
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||||||||
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STOCKHOLDERS'
DEFICIT
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||||||||
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Preferred
stock, $1.00 par value; authorized 1,000,000 shares;
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||||||||
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no
shares issued and outstanding
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- | - | ||||||
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Common
stock:
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||||||||
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Class
A – par value $.00001; authorized 10,000,000,000 shares;
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||||||||
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4,105,473,533
and 3,119,362,422 shares issued and outstanding,
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respectively
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41,055 | 41,055 | ||||||
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Class
B - par value $.00001; authorized 50,000,000 shares;
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||||||||
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no
shares issued and outstanding
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- | - | ||||||
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Class
C - par value $.00001; authorized 20,000,000 shares;
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||||||||
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no
shares issued and outstanding
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- | - | ||||||
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Additional
paid in capital
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5,483,389 | 5,483,389 | ||||||
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Additional
paid in capital - warrants
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125,166 | 125,166 | ||||||
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Accumulated
deficit
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(10,876,966 | ) | (10,904,011 | ) | ||||
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Total stockholders'
deficit
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(5,227,356 | ) | (5,254,401 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$ | 1,117,610 | $ | 1,412,557 | ||||
See
accompanying footnotes to the condensed consolidated financial
statements
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR
THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
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2009
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2008
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|||||||
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SALES,
net
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$ | 2,088,783 | $ | 1,949,890 | ||||
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COST
OF SALES
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1,247,908 | 1,254,059 | ||||||
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GROSS
PROFIT
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840,875 | 695,831 | ||||||
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SELLING,
GENERAL AND
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||||||||
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ADMINISTRATIVE
EXPENSES
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||||||||
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Selling
expenses
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307,518 | 297,014 | ||||||
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General
and administrative expenses
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580,499 | 418,154 | ||||||
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Depreciation
and amortization
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74,550 | 79,216 | ||||||
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Total
selling, general and administrative expenses
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962,567 | 794,384 | ||||||
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LOSS
FROM OPERATIONS
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(121,692 | ) | (98,553 | ) | ||||
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OTHER
INCOME (EXPENSE)
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||||||||
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Gain
on revaluation of derivatives
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192,543 | 2,562 | ||||||
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Amortization
of discount on debt conversion
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- | (55,045 | ) | |||||
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Other
expense
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- | (4,972 | ) | |||||
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Interest
expense
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(43,806 | ) | (39,743 | ) | ||||
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Total
other income (expense)
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148,737 | (97,198 | ) | |||||
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INCOME
(LOSS) BEFORE PROVISION FOR
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||||||||
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INCOME
TAXES
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27,045 | (195,751 | ) | |||||
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PROVISION
FOR INCOME TAXES
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- | - | ||||||
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NET
LOSS APPLICABLE TO COMMON SHARES
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$ | 27,045 | $ | (195,751 | ) | |||
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NET
LOSS PER COMMON SHARE
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||||||||
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Basic
and Fully Diluted
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$ | (0.00 | ) | $ | (0.00 | ) | ||
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WEIGHTED
AVERAGE SHARES OUTSTANDING
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||||||||
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Basic
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4,105,473,533 | 3,529,844,717 | ||||||
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Fully
Diluted
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10,000,000,000 | 3,529,844,717 | ||||||
See
accompanying footnotes to the condensed consolidated financial statements.
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED MARCH 31,
(Unaudited)
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2009
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2008
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|||||||
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CASH
FLOWS FROM OPERATING ACTIVITIES
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Net
income (loss)
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$ | 27,045 | $ | (195,751 | ) | |||
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Adjustments
to reconcile net income (loss) to net cash provided by
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(used
in) operating activities
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Depreciation
and amortization
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74,550 | 79,216 | ||||||
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Amortization
of debt discounts
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- | 55,045 | ||||||
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Beneficial
interest on issuance of stock
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- | 8,164 | ||||||
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Gain
on revaluation of derivatives
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(192,543 | ) | (2,562 | ) | ||||
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Deferred
interest income on notes receivable
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- | (629 | ) | |||||
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Changes
in certain assets and liabilities:
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||||||||
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Accounts
receivable, net
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(172,219 | ) | 19,888 | |||||
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Inventory
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34,565 | (14,461 | ) | |||||
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Prepaid
expenses and other assets
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29,021 | (13,169 | ) | |||||
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Accounts
payable and accrued liabilities
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(185,740 | ) | 162,578 | |||||
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Deferred
revenue
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(12,249 | ) | 12,548 | |||||
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Related
party accounts
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116,574 | 75,899 | ||||||
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Total
cash provided by (used in) operating activities
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(280,996 | ) | 186,266 | |||||
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CASH
FLOWS FROM INVESTING ACTIVITIES
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||||||||
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Purchase
of property and equipment
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(4,830 | ) | - | |||||
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Redemption
of notes receivable
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- | 17,000 | ||||||
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Total
cash provided by (used in) investing activities
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(4,830 | ) | 17,000 | |||||
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CASH
FLOWS FROM FINANCING ACTIVITIES
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||||||||
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Repayment
of related party loans
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(29,186 | ) | (20,108 | ) | ||||
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Repayment
of notes payable, capital leases and convertible
debentures
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(18,848 | ) | (92,022 | ) | ||||
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Total
cash used in financing activities
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(48,034 | ) | (112,130 | ) | ||||
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NET
INCREASE (DECREASE) IN CASH
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(333,860 | ) | 91,136 | |||||
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CASH
– BEGINNING OF PERIOD
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420,042 | 146,443 | ||||||
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CASH
– END OF PERIOD
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$ | 86,182 | $ | 237,579 | ||||
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CASH
PAID DURING THE PERIOD FOR:
|
||||||||
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Interest
expense
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$ | - | $ | - | ||||
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Income
taxes
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$ | - | $ | - | ||||
See
accompanying footnotes to the condensed consolidated financial
statements.
TREY
RESOURCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Unaudited)
SUPPLEMENTAL
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the three months ended
March 31, 2009:
None.
For the three months ended
March 31, 2008, the Company:
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a)
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Issued
626,111,111 shares of Class A Common Stock with a total value of $78,264
for conversion of $70,100 of principal on outstanding debentures with YA
Global Investments, f/k/a Cornell Capital
Partners.
|
See
accompanying footnotes to the condensed consolidated financial
statements.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE 1 – DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION
Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements include the
accounts of Trey Resources, Inc. (the “Company” or “Trey”) and its wholly owned
subsidiaries, SWK Technologies, Inc. and BTSG Acquisition Corp. On
February 11, 2004, the Company was spun off from iVoice, Inc. and is now an
independent publicly traded company. These condensed consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included. It is suggested that these condensed consolidated financial
statements be read in conjunction with the December 31, 2008 audited financial
statements and the accompanying notes thereto filed with the Securities and
Exchange Commission on Form 10-K.
Description
of Business
Trey
Resources, Inc. (the “Company”), was incorporated in Delaware on October 3, 2002
as a wholly owned subsidiary of iVoice Inc. On February 11, 2004, the
Company was spun off from iVoice, Inc. and is now an independent publicly traded
company. The spin-off transaction was accomplished by the distribution of
certain intellectual property, representing the software codes of the Automatic
Reminder, and certain accrued liabilities and related party debt into a
wholly-owned subsidiary of iVoice., Trey Resources, Inc. (“Trey”), formerly
known as iVoice Acquisition 1, Inc. and Trey Industries, Inc.), and subsequently
distributed on a pro-rata basis to iVoice shareholders in the form of a taxable
dividend.
Up until
its acquisition of SWK, Inc. on June 2, 2004, the Company was engaged in the
design, manufacture, and marketing of specialized telecommunication equipment.
With the acquisition of SWK and as part of its plan to expand into new markets,
Trey is focusing on the business software and information technology consulting
market, and is looking to acquire other companies in this industry. SWK
Technologies, Inc., (“SWK”) the surviving entity in the merger and acquisition
of SWK, Inc., is a New Jersey-based information technology company, value added
reseller, and master developer of licensed accounting software. The Company also
publishes its own proprietary supply-chain software, “MAPADOC”. The Company
sells services and products to various end users, manufacturers, wholesalers and
distributor industry clients located throughout the United States. On June 2,
2006, SWK Technologies, Inc. completed the acquisition of certain assets of
AMP-Best Consulting, Inc. of Syracuse, New York. AMP-Best Consulting,
Inc. is an information technology company and value added reseller of licensed
accounting software published by Sage Software. AMP-Best Consulting,
Inc. sells services and products to various end users, manufacturers,
wholesalers and distribution industry clients located throughout the United
States, with special emphasis on companies located in the upstate New York
region.
The
Company is publicly traded and is currently traded on the NASD Over The Counter
Bulletin Board (“OTCBB”) under the symbol “TYRIA.”
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Principles of
Consolidation
The
accompanying condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an agreement exists, delivery has
occurred, the amount is fixed or determinable, and cash is
received.
The
Company recognizes revenues from consulting and support services as the services
are performed.
The
assessment of collectability is critical in determining whether revenue should
be recognized. As part of the revenue recognition process, we
determine whether trade receivables are reasonably assured of collection based
on various factors. Revenue and related costs are deferred if we are
uncertain as to whether the receivable can be collected. Revenue is
deferred but costs are recognized when we determine that the collection of the
receivable is unlikely. Hardware and software revenues are recognized
when the product is shipped to the customer. The Company separates the software
component and the professional services component into two distinct parts for
purposes of determining revenue recognition. In that situation where
both components are present, software sales revenue is recognized when the cash
is received and the product is delivered, and professional service revenue is
recognized as the service time is incurred. Commissions are
recognized when payments are received, since the Company has no obligation to
perform any future services.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
With
respect to the sale of software license fees, the Company recognizes revenue in
accordance with
Statement of Position 97-2, software Revenue Recognition (SOP 97-2), as amended,
and generally recognizes revenue when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists generally evidenced by a signed,
written purchase order from the customer,
(2) delivery of the software product on Compact Disk (CD) or other means to the
customer has occurred, (3) the perpetual license fee is fixed or determinable
and (4) collectability, which is assessed on a customer-by-customer basis, is
probable.
With
respect to customer support services, upon the completion of one year from the
date of sale, considered to be the warranty period, the Company offers customers
an optional annual software maintenance and support agreement for subsequent
one-year periods. Sales of purchased maintenance and support agreements are
recorded as deferred revenue and recognized over the respective terms of the
agreements.
Advertising
Costs
Advertising
costs are expensed as incurred and are included in selling
expenses. For the three months ended March 31, 2009 and 2008,
advertising expenses were $-0- and $-0-, respectively.
Income
Taxes
The
Company accounts for income taxes in accordance with Statements of Financial
Accounting Standards No. 109, “Accounting for Income Taxes,” which requires an
asset and liability approach to financial accounting and reporting for income
taxes. Deferred income taxes and liabilities are computed annually for
differences between the financial statement and the tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Cash and Cash
Equivalents
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company had no
cash equivalents at March 31, 2009 and December 31, 2008,
respectively.
The
Company maintains cash balances at a financial institution that is insured by
the Federal Deposit Insurance Corporation. The Company had uninsured cash
balances of $-0- and $131,081 at March 31, 2009 and December 31, 2008,
respectively.
Accounts
Receivable
Accounts
receivables consist primarily of uncollected invoices for maintenance and
professional services. Payments for software sales are due in advance of
ordering from the software supplier. Payments for maintenance and support plan
renewals are due before the beginning of the maintenance period. Payments for
professional services are due 50% in advance and the balance on completion of
the services. The Company maintains a small provision for bad debts and reviews
the provision quarterly.
Inventory
Inventory
consists primarily of pre-packaged software programs that are held for resale to
customers. Cost is determined by specific identification related to the purchase
order from the software supplier.
Property and
Equipment
Property
and equipment is stated at cost. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the assets,
generally five to seven years. Maintenance and repairs are charged to
expense as incurred.
Deferred
Revenues
Deferred
revenues consist primarily of annual telephone support plan revenues that will
be earned in future periods.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial
Instruments
The
Company estimates that the fair value of all financial instruments at March 31,
2009 and December 31, 2008, as defined in FASB 107, does not differ materially
from the aggregate carrying values of its financial instruments recorded in the
accompanying condensed consolidated balance sheets. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Effective
this quarter, we implemented Statement of Financial Accounting Standards No.
157, Fair Value Measurements, or SFAS 157, for our nonfinancial assets and
liabilities that are re-measured at fair value on a non-recurring basis. The
adoption of SFAS 157 for our nonfinancial assets and liabilities that are
re-measured at fair value on a non-recurring basis did not impact our financial
position or results of operations; however, could have an impact in future
periods. In addition, we may have additional disclosure requirements in the
event we complete an acquisition or incur impairment of our assets in future
periods.
Loss Per Common
Share
SFAS No.
128, "Earnings Per Share" requires presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS").
The
Company’s basic income (loss) per common share is based on net income (loss) for
the relevant period, divided by the weighted average number of common shares
outstanding during the period. Diluted income per common share is
based on net income, divided by the weighted average number of common shares
outstanding during the period, including common share equivalents, such as
outstanding stock options and beneficial conversion of related party
accounts. Diluted loss per share does not include common stock
equivalents, as these shares would have no effect. The computation of diluted
loss per share also does not assume conversion, exercise or contingent exercise
of securities due to the beneficial conversion of related party accounts, as
this would be anti-dilutive.
|
Three Months Ended
|
Three Months Ended
|
|||||||
|
March 31, 2009
|
March 31, 2008
|
|||||||
|
Basic
net income (loss) per share computation:
|
||||||||
|
Net
income (loss) attributable to common stockholders
|
$ | 27,045 | $ | (195,571 | ) | |||
|
Weighted-average
common shares outstanding
|
4,105,473,533 | 3,529,844,717 | ||||||
|
Basic
net income (loss) per share attributable to common stockholders
|
$ | 0.00 | $ | 0.00 | ||||
|
Diluted
net income (loss) per share computation
|
||||||||
|
Net
loss attributable to common stockholders
|
$ | 27,045 | $ | (195,571 | ) | |||
|
Weighted-average
common shares outstanding
|
4,105,473,533 | 3,529,844,717 | ||||||
|
Incremental
shares attributable to the common stock equivalents
|
5,894,526,467 | - | ||||||
|
Total
adjusted weighted-average shares
|
10,000,000,000 | 3,529,844,717 | ||||||
|
Diluted
net income (loss) per share attributable to common stockholders
|
$ | 0.00 | $ | 0.00 | ||||
Derivative
Liabilities
During
April 2003, the Financial Accounting Standards Board issued SFAS 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement requires that contracts with
comparable characteristics be accounted for similarly and clarifies when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. SFAS 149 is effective for contracts entered
into or modified after June 30, 2003, except in certain circumstances, and for
hedging relationships designated after June 30, 2003. The financial statements
for the three months ended March 31, 2009 include the recognition of the
derivative liability on the underlying securities issuable upon conversion of
the Cornell Convertible Debentures (see note 9).
Long-Lived
Assets
SFAS No.
142, “Goodwill and Other Intangible Assets” requires goodwill to be tested for
impairment under certain circumstances, and written off when impaired, rather
than being amortized as previous standards require. In accordance
with the requirements of this pronouncement, the Company has assessed the value
of the intangible assets reflected as goodwill on its books and has determined
that future benefit for these assets exists. At March 31, 2009, and
December 31, 2008 the Company had realized a decline in the value of the
Goodwill and recorded cumulative impairments of $1,062,040.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based
Compensation
The
Company has adopted SFAS No. 123R, “Accounting for Stock-Based Compensation”
which establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement also applies to
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. Those transactions must be accounted for based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. For stock
options, fair value is determined using an option-pricing model that takes into
account the stock price at the grant date, the exercise price, the expected life
of the option, the volatility of the underlying stock and the expected dividends
on it, and the risk-free interest rate over the expected life of the
option.
Recent Accounting
Pronouncements
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests
in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS
160”). SFAS 160 requires that ownership interests in subsidiaries
held by parties other than the parent, and the amount of consolidated net
income, be clearly identified, labeled, and presented in the consolidated
financial statements within equity, but separate from the parent’s equity. It
also requires once a subsidiary is deconsolidated, any retained non-controlling
equity investment in the former subsidiary be initially measured at fair value.
Sufficient disclosures are required to clearly identify and distinguish between
the interests of the parent and the interests of the non-controlling owners.
SFAS 160 will be effective beginning January 1, 2009. The adoption of SFAS
160 did not have a material impact on the Company’s condensed consolidated
financial statements.
In
December 2007, the FASB issued SFAC No 141(R), “Business
Combinations.” This statement provides new accounting guidance and
disclosure requirements for business0 combinations. SFAS No 141(R) is
effective for business combinations which occur in the first fiscal year
beginning on or after December 15, 2008. The adoption of SFAS 141(R) did
not have a significant impact on the Company’s condensed consolidated
financial statements or financial position, but the nature and magnitude of the
specific effects will depend upon the nature, terms and size of the acquisitions
the Company consummates after the effective date.
In
December 2007, the FASB finalized the provisions of the Emerging Issues Task
Force (EITF) Issue No. 07-1, “Accounting for Collaborative
Arrangements.” This EITF Issue provides guidance and requires
financial statement disclosures for collaborative arrangements. EITF
Issue No. 07-1 is effect for financial statements issued for fiscal years
beginning after December15, 2008. The adoption of EITF Issue No. 07-1
did not have a material impact on the Company’s consolidated financial
statements.
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(“SFAS 161”), which modifies and expands the disclosure requirements for
derivative instruments and hedging activities. SFAS 161 requires that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation and requires quantitative disclosures about fair
value amounts and gains and losses on derivative instruments. It also
requires disclosures about credit-related contingent features in derivative
agreements. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. SFAS 161 encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The
Company adopted this standard effective January 1, 2009. The implementation of
this standard did not have a material impact on the Company’s condensed
consolidated financial statements.
In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life
of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of the
treatment of the costs, period of extension, and total costs
incurred. FSP 143-3 must be applied prospectively to intangible
assets acquired after January 1, 2009. The Company’s adoption of FSP
FAS 142-3 did not have a material impact on the Company’s condensed consolidated
financial statements.
In May
2008, the Financial Accounting Standards Board (the “FASB”) issued FAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles” (“FAS 162”). This
statement identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in accordance with GAAP. With the
issuance of this statement, the FASB concluded that the GAAP hierarchy should be
directed toward the entity and not its auditor, and reside in the accounting
literature established by the FASB as opposed to the American Institute of
Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” This statement is effective 60 days following the SEC’s approval of
the Public Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” The Company’s adoption of SFAS 162 did not have
a material impact on the Company’s condensed consolidated financial
statements.
In June
2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-3,
Accounting for Lessees for Maintenance Deposits Under Lease Arrangements ("EITF
08-3"). EITF 08-3 provides guidance for accounting for nonrefundable maintenance
deposits. It also provides revenue recognition accounting guidance for the
lessor. EITF 08-3 is effective for fiscal years beginning after December 15,
2008. The Company’s adoption of EITF 08-3 did not have a material impact on the
Company’s condensed consolidated financial statements.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting
Pronouncements (continued)
In
November 2008, the FASB issued EITF Issue No. 08-7, Accounting for
Defensive Intangible Assets” (EITF 08-7). EITF 08-7 addresses the
accounting for assets acquired in a business combination or asset acquisition
that an entity does not intend to actively use, otherwise referred to as a
‘defensive asset.’ EITF 08-7 requires defensive intangible assets to be
initially accounted for as a separate unit of accounting and not included as
part of the cost of the acquirer’s existing intangible asset(s) because it is
separately identifiable. EITF 08-7 also requires that defensive intangible
assets be assigned a useful life in accordance with paragraph 11 of
SFAS 142 and is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company has adopted this standard
effective January 1, 2009 and the Company’s adoption of this EITF did not have a
material impact on its condensed consolidated financial statements.
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments. This FSP amends the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments in the financial statements. The most significant change the FSP
brings is a revision to the amount of other-than-temporary loss of a debt
security recorded in earnings. FSP FAS 115-2 and FAS 124-2 is effective for
interim and annual reporting periods ending after June 15, 2009. The Company
does not believe that the implementation of this standard will have a material
impact on its condensed consolidated financial statements.
In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. FSP FAS 157-4 is effective for interim and
annual reporting periods ending after June 15, 2009, and is applied
prospectively. The Company does not believe that the implementation of this
standard will have a material impact on its condensed consolidated financial
statements.
In April
2009, the FASB issued FSP FAS FAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods.
FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods
ending after June 15, 2009. The Company does not believe that the implementation
of this standard will have a material impact on its condensed consolidated
financial statements.
In
June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues
Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” Under
the FSP, unvested share-based payment awards that contain rights to receive non
forfeitable dividends (whether paid or unpaid) are participating securities, and
should be included in the two-class method of computing EPS. The FSP is
effective for fiscal years beginning after December 15, 2008 and for
interim periods within those years The implementation of this standard did not
have a material impact on the Company's condensed consolidated financial
statements.
In
February 2008, FASB Staff Position ("FSP") FAS No. 157-2, "Effective
Date of FASB Statement No. 157" ("FSP No. 157-2") was issued. FSP
No. 157-2 defers the effective date of SFAS No. 157 to fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Examples of items within the scope of FSP
No. 157-2 are nonfinancial assets and nonfinancial liabilities initially
measured at fair value in a business combination (but not measured at fair value
in subsequent periods), and long-lived assets, such as property, plant and
equipment and intangible assets measured at fair value for an impairment
assessment under SFAS No. 144.
The
partial adoption of SFAS No. 157 on January 1, 2008 with respect to
financial assets and financial liabilities recognized or disclosed at fair value
in the financial statements on a recurring basis did not have a material impact
on the Company's condensed consolidated financial statements. See Note 3
for the fair value measurement disclosures for these assets and liabilities. The
Company adopted SFAS No. 157 on January 1, 2009.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE 3 - FAIR VALUE
MEASUREMENTS
In
September 2006, the FASB issued SFAS 157, which defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value
measurements. The provisions of SFAS 157 were effective January 1, 2008.
The FASB has also issued Staff Position (FSP) SFAS 157-2 (FSP No. 157-2),
which delays the effective date of SFAS 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008.
As
defined in SFAS 157, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies fair value
balances based on the observability of those inputs. SFAS 157 establishes a fair
value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).
The three
levels of the fair value hierarchy defined by SFAS 157 are as
follows:
Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level 2 –
Pricing inputs are other than quoted prices in active markets included in level
1, which are either directly or indirectly observable as of the reported date.
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps,
options and collars.
Level 3 –
Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.
The
following table sets forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
as of March 31, 2009 and December 31, 2008. As required by SFAS 157,
financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement. The
Company’s assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of fair value assets
and liabilities and their placement within the fair value hierarchy
levels.
|
March 31, 2009
|
Level
I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Convertible
debentures
|
$ | - | $ | 1,574,100 | $ | - | $ | 1,574,100 | ||||||||
|
Notes
payable and capital leases
|
- | 73,980 | - | 73,980 | ||||||||||||
|
Notes
payable to related parties
|
- | 291,877 | - | 291,877 | ||||||||||||
|
Derivative
liabilities
|
- | 740,233 | - | 740,233 | ||||||||||||
|
Warrant
liabilities
|
- | - | - | - | ||||||||||||
|
Total
Liabilities
|
$ | - | $ | 2,680,190 | $ | - | $ | 2,680,190 | ||||||||
|
December 31, 2008
|
Level
I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Convertible
debentures
|
$ | - | $ | 1,574,100 | $ | - | $ | 1,574,100 | ||||||||
|
Notes
payable and capital leases
|
- | 92,828 | - | 92,828 | ||||||||||||
|
Notes
payable to related parties
|
- | 321,063 | - | 321,063 | ||||||||||||
|
Derivative
liabilities
|
- | 857,236 | - | 857,236 | ||||||||||||
|
Warrant
liabilities
|
- | 75,450 | - | 75,450 | ||||||||||||
|
Total
Liabilities
|
$ | - | $ | 2,920,677 | $ | - | $ | 2,920,677 | ||||||||
Effective
this quarter, we implemented Statement of Financial Accounting Standards No.
157, Fair Value Measurements, or SFAS 157, for our nonfinancial assets and
liabilities that are re-measured at fair value on a non-recurring basis. The
adoption of SFAS 157 for our nonfinancial assets and liabilities that are
re-measured at fair value on a non-recurring basis did not impact our financial
position or results of operations; however, could have an impact in future
periods. In addition, we may have additional disclosure requirements in the
event we complete an acquisition or incur impairment of our assets in future
periods.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE 5 –INTANGIBLE
ASSETS
The
acquisition of the client lists of Wolen Katz and AMP-Best Consulting in 2006 is
currently valued at $52,468, which is net of accumulated amortization of
$540,763. These intangible assets are being amortized over a three-year period.
The amortization expense for the three months ended March 31, 2009 and 2008 was
$49,243 for both periods.
Management
reviewed these intangible assets for impairment at March 31, 2009 and December
31, 2008 and has determined that no further write-down for impairment is
required.
NOTE 6 - GOING
CONCERN
The
accompanying condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplates continuation of the Company as a going
concern.
The
Company has suffered recurring losses and current liabilities exceeded current
assets by approximately $5.6 million, as of March 31, 2009. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The recoverability of a major portion of the recorded asset amounts shown in the
accompanying condensed consolidated balance sheet is dependent upon continued
operations of the Company, which in turn, is dependent upon the Company's
ability to raise capital and/or generate positive cash flows from
operations.
In
addition to developing new products, obtaining new customers and increasing
sales to existing customers, management plans to achieve profitability through
acquisitions of companies in the business software and information technology
consulting market with solid revenue streams, established customer bases, and
generate positive cash flow.
These
condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.
NOTE 7- LINE OF
CREDIT
The
Company has a line of credit with Bank of America in the amount of $250,000. The
secured line of credit bears interest at prime plus 1% per annum, which can
change with the fluctuations in the prime rate. Monthly payments of
interest only in arrears shall be due and payable on the 4th of each month and
these have been paid. Principal shall be due and payable on
demand. The Company had no outstanding loan balances as of March 31,
2009 and December 31, 2008.
NOTE 8- CONVERTIBLE
DEBENTURES PAYABLE
In
January 2003, the Company entered into subscription agreements with certain
purchasers to issue $140,000 in convertible debentures, with interest payable at
5% annum. The notes are convertible into the Company's Class A common
stock at a price equal to either (a) an amount equal to one hundred twenty
percent (120%) of the closing bid price for the Common Stock on the Closing
Date, or (b) an amount equal to eighty percent (80%) of the average of the four
(4) lowest Closing Bid Prices of the Common Stock for the five (5) trading days
immediately preceding the Conversion Date.
Pursuant
to the subscription agreements set forth above, on June 30, 2003, the Company
issued $40,000 in 5% convertible debentures and on September 19, 2003, the
Company issued an additional $100,000 in 5% convertible debentures to the
private investors under the subscription agreement. The 20%
beneficial conversion feature was previously recorded as prepaid financing
costs, until such time as the Company's Class A common stock into which the
debentures are convertible was registered and deemed effective by the U.S
Securities and Exchange Commission. The Company completed the
effective registration of the Company's common stock, and any amounts
capitalized have been charged to expense in accordance with EITF Issue 98-5.
During the three months ended March 31, 2009 and during the year ended December
31, 2008, no additional payments have been made on these outstanding convertible
debentures. Total outstanding principal balance of the convertible debentures as
of March 31, 2009 and December 31, 2008 was $15,000, plus accrued interest of
$5,610 and $5,425, respectively.
On
December 30, 2005, the Company entered into a Securities Purchase Agreement with
YA Global (f/k/a Cornell Capital Partners, LP) ("Cornell"). Pursuant
to such purchase agreement, Cornell shall purchase up to $2,359,047 of secured
convertible debentures, which shall be convertible into shares of the Company’s
Class A common stock. Pursuant to the Securities Purchase Agreement, two Secured
Convertible Debentures were issued on December 30, 2005 for an aggregate of
$1,759,047. A portion of this financing was used to convert promissory notes and
accrued interest equal to $1,159,047 into new secured convertible debentures and
the balance was new financing in the form of secured convertible debentures
equal to $600,000 with interest payable at the rate of 7.5% per annum to be
issued and sold on the closing of this Securities Purchase Agreement and a
second secured convertible debenture equal to $600,000 with interest payable at
the rate of 7.5% per annum to be issued and sold two business days prior to the
filing of the registration statement that will register the common stock shares
issuable upon conversion of the secured convertible debentures. On
May 2, 2006, the second $600,000 was funded 2 business days prior to the date
the registration statement was filed with the United States Securities and
Exchange Commission.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE 8- CONVERTIBLE
DEBENTURES PAYABLE (Continued)
Interest
on the outstanding principal balance of the Secured Convertible Debentures
accrues at the annual rate of 7.5%. Payment of principal and accrued interest
shall be paid on or before December 30, 2007 on the 2005 debentures, and May 2,
2008 for the 2006 debenture. The Company has the option to redeem a portion or
all of the outstanding debentures at 120% of the amount redeemed plus accrued
interest. The holder shall be entitled to convert in whole or in part at any
time and from time to time, any amount of principal and accrued interest at a
price equal to 90% of
the lowest closing bid price of the Common Stock during the 30 trading days
immediately
preceding the conversion date, as quoted by Bloomberg, LP (“Conversion Price”).
In the event of a default, the full principal amount of this Debenture, together
with interest and other amounts owing, shall be due and payable in cash,
provided however, the holder of the debenture may request payment of such
amounts in Common Stock of the Obligor at the Conversion Price then in-effect. A
holder of the debenture may not convert this Debenture or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion or
receipt of such interest payment would result in the holder of the debenture
beneficially owning in excess of 4.9% of the then issued and outstanding shares
of Common Stock, including shares issuable upon conversion of, and payment of
interest on, this Debenture. Providing that the holder of the debenture meets
all restrictions and that the Company does not enter into default, then the
Company would expect to issue approximately 344,000,000 shares of Common Stock
in settlement of the three secured convertible debentures, over the life of
these debentures at the current Conversion Price of $.0075.
During
the three months ended March 31, 2009, the Company did not issue any shares of
Class A common stock for repayment of principal on the convertible debenture
held by YA Global Investments, f/k/a Cornell Capital Partners. The aggregate
principal value of the debentures at March 31, 2009 is $1,559,100. Debt discount
has been fully amortized.
As of
March 31, 2009, the Company is in default on all of these debentures and is
currently negotiating with YA Global to cure the default.
NOTE 9 - DERIVATIVE
LIABILITY
In
accordance with SFAS 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES" and EITF 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS
INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK," the conversion
feature associated with the Cornell Secured Convertible Debentures represents
embedded derivatives. As such, the Company had recognized embedded derivatives
in the amount of $1,946,936 as a liability in the accompanying condensed
consolidated balance sheet, and it is now measured at its estimated fair value
of $740,233 at March 31, 2009. In addition the Company issued 4 million warrants
which were valued at $75,450 and are not subject to revaluation. These warrants
have expired, and, as such, the warrant liability was credited to gain on
valuation of derivative for the three months ended March 31,
2009. These warrants are included in the condensed consolidated
balance sheets as warrant liability at December 31, 2008.. The estimated fair
value of the embedded derivative has been calculated based on a Black-Scholes
pricing model using the following assumptions at March 31, 2009:
|
Fair market value of stock
|
$ | 0.000125 | ||
|
Exercise
price
|
$ | 0.000113 | ||
|
Dividend
yield
|
0.00 | % | ||
|
Risk
free interest rate
|
1.38 | % | ||
|
Expected
volatility
|
57.52 | % | ||
|
Expected
life
|
3
Years
|
|||
NOTE 10 - DUE TO RELATED
PARTIES
Pursuant
to the employment contract dated January 1, 2003 between the Company and Jerome
Mahoney, the Non-Executive Chairman of the Board, Mr. Mahoney is to receive a
salary of $180,000 per year subject to 10% increases every year thereafter, as
well as a monthly unaccountable travel expense allowance of $725, an auto
allowance of $800 and a health insurance allowance of $1,400 per
month. Also, pursuant to the employment contract with Mr. Mahoney,
following the completion of the Spin-off from its former parent company, iVoice
Inc., which occurred on February 11, 2004, Mr. Mahoney is entitled to receive a
one-time payment of $350,000. Total amounts owed to Mr. Mahoney at March 31,
2009, representing unpaid salary, unpaid expense and auto allowances, the
one-time payment in connection with the Spin-off, liabilities assumed in the
Spin-off and interest on the liabilities assumed in the Spin-off totaled
$1,033,040.
Pursuant
to the employment contract dated September 15, 2003 between the Company and Mark
Meller, the President, Chief Executive Officer and Chief Financial Officer of
Trey Resources, Mr. Meller is to receive a salary of $180,000 per year subject
to 10% increases every year thereafter, as well as a monthly unaccountable
travel expense allowance of $600 and an auto allowance of $800. Also,
pursuant to the employment contract dated September 15, 2003 between the Company
and Mr. Meller, following the completion of the Spin-off from its former parent
company, iVoice Inc., which occurred on February 11, 2004, Mr. Meller is
entitled to receive a one-time payment of $350,000. In addition, Mr.
Meller was awarded a cash bonus of $114,800 on September 14,
2004. Total amounts owed to Mr. Meller at March 31, 2009,
representing unpaid salary, unpaid expense and auto allowances, and the one-time
payment in connection with the Spin-off, totaled $795,011.
Mr.
Mahoney and Mr. Meller have agreed to defer payment of any monies due and owing
them representing fixed compensation, which have been accrued on the Company’s
balance sheet, and the one-time payment in connection with the Spin-off, until
such time as the Board of Directors determines that the Company has sufficient
capital and liquidity to make such payments. Mr. Mahoney and Mr.
Meller have further agreed, however, to accept payment or partial payment, from
time to time, as determined in the sole discretion of the Board of Directors in
the form of cash, the Company’s Class A Common Stock and/or the Company’s Class
B Common Stock.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE 11 – NOTES PAYABLE TO
RELATED PARTIES
Pursuant
to the Spin-off from iVoice, the Company has assumed a promissory note totaling
$250,000 payable to Jerome Mahoney, President and Chief Executive Officer of
iVoice and Non- Executive Chairman of the Board of Trey Resources. At
March 31, 2009 the principal on this note was $79,525 and accrued interest was
$77,086. This is included in notes payable to related parties on the balance
sheet.
In
connection with the acquisition of SWK, Inc., the Company assumed a note payable
to Gary Berman, VP – MAPADOC EDI Service of SWK Technologies, Inc., our wholly
owned subsidiary. On April 1, 2004, Mr. Berman loaned the company
$25,000 pursuant to the Agreement and Plan of Merger and Reorganization among
Trey, SWK and SWK Technologies, Inc. The unsecured note bears
interest at 5% per annum and is payable in bi-weekly amounts of
$217. As of March 31, 2009, the note had been fully
paid.
In
connection with the acquisition of SWK, Inc, the Company assumed a note payable
to Lynn Berman, President of SWK Technologies, Inc., our wholly owned
subsidiary. On April 1, 2004, Ms. Berman loaned the company $25,000
pursuant to the Agreement and Plan of Merger and Reorganization among Trey, SWK
and SWK Technologies, Inc. The unsecured note bears interest at 5%
per annum and is payable in bi-weekly amounts of $217. As of March
31, 2009, the note had been fully paid.
Pursuant
to the asset purchase agreement with AMP-Best, SWK Technologies, Inc. issued a
$380,000 promissory note to Crandall Melvin III, former officer of AMP-Best and
current Chief Financial Officer of SWK Technologies, Inc. The note carries an
interest rate of 7.75% and is payable in 60 monthly payments, commencing 120
days from the closing. As of March 31, 2009 and December 31, 2008, the principal
balance on the note is $212,352 and $231,418, respectively.
NOTE 12 – INCOME
TAXES
The
Company adopted the provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes- an
Interpretation of FASB Statement No. 109, on April 1, 2007. The Company has
analyzed filing positions in all of the federal and state jurisdictions where it
is required to file income tax returns, as well as all open tax
years in these jurisdictions. The Company does not believe it has any
unrecognized tax benefits and there was no effect on its financial condition or
results of operations as a result of implementing FIN 48.
The tax
effect of temporary differences, primarily net operating loss carryforwards,
asset reserves and accrued liabilities, gave rise to the Company's deferred tax
asset in the accompanying March 31, 2009 and December 31, 2008 consolidated
balance sheets. Deferred income taxes are recognized for the tax consequence of
such temporary differences at the enacted tax rate expected to be in
effect when the differences reverse.
NOTE 13 - CAPITAL
STOCK
In
accordance with its Certificate of Incorporation as amended on April 24, 2003,
the Company is authorized to issue 10,000,000,000 shares of Class A common stock
at $.00001 par value; 50,000,000 shares of Class B Common Stock, par value
$.00001; and 20,000,000 shares of Class C Common Stock, par value
$.00001. Additionally, the board of directors has the right to
prescribe and authorize the issuance of 1,000,000 preferred shares, $1.00 par
value.
PREFERRED
STOCK
Preferred
Stock consists of 1,000,000 shares of authorized preferred stock with $1.00 par
value. As of March 31, 2009, no shares were issued or outstanding.
CLASS A
COMMON STOCK
Class A
Common Stock consists of the following as of March 31, 2009: 10,000,000,000
shares of authorized common stock with a par value of $.00001, 4,105,473,533
shares were issued and outstanding. Each holder of Class A common
stock is entitled to receive ratably dividends, if any, as may be declared by
the Board of Directors out of funds legally available for the payment of
dividends. The Company has never paid any dividends on its common
stock and does not contemplate doing so in the foreseeable
future. The Company anticipates that any earnings generated from
operations will be used to finance the growth objectives.
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2009 AND 2008
NOTE
13 - CAPITAL STOCK (Continued)
For the
three months ended March 31, 2009, there were no transactions in the Company
Class A common stock:
CLASS B
COMMON STOCK
Class B
Common Stock consists of 50,000,000 shares of authorized common stock with a par
value of $0.00001. Class B stock has voting rights of 1 to 100 with
respect to Class A Common Stock. As of March 31, 2009, no shares were
issued and outstanding; Class B common stockholders are entitled to receive
dividends in the same proportion as the Class B Common Stock conversion and
voting rights have to Class A Common Stock. A holder of Class B
Common Stock has the right to convert each share of Class B Common Stock into
the number of shares of Class A Common Stock determined by dividing the number
of Class B Common Stock being converted by a 50% discount of the lowest price
that Trey had ever issued its Class A Common Stock. Upon the
liquidation, dissolution, or winding - up of the Company, holders of Class B
Common Stock will be entitled to receive distributions.
CLASS C
COMMON STOCK
Class C
Common Stock consists of 20,000,000 shares of authorized common stock with a par
value of $0.00001. Class C stock has voting rights of 1 vote for
every 1,000 shares with respect to Class A Common Stock. As of March
31, 2009, no shares were issued or outstanding.
NOTE 14 – SUBSEQUENT
EVENT
On May 6,
2009, the Company sold twenty-five (25) newly issued shares or 20% of the stock
of SWK Technologies, Inc., a wholly owned subsidiary of Trey Resources, Inc. for
a purchase price of $150,000. This $150,000 paid to SWK Technologies,
Inc. was transferred to Trey Resources, Inc as a management fee.
The
Company, upon receipt of the $150,000, paid Jerome R. Mahoney, the Company’s
Non-Executive Chairman of the Board of Directors since January 1, 2003, the sum
of $117,500 in full and total satisfaction on any and all outstanding
obligations that exist or may exist between Mr. Mahoney and Trey Resources, Inc.
Such sum to be allocated first to principal outstanding on a promissory note by
and between Mr. Mahoney and Trey Resources, Inc., second to any interest due and
outstanding on such promissory note, and any balance thereafter to deferred and
accrued compensation due Mr. Mahoney. The total outstanding debt due to Mr.
Mahoney is approximately $1,210,000.
On May 6,
2009, Mr. Mahoney agreed to accept 100,000,000 shares of Class A Common Stock
for repayment of $8,500 of amounts due him.
On May 6,
2009, Mr. Meller agreed to accept 100,000,000 shares of Class A Common Stock for
repayment of $8,500 of deferred compensation due him.
On May 6,
2009, Mr. Jerome Mahoney resigned as an employee, officer, director and/or
consultant from Trey Resources, Inc. and SWK Technologies, Inc.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Readers
should read the following discussion in conjunction with our condensed
consolidated financial statements and related notes included elsewhere in this
filing as well as our audited consolidated financial statements and related
notes for the year ending December 31, 2008 filed with Form 10-K. The
following discussion contains forward-looking statements. Please see
“Forward Looking Statements - Cautionary Factors” for a discussion of
uncertainties, risks and assumptions associated with these financial
statements
Overview
With the
acquisition of SWK in 2004, the Board of Directors decided that Trey will focus
on the business software and information technology consulting market, and is
looking to acquire other companies in this industry. SWK
Technologies, Inc., Trey’s wholly owned subsidiary and the surviving company
from the acquisition and merger with SWK, Inc., is a New Jersey-based
information technology company value added reseller and master developer of
licensed accounting software published by Sage Software. SWK
Technologies also publishes its own proprietary supply-chain software, the
Electronic Data Interchange (EDI) solution “MAPADOC.” SWK
Technologies sells services and products to various end users, manufacturers,
wholesalers and distribution industry clients located throughout the United
States, along with network services provided by the Company.
On June
2, 2006, SWK Technologies, Inc. completed the acquisition of certain assets of
AMP-Best Consulting, Inc. of Syracuse, New York. AMP-Best Consulting,
Inc. is an information technology company and value added reseller of licensed
accounting software published by Sage Software. AMP-Best Consulting,
Inc. sells services and products to various end users, manufacturers,
wholesalers and distribution industry clients located throughout the United
States, with special emphasis on companies located in the upstate New York
region.
Management
is uncertain that it can generate sufficient cash to sustain its operations in
the next twelve months, or beyond. It is unclear whether the
acquisition of SWK, Inc. will result in a reasonably successful operating
business and can give no assurances that we will be able to generate sufficient
revenues to be profitable, obtain adequate capital funding or continue as a
going concern.
Three months ended March 31,
2009 as compared to three months ended March 31, 2008
Since the
acquisition of SWK, Inc., on June 2, 2004, all revenues reported by Trey are
derived from the sales and service of Sage Software and MAPADOC products to
various end users, manufacturers, wholesalers and distribution industry clients
located throughout the United States, along with network services provided by
the Company.
Revenues
for the three months ended March 31, 2009 increased $138,893 (7.1%) to
$2,088,783 as compared to $1,949,890 for the three months ended March 31, 2008.
These sales were all generated by the Company’s operating subsidiary, SWK
Technologies (“SWKT”). This increase is primarily due to increased
consulting revenues.
Gross
profit for the three months ended March 31, 2009 increased $145,044 (20.8%) to
$840,875 as compared to $695,831 for the three months ended March 31, 2008. For
the three months ended March 31, 2009 the gross profit percentage was 40.3% as
compared to 35.7% for the three months ended March 31, 2008. The mix of products
being sold by the company changes from time to time and sometimes causes the
overall gross margin percentage to vary. Sales of the larger Sage
Software products carries lower gross margin percentage as the relative discount
percentage from the supplier decreases. The change in sales mix resulted in
gross profit being higher as a percent of sales.
Total
operating expenses increased $168,183 (21.2%) to $962,567 for the three months
ended March 31, 2009 as compared to $794,384 for the three months ended March
31, 2008. This increase is mainly attributed to the increase in the provision
for bad debt.
Total
other income (expense) for the three months ended March 31, 2009 was income of
$148,737 as compared to an expense of $97,198 for the three months ended March
31, 2008. The increase in other income primarily reflects an increase in gain on
revaluation of derivatives and lower amortization of discount on debt
conversion.
For three
months ended March 31, 2009 the company had net income of $27,045 as compared to
a net loss of $195,751 for the three months ended March 31, 2008. The change in
net loss was the result of the factors discussed above.
Liquidity and Capital
Resources
We are
currently seeking additional operating income opportunities through potential
acquisitions or investments. Such acquisitions or investments may
consume cash reserves or require additional cash or equity. Our
working capital and additional funding requirements will depend upon numerous
factors, including: (i) strategic acquisitions or investments; (ii) an increase
to current company personnel; (iii) the level of resources that we devote to
sales and marketing capabilities; (iv) technological advances; and (v) the
activities of competitors.
The
Company has suffered recurring losses and current liabilities exceeded current
assets by approximately $5.6 million, as of March 31, 2009, and, as such, will
require financing for working capital to meet its operating
obligations. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The recoverability of a major
portion of the recorded asset amounts shown in the accompanying condensed
consolidated balance sheet is dependent upon continued operations of the
Company, which in turn, is dependent upon the Company's ability to raise capital
and/or generate positive cash flows from operations.
In
addition to developing new products, obtaining new customers and increasing
sales to existing customers, management plans to achieve profitability through
acquisitions of companies in the business software and information technology
consulting market with solid revenue streams, established customer bases, and
generate positive cash flow. We anticipate that we will require financing on an
ongoing basis for the foreseeable future.
On
December 30, 2005, the Company entered into a Securities Purchase Agreement with
Cornell Capital Partners, LP (n/k/a/ YA Global Investments “YA
Global”). Pursuant to such purchase agreement, YA Global purchased
$2,359,047 of secured convertible debentures which shall be convertible into
shares of the Company's Class A common stock. Pursuant to the Securities
Purchase Agreement, two Secured Convertible Debentures were issued on December
30, 2005 for an aggregate of $1,759,047. A portion of this financing was used to
convert promissory notes and accrued interest therefrom equal to $1,159,047 into
new secured convertible debentures and the balance was new financing in the form
of secured convertible debentures equal to $600,000 with interest payable at the
rate of 7.5% per annum to be issued and sold on the closing of this Securities
Purchase Agreement and a second secured convertible debenture equal to $600,000
with interest payable at the rate of 7.5% per annum to be issued and sold two
business days prior to the filing of the registration statement that will
register the common stock shares issuable upon conversion of the secured
convertible debentures. The debentures were due on December 30, 2007
and May 2, 2008, respectively, and carry an interest rate of 7.5% per annum. The
principal and accrued interest on the debentures are convertible into shares of
Class A Common Stock at a price per share equal to 90% of the lowest closing bid
price of our Class A Common Stock for the thirty trading days immediately
preceding conversion. The aggregate balance due of the YA Global debentures at
March 31, 2009 is $1,559,100 for principal and $465,420 for interest. As of
March 31, 2009, the Company is in default of all the YA Global debentures and is
currently in negotiations with YA Global to cure the default.
During
the three months ended March 31, 2009, Trey had a net decrease in cash of
$333,860. Trey’s principal sources and uses of funds were as
follows:
Cash provided by (used in) operating
activities. Trey had used cash in operating activities of
$280,996 for the three months ended March 31, 2009, a decrease of $467,262 as
compared to cash provided by operating activities of $186,266 for the three
months ended March 31, 2008. This decrease is primarily attributed to the
decrease in accounts payable and accrued expenses and accounts receivable.
Management has been keeping tight control on the cash and expenses and has been
leveraging their funding needs through related party accounts.
Cash provided by (used in) investing
activities. Investing activities for the three months ended
March 31, 2009 used cash of $4,830 for purchases of equipment. For the three
months ended March 31, 2008 the Company received $17,000 from cash redemptions
of the notes receivable.
Cash provided by (used in) financing
activities. Financing activities in the three months ended
March 31, 2009 used a total of $48,034 in cash as compared to using $112,130 of
cash for the three months ended March 31, 2008. This decline in cash used in
financing activities is the result of lower repayments from notes payable,
convertible debentures and capital leases.
Off Balance Sheet
Arrangements
During
the three months ended March 31, 2009, we did not engage in any material
off-balance sheet activities nor have any relationships or arrangements with
unconsolidated entities established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. Further,
we have not guaranteed any obligations of unconsolidated entities nor do we have
any commitment or intent to provide additional funding to any such
entities.
Forward Looking Statements -
Cautionary Factors
Certain
information included in this Form 10-Q and other materials filed or to be filed
by us with the Securities and Exchange Commission (as well as information
included in oral or written statements made by us or on our behalf), may contain
forward-looking statements about our current and expected performance trends,
growth plans, business goals and other matters. These statements may
be contained in our filings with the Securities and Exchange Commission, in our
press releases, in other written communications, and in oral statements made by
or with the approval of one of our authorized officers. Information
set forth in this discussion and analysis contains various “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe
harbor” provisions for forward-looking statements. The reader is
cautioned that such forward-looking statements are based on information
available at the time and/or management’s good faith belief with respect to
future events, and are subject to risks and uncertainties that could cause
actual performance or results to differ materially from those expressed in the
statements. Forward-looking statements speak only as of the date the
statement was made. We assume no obligation to update forward-looking
information to reflect actual results, changes in assumptions or changes in
other factors affecting forward-looking information. Forward-looking
statements are typically identified by the use of terms such as “anticipate,”
“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,”
“predict,” “project,” “should,” “will,” and similar words, although some
forward-looking statements are expressed differently. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct.
ITEM 4T. CONTROLS AND PROCEDURES
Management's
report on internal control over financial reporting.
Management
of the Company has evaluated, with the participation of the Chief Executive
Officer and Chief Financial Officer of the Company, the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer of the
Company had concluded that the Company's disclosure controls and procedures as
of the period covered by this Quarterly Report on Form 10-Q were not effective
for the following reasons:
a) The
deficiency was identified as the Company's limited segregation of duties amongst
the Company's employees with respect to the Company's control activities. This
deficiency is the result of the Company's limited number of employees. This
deficiency may affect management's ability to determine if errors or
inappropriate actions have taken place. Management is required to apply its
judgment in evaluating the cost-benefit relationship of possible changes in our
disclosure controls and procedures.
b) The
deficiency was identified in respect to the Company's Board of Directors. This
deficiency is the result of the Company's limited number of external board
members. This deficiency may give the impression to the investors that the board
is not independent from management. Management and the Board of Directors are
required to apply their judgment in evaluating the cost-benefit relationship of
possible changes in the organization of the Board of Directors.
Changes
in internal control over financial reporting.
Management
of the Company has also evaluated, with the participation of the Chief Executive
Officer of the Company, any change in the Company’s internal control over
financial reporting that occurred during the period covered by this Quarterly
Report on Form 10-Q and determined that there was no change in the Company’s
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II – OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of
March 31, 2009, the Company was in default of all of the Secured Convertible
Debentures held by YA Global Investments LP. As of March 31, 2009, the total
principal amount due on these debentures was $1,559,100 and the total accrued
interest was $465,420. As of the date of this filing, management is currently in
negotiations with holder of these debentures to cure the
default.
ITEM 5. OTHER INFORMATION
|
(b)
|
The
Company does not have a standing nominating committee or a committee
performing similar functions as the Company’s Board of Directors consists
of only two members and therefore there would be no benefit in having a
separate nominating committee that would consist of the same number of
members as the full board of directors. Both members of the
Board of Directors participate in the consideration of director
nominees.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
| Trey Resources, Inc. | |||
|
Date:
May 20, 2009
|
By:
|
/s/ Mark Meller | |
|
Mark
Meller, President,
Chief
Executive Officer and
Principal
Financial Officer
|
|||
In
accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
Date:
May 20, 2009
|
By:
|
/s/ Mark Meller | |
|
Mark
Meller, President,
Chief
Executive Officer and
Principal
Financial Officer
|
|||
Index
of Exhibits