SilverSun Technologies, Inc. - Annual Report: 2010 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2010 |
| o ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-50302
TREY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
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New Jersey
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16-1633636
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(State of incorporation)
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(IRS Employer Identification Number)
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5 Regent Street
Livingston, New Jersey 07039
(Address of principal executive offices)
(973) 958-9555
(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: None
Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by checkmark 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 Noo
Check whether the registrant has submitted electronically and posted on its corporate Website, 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 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 the 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (Do not check if smaller reporting company)
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Smaller reporting company x
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes o No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2010, based on a closing price of $.00019 was approximately $1,596,399.As of March 29, 2011, the registrant had 8,053,568,518 shares of its common stock, par value $0.001, outstanding.
TABLE OF CONTENTS
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PART I
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Page
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Item 1.
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4
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Item 1A.
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8
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Item 1B.
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Unresolved Staff Comments | 13 |
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Item 2.
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14
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Item 3.
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14
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Item 4.
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14
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PART II
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Item 5.
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15
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Item 6.
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18
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Item 7.
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18
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Item 7A.
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22
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Item 8.
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22
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Item 9A.
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22
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Item 9B.
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PART III
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Item 10.
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23
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Item 11.
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24
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Item 12.
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27
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Item 13.
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28
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| Item 14. | Principal Accountant Fees and Services | 29 |
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PART IV
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Item 15.
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30
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| F-1 | ||
FORWARD LOOKING STATEMENTS
Included in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
PART I
Item 1. Business
Background
Trey Resources, Inc., a Delaware corporation (the “Company”), was incorporated on October 3, 2002, as a wholly owned subsidiary of iVoice, Inc. (“iVoice”). On February 11, 2004, the Company was spun off from iVoice, Inc. and became an independent publicly traded company. On September 5, 2003, we changed our corporate name to Trey Resources, Inc. In March 2004, Trey Resources, Inc. began trading on the Over-the-Counter Bulletin board (the “OTCBB”) under the symbol TYRIA.OB.
In June 2004, our wholly-owned subsidiary, SWK Technologies, Inc., a New Jersey-based information technology company, completed a merger with SWK, Inc., a value added reseller and master developer for Sage Software’s MAS 90/200/500 financial accounting software as well as the publisher of its own proprietary Electronic Data Interchange (EDI) software, “MAPADOC.” 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. 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.
Our principal offices and facilities are located at 5 Regent Street, Suite 520, Livingston, NJ 07039 and our telephone number is (973) 758-9555. The Company is publicly traded and is currently traded on the OTCBB under the symbol “TYRIA.”
General
We are business consultants for small and medium sized businesses and value-added resellers and developers of financial accounting software. We also publish our own proprietary EDI software. We are a leader in marketing financial accounting solutions across a broad spectrum of industries focused on manufacturing and distribution. We specialize in software integration and deployment, programming, and training and technical support, aimed at improving the financial reporting and operational efficiencies of small and medium sized companies. The sale of our financial accounting software is concentrated in the northeastern United States, while our EDI software and programming services are sold to corporations nationwide.
We differentiate ourselves from traditional software resellers through our wide range of value-added services, consisting primarily of programming, training, technical support, and other consulting and professional services. We also provide software customization, data migration, business consulting, and implementation assistance for complex design environments. Our strategic focus is to respond to our customers’ requests for interoperability and provide solutions that address broad, enterprise-wide initiatives.
Our product sales are cyclical, and increase when the developer of a specific software product offers new versions, promotions or discontinues support of an older product.
As is common among software resellers, we purchase our products from our suppliers with a combination of cash and credit extended by the supplier. We do not carry inventory, and generally place an order with the supplier only after receiving a firm commitment from our customer. Except in unusual situations, we do not allow our customers to return merchandise and rarely offer extended payment terms to our customers.
Our Products
Substantially all of our initial sales of financial accounting solutions consist of prepackaged software and associated services to customers in the United States. Our sales are focused on three major product categories and associated value-added services.
Financial Accounting Software
The Company resells accounting software published by Sage Software, Inc. (Sage) for the financial accounting requirements of small and medium sized businesses focused on manufacturing and distribution, and the delivery of related services from the sales of these products, including installation, support and training. These product sales are primarily packaged software programs installed on a user workstation, on a local area network server, or in a hosted environment. The programs perform and support a wide variety of functions related to accounting, including financial reporting, accounts payable and accounts receivable, and inventory management.
We provide a variety of services along with our financial accounting software sales to assist our customers in maximizing the benefits from these software applications. These services include training, technical support, and professional services. We employ class instructors and have formal, specific training in the topics they are teaching. We can also provide on-site training services that are highly tailored to meet the needs of a particular customer. Our instructors must pass annual subject-matter examinations required by Sage to retain their product-based teaching certifications.
We provide end-user technical support services through our support/help desk. Our staff of product and technology consultants assists customers calling with questions about product features, functions, usability issues, and configurations. The support/help desk offers services in a variety of ways, including prepaid services, time and materials billed as utilized and annual support contracts. Customers can communicate with the support/help desk through e-mail, telephone, and fax channels. Standard support/help desk services are offered during normal business hours five days per week.
Our professional services include project-focused offerings such as software customization, data migration, and small and medium sized business consulting. We have project managers who provide professional services to our financial accounting customers.
Electronic Data Interchange (EDI) Software
We publish our own proprietary EDI software “MAPADOC.” EDI can be used to automate existing processes, to rationalize procedures and reduce costs, and to improve the speed and quality of services. Because EDI necessarily involves business partners, it can be used as a catalyst for gaining efficiencies across organizational boundaries.
Our “MAPADOC” EDI solution is a fully integrated EDI solution that provides users of Sage Software’s market-leading MAS family of accounting software products with a feature rich product that is easy to use. “MAPADOC” provides the user with dramatically decreased data entry time, elimination of redundant steps, the lowering of paper and postage costs, the reduction of time spent typing, signing, checking and approving documents and the ability to self-manage EDI and to provide a level of independence that saves time and money.
We market our “MAPADOC” solutions to our existing and new small and medium-sized business customers, and through a network of resellers. We have a sales team of technical specialists involved in marketing and supporting sales of the “MAPADOC” product and associated services.
Warehouse Management Systems
We are resellers of the Warehouse Management System (WMS) software published by Accellos, Inc. Accellos, Inc. develops warehouse management software for mid-market distributors. The primary purpose of a WMS is to control the movement and storage of materials within an operation and process the associated transactions. Directed picking, directed replenishment, and directed put-away are the key to WMS. The detailed setup and processing within a WMS can vary significantly from one software vendor to another. However, the basic WMS will use a combination of item, location, quantity, unit of measure, and order information to determine where to stock, where to pick, and in what sequence to perform these operations.
The Accellos WMS software improves accuracy and efficiency, streamlines materials handling, meets retail compliance requirements, and refines inventory control. Accellos also works as part of a complete operational solution by integrating seamlessly with RF hardware, accounting software, shipping systems and warehouse automation equipment.
We market the Accellos solution to our existing and new medium-sized business customers.
Network Services and Business Consulting
We provide network maintenance and service upgrades for our business clients. We are a Microsoft Solutions Provider. Our staff includes engineers who maintain certifications from Microsoft and Sage Software. They are Microsoft Certified Systems Engineers and Microsoft Certified Professionals, and they provide a host of services for our clients, including server implementation, support and assistance, operation and maintenance of large central systems, technical design of network infrastructure, technical troubleshooting for large scale problems, network and server security, and backup, archiving, and storage of data from servers. There are numerous competitors, both larger and smaller, nationally and locally, with whom we compete in this market.
We also provide, as consultants, the information technology (IT) audit required by Section 404 of the Sarbanes Oxley Act of 2002. Section 404 (SOX 404) requires CEOs, CFOs, and outside auditors to attest to the effectiveness of internal controls for financial reporting. To satisfy Section 404 requirements, CEO’s, CFO’s, and outside auditors must sign off on company’s internal controls. They need to know that the company can document its adherence to IT procedures and processes, and that IT processes supporting financial management systems are well controlled. Our qualified staff of certified network engineers and certified public accountants allows us to provide these audits to small and medium sized publicly traded corporations. Our competition to render these services includes accounting firms and independent information technology consultants like ourselves.
Markets
Financial Accounting Software.
In the financial accounting software market, we focus on providing enterprise solutions to small- and medium-sized businesses (“SMB”) with less than $250 million of annual revenue, primarily in the manufacturing and distribution industries. The SMB market is comprised of thousands of companies in the New York region alone
While several local and regional competitors exist in the various geographic territories where we conduct business, we have a competitive advantage in terms of geographic reach, comprehensive training and support, and the provision of other products and services. We are one of the larger Sage resellers in the United States. While there are numerous national, regional, and local competitors that could be compared to us in scale, size, geographical reach, and target markets for the resale of Sage products, there is no one dominant competitor or dominant group of competitors with whom we compete for contracts or assignments on a regular basis. There are also numerous competitors who publish and/or resell competing product lines, such as Microsoft’s General Dynamics accounting software.
Electronic Data Interchange Software.
We publish and sell through a network of software resellers our proprietary EDI software, “MAPADOC”. Electronic Data Interchange (EDI) is computer-to-computer communication of business documents between companies. It is a paperless way to send and receive Purchase Orders, Invoices, etc. EDI replaces human-readable documents with electronically coded documents. The sending computer creates the document and the receiving computer interprets the document. Implementation of EDI streamlines the process of exchanging standard business transactions. Companies save by eliminating people cost as well as the cost due to errors and double entry of data. The transmissions are accomplished by connecting to a mailbox via a modem or the Internet. The most common mailbox is a Value Added Network's (VAN) electronic mailbox. Each user, identified by a unique EDI ID, accesses his mailbox to send and receive all EDI transactions. To standardize the documents communicated between many companies, the Transportation Data Coordinating Committee, in 1975, published its first set of standards.
EDI standards are formats and protocols that trading partners agree to use when sending and receiving business documents. Around 1979, The American National Standards Institute (ANSI) designated an accredited standards committee for EDI. The standards continue to evolve to address the needs of the member companies. “MAPADOC” complies with all current standards. The market for EDI continues to expand as big box retailers, such as Wal-Mart, Target, and K-Mart, insist their vendors utilize EDI in their business transactions. There are numerous companies with whom we compete in the SMB EDI marketplace, including True Commerce and Kissinger Associates.
Warehouse Management Systems.
We resell under a distributor agreement the Warehouse Management Solution published by Accellos, Inc. Accellos Inc. develops warehouse management software for mid-market distributors. The primary purpose of a WMS is to control the movement and storage of materials within an operation and process the associated transactions. Directed picking, directed replenishment, and directed put away are the key to WMS. The detailed setup and processing within a WMS can vary significantly from one software vendor to another. However the basic WMS will use a combination of item, location, quantity, unit of measure, and order information to determine where to stock, where to pick, and in what sequence to perform these operations. The Accellos warehouse management software improves accuracy and efficiency, streamlines materials handling, meets retail compliance requirements, and refines inventory control. Accellos also works as part of a complete operational solution by integrating seamlessly with RF hardware, accounting software, shipping systems and warehouse automation equipment. The WMS marketplace is extremely competitive. We compete against national, regional, and local resellers, some significantly larger than us.
Arrangements with Principal Suppliers
Our revenues are primarily derived from the resale of vendor software products and services. These resales are made pursuant to channel sales agreements whereby we are granted authority to purchase and resell the vendor products and services. Under these agreements, we either resell software directly to our customers or act as a sales agent for various vendors and receive commissions for our sales efforts.
We are required to enter into an annual Channel Partner Agreement with Sage Software, Inc. whereby Sage appoints us as a non-exclusive partner to market, distribute, and support MAS 90/200/500 and ERP X3. These agreements authorize us to sell these software products to certain customers in the United States. There are no clauses in this agreement that limit or restrict the services that we can offer to customers. We also operate a Sage Software Authorized Training Center Agreement and also are party to a Master Developers Program License Agreement.
For the years ended December 31, 2010 and 2009, purchases from one supplier were approximately 23% or 27%, respectively, of the Company’s total cost. Generally, the Company does not rely on any one specific supplier for all of its purchases and maintains relationships with other suppliers that could replace its existing supplier if the need arose.
Customers
We market our products to private companies throughout the United States. For the years ended December 31, 2010 and 2009, our top ten customers had approximately $1,488,235 and $1,360,476 in sales and these represented 20% and 18%, respectively, of our total sales for the period. No single customer accounted for ten percent or more of our consolidated revenues. Generally, we do not rely on any one specific customer for any significant portion of our revenue base.
Intellectual Property
We regard our technology and other proprietary rights as essential to our business. We rely on copyright, trade secret, confidentiality procedures, contract provisions, and trademark law to protect our technology and intellectual property. We have also entered into confidentiality agreements with our consultants and corporate partners and intend to control access to, and distribution of our products, documentation, and other proprietary information.
We own several trademarks registered with the U.S. Patent and Trademark Office, including “MAPADOC” and have a number of trademark applications pending. We have no patents or patent applications pending.
Employees
As of December 31, 2010, we had approximately 36 full time employees and one office in Livingston, New Jersey, and one office in [Syracuse], New York. Approximately six of our employees are engaged in sales and marketing activities and approximately seventeen employees are engaged in service fulfillment.
Our future success depends in significant part upon the continued services of our key sales, technical, and senior management personnel and our ability to attract and retain highly qualified sales, technical, and managerial personnel. None of our employees are represented by collective bargaining agreements, and we have never experienced a work stoppage.
Item 1A. Risk Factors
You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.
AS OF DECEMBER 31, 2010 THERE WAS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. THE COMPANY MAY NOT BE ABLE TO CONTINUE ITS OPERATIONS AND THE FINANCIAL STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS THAT MIGHT RESULT FROM THE OUTCOME OF THIS UNCERTAINTY.
As of December 31, 2010, the Company’s independent public accounting firm issued a “going concern opinion” wherein they stated that the accompanying financial statements were prepared assuming the Company will continue as a going concern. The Company did not generate sufficient cash flows from revenues during the year ended December 31, 2010 to fund its operations. Also, as of December 31, 2010, the Company had negative net working capital of approximately $5.1 million. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
WE HAVE HISTORICALLY LOST MONEY AND MAY CONTINUE TO LOSE MONEY IN THE FUTURE.
We have historically lost money. For the years ended December 31, 2010 and 2009, we had net losses of $568,505 and $1,502,262, respectively. Future losses may to occur. Accordingly, it is possible that we may experience liquidity and cash flow issues. No assurances can be given that we will be successful in reaching or maintaining profitable operations.
WE CANNOT ACCURATELY FORECAST OUR FUTURE REVENUES AND OPERATING RESULTS, WHICH MAY FLUCTUATE.
Our operating history and the rapidly changing nature of the markets in which we compete make it difficult to accurately forecast our revenues and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:
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the timing of sales of our products and services;
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the timing of product implementation, particularly large design projects;
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unexpected delays in introducing new products and services;
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increased expenses, whether related to sales and marketing, product development, or administration;
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deferral in the recognition of revenue in accordance with applicable accounting principles, due to the time required to complete projects;
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the mix of product license and services revenue; and
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costs related to possible acquisitions of technology or businesses.
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WE MAY FAIL TO DEVELOP NEW PRODUCTS, OR MAY INCUR UNEXPECTED EXPENSES OR DELAYS.
Although we currently have fully developed products available for sale, we may also develop various new technologies, products and product features and may rely on them to remain competitive. Due to the risks inherent in developing new products and technologies—limited financing, competition, obsolescence, loss of key personnel, and other factors—we may fail to develop these technologies and products, or may experience lengthy and costly delays in doing so. Although we are able to license some of our technologies in their current stage of development, we cannot assure that we will be able to develop new products or enhancements to our existing products in order to remain competitive.
BECAUSE OUR FINANCIAL ACCOUNTING SOFTWARE, EDI SOFTWARE, AND BUSINESS CONSULTING BUSINESSES ARE STILL EVOLVING, WE MAY EXPERIENCE DIFFICULTIES THAT COULD PREVENT US FROM BECOMING PROFITABLE.
Because our financial accounting software, EDI software, and business consulting businesses are still evolving, we may experience difficulties that could inhibit the development in the new and evolving markets. These difficulties include the following:
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substantial delays and expenses related to testing and developing new products;
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marketing and distribution problems encountered in connection with our new and existing products and technologies;
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competition from larger and more established companies;
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delays in reaching our marketing goals;
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difficulty in recruiting qualified employees for management and other positions;
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lack of sufficient customers, revenues and cash flow; and
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limited financial resources.
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We may continue to face these and other difficulties in the future, some of which may be beyond our control. If we are unable to successfully address these problems, our business will suffer and our stock price could decline.
IF OUR TECHNOLOGIES AND PRODUCTS CONTAIN DEFECTS OR OTHERWISE DO NOT WORK AS EXPECTED, WE MAY INCUR SIGNIFICANT EXPENSES IN ATTEMPTING TO CORRECT THESE DEFECTS OR IN DEFENDING LAWSUITS OVER ANY SUCH DEFECTS.
Software products are not currently accurate in every instance, and may never be. Furthermore, we could inadvertently release products and technologies that contain defects. In addition, third-party technology that we include in our products could contain defects. We may incur significant expenses to correct such defects. Clients who are not satisfied with our products or services could bring claims against us for substantial damages. Such claims could cause us to incur significant legal expenses and, if successful, could result in the plaintiffs being awarded significant damages. Our payment of any such expenses or damages could prevent us from becoming profitable.
OUR SUCCESS IS HIGHLY DEPENDENT UPON OUR ABILITY TO COMPETE AGAINST COMPETITORS THAT HAVE SIGNIFICANTLY GREATER RESOURCES THAN WE HAVE.
The financial accounting software, EDI software, and business consulting industries are highly competitive, and we believe that this competition will intensify. Many of our competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition and larger client bases than we do. Our competitors could use these resources to market or develop products or services that are more effective or less costly than any or all of our products or services or that could render any or all of our products or services obsolete. Our competitors could also use their economic strength to influence the market to continue to buy their existing products.
IF WE ARE NOT ABLE TO PROTECT OUR TRADE SECRETS THROUGH ENFORCEMENT OF OUR CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS, THEN WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AND WE MAY NOT BE PROFITABLE.
We attempt to protect our trade secrets, including the processes, concepts, ideas and documentation associated with our technologies, through the use of confidentiality agreements and non-competition agreements with our current employees and with other parties to whom we have divulged such trade secrets. If the employees or other parties breach our confidentiality agreements and non-competition agreements or if these agreements are not sufficient to protect our technology or are found to be unenforceable, our competitors could acquire and use information that we consider to be our trade secrets and we may not be able to compete effectively. Most of our competitors have substantially greater financial, marketing, technical and manufacturing resources than we have, and we may not be profitable if our competitors are also able to take advantage of our trade secrets.
WE MAY UNINTENTIONALLY INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS.
Many lawsuits currently are being brought in the software industry alleging violation of intellectual property rights. Although we do not believe that we are infringing on any patent rights, patent holders may claim that we are doing so. Any such claim would likely be time-consuming and expensive to defend, particularly if we are unsuccessful, and could prevent us from selling our products or services. In addition, we may also be forced to enter into costly and burdensome royalty and licensing agreements.
OUR PRESIDENT CONTROLS A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK AND HAS SUFFICIENT VOTING POWER TO CONTROL THE VOTE ON SUBSTANTIALLY ALL CORPORATE MATTERS.
As of December 31, 2010, Mark Meller, our President, owned approximately 76% of our outstanding shares of our Class A common stock (assuming the conversion of outstanding debt into shares of Class A common stock and/or Class B common stock). Mr. Meller may be able to influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership, which is not subject to any voting restrictions, could limit the price that investors might be willing to pay for our Class A common stock. In addition, Mr. Meller is in a position to impede transactions that may be desirable for other stockholders. They could, for example, make it more difficult for anyone to take control of us.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND FAILURE TO ADAPT OUR PRODUCT DEVELOPMENT TO THESE CHANGES MAY CAUSE OUR PRODUCTS TO BECOME OBSOLETE.
We participate in a highly dynamic industry characterized by rapid change and uncertainty relating to new and emerging technologies and markets. Future technology or market changes may cause some of our products to become obsolete more quickly than expected.
THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE EFFECTIVELY.
As consolidation in the software industry continues, fewer companies dominate particular markets, changing the nature of the market and potentially providing consumers with fewer choices. Also, many of these companies offer a broader range of products than us, ranging from desktop to enterprise solutions. We may not be able to compete effectively against these competitors. Furthermore, we may use strategic acquisitions, as necessary, to acquire technology, people and products for our overall product strategy. The trend toward consolidation in our industry may result in increased competition in acquiring these technologies, people or products, resulting in increased acquisition costs or the inability to acquire the desired technologies, people or products. Any of these changes may have a significant adverse effect on our future revenues and operating results.
WE FACE INTENSE PRICE-BASED COMPETITION FOR LICENSING OF OUR PRODUCTS WHICH COULD REDUCE PROFIT MARGINS.
Price competition is often intense in the software market. Price competition may continue to increase and become even more significant in the future, resulting in reduced profit margins.
IF WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR CHAIRMAN OF THE BOARD OF DIRECTORS OR CHIEF EXECUTIVE OFFICER, OUR BUSINESS MAY SUFFER.
We are dependent on Mark Meller, our Chief Executive Officer and our key employees in our operating subsidiary, specifically Jeffrey Roth. The loss of any of our key personnel could materially harm our business because of the cost and time necessary to retain and train a replacement. Such a loss would also divert management attention away from operational issues. In an attempt to minimize the effects of such loss, we presently maintain a $1,000,000 key-man term life insurance policies on Mr. Roth. We are in the process of securing similar coverage on the life of Mr. Meller.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We intend to retain any future earnings to finance the growth and development of our business. Therefore, we do not expect to pay any cash dividends in the foreseeable future. Any future dividends will depend on our earnings, if any, and our financial requirements.
EXISTING STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF SHARES UNDER THE YA DEBENTURES.
The sale of shares of Class A Common Stock pursuant to the terms of the YA Global Debentures will have a dilutive impact on our stockholders. As a result, our net income per share could decrease in future periods, and the market price of our Class A Common Stock could decline. In addition, for a given advance, we will need to issue a greater number of shares of Class A Common Stock under the YA Global Debentures as our stock price declines. If our stock price is lower, then our existing stockholders would experience greater dilution. [See “Liquidity and Capital Resources” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations]. The Company presently has an agreement in place with YA Global under which YA has agreed not to convert any debentures into s hares of the Company’s common stock until December 31, 2011as long as the other provisions of the agreement are met.
THE INVESTORS HOLDING OUR CONVERTIBLE DEBENTURES WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR CLASS A COMMON STOCK.
The Class A Common Stock to be issued under the YA Global Debentures will be issued at ninety percent (90%) of the lowest Closing Bid Price of the Common Stock during the thirty (30) days trading days immediately preceding the Conversion Date, as quoted by Bloomberg, LP. These discounted sales could cause the price of our Class A Common Stock to decline.
Further, because the investor under the YA Global Debentures will acquire our Class A Common Stock at a discount, it will have an incentive to sell immediately in order to realize a gain on the difference. This incentive to sell immediately into the public market to realize a gain on the difference accelerates if the market price of our Class A Common Stock declines. [See “Liquidity and Capital Resources” in Item 7. Management’s Discussion and Analysis or Plan of Operation]. The Company presently has an agreement in place with YA Global under which YA has agreed not to convert any debentures into s hares of the Company’s common stock until December 31, 2011 as long as the other provisions of the agreement are met.
THE INVESTORS HOLDING OUR CONVERTIBLE DEBENTURES INTEND TO SELL THEIR SHARES OF CLASS A COMMON STOCK IN THE PUBLIC MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE.
The investors holding our convertible debentures intend to sell the shares of Class A Common Stock in the public market. The number of shares of Class A Common Stock that may be sold is undeterminable at this time. Such sales may cause our stock price to decline. The Company presently has an agreement in place with YA Global under which YA has agreed not to convert any debentures into s hares of the Company’s common stock until December 31, 2011. So long as the other provisions of the agreement are met. The Company presently has an agreement in place with YA Global under which YA has agreed not to convert any debentures into s hares of the Company’s common stock until December 31, 2011 as long as the other provisions of the agreement are met.
THE SALE OF OUR CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OF THE YA GLOBAL DEBENTURES COULD ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FURTHER DECLINE OF OUR STOCK PRICE.
The significant downward pressure on the price of our Class A Common Stock caused by the sale of material amounts of Class A Common Stock under the YA Global Debentures could encourage short sales by third parties. Such an event could place further downward pressure on the price of our Class A Common Stock. The Company presently has an agreement in place with YA Global under which YA has agreed not to convert any debentures into s hares of the Company’s common stock until December 31, 2011 as long as the other provisions of the agreement are met.
OUR CLASS A COMMON STOCK IS THINLY TRADED AND WE CANNOT PREDICT THE EXTENT TO WHICH A MORE ACTIVE TRADING MARKET WILL DEVELOP.
Our Class A Common Stock is thinly traded compared to larger more widely known companies. Thinly traded Class A Common Stock can be more volatile than common stock trading in an active public market. We cannot predict the extent to which an active public market for the Class A Common Stock will develop or be sustained after this offering.
IF WE NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.
If adequate additional financing is not available on reasonable terms, we may not be able to continue our marketing efforts and we would have to modify our business plans accordingly. There is no assurance that additional financing will be available to us.
In connection with our growth strategies and plan of operation, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of competitive products and services by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
THE PRICE OF OUR STOCK MAY BE AFFECTED BY A LIMITED TRADING VOLUME AND MAY FLUCTUATE SIGNIFICANTLY.
There has been a limited public market for our Class A common stock and there can be no assurance that an active trading market for our stock will continue. An absence of an active trading market could adversely affect our stockholders' ability to sell our Class A common stock in short time periods, or possibly at all. Our Class A common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations which could adversely affect the market price of our stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our Class A common stock to fluctuate substantially.
OUR CLASS A COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.
Our Class A common stock is deemed to be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These requirements may reduce the potential market for our Class A common stock by reducing the number of potential investors. This may make it more difficult for investors in our Class A common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. Penny stocks are stock:
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With a price of less than $5.00 per share;
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That are not traded on a "recognized" national exchange;
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Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or
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In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.
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Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.
FUTURE SALES OF OUR CLASS A COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
The sale of a large number of our shares, or the perception that such a sale may occur, could lower our stock price. Such sales could make it more difficult for us to sell equity securities in the future at a time and price that we consider appropriate.
ISSUANCE OF OUR RESERVED SHARES OF CLASS A COMMON STOCK MAY SIGNIFICANTLY DILUTE THE EQUITY INTEREST OF EXISTING STOCKHOLDERS.
We have reserved for issuance shares of our Class A common stock upon exercise or conversion of stock options, warrants, or other convertible securities that are presently outstanding. Issuance of these shares will have the effect of diluting the equity interest of our existing stockholders and could have an adverse effect on the market price for our Class A common stock.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Description of Property
We do not own any real property for use in our operations or otherwise. Our main offices are at 5 Regent Street, Livingston, NJ 07039 where we have 6,986 square feet of office space at a monthly rent of $7,423. The Company entered into a two-year lease, with a one-year extension, for office space at 6834 Buckley Road, North Syracuse, New York, at a monthly rent of $2,100. We use our facilities to house our corporate headquarters and operations and believe our facilities are suitable for such purpose. We also believe that our insurance coverage adequately covers our interest in our leased space. We have a good relationship with our landlords. We believe that these facilities will be adequate for the foreseeable future.
Item 3. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year ended December 31, 2010, no matters were submitted to a vote of security holders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
Our Class A common stock, $0.00001 par value, is quoted on the NASD OTC Bulletin Board under the symbol “TYRIA.” The following table shows the high and low closing prices for the periods indicated.
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Low
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2010
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First Quarter
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$ | 0.000130 | $ | 0.000130 | ||||
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Second Quarter
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$ | 0.000190 | $ | 0.000130 | ||||
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Third Quarter
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$ | 0.000690 | $ | 0.000130 | ||||
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Fourth Quarter
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$ | 0.000380 | $ | 0.000130 | ||||
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2009
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First Quarter
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$ | 0.000190 | $ | 0.000130 | ||||
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Second Quarter
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$ | 0.000310 | $ | 0.000130 | ||||
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Third Quarter
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$ | 0.000190 | $ | 0.000130 | ||||
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Fourth Quarter
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$ | 0.000190 | $ | 0.000130 | ||||
(b) Holders of Common Equity.
As of December 31, 2010, the number of record holders of our common shares was approximately 712.
(c) Dividend Information.
To date, the Company has never paid a cash dividend. We have no plans to pay any dividends in the near future. We intend to retain all earnings, if any, for the foreseeable future, for use in our business operations.
Sales of Unregistered Securities
In the year ending December 31, 2010, the Company issued the following securities pursuant to various exemptions from registration under the Securities Act of 1933.
The Company issued 588,717,949 shares of Class A common stock for conversion of $60,900 of principal on convertible debentures with YA Global Investments
The Company issued 150,000,000 shares of Class A Common stock for repayment of $15,000 in accrued expenses with a fair value of value $19,500. The difference in the market value and $15,000 of accrued expenses was charged to general and administrative expenses in the amount of $4,500.
The Company issued 151,468,264 shares of Class A Common stock to Mr. Meller for repayment of $1,515 in deferred compensation with a fair value of $28,779. The difference in the fair value and the amount of deferred compensation repaid was charged to general and administrative expenses in the amount of $27,264.
The Company issued 403,686,999 shares of Class A Common stock for repayment of $8,074 of legal fees with a fair value of $52,479. The difference in the fair value and the amount of legal fess repaid was charged to general and administrative expenses in the amount of $44,405.
The Company issued 1,425,000,000 shares of Class A Common stock for professional fees, and management and financial consulting fees with a fair value of $216,750.
In the year ending December 31, 2009, the Company issued the following securities pursuant to various exemptions from registration under the Securities Act of 1933.
The Company issued 100,000,000 shares of Class A Common stock for repayment of $8,500 in deferred compensation with a fair value of value $18,750. The difference in the market value and $8,500 of deferred compensation repaid was charged to general and administrative expenses in the amount of $10,250.
The Company issued 100,000,000 shares of Class A Common stock for repayment of $8,500 on a note payable with a fair value of value $18,750. The difference in the market value and $8,500 of note repayment was charged to general and administrative expenses in the amount of $10,250.
The Company issued 95,000,000 shares of Class A Common stock for repayment of $9,500 in accrued expenses with a fair value of value $11,875. The difference in the market value and $9,500 of accrued expenses was charged to general and administrative expenses in the amount of $2,375.
The Company issued 1,300,221,773 shares of Class A Common stock with a total value of $515,671 for conversion of $179,200 of principal on outstanding debentures with YA Global Investments. The difference in the market value and the $179,200 repayment was charged to debt conversion discount in the amount of $336,471.
We relied upon the exemption provided in Section 4(2) of the Securities Act and/or Rule 506 thereunder, which cover "transactions by an issuer not involving any public offering," to issue securities discussed above without registration under the Securities Act of 1933. The Company made a determination in each case that the person to whom the securities were issued did not need the protections that registration would afford. The certificates representing the securities issued displayed a restrictive legend to prevent transfer except in compliance with applicable laws, and our transfer agent was instructed not to permit transfers unless directed to do so by our Company, after approval by our legal counsel. The Company believes that the investors to whom securities were issued had such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment. The Company also believes that the investors had access to the same type of information as would be contained in a registration statement.
Description of Securities
Pursuant to our certificate of incorporation, as amended, we are authorized to issue up to: 10,000,000,000 shares of Class A common stock, par value $0.00001 per share; 50,000,000 shares of Class B common stock, par value $.00001 per share; 20,000,000 shares of Class C common stock, par value $0.00001; and 1,000,000 shares of preferred stock, par value of $1.00 per share. Below is a description of Trey Resources’ outstanding securities, including Class A common stock, Class B common stock, options, warrants and debt.
Class A Common Stock
Each holder of our Class A Common Stock is entitled to one vote for each share held of record. Holders of our Class A Common Stock have no preemptive, subscription, conversion, or redemption rights. There are 10,000,000,000 shares authorized and 8,053,568,518 issued and outstanding at March 31, 2011. Upon liquidation, dissolution or winding-up, the holders of Class A Common Stock are entitled to receive our net assets pro rata. Each holder of Class A Common Stock is entitled to receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. We have not paid any dividends on our Common Stock and do not contemplate doing so in the foreseeable future. We anticipate that any earnings generated from operations will be used to finance our growth.
Class B Common Stock
Each share of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. Holders of Class B Common Stock 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. There are 50,000,000 shares authorized and there were no shares issued and outstanding as of December 31, 2010. 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 our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions.
Class C Common Stock
Each holder of our Class C Common Stock is entitled to 1 vote for each 1,000 shares held of record. Holders of our Class C Common Stock have no preemptive, subscription, conversion, or redemption rights. Shares of Class C Common Stock are not convertible into Class A Common Stock. There are 20,000,000 shares authorized and there were no shares issued and outstanding as of December 31, 2010. Upon liquidation, dissolution or winding-up, the holders of Class C Common Stock are not entitled to receive our net assets pro rata. We have not paid any dividends on our common stock and do not contemplate doing so in the foreseeable future. We anticipate that any earnings generated from operations will be used to finance our growth.
Preferred Stock
Trey filed an amendment to its certificate of incorporation, authorizing the issuance of 1,000,000 shares of Preferred Stock, par value $1.00 per share. As of December 31, 2010, Trey has not issued any shares of Preferred Stock.
Our board of directors is authorized (by resolution and by filing an amendment to our certificate of incorporation and subject to limitations prescribed by the General Corporation Law of the State of Delaware) to issue, from to time, shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and other rights of the shares of each such series and to fix the qualifications, limitations and restrictions thereon, including, but without limiting the generality of the foregoing, the following:
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the number of shares constituting that series and the distinctive designation of that series;
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the dividend rate on the shares of that series, whether dividends are cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
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whether that series has voting rights, in addition to voting rights provided by law, and, if so, the terms of those voting rights;
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whether that series has conversion privileges, and, if so, the terms and conditions of conversion, including provisions for adjusting the conversion rate in such events as our board of directors determines;
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whether or not the shares of that series are redeemable, and, if so, the terms and conditions of redemption, including the dates upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
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whether that series has a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of that sinking fund;
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the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of Trey, and the relative rights of priority, if any, of payment of shares of that series; and
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any other relative powers, preferences and rights of that series, and qualifications, limitations or restrictions on that series.
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If we liquidate, dissolve or wind up our affairs, whether voluntarily or involuntarily, the holders of Preferred Stock of each series will be entitled to receive only that amount or those amounts as are fixed by the certificate of designations or by resolution of the board of directors providing for the issuance of that series.
Options and Stock Awards
During the fiscal year ended December 31, 2004, the Company adopted the Trey Resources, Inc. 2004 Stock Incentive Plan (the “Stock Incentive Plan”) to: (i) provide long-term incentives and rewards to employees, directors, independent contractors or agents the Company and its subsidiaries; (ii) assist the Company in attracting and retaining employees, directors, independent contractors or agents with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such employees, directors, independent contractors or agents with those of the Company's stockholders. The Board of Directors authorized the issuance of up to 2.4 million shares of Class A common stock under the Stock Incentive Plan. In 2005, the Board of Directors amended this plan to increase the authorized number of shares to 20 million Class A Common Stock. In 2007, the Board of Directors amended this plan to increase the authorized number of shares to 87.9 million Class A Common Stock.
During the fiscal year ended December 31, 2007, the Company adopted the Trey Resources, Inc. 2007 Consultant Stock Incentive Plan (the “Consultant Plan”) to: (i) provide long-term incentives, payment in stock in lieu of cash and rewards to consultants, advisors, attorneys, independent contractors or agents ("Eligible Participants") of Trey Resources, Inc. ("the Company") and its subsidiaries; (ii) assist the Company in attracting and retaining independent contractors or agents with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such independent contractors or agents with those of the Company's stockholders. Total shares issuable under this plan may not exceed twenty (20) percent of the issued and outstanding shares of the Company’s Class A Common Stock.
No securities were issued pursuant to the 2004 Plan and 2007 Plans for the years ended December 31, 2010 and 2009.
During the fiscal year ended December 31, 2004, and as amended, the Company adopted the Trey Resources, Inc. 2004 Directors’ and Officers’ Stock Incentive Plan (the "Directors’ and Officers’ Plan") is to (i) provide long-term incentives and rewards to officers and directors the Company and its subsidiaries; (ii) assist the Company in attracting and retaining officers and directors with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such officers and directors with those of the Company's stockholders. The Board of Directors authorized the issuance of up to 2.4 million shares of Class A common stock under the Directors’ and Officers’ Plan. In 2005, the Board of Directors amended this plan to increase the authorized number of shares to 20 million Class A Common Stock.
No securities were issued pursuant to the 2004 D&O Plan for the years ended December 31, 2010 and 2009.
Item 6. Selected Financial Data
The Company does not have any significant trends in its financial condition or results of operations to be disclosed.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis of our financial condition and results of operations includes “forward-looking” statements that reflect our current views with respect to future events and financial performance. We use words such as “expect,” “anticipate,” “believe,” and “intend” and similar expressions to identify forward-looking statements. You should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events and you should not rely unduly on these forward looking statements. We will not necessarily update the information in this discussion if any forward-looking statement later turns out to be inaccurate. This discussion and analysis of financial condition and results of operations should be read in conjunction with our Financial Statements included in this filing. Management is uncertain that it can generate sufficient cash to sustain its operations in the next twelve months, or beyond. We 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.
December 31, 2010 compared to December 31, 2009
All revenues reported by Trey are derived from the sales and service of Sage Software, MAPADOC and various network services products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with programming and network services provided by the Company’s operating subsidiary, SWK Technologies (“SWKT”).
Revenues for the year ended December 31, 2010 increased $72,055 (1%) to $7,486,703 as compared to $7,414,648 for the year ended December 31, 2009. This increase is primarily due to higher sales associated with networking and software sales mostly offset by lower consulting revenues. Product sales increased $443,769 (29.2%) to $1,964,920 for the year ended December 31, 2010 as compared to $1,521,151 in the prior year primarily as a result of higher MAS 500 software sales. Service revenues declined $371,714 (6.3%) to $5,521,783 for the year ended December 31, 2010 from $5,893,497 in the prior year as a result of the weak economy. Management continues to focus on marketing and sales across all its product lines. However, due to the current economic downturn, there can be no assurance that sales will increase.
Gross profit for the year ended December 31, 2010 decreased $170,979 (5.6%) to $2,872,563 as compared to $3,043,542 for the year ended December 31, 2009. For the year ended December 31, 2010 the gross profit percentage was 38.4% as compared to 41% for the year ended December 31, 2009. 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 certain software products carry a lower gross margin percentage as the relative discount percentage from the supplier decreases while consulting revenues generate a higher gross profit. The lower consulting revenues for the year ended December 31, 2010 resulted in the lower gross profit.
Total operating expenses increased $437,847 (13.3%) to $3,809,680 for the year ended December 31, 2010 as compared to $3,295,663 for the year ended December 31, 2009. This increase is mainly attributed to an increase in salaries for sales personnel and professional fees offset partially by lower amortization expense, which is now fully amortized.
Total other income for the year ended December 31, 2010 was $368,612 as compared to other expense of $1,250,141 for the year ended December 31, 2009. This change is primarily attributed to the gain on valuation of derivative of $483,081 for the year ended December 31, 2009 as compared toa loss on valuation of derivative of $728,150 for the year ended December 31, 2009.
Net loss for the year ended December 31, 2010 was $568,505 as compared to net loss of $1,502,262 for the year ended December 31, 2009. The change in net loss of 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 $5.1 million, as of December 31, 2010, 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 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 December 31, 2010 is $1,319,000 for principal and $653,576 for interest. On October 30, 2009, YA Global Investments, L.P. agreed to extend the maturity date of the Convertible Debentures to December 30, 2010. On November 9, 2010, the convertible debentures issued to YA Global Investments, L.P. were renegotiated with the maturity date being extended to December 31, 2011. This amendment required an initial payment of $175,000 due on January 28, 2011 with additional monthly payments of $10,000 to be made for the following eleven months ending December 1, 2011. The remaining principal and all accrued interest is due on December 31, 2011. This agreement also modified and fixed the conversion price at $.0001, but is also subject to price protection features. The Debentures are also not convertible during 2011, provided that the payments required by the amended agreement have been made in a timely fashion. The Company has made all payments in accordance with the agreement as of this filing.
During the year ended December 31, 2010, Trey had a net decrease in cash of $196,138. Trey’s principal sources and uses of funds were as follows:
Cash used in operating activities. For the year ended December 31, 2010, the Company used $38,177 in cash for operating activities as compared to $67,633 for the year ended December 31, 2009. This decrease is primarily attributed to the decrease in accounts receivable, increase in accounts payable and accrued liabilities mostly offset by the higher operating loss.
Cash used in investing activities. For the year ended December 31, 2010 the Company used $31,725 in investing activities as compared to $55,586 for the year ended December 31, 2009. This decrease in cash used is attributed to decreased purchases of property, plant and equipment.
Cash provided by financing activities. Financing activities for the year ended December 31, 2010 used a total of $126,236 in cash as compared to providing $3,659 of cash for the year ended December 31, 2009. This change is primarily attributed to the proceeds of $150,000 from the sale of shares of SWK in 2009.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, inventory obsolescence, intangible assets, payroll tax obligations, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
We have identified below the accounting policies, revenue recognition and software costs, related to what we believe are most critical to our business operations and are discussed throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and expected financial results.
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.
With respect to the sale of software license fees in accordance with GAAP, the Company 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.
Derivative Liabilities
The Company accounts for its embedded conversion features in its convertible debentures in accordance FASB ASC 815-10, which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and FASB ASC 815-40 Section 05, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income”, respectively. The financial statements for the period include the recognition of the derivative liability on the underlying securities issuable upon conversion of the Convertible Debentures with YA Global Investments.
Accounts receivable
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit worthiness, as determined by review of their current credit information. The Company continuously monitors credits and payments from its customers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that have been identified. While such credit losses have historically been within our expectation and the provision established, the Company cannot guarantee that it will continue to receive positive results.
Impact of Recent Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605)”. This Update provides amendments to the criteria in Subtopic 605-24 for separating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to determine the selling price of each specific deliverable which includes vendor-specific objective evidence (if available), third-party evidence (if vendor-specific evidence is not available), or estimated selling price if neither of the first two are available. This Update also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement. Finally, this Update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. This Update is effective for fiscal years beginning on or after June 15, 2010. We do not anticipate any material impact from this Update.
In April, 2010, the FASB issued ASU 2010-17, “Revenue Recognition – Milestone Method.” ASU 2010-17 amends ASC 605 “Revenue Recognition” to provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of ASU 2010-17 to have an effect on the Company’s financial statements.
Off Balance Sheet Arrangements
During fiscal 2010, we did not engage in any material off-balance sheet activities or 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 8. Financial Statements
The financial statements and related notes thereto of this Form 10-K appear after the signature page to this Form 10-K.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures.
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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K were not effective for the following reasons:
a) The deficiency was identified as the Company's limited segregation of duties among 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.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2009. In making this assessment, management used the framework set forth in the report entitled "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a Company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded, as of the end of the fiscal year covered by this Annual Report on Form 10-K, due to a lack of segregation of duties, that our internal control over financial reporting has not been effective. However, at this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. The Company intends to remedy the material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the Company's employees as soon as the Company has the financial resources to do so. Management is required to apply judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
Changes in Internal Controls.
Management of the Company has evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year covered by this Annual Report on Form 10-K. There was no change in the Company's internal control over financial reporting identified in that evaluation that occurred during the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, other than what has been reported above.
Item 9B. Other Information.
Not applicable.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
The Company has one directors and one principal officer. Listed below is certain information concerning the individual who currently serves as director and executive officer of the Company.
|
Period Served as
|
||||||
|
Name
|
Age
|
Position
|
Officer\Director
|
|||
|
Mark Meller
|
51
|
Chairman
|
2003 to present
|
|||
|
|
President, Chief | |||||
|
|
Executive Officer, | |||||
|
|
Chief Financial | |||||
|
|
Officer and Director |
Mark Meller. Mr. Meller has been the President, Chief Financial Office and Director since September 15, 2003, and was further appointed Chief Executive Officer on September 1, 2004. He became Chairman of the Board on May 10, 2009. From October 2004 until February 2007, Mr. Meller was the President, Chief Executive Officer, Chief Financial Officer and Director of Deep Field Technologies, Inc. Since December 15, 2004, Mr. Meller has been the President, Chief Executive Officer, Chief Financial Officer and Director of MM2 Group, Inc. From August 29, 2005 until August 2006, Mr. Meller was the President, Chief Executive Officer and Chief Financial Officer of iVoice Technology, Inc. Since 1988, Mr. Meller has been Chief Executive Officer of Bristol Townsend and Co., Inc., a New Jersey based consulting firm providing merger and acquisition advisory services to middle market companies. From 1986 to 1988, Mr. Meller was Vice President of Corporate Finance and General Counsel of Crown Capital Group, Inc, a New Jersey based consulting firm providing advisory services for middle market leveraged buy-outs (LBO’s). Prior to 1986, Mr. Meller was a financial consultant and practiced law in New York City. He is a member of the New York State Bar.
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 one member and therefore there would be no benefit in having a separate nominating committee.
There are no agreements or understandings for the officer or director to resign at the request of another person and the above-named officers are not acting on behalf of nor will act at the direction of any other person. As of the fiscal year ended December 31, 2010, the Company’s Audit Committee has only one member, and this member is not independent.
For the year ended December 31, 2010, the Board held no meetings.
AUDIT COMMITTEE
During 2010, the Audit Committee currently consisted of Mr. Mark Meller, the Company’s CEO and President. The Audit Committee has no independent members and no member that may deemed a financial expert as defined in §228.401(e) of the regulations promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended. Due to the Company's limited resources, it cannot attract a financial expert to sit on its Board of Directors. Management is responsible for the Company's internal controls and the financial reporting process. The Audit Committee's responsibility is to monitor corporate financial reporting and external audits, although the member of the Audit Committee is not engaged in the practice of auditing or accounting. The Audit committee did not meet in 2010. The Board of Directors approved an Audit Committee Charter. As of this date, the Audit Committee operates pursuant to this Audit Committee Charter.
AUDIT COMMITTEE REPORT
The following is the Audit Committee’s report submitted to the Board of Directors for the fiscal year ended December 31, 2010. The Audit Committee has:
|
·
|
reviewed and discussed the Company’s audited financial statements with Friedman LLP, the Company’s independent registered accounting firm;
|
|
·
|
discussed with Friedman LLP the matters required to be discussed by Statement on Auditing Standards No. 114, as may be modified or supplemented; and
|
|
·
|
received from Friedman the written disclosures and the letter regarding their independence as required by Independence Standards Board Standard No. 1, as may be modified or supplemented, and discussed the auditors’ independence with them.
|
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, for filing with the Securities and Exchange Commission.
|
AUDIT COMMITTEE
|
|
|
Mark Meller, CEO and President
|
The Audit Committee report shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under these acts.
Section 16(a) Beneficial Ownership Reporting Compliance.
No person who was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the registrant registered pursuant to section 12 (“Reporting Person”) failed to file on a timely basis the necessary reports, on Forms 3, 4, or 5, as required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years.
Code of Ethics.
The Company has adopted a Code of Ethics for adherence by its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller to ensure honest and ethical conduct; full, fair and proper disclosure of financial information in the Company's periodic reports filed pursuant to the Securities Exchange Act of 1934; and compliance with applicable laws, rules, and regulations. Any person may obtain a copy of our Code of Ethics by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K.
Item 11. Executive Compensation
The following table sets forth compensation information for services rendered by certain of our executive officers in all capacities during the last two completed fiscal years. The following information includes the dollar value of base salaries and certain other compensation, if any, whether paid or deferred. The executive officers of the company did not receive any stock award, option award, non-equity incentive plan compensation, or nonqualified deferred compensation earnings during the last two completed fiscal years.
Summary Compensation Table
|
Name and Position(s)
|
Year
|
Salary($)
|
Bonus
|
Stock
Awards
|
All Other Compensation
|
Total Compensation
|
||||||||||||||||
|
Mark Meller (1)
|
2010
|
$ | 328,632 | (2) | $ | 0 | $ | 0 | $ | 0 | $ | 328,632 | ||||||||||
|
President, Chief Executive Officer,
|
2009
|
$ | 289,847 | (3) | $ | 0 | $ | 0 | $ | 0 | $ | 289,847 | ||||||||||
|
Chief Financial Officer and Director
|
||||||||||||||||||||||
|
(1)
|
Mr. Meller has served as our President, Chief Executive Officer and Chief Financial Officer since September 13, 2003. Mr. Meller employment contract is for a term of five-years at a base salary of $180,000 in the first year with annual increases based on the Consumer Price Index every year thereafter. On September 1, 2010, the Company entered Amendment No. 1 to the Employment Agreement whereby the term of the Employment Agreement was extended to September 15, 2017.
|
|
(2)
|
$252,797 was accrued and unpaid in fiscal year 2010.
|
|
(3)
|
$266,787 was accrued and unpaid in fiscal year 2009.
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The Company had no outstanding equity awards at the end of the most recent completed fiscal year.
Compensation of Directors
There were no outside directors during the year ended December 31, 2010.
Employment Contracts
On September 15, 2003, the Company entered into an employment agreement with Mr. Meller. He will serve as the Company's President and Chief Financial Officer for a term of five years. As consideration, the Company agreed to pay Mr. Meller the sum of $180,000 the first year with a 10% increase every year thereafter, as well as a monthly travel expense allowance of $600 and an auto allowance of $800. The employment agreement with Mr. Meller also provides for a severance payment to him of three hundred percent (300%), less $100,000 of his gross income for services rendered to Trey in each of the five prior calendar years should his employment be terminated following a change in control, as defined in the employment agreement. Mr. Meller shall also be paid the sum of $350,000 upon the completion of the Spin-Off, and compensation retroactive to August 1, 2003, at the annual rate dictated by the terms of the employment agreement, as a result of Trey Resources acquiring SWK, Inc. on June 2, 2004
Mr. Meller has agreed to defer payment of a portion of the monies due and owing him representing fixed compensation, which has 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. Pursuant to an agreement between the Company and Mr. Meller has 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. Amounts owed to him can be converted into (i) one share of our Class B common stock for each dollar owed, or (ii) the number of shares of our Class A common stock calculated by dividing (x) the sum of the amount being prepaid by (y) 50% of the lowest issue price of shares of our Class A common stock since the first advance of funds under such amounts due.
On September 1, 2010, the Company entered into Amendment No 1 to the Employment Agreement with Mark Meller, President and Chief Executive Officer of the Company, whereby the term of the Employment Agreement was extended to September 15, 2017.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information regarding the beneficial ownership of our voting securities as of December 31, 2010 of (i) each person known to us to beneficially own more than 5% of the applicable class of voting securities, (ii) our directors, (iii) and each named executive officer and (iv) all directors and executive officers as a group. As of December 31, 2010 there were a total of 8,553,568,518 shares of Class A common stock outstanding. Each share of Class A common stock and Class B common stock is entitled to one vote on matters on which holders of common stock are eligible to vote. The column entitled “Percentage of Total Voting Stock” shows the percentage of total voting stock beneficially owned by each listed party.
The number of shares beneficially owned is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of December 31, 2010, through the exercise or conversion of any stock option, convertible security, warrant or other right. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of capital stock listed as owned by that person or entity.
|
Common Stock
Beneficially Owned
|
||||||||||
|
Name/Address
|
Title of Class
|
Number
|
Percent
|
|||||||
|
Mark Meller (President)
|
Class A Common Stock
|
26,018,279,264 | (1) | 75.6 | % | |||||
|
c/o Trey Resources, Inc.
|
||||||||||
|
5 Regent Street, Suite 520
|
||||||||||
|
Livingston, New Jersey 07039
|
||||||||||
|
Directors and executive officer as a group
|
Class A Common Stock
|
26,018,279,264 | 75.6 | % | ||||||
|
(1)
|
Includes 25,866,811,000 shares of our Class A common stock issuable upon conversion of $1,293,341 due to related party accounts with Mr. Meller. These figures assume that Class B Common Stock is issued to satisfy these obligations, and such Class B Common Stock shares are subsequently converted to shares of Class A Common Stock. Pursuant to an agreement between the Company and Mr. Meller, Mr. Meller may, at any time, convert amounts owed to him for monies thereon into (i) one share of our Class B common stock for each dollar owed, or (ii) the number of shares of our Class A common stock calculated by dividing (x) the sum of the amount being prepaid by (y) 50% of the lowest issue price of shares of our Class A common stock since the first advance of funds under such amounts due.
|
Securities Authorized For Issuance Under Equity Compensation Plans
During the year ended December 31, 2004, and as subsequently amended, the Company adopted the Stock Option Plan (the “Plan”) in order to attract and retain qualified employees, directors, independent contractors or agents of Trey Resources, Inc. Under the Plan, the Board of Directors (the “Board”), in its discretion may grant stock options (either incentive or non-qualified stock options) to employees, directors, independent contractors or agents to purchase the Company’s common stock at no less than 85% of the market price on the date the option is granted. Options generally vest over four years and have a maximum term of ten years. As of December 31, 2008, there were 75,000 options and warrants to purchase 7,000,000 shares of Class A common stock outstanding. None of these options or warrants was exercised during 2008.
The following table sets forth information as of December 31, 2010 with respect to compensation plans (including individual compensation arrangements) under which our common shares are authorized for issuance, aggregated as follows:
| All compensation plans previously approved by security holders; and
All compensation plans not previously approved by security holders
|
||||||||||||
|
Plan category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance
|
|||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity compensation plans approved by security holders
|
0 | $ | 0.00 | 0 | ||||||||
|
Equity compensation plans not approved by security holders.
|
3,075,000 | (1,2) | $ | 0.016 | 8,059,405 | (3) | ||||||
|
Total
|
3,075,000 | $ | 0.016 | 8,059,405 | ||||||||
|
(1)
|
Consists of options to purchase 75,000 Class A common shares of Trey Resources, Inc. issued to unrelated third parties for contractual services and fees related to investor relations transactions of the Company. These options have an exercise price of $0.07 per share. These options will expire on July 31, 2014.
|
|
(2)
|
Consists of warrants to purchase 3,000,000 Class A common shares of Trey Resources, Inc. issued to unrelated third parties for professional consulting services to the Company. These warrants have an exercise price of $0.015 per share. These warrants will expire on July 11, 2012.
|
|
(3)
|
Represents the balance of shares authorized and unissued under the 2004 Stock Incentive Plan.
|
Item 13. Certain Relationships and Related Transactions
Related Party Notes and Accounts Due
In May 2009 the Company issued 100,000,000 shares of Class A Common stock to Mr. Mahoney, the Company’s Non-Executive Chairman of the Board of Directors from January 1, 2003 to May 2009, for repayment of $8,500 in deferred compensation with a fair value of value $18,750. The difference in the fair value and amount of deferred compemsation repaid was charged to general and administrative expense in the amount of $10,250.
In May 2009, the Company paid Jerome R. Mahoney 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 was $1,211,856. The remaining unpaid and forgiven balance was credited to Additional Paid-In capital in the accompanying balance sheet in the amount of $1,094,356. There were no amounts owed to Mr. Mahoney at December 31, 2010 and 2009.
On September 15, 2003, the Company entered into an employment agreement with Mr. Meller. He will serve as the Company's President and Chief Financial Officer for a term of five years. As consideration, the Company agreed to pay Mr. Meller the sum of $180,000 the first year with a 10% increase every year thereafter, as well as a monthly travel expense allowance of $600 and an auto allowance of $800. The employment agreement with Mr. Meller also provides for a severance payment to him of three hundred percent (300%), less $100,000 of his gross income for services rendered to Trey in each of the five prior calendar years should his employment be terminated following a change in control, as defined in the employment agreement. Mr. Meller shall also be paid the sum of $350,000 upon the completion of the Spin-Off, and compensation retroactive to August 1, 2003, at the annual rate dictated by the terms of the employment agreement, as a result of Trey Resources acquiring SWK, Inc. on June 2, 2004.
Mr. Meller has agreed to defer payment of a portion of the monies due and owing him representing fixed compensation, which has 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. Pursuant to an agreement between the Company and Mr. Meller, Mr. Meller has 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. Amounts owed to him can be converted into (i) one share of our Class B common stock for each dollar owed, or (ii) the number of shares of our Class A common stock calculated by dividing (x) the sum of the liability being extinguished by (y) 50% of the lowest issue price of shares of our Class A common stock since the first advance of funds under such amounts due. As of December 31, 2010 and 2009 amounts due to Mr. Meller would convert into 25.9 and 17.5 billion shares, respectively.
On September 1, 2010, the Company entered into Amendment No 1 to the Employment Agreement with Mark Meller, President and Chief Executive Officer of the Company, whereby the term of the Employment Agreement was extended to September 15, 2017.
During the year ended December 31, 2010, the Company isssued 151,468,264 shares of Class A Common stock to Mr. Meller for repayment of $1,515 in deferred compensation with a fair value of $27,779. The difference in the fair value and the amount of deferred compensation repaid was charged to general and administrative expense in the amount of $27,264 and included in operating expenses in the statement of operations.. During the year ended December 31, 2009, the Company issued 100,000,000 shares of Class A Common stock to Mr. Meller for repayment of $8,500 in deferred compensation with a fair value of $18,750. The difference in the fair value and amount of deferred compemsation repaid was charged to general and administrative expense in the amount of $10,250. The total amounts which continue to be owed to Mr. Meller at December 31, 2010 and 2009, representing unpaid salary, unpaid expense and auto allowances, and the one-time payment in connection with the Spin-off, totaled $1,293,341 and $1,024,985.
Item 14. Principal Accountant Fees and Services
The following table sets forth fees billed to the Company by the Company’s independent auditors for (i) services rendered for the audit of the Company’s annual financial statements and the review of the Company’s quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
|
Services
|
2010
|
2009
|
||||||
|
Audit Fees
|
$ | 34,000 | $ | 27,000 | ||||
|
Audit - Related Fees
|
- | - | ||||||
|
Tax fees
|
$ | 7,620 | $ | 5,000 | ||||
|
All Other Fees
|
- | - | ||||||
|
Total
|
$ | 41,620 | $ | 32,000 | ||||
Prior to engaging our accountants to perform a particular service, our Audit Committee obtains an estimate for the service to be performed. All of the services described above were approved by the Audit Committee in accordance with its procedures.
Item 15. Exhibits
(a) Exhibits
|
Exhibit No.
|
Description
|
|
|
3.1
|
Second Amended Certificate of incorporation of Trey Resources, Inc., filed September 5, 2003 (incorporated herein by reference to Exhibit 3.1 of the registration statement on Form SB-2, filed with the SEC on November 25, 2003).
|
|
|
3.2
|
By-laws of iVoice, Inc., a New Jersey corporation, incorporated herein by reference to Exhibit 3.2 of the Registrant’s Form 10-QSB for the period ended March 31, 2003.
|
|
|
4.1
|
iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Elma S. Foin (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003).
|
|
|
4.2
|
iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Darryl A. Moy (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003).
|
|
|
4.3
|
iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Henry Tyler (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003).
|
|
|
4.4
|
Trey Resources, Inc. 7.5% Secured Convertible Debenture, for a value of $600,000, due December 30, 2007 to YA Global (f/k/a/ Cornell Capital Partners, LP).
|
|
|
4.5
|
Trey Resources, Inc. 7.5% Secured Convertible Debenture, for a value of $1,159,047, due December 30, 2007 to YA Global (f/k/a/ Cornell Capital Partners, LP).
|
|
|
4.6
|
SWK Technologies, Inc. secured line of credit with Bank of America f/k/a Fleet National Bank.
|
|
|
10.1
|
Employment Agreement, dated January 1, 2003, between iVoice Acquisition 1, Inc. and Jerome Mahoney. (incorporated herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003).
|
|
|
10.2
|
Employment Agreement, dated September 15, 2003, between Trey Resources, Inc. and Mark Meller. (incorporated herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003).
|
|
|
10.3
|
Equity Line of Credit Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc. (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003)
|
|
|
10.4
|
Registration Rights Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc. (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003).
|
|
|
10.5
|
Stock Purchase Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and listed Buyers (incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003).
|
|
|
10.6
|
Placement Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and Cornell Capital Partners LP. (incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003).
|
|
|
10.7
|
Termination Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and Trey Resources, Inc.
|
|
|
10.8
|
Escrow Agreement dated December 30, 2005 between David Gonzalez, Esq. And Trey Resources, Inc.
|
|
|
10.9
|
Securities Purchase Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and Trey Resources, Inc.
|
|
|
10.10
|
Investor Rights Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and Trey Resources, Inc.
|
|
|
10.11
|
Amended and Restated Security Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and Trey Resources, Inc.
|
|
|
10.12
|
Securities Purchase Agreement dated May 6, 2009 by and among Trey Resources, SWK Technologies, Inc., Jeffrey D. Roth and Jerome R. Mahoney. (incorporated herein by reference to Exhibit 10.1 on Form 10-K, dated May 9, 2009, filed with the SEC on May 26, 2009).
|
|
|
10.13
|
Termination Settlement Agreement dated May 6, 2009 by and among Trey Resources, SWK Technologies, Inc., Jeffrey D. Roth and Jerome R. Mahoney. (incorporated herein by reference to Exhibit 10.1 on Form 10-K, dated May 9, 2009, filed with the SEC on May 26, 2009).
|
|
|
14.1
|
Code of Ethics incorporated by reference to Exhibit 14.1 filed with the Registrant’s Form 10-KSB for the fiscal year ended December 31, 2003.
|
|
|
31.1 *
|
||
|
32.1 *
|
* Filed herewith
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| Trey Resources, Inc. | |||
|
Date: March 29, 2011
|
By:
|
/s/ Mark Meller | |
| Mark Meller | |||
|
Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Accounting Officer)
|
|||
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
|
Page (s)
|
|
| F-3 | |
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-10
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Trey Resources, Inc.
We have audited the accompanying consolidated balance sheets of Trey Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the two years in the period ended December 31, 2010. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we 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 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 consolidated financial position of the Company as of December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the two years ended December 31, 2010 and 2009 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements for the year ended December 31, 2010 have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred substantial accumulated deficits and operating losses, and at December 31, 2010, has a working capital deficiency of approximately $5.1 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. If the Company is unable to successfully refinance or otherwise satisfy the obligations under the convertible debentures, there would be a material adverse effect to the consolidated financial statements.
/s/Friedman LLP
East Hanover, NJ
March 29, 2011
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
ASSETS
|
||||||||
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 104,344 | $ | 300,482 | ||||
|
Accounts receivable, net of allowance for
|
||||||||
|
doubtful accounts of $41,000 and $161,000, respectively
|
489,280 | 568,909 | ||||||
|
Inventory
|
15,285 | - | ||||||
|
Prepaid expenses and other current assets
|
189,718 | 31,670 | ||||||
|
Total current assets
|
798,627 | 901,061 | ||||||
|
Property and equipment, net
|
156,621 | 163,372 | ||||||
|
Deposits and other assets
|
65,866 | 56,280 | ||||||
|
TOTAL ASSETS
|
$ | 1,021,114 | $ | 1,120,713 | ||||
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 1,081,201 | $ | 1,036,086 | ||||
|
Accrued interest
|
660,501 | 557,475 | ||||||
|
Due to related parties
|
1,293,341 | 1,024,985 | ||||||
|
Convertible debentures payable
|
1,334,000 | 1,394,900 | ||||||
|
Derivative liability
|
1,177,845 | 1,660,926 | ||||||
|
Capital leases
|
55,565 | 62,309 | ||||||
|
Notes payable to related parties
|
45,000 | 125,716 | ||||||
|
Deferred revenue
|
486,019 | 180,577 | ||||||
|
Total liabilities
|
6,133,472 | 6,042,974 | ||||||
|
Commitments and contingencies
|
||||||||
|
STOCKHOLDERS' DEFICIT
|
||||||||
|
Preferred stock, $1.00 par value; authorized 1,000,000 shares;
|
||||||||
|
no shares issued and outstanding
|
- | - | ||||||
|
Common stock, Class A:
|
||||||||
|
2010 – par value $.00001; Authorized 10,000,000,000;
|
||||||||
|
8,553,568,518 shares issued and outstanding
|
||||||||
|
2009 – par value $.00001; Authorized 10,000,000,000;
|
||||||||
|
5,834,695,306 shares issued and outstanding
|
85,536 | 58,347 | ||||||
|
Common stock Class B - par value $.00001; authorized 50,000,000 shares;
|
||||||||
|
no shares issued and outstanding
|
- | - | ||||||
|
Common stock Class C - par value $.00001; authorized 20,000,000 shares;
|
||||||||
|
no shares issued and outstanding
|
- | - | ||||||
|
Additional paid in capital
|
7,760,587 | 7,409,368 | ||||||
|
Accumulated deficit
|
(12,913,304 | ) | (12,444,383 | ) | ||||
|
Total Trey Resources, Inc. stockholders' deficit
|
(5,067,181 | ) | (4,676,668 | ) | ||||
|
Noncontrolling interest in SWK Technologies, Inc.
|
(45,177 | ) | 54,407 | |||||
|
Total stockholders’ deficit
|
(5,112,358 | ) | (4,622,261 | ) | ||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 1,021,114 | $ | 1,120,713 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For the Years Ended
|
||||||||
|
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Revenues
|
||||||||
|
Product, net
|
$ | 1,220,875 | $ | 1,010,289 | ||||
|
Service, net
|
6,265,828 | 6,404,359 | ||||||
|
Total revenue, net
|
7,486,703 | 7,414,648 | ||||||
|
Cost of Revenues
|
||||||||
|
Product
|
608,352 | 484,867 | ||||||
|
Service
|
4,005,788 | 3,886,239 | ||||||
|
Cost of revenue
|
4,614,140 | 4,371,106 | ||||||
|
Gross profit
|
2,872,563 | 3,043,542 | ||||||
|
Operating expenses:
|
||||||||
|
Selling expenses
|
1,546,107 | 1,218,680 | ||||||
|
General and administrative expenses
|
2,180,693 | 1,885,980 | ||||||
|
Depreciation and amortization
|
82,880 | 191,003 | ||||||
|
Total operating expenses
|
3,809,680 | 3,295,663 | ||||||
|
Loss from operations
|
(937,117 | ) | (252,121 | ) | ||||
|
Other income (expense)
|
||||||||
|
Gain (loss) on revaluation of derivatives
|
483,081 | (728,150 | ) | |||||
|
Common stock issued for debt conversion discount
|
- | (336,471 | ) | |||||
|
Interest expense, net
|
(114,469 | ) | (185,520 | ) | ||||
|
Total other income (expense)
|
368,612 | (1,250,141 | ) | |||||
|
Net loss
|
(568,505 | ) | (1,502,262 | ) | ||||
|
Net income (loss) attributable to the noncontrolling
|
||||||||
|
interest in SWK Technologies, Inc.
|
(99,584 | ) | 38,110 | |||||
|
Net loss attributable to Trey Resources, Inc.
|
$ | (468,921 | ) | $ | (1,540,372 | ) | ||
|
Net loss per common shares:
|
||||||||
|
Basic and Diluted
|
$ | (.00 | ) | $ | (.00 | ) | ||
|
Weighted average shares outstanding:
|
||||||||
|
Basic and Diluted
|
6,554,550,850 | 4,701,009,135 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
|
Common Stock Class A
|
Additional
Paid in
|
Accumulated
|
Noncontrolling
interest in SWK
|
Total
Stockholders’
|
||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Technologies, Inc.
|
Deficit
|
|||||||||||||||||||
|
Balance at January 1, 2009
|
4,105,473,533 | $ | 41,055 | $ | 5,608,555 | $ | (10,904,011 | ) | $ | - | $ | (5,254,401 | ) | |||||||||||
|
Issuance of stock on debt conversion, net of revaluation of debenture
|
1,309,221,773 | 13,092 | 502,579 | - | - | 515,671 | ||||||||||||||||||
|
Proceeds from sale of stock of SWK Technologies, Inc.
|
- | - | 133,703 | - | 16,297 | 150,000 | ||||||||||||||||||
|
Extinguishment of related party debt
|
- | - | 1,094,356 | - | - | 1,094,356 | ||||||||||||||||||
|
Issuance of stock upon conversion of deferred compensation
|
200,000,000 | 2,000 | 35,500 | - | - | 37,500 | ||||||||||||||||||
|
Issuance of common stock for services
|
125,000,000 | 1,250 | 23,750 | - | - | 25,000 | ||||||||||||||||||
|
Issuance of shares for repayment of accrued expenses
|
95,000,000 | 950 | 10,925 | - | - | 11,875 | ||||||||||||||||||
|
Net income (loss)
|
- | - | - | (1,540,372 | ) | 38,110 | (1,502,262 | ) | ||||||||||||||||
|
Balance at December 31, 2009
|
5,834,695,306 | $ | 58,347 | $ | 7,409,368 | $ | (12,444,383 | ) | $ | 54,407 | $ | (4,922,261 | ) | |||||||||||
|
Issuance of stock on debt conversion
|
588,717,949 | 5,887 | 55,013 | - | - | 60,900 | ||||||||||||||||||
|
Issuance of shares for repayment of accrued
|
||||||||||||||||||||||||
|
Expenses
|
150,000,000 | 1,500 | 18,000 | - | - | 19,500 | ||||||||||||||||||
|
Issuance of stock upon conversion of deferred
|
||||||||||||||||||||||||
|
Compensation
|
151,468,264 | 1,515 | 27,264 | - | - | 28,779 | ||||||||||||||||||
|
Issuance of shares for repayment of accrued
|
||||||||||||||||||||||||
|
expenses
|
403,686,999 | 4,037 | 48,442 | - | - | 52,479 | ||||||||||||||||||
|
Issuance of common stock for services
|
1,425,000,000 | 14,250 | 202,500 | - | - | 216,750 | ||||||||||||||||||
|
Net loss
|
- | - | - | (468,921 | ) | (99,584 | ) | (568,505 | ) | |||||||||||||||
|
Balance at December 31, 2010
|
8,553,568,518 | $ | 85,536 | $ | 7,760,587 | $ | (12,913,304 | ) | $ | (45,177 | ) | $ | (5,112,358 | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Years Ended
|
||||||||
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
CASH FLOW FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$ | (568,505 | ) | $ | (1,502,262 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by (used in)
|
||||||||
|
operating activities:
|
||||||||
|
Depreciation and amortization
|
82,879 | 89,293 | ||||||
|
Amortization of other intangibles
|
- | 101,711 | ||||||
|
(Gain) loss on revaluation of derivatives
|
(483,081 | ) | 728,150 | |||||
|
Reduction in allowance for bad debts
|
(120,000 | ) | (2,193 | ) | ||||
|
Common stock issued for services
|
186,252 | 47,875 | ||||||
|
Common stock issued for debt conversion discount
|
- | 336,471 | ||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable
|
199,629 | (632 | ) | |||||
|
Inventory
|
(15,285 | ) | 34,565 | |||||
|
Prepaid expenses and other assets
|
(66,594 | ) | 5,126 | |||||
|
Accounts payable and accrued liabilities
|
68,189 | (293,529 | ) | |||||
|
Accrued interest
|
103,026 | 122,269 | ||||||
|
Due to related parties
|
269,871 | 259,050 | ||||||
|
Deferred revenue
|
305,442 | 6,473 | ||||||
|
Total cash used in operating activities
|
(38,177 | ) | (67,633 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase of property and equipment
|
(31,725 | ) | (55,586 | ) | ||||
|
Total cash used in investing activities
|
(31,725 | ) | (55,586 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Repayment of notes payable to related parties
|
(125,716 | ) | (71,025 | ) | ||||
|
Proceeds from notes payable to related party
|
45,000 | - | ||||||
|
Proceeds from sale of stock of SWK Technologies, Inc.
|
- | 150,000 | ||||||
|
Principal payments under capital lease obligations
|
(45,520 | ) | (75,316 | ) | ||||
|
Total cash (used in) provided by financing activities
|
(126,236 | ) | 3,659 | |||||
|
NET DECREASE IN CASH
|
(196,138 | ) | (119,560 | ) | ||||
|
CASH – BEGINNING OF YEAR
|
300,482 | 420,042 | ||||||
|
CASH – END OF YEAR
|
$ | 104,344 | $ | 300,482 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
|
||||||||
|
CASH PAID DURING THE YEAR FOR:
|
||||||||
|
Interest expense
|
$ | - | $ | 46,475 | ||||
|
Income taxes
|
$ | - | $ | - | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the Year Ended December 31, 2010:
a) The Company issued 588,717,949 shares of Class A common stock for conversion of $60,900 of principal on convertible debentures with YA Global Investments.
b) The Company issued 150,000,000 shares of Class A Common stock for repayment of $15,000 in accrued expenses with a fair value of value $19,500. The difference in the market value and $15,000 of accrued expenses was charged to general and administrative expense in the amount of $4,500.
c) The Company issued 151,468,264 shares of Class A Common stock to Mr. Meller for repayment of $1,515 in deferred compensation with a fair value of $28,779. The difference in the fair value and the amount of deferred compensation repaid was charged to general and administrative expense in the amount of $27,264.
d) The Company issued 403,686,999 shares of Class A Common stock for repayment of $8,074 of legal fees with a fair value of $52,479. The difference in the fair value and the amount of legal fess repaid was charged to general and administrative expense in the amount of $44,405.
e) The Company issued 1,425,000,000 shares of Class A Common stock for professional fees and management and financial consulting fees with a fair value of $216,750.
f) The Company acquired property and equipment of $38,776 through capital leases for the year ended December 31, 2010,
The accompanying notes are an integral part of these consolidated financial statements.
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES (continued):
For the Year Ended December 31, 2009:
a) The Company 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 was approximately $1,212,000.
b) The Company issued 100,000,000 shares of Class A Common stock for repayment of $8,500 in deferred compensation with a fair value of value $18,750. The difference in the market value and $8,500 of deferred compensation repaid was charged to general and administrative expense in the amount of $10,250.
c) The Company issued 100,000,000 shares of Class A Common stock for repayment of $8,500 on a note payable with a fair value of value $18,750. The difference in the market value and $8,500 of note repayment was charged to general and administrative expense in the amount of $10,250.
d) The Company issued 95,000,000 shares of Class A Common stock for repayment of $9,500 in accrued expenses with a fair value of value $11,875. The difference in the market value and $9,500 of accrued expenses was charged to general and administrative expense in the amount of $2,375.
d) The Company issued 1,300,221,773 shares of Class A Common Stock with a total value of $515,671 for conversion of $179,200 of principal on outstanding debentures with YA Global Investments. The difference in the market value and the $179,200 repayment was charged to debt conversion discount in the amount of $336,471.
The accompanying notes are an integral part of these consolidated financial statements.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
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.
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 publishes its own proprietary supply-chain software, “MAPADOC.” The Company sells services and products primarily to manufacturers, wholesalers and distributor industry clients located throughout the United States.
On June 2, 2006, SWK 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 primarily to 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 Over the Counter Bulletin Board (“OTCBB”) under the symbol “TYRIA”.
Basis of Presentation
The accompanying 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. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for financial information and with the instructions to Form 10-K.
Going Concern
The accompanying 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 $5.1 million, as of December 31, 2010. As of December 31, 2010, the Company had cash on hand of approximately $104,000 and $1,334,000 in convertible debentures due on December 31, 2011. These factors 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 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.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Going Concern (continued)
In addition to developing new products, obtaining new customers and increasing sales to existing customers, management plans to achieve profitability by increasing its business 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 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 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.
Noncontrolling Interest
Noncontrolling interest represents third party ownership in the net assets of our consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our majority owned subsidiaries are consolidated with those of our own, with any third party investor’s interest shown as noncontrolling interest.
On May 6, 2009, the Company sold twenty-five (25) newly issued shares or 20% of the stock of SWK Technologies, Inc. (“SWK”), a wholly owned subsidiary of Trey Resources, Inc. for a purchase price of $150,000 to the President of SWK.
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 products are shipped, or services are rendered, evidence of a contract exists, the price is fixed or reasonably determinable, and collectability is reasonably assured.
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 is deferred but costs are recognized when we determine that the collection of the receivable is unlikely.
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 revenue recognition. In that situation where both components are present, software sales revenue is recognized when collectability is reasonably assured and the product is delivered and has stand alone value. Professional service revenue is recognized as the service time is incurred. Commissions are recognized when payments are received.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition (continued)
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.
Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of sales.
Advertising Costs
Advertising costs are expensed as incurred and are included in selling expenses. For the years ended December 31, 2010 and 2009, advertising expenses were $150 and $270, respectively.
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’s cash equivalents at December 31, 2010 and 2009 consist of certificates of deposit with maturities of 3 months or less. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.
Concentration of Credit Risk
For the years ended December 31, 2010 and 2009, our top ten customers had approximately $1,488,235 and $1,360,476 in sales and these represented 20% and 18%, respectively, of our total sales for the period. Generally, we do not rely on any one specific customer for any significant portion of our revenue base.
For the years ended December 31, 2010 and 2009, purchases from one supplier were approximately 23% or 27%, respectively, of the Company’s total cost of revenue.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash. As of December 31, 2010 the Company believes it has no significant risk related to its concentration of accounts receivable.
Accounts Receivable
Accounts receivable consist primarily of uncollected invoices for maintenance and professional services. Payment 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 an allowance estimated by considering a number of factors, including the length of time the amounts are past due, the Company’s previous loss history, the client’s current ability to pay its obligations and the condition of the general economy and the industry as a whole.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 of customer support services, including annual telephone support and deposits for future consulting services which will be earned in future periods, and over the life of the agreements.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized in the books but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are taxable only when the valuation change is realized.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized.
The Company prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company determines whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. The Company has no uncertain tax positions at December 31, 2010 and 2009.
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at December 31, 2010 and 2009 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated financial statements. 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. Assets reflected in the consolidated balance sheets are a reasonable estimate of their fair value due to the short-term nature of these instruments. Liabilities are a reasonable estimate of their fair value due to the interest rate and terms which are similar to terms to what the Company would obtain in the outside market.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets
Long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by the sales are recorded as held for sale at the lower of carrying value or estimated net realizable value. No impairment losses were identified or recorded in the years ended December 31, 2010 and 2009.
Stock-Based Compensation
The Company’s stock-based compensation is measured at the fair value of the award at its grant based on the estimated number of awards expected to vest and is recorded over the applicable period. 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. During the years ended December 31, 2010 and 2009, the Company has not granted any stock options.
Earnings per Share
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.
For the years ended December 31, 2010 and 2009, stock warrants to purchase 3,075,000 shares were excluded from the calculation of diluted net loss per share calculation due to their anti-dilutive effect. For the years ended December 31, 2010 and 2009, the dilutive effect of convertible debentures exceeded the number of authorized common shares and as a result weighted average shares outstanding, fully diluted, is the maximum authorized number of common shares, 10,000,000,000. These shares were excluded from the calculation of diluted loss per share due to their anti-dilutive effect.
The computation of EPS is as follows:
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Basic and diluted net loss per share attributable to common shareholders computation:
|
||||||||
|
Net loss attributable to common Stockholders
|
$ | (468,921 | ) | $ | (1,540,372 | ) | ||
|
Weighted-average common shares outstanding
|
6,554,550,850 | 4,701,009,135 | ||||||
|
Basic and diluted net loss per share attributable to common stockholders
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per Share (continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications have had no effect on the financial position, operations or cash flows for the year ended December 31, 2009.
Recent Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605)”. This Update provides amendments to the criteria in Subtopic 605-24 for separating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to determine the selling price of each specific deliverable which includes vendor-specific objective evidence (if available), third-party evidence (if vendor-specific evidence is not available), or estimated selling price if neither of the first two are available. This Update also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement. Finally, this Update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. This Update is effective for fiscal years beginning on or after June 15, 2010. We do not anticipate any material impact from this Update.
In April, 2010, the FASB issued ASU 2010-17, “Revenue Recognition – Milestone Method.” ASU 2010-17 amends ASC 605 “Revenue Recognition” to provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of ASU 2010-17 to have an effect on the Company’s financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Leasehold improvements
|
$ | 30,557 | $ | 30,557 | ||||
|
Equipment, furniture and fixtures
|
624,276 | 553,774 | ||||||
| 654,833 | 584,331 | |||||||
|
Less: Accumulated depreciation
|
498,212 | 420,959 | ||||||
|
Property and equipment, net
|
$ | 156,621 | $ | 163,372 | ||||
Depreciation and amortization expense for the years ended December 31, 2010 and 2009 was $82,879 and $83,681.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 4 – INTANGIBLE ASSETS
Intangible assets are detailed below and consist of customer lists related to the acquisitions as discussed in Note 1.
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Customer lists
|
$ | 593,231 | $ | 593,231 | ||||
|
Less: accumulated amortization
|
(593,231 | ) | (593,231 | ) | ||||
|
Intangible assets, net
|
$ | -0- | $ | -0- | ||||
Customer lists were being amortized over a three-year period. Amortization expense for the years ended December 31, 2010 and 2009 was $-0- and $101,711.
NOTE 5 - INCOME TAXES
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 December 31, 2010 and December 31, 2009 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. Because of the current uncertainty of realizing the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes has been established. The full realization of the tax benefit associated with the carry forward depends predominantly upon the Company's ability to generate taxable income during the carry forward period.
The reconciliation of the effective income tax rate to the Federal statutory rate is as follows:
|
Federal Income Tax Rate
|
(34.0 | ) % | ||
|
State Income Tax, Net of Federal Benefit
|
(5.94 | ) % | ||
|
Permanent differences
|
(10.0 | ) % | ||
|
Effective Income Tax Rate
|
(49.94 | ) % | ||
|
Effect on valuation allowance
|
49.94 | % | ||
|
Effective Income Tax Rate
|
0.0 | % |
As of December 31, 2010, the Company has net operating loss carry forwards of approximately $8,091,000 that can be utilized to offset future taxable income for Federal income tax purposes. Net operating loss carry forwards expire starting in 2024 through 2030. Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue Code Section 382. Because of the current uncertainty of realizing the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes has been established. The Company is not currently undergoing any tax reviews and has open tax year for 2007 through 2010.
The full realization of the tax benefit associated with the carry forward depends predominantly upon the Company's ability to generate taxable income during the carry forward period.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 5 - INCOME TAXES (Continued)
Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are summarized as follows:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Deferred Tax Assets:
|
||||||||
|
Net operating loss carry forwards
|
$ | 3,328,000 | $ | 2,982,000 | ||||
|
Deferred wages and expenses
|
517,000 | 410,000 | ||||||
|
Intangibles
|
401,000 | 409,000 | ||||||
|
Derivative liability
|
470,000 | - | ||||||
|
Other
|
21,000 | 104,000 | ||||||
|
Deferred tax asset
|
4,737,000 | 3,905,000 | ||||||
|
Less: Valuation Allowance
|
(4,737,000 | ) | (3,905,000 | ) | ||||
|
Net Deferred Tax Assets
|
$ | - | $ | - | ||||
NOTE 6 – DUE TO RELATED PARTIES
In May 2009 the Company issued 100,000,000 shares of Class A Common stock to Mr. Mahoney, the Company’s Non-Executive Chairman of the Board of Directors from January 1, 2003 to May 2009, for repayment of $8,500 in deferred compensation with a fair value of value $18,750. The difference in the fair value and amount of deferred compemsation repaid was charged to general and administrative expense in the amount of $10,250.
In May 2009, the Company paid Jerome R. Mahoney 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 was $1,211,856. The remaining unpaid and forgiven balance was credited to Additional Paid-In capital in the accompanying balance sheet in the amount of $1,094,356. There were no amounts owed to Mr. Mahoney at December 31, 2010 and 2009.
On September 15, 2003, the Company entered into an employment agreement with Mr. Meller. He will serve as the Company's President and Chief Financial Officer for a term of five years. As consideration, the Company agreed to pay Mr. Meller the sum of $180,000 the first year with a 10% increase every year thereafter, as well as a monthly travel expense allowance of $600 and an auto allowance of $800. The employment agreement with Mr. Meller also provides for a severance payment to him of three hundred percent (300%), less $100,000 of his gross income for services rendered to Trey in each of the five prior calendar years should his employment be terminated following a change in control, as defined in the employment agreement. Mr. Meller shall also be paid the sum of $350,000 upon the completion of the Spin-Off, and compensation retroactive to August 1, 2003, at the annual rate dictated by the terms of the employment agreement, as a result of Trey Resources acquiring SWK, Inc. on June 2, 2004.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 6 – DUE TO RELATED PARTIES (Continued)
Mr. Meller has agreed to defer payment of a portion of the monies due and owing him representing fixed compensation, which has 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. Pursuant to an agreement between the Company and Mr. Meller, Mr. Meller has 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. Amounts owed to him can be converted into (i) one share of our Class B common stock for each dollar owed, or (ii) the number of shares of our Class A common stock calculated by dividing (x) the sum of the liability being extinguished by (y) 50% of the lowest issue price of shares of our Class A common stock since the first advance of funds under such amounts due. As of December 31, 2010 and 2009 amounts due to Mr. Meller would convert into 25.9 and 17.5 billion shares, respectively.
On September 1, 2010, the Company entered into Amendment No 1 to the Employment Agreement with Mark Meller, President and Chief Executive Officer of the Company, whereby the term of the Employment Agreement was extended to September 15, 2017.
During the year ended December 31, 2010, the Company isssued 151,468,264 shares of Class A Common stock to Mr. Meller for repayment of $1,515 in deferred compensation with a fair value of $27,779. The difference in the fair value and the amount of deferred compensation repaid was charged to general and administrative expense in the amount of $27,264 and included in operating expenses in the statement of operations.. During the year ended December 31, 2009, the Company issued 100,000,000 shares of Class A Common stock to Mr. Meller for repayment of $8,500 in deferred compensation with a fair value of $18,750. The difference in the fair value and amount of deferred compemsation repaid was charged to general and administrative expense in the amount of $10,250. The total amounts which continue to be owed to Mr. Meller at December 31, 2010 and 2009, representing unpaid salary, unpaid expense and auto allowances, and the one-time payment in connection with the Spin-off, totaled $1,293,341 and $1,024,985.
NOTE 7 – NOTES PAYABLE TO RELATED PARTIES
On October 19, 2010, the Company borrowed $45,000 in exchange issuing a promissory note to Mr. Mark Meller, the Company’s Chief Executive Officer. This note is not collateralized, and carries an interest rate of 3% per annum on the unpaid balance. The note and interest are due January 1, 2012. In the event of (a) default in payment of any installment of principal or interest hereof as the same becomes due and such default is not cured within ten (10) days from the due date after the Holder provides the Maker written notice of default, then the Holder may, without further notice, declare the remainder of the principal sum, together with all interest accrued thereon, at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The unpaid principal of this Promissory Note and any part thereof, accrued interest and all other sums due under this Promissory Note shall bear interest at the rate of Ten Percent (10%) percent per annum after default until paid. The outstanding balance at December 31, 2010 was $45,000, plus accrued interest of $274.
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 December 31, 2010, the note had been repaid. The principal balance due on the note at December 31, 2009 was $125,716.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 8 - CONVERTIBLE DEBENTURES PAYABLE
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. During the years ended December 31, 2010 and 2009, no additional payments have been made on these outstanding convertible debentures. Total outstanding principal balance of the convertible debentures as of December 31, 2010 and 2009 was $15,000, plus accrued interest of $6,925 and $6,175.
On December 30, 2005, the Company entered into a Securities Purchase Agreement with YA Global. Pursuant to such purchase agreement, YA Global 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, interest payable at the rate of 7.5% per annum, and an additional secured convertible debenture was issued on May 6, 2006 equal to $600,000 with interest payable at the rate of 7.5% per annum.
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. On October 30, 2009, YA Global Investments, L.P. agreed to extend the maturity date of the Convertible Debentures to December 30, 2010. 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”). (See Note 9)
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.
During the year ended December 31, 2010, the Company issued 588,717,949 shares of Class A common stock for repayment of $60,900 of principal on the convertible debenture held by YA Global Investments. During the year ended December 31, 2009, the Company issued 1,309,221,773 shares of Class A common stock for repayment of $179,200 of principal on the convertible debenture held by YA Global Investments. The aggregate principal value of the debentures as of December 31, 2010 and December 31, 2009 was $1,319,000 and $1,379,900, plus accrued interest of $653,576 and $551,299, respectively.
On November 9, 2010, the convertible debentures issued to YA Global Investments, L.P. were amended with the maturity date being extended to December 31, 2011. This amendment requires an initial payment of $175,000 due on January 28, 2011 with additional monthly payments of $10,000 to be made for the following eleven months ending December 1, 2011. The remaining principal and all accrued interest is due on December 31, 2011. This agreement also modified and fixed the conversion price at $.0001, but is also subject to price protection features. The Debentures are also not convertible during 2011, provided that the payments required by the amended agreement have been made in a timely fashion.
The Company has complied with all the provisions of the agreement and amendments.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 9 - DERIVATIVE LIABILITY
The conversion features associated with the YA Global Investments Convertible Debentures represent an embedded derivative. As such, the Company had originally recognized, upon adoption, 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 $1,177,845 at December 31, 2010. These debentures are convertible into 13,190,000,000 and 11,794,017,094 shares at December 31, 2010 and 2009. The estimated fair value of the embedded derivative has been calculated based on a Black-Scholes pricing model using the following assumptions:
|
December 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Fair market value of stock
|
$
|
0.00013
|
$
|
0.00019
|
||||
|
Exercise price
|
$
|
0.0001
|
$
|
0.00013
|
||||
|
Dividend yield
|
0.00
|
%
|
0.00
|
%
|
||||
|
Risk free interest rate
|
0.29
|
%
|
0.47
|
%
|
||||
|
Expected volatility
|
183.32
|
%
|
192.38
|
%
|
||||
|
Expected life
|
1 Year
|
1 Year
|
||||||
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases 6,986 square feet of space at 5 Regent Street, Livingston, NJ 07039 and pays rent on a month to month basis in the amount of $3,900. The Company uses its facilities to house its corporate headquarters and operations and believe that these facilities are suitable for such purpose. The Company maintains a good relationship with its landlords and believes that these facilities will be adequate for the foreseeable future. Total rent expense under these operating leases for the year ended December 31, 2010 and 2009 was $76,000 and $157,260, respectively.
See Note 6 to the Financial Statements for information related to the employment agreement of Mark Meller.
On December 30, 2005, the Company entered an Investor Registration Rights Agreement with YA Global Investments. In the event of default of the registration rights agreement, the Company will pay liquidated damages, either in cash or shares of the Company’s Common Stock, at 2% of the liquidated value of the Convertible Debentures outstanding for each thirty (30) day period after the Scheduled Filing Deadline or the Scheduled Effective Deadline as the case may be. Any Liquidated Damages payable hereunder shall not limit, prohibit or preclude the Investor from seeking any other remedy available to it under contract, at law or in equity. The registration statement was effective December 2006, and liquidated damages stopped accruing at that time. As of December 31, 2010 and 2009, the Company has accrued $198,905 in Liquidated Damages in the consolidated balance sheets.
The Company pays rent to an officer of SWK Technologies, Inc for the rental of office space. For the years ended December 31, 2010 and 2009, the Company paid $25,200.
NOTE 11 - CAPITAL STOCK
In accordance with its Certificate of Incorporation as amended on April 24, 2003, the Company is authorized to issue up to: 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 rights to prescribe and authorize the issuance of 1,000,000 preferred shares, $1.00 par value.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 11 - CAPITAL STOCK (continued)
PREFERRED STOCK
Preferred Stock consists of 1,000,000 shares of authorized preferred stock with $1.00 par value. For the years ending December 31, 2010 and 2009, the Company had no transactions in its Preferred Stock.
CLASS A COMMON STOCK
Class A Common Stock consists of the following as of December 31, 2010: 10,000,000,000 shares of authorized common stock with a par value of $.00001, 8,553,568,518 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.
For the year ended December 31, 2010, the Company had the following transactions in its Class A common stock:
|
Ø
|
The Company issued 588,717,949 shares of Class A common stock for conversion of $60,900 of principal on convertible debentures with YA Global Investments, f/k/a Cornell Capital Partners.
|
|
Ø
|
The Company issued 150,000,000 shares of Class A Common stock for repayment of $15,000 in accrued expenses with a fair value of value $19,500. The difference in the market value and $15,000 of accrued expenses was charged to general and administrative expense in the amount of $4,500.
|
|
Ø
|
The Company issued 151,468,264 shares of Class A Common stock to Mr. Meller for repayment of $1,515 in deferred compensation with a fair value of $28,779. The difference in the fair value and the amount of deferred compensation repaid was charged to general and administrative expense in the amount of $27,264.
|
|
Ø
|
The Company issued 403,686,999 shares of Class A Common stock for repayment of $8,074 of legal fees with a fair value of $52,479. The difference in the fair value and the amount of legal fess repaid was charged to general and administrative in the amount of $44,405.
|
|
Ø
|
The Company issued 1,425,000,000 shares of Class A Common stock for professional fees, and management and financial consulting fees with a fair value of $216,750.
|
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 11 - CAPITAL STOCK (continued)
CLASS A COMMON STOCK (continued)
For the year ended December 31, 2009, the Company had the following transactions in its Class A common stock:
|
Ø
|
The Company issued 1,309,221,773 shares of Class A common stock with a total value of $515,671 for conversion of $179,200 of principal on convertible debentures with YA Global Investments, f/k/a Cornell Capital Partners.
|
|
Ø
|
The Company issued 100,000,000 shares of Class A common stock with a total value of $18,750 to an officer of the Company for repayment of a note payable. Of this amount, $8,500 was for payment of principal and $10,250 represents discount on conversions.
|
|
Ø
|
The Company issued 100,000,000 shares of Class A common stock with a total value of $18,750 to an officer of the Company for repayment deferred compensation. Of this amount, $8,500 was for payment of principal and $10,250 represents discount on conversions.
|
|
Ø
|
The Company issued 95,000,000 shares of Class A Common stock to an individual for repayment of $9,500 in unpaid compensation with a fair value of value $10,925. The difference in the fair value and amount of deferred compensation repaid was charged to general and administrative expense in the amount of $2,375.
|
|
Ø
|
The Company issued 125,000,000 shares of Class A common stock with a value of $25,000 for compensation for financial services.
|
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 1 with respect to Class A Common Stock. As of December 31, 2010, 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. For the years ended December 31, 2010 and 2009, the Company had no transactions in its Class B Common Stock.
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. For the years ended December 31, 2010 and 2009, the Company had no transactions in its Class C Common Stock.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 12 - STOCK OPTIONS, STOCK INCENTIVES AND WARRANTS
2004 Stock Incentive Plan
The Company adopted the 2005 Stock Incentive as amended Plan (the “2005 Plan”) in order to attract and retain qualified employees, directors, independent contractors or agents of Trey Resources, Inc. Under the Plan, the Board of Directors (the “Board”), in its discretion may grant stock options (either incentive or non-qualified stock options) to employees, directors, independent contractors or agents to purchase the Company’s common stock at no less than 50% of the fair market price on the date the option is granted. Options generally vest over four years and have a maximum term of ten years.
2007 Consultant Stock Incentive Plan
The Company adopted the 2007 Consultant Stock Incentive Plan (the “2007 Plan”) to: (i) provide long-term incentives, payment in stock in lieu of cash and rewards to consultants, advisors, attorneys, independent contractors or agents ("Eligible Participants") of the Company; (ii) assist the Company in attracting and retaining independent contractors or agents with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such independent contractors or agents with those of the Company's stockholders. Total shares issuable under this plan may not exceed twenty (20) percent of the issued and outstanding shares of the Company’s Class A Common Stock
2004 Directors’ and Officers’ Stock Incentive Plan
The Company adopted the 2004 Directors’ and Officers’ Stock Incentive Plan (the “2004 D&O Plan”) in order to provide long-term incentive and rewards to officers and directors of Trey Resources and subsidiaries and to attract and retain qualified employees, directors, independent contractors or agents of Trey Resources, Inc. Under the Plan, the Board, in its discretion may grant stock options (either incentive or non-qualified stock options) to employees, directors, independent contractors or agents to purchase the Company’s common stock at no less than 50% of the market price on the date the option is granted. Options generally vest over four years and have a maximum term of ten years.
No securities were issued under these plans for the years ended December 31, 2010 and 2009.
Options/Warrants Outstanding
No options or warrants were granted for the years ended December 31, 2010 and 2009. The following options and warrants were issued pursuant to their respective agreements. Unexpired options and warrants outstanding are as follows as of December 31, 2009:
|
Expiration Date
|
Exercise Price
|
Shares
|
||||||
|
July 11, 2012
|
.015 | 3,000,000 | ||||||
|
July 31, 2014
|
.070 | 75,000 | ||||||
|
|
3,075,000 | |||||||
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 12 - STOCK OPTIONS, STOCK INCENTIVES AND WARRANTS (continued)
The following table summarizes the stock option and warrants transactions:
|
Stock
|
Weighted
|
|||||||
|
Option and
|
Average
|
|||||||
|
Warrants
|
Exercise
|
|||||||
|
Outstanding
|
Price
|
|||||||
|
Balance, January 1, 2009
|
3,075,000 | $ | .016 | |||||
|
Granted
|
- | $ | .000 | |||||
|
Exercised
|
- | $ | .000 | |||||
|
Canceled
|
- | $ | .000 | |||||
|
Balance, December 31, 2009
|
3,075,000 | $ | .016 | |||||
|
Granted
|
- | $ | .000 | |||||
|
Exercised
|
- | $ | .000 | |||||
|
Canceled
|
- | $ | .000 | |||||
|
Balance, December 31, 2010
|
3,075,000 | $ | .016 | |||||
|
Outstanding and Exercisable,
|
||||||||
|
December 31, 2009
|
3,075,000 | $ | .016 | |||||
|
Outstanding and Exercisable,
|
||||||||
|
December 31, 2010
|
3,075,000 | $ | .016 | |||||
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 14 – FAIR VALUE MEASUREMENTS
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. GAAP 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 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.
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 14 – FAIR VALUE MEASUREMENTS (continued)
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 December 31, 2010 and December 31, 2009. 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.
|
December 31, 2010
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Convertible debentures
|
$ | - | $ | - | $ | 1,334,000 | $ | 1,334,000 | ||||||||
|
Capital leases
|
- | - | 55,865 | 55,865 | ||||||||||||
|
Notes payable to related parties
|
- | - | 45,000 | 45,000 | ||||||||||||
|
Derivative liabilities
|
- | - | 1,177,845 | 1,177,845 | ||||||||||||
|
Total Liabilities
|
$ | - | $ | - | $ | 2,612,710 | $ | 2,612,710 | ||||||||
|
December 31, 2009
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Convertible debentures
|
$ | - | $ | - | $ | 1,394,900 | $ | 1,394,900 | ||||||||
|
Capital leases
|
- | - | 62,309 | 62,309 | ||||||||||||
|
Notes payable to related parties
|
- | - | 125,716 | 125,716 | ||||||||||||
|
Derivative liabilities
|
- | - | 1,660,926 | 1,660,926 | ||||||||||||
|
Total Liabilities
|
$ | - | $ | - | $ | 3,243,851 | $ | 3,243,851 | ||||||||
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 14 – FAIR VALUE MEASUREMENTS (continued)
|
Level 3 Reconciliation
|
Beginning at beginning of period
|
Gains and losses for the period (realized and unrealized)
|
Purchases, sales and settlements
|
Transfers in or out of Level 3
|
Balance at the end of period
|
|||||||||||||||
|
2010
|
||||||||||||||||||||
|
Convertible debentures
|
$ | 1,394,900 | $ | - | $ | (60,900 | ) | $ | 1,334,000 | |||||||||||
|
Capital leases
|
62,309 | - | (6,744 | ) | 55,565 | |||||||||||||||
|
Notes payable to related parties
|
125,716 | - | (80,716 | ) | 45,000 | |||||||||||||||
|
Derivative liabilities
|
1,660,926 | (483,081 | ) | 1,177,845 | ||||||||||||||||
|
Total Liabilities
|
$ | 3,243,851 | $ | (483,081 | ) | $ | (148,360 | ) | $ | - | $ | 2,612,410 | ||||||||
|
2009
|
||||||||||||||||||||
|
Convertible debentures
|
$ | 1,574,100 | $ | (179,200 | ) | $ | 1,394,900 | |||||||||||||
|
Capital leases
|
92,828 | (30,519 | ) | 62,309 | ||||||||||||||||
|
Notes payable to related parties
|
321,063 | (195,347 | ) | 125,716 | ||||||||||||||||
|
Derivative liabilities
|
857,236 | 803,690 | 1,660,926 | |||||||||||||||||
|
Total Liabilities
|
$ | 2,845,227 | $ | 608,343 | $ | (209,719 | ) | $ | - | $ | 3,243,851 | |||||||||
Gains and losses from the change in derivative liabilities are included in other income (expense) on the statement of operations.