SilverSun Technologies, Inc. - Quarter Report: 2010 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(MARK ONE)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________ to ______________
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COMMISSION FILE NUMBER: 000-50302
Trey Resources, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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16-1633636
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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5 Regent Street, Suite 520, Livingston, NJ 07039
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (973) 758-9555
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated files, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the exchange act:
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares of Class A, common stock, par value $.00001, outstanding as of May 14, 2010: 6,277,857,699
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Page No.
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PART I. FINANCIAL INFORMATION
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Item 1.
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3
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3
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5
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6
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7
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Item 2.
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23
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Item 4T.
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26
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PART II. OTHER INFORMATION
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Item 5.
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27
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Item 6.
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27
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TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31,
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December 31,
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2010
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2009
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ASSETS
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CURRENT ASSETS
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Cash
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$ | 373,611 | $ | 300,482 | ||||
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Accounts receivable, net of allowance for doubtful accounts of $116,000 and $161,000
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608,759 | 568,909 | ||||||
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Inventory
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37,285 | - | ||||||
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Prepaid expenses and other current assets
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26,414 | 31,670 | ||||||
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Total current assets
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1,046,069 | 901,061 | ||||||
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PROPERTY AND EQUIPMENT, net of accumulated depreciation of $401,488 and $337,294
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160,145 | 163,372 | ||||||
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OTHER ASSETS
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Deposits and other assets
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60,633 | 56,280 | ||||||
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TOTAL ASSETS
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$ | 1,266,847 | $ | 1,120,713 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
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Accounts payable and accrued expenses
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$ | 1,896,467 | $ | 1,593,561 | ||||
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Due to related parties
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1,108,905 | 1,024,985 | ||||||
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Convertible debentures payable, net
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1,394,900 | 1,394,900 | ||||||
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Derivative liability
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1,030,843 | 1,660,926 | ||||||
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Current portion of notes payable and capital leases
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62,828 | 62,309 | ||||||
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Notes payable to related parties
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103,435 | 125,716 | ||||||
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Deferred revenue
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170,240 | 180,577 | ||||||
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Total current liabilities
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5,767,618 | 6,042,974 | ||||||
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TOTAL LIABILITIES
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5,767,618 | 6,042,974 | ||||||
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COMMITMENTS AND CONTINGENCIES
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- | - | ||||||
3
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STOCKHOLDERS' DEFICIT
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Preferred stock, $1.00 par value; authorized 1,000,000 shares;
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no shares issued and outstanding
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- | - | ||||||
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Common stock:
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Class A – par value $.00001; authorized 10,000,000,000 shares;
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5,984,695,306 and 5,834,695,306 shares issued and outstanding
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59,847 | 58.347 | ||||||
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Class B - par value $.00001; authorized 50,000,000 shares;
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no shares issued and outstanding
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- | - | ||||||
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Class C - par value $.00001; authorized 20,000,000 shares;
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no shares issued and outstanding
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- | - | ||||||
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Additional paid in capital
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7,302,202 | 7,284,202 | ||||||
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Additional paid in capital - warrants
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125,166 | 125,166 | ||||||
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Accumulated deficit
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(12,021,088 | ) | (12,444,383 | ) | ||||
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Total Trey Resources, Inc. stockholders' deficit
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(4,533,873 | ) | (4,976,668 | ) | ||||
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Noncontrolling interest in SWK Technologies, Inc.
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33,102 | 54,407 | ||||||
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Total stockholders’ deficit
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(4,500,771 | ) | (4,922,861 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
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$ | 1,266,847 | $ | 1,120,713 |
See accompanying footnotes to the condensed consolidated financial statements.
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TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
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2010
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2009
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SALES – SOFTWARE, NET
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$ | 472,586 | $ | 329,434 | ||||
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SALES – SERVICE, NET
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1,356,136 | 1,759,349 | ||||||
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SALES, NET
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1,828,722 | $ | 2,088,783 | |||||
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COST OF SALES
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1,215,611 | 1,247,908 | ||||||
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GROSS PROFIT
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613,111 | 840,875 | ||||||
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SELLING, GENERAL AND
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ADMINISTRATIVE EXPENSES
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Selling expenses
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354,310 | 307,518 | ||||||
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General and administrative expenses
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432,174 | 580,499 | ||||||
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Depreciation and amortization
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21,912 | 74,550 | ||||||
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Total selling, general and administrative expenses
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808,396 | 962,567 | ||||||
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LOSS FROM OPERATIONS
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(195,285 | ) | (121,692 | ) | ||||
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OTHER INCOME (EXPENSE)
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Gain on revaluation of derivatives
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630,083 | 192,543 | ||||||
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Interest expense
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(32,808 | ) | (43,806 | ) | ||||
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Total other income (expense)
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597,275 | 148,737 | ||||||
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NET INCOME ATTRIBUTABLE TO TREY RESOURCES, INC.
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401,990 | 27,045 | ||||||
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NET INCOME (LOSS) ATTRIBUTABLE TO THE
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NONCONTROLLING INTEREST IN
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SWK TECHNOLOGIES, INC.
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(21,305 | ) | - | |||||
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NET INCOME APPLICABLE TO COMMON SHARES
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$ | 423,295 | $ | 27,045 | ||||
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NET LOSS PER COMMON SHARE
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Basic and Fully Diluted
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$ | 0.00 | $ | 0.00 | ||||
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic
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5,969,695,306 | 4,105,473,533 | ||||||
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Fully Diluted
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10,000,000,000 | 10,000,000,000 | ||||||
See accompanying footnotes to the condensed consolidated financial statements.
5
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
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2010
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2009
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income
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$ | 401,990 | $ | 27,045 | ||||
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Adjustments to reconcile net income to net cash provided by
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(used in) operating activities
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Depreciation and amortization
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21,912 | 74,550 | ||||||
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Beneficial interest
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4,500 | - | ||||||
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Gain on revaluation of derivatives
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(630,083 | ) | (192,543 | ) | ||||
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Changes in certain assets and liabilities:
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Accounts receivable, net
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(39,850 | ) | (172,219 | ) | ||||
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Inventory
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(37,285 | ) | 34,565 | |||||
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Prepaid expenses and other assets
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(504 | ) | 29,021 | |||||
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Accounts payable and accrued liabilities
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317,906 | (185,740 | ) | |||||
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Deferred revenue
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(10,337 | ) | (12,249 | ) | ||||
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Related party accounts
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83,920 | 116,574 | ||||||
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Net cash provided by (used in) operating activities
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112,169 | (280,996 | ) | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES
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Purchase of property and equipment
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(17,278 | ) | (4,830 | ) | ||||
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Net cash used in investing activities
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(17,278 | ) | (4,830 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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Repayment of related party loans
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(21,762 | ) | (29,186 | ) | ||||
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Repayment of notes payable, capital leases and convertible debentures
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- | (18,848 | ) | |||||
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Net cash used in financing activities
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(21,762 | ) | (48,034 | ) | ||||
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NET INCREASE (DECREASE) IN CASH
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73,129 | (333,860 | ) | |||||
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CASH – BEGINNING OF PERIOD
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300,482 | 420,042 | ||||||
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CASH – END OF PERIOD
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$ | 373,611 | $ | 86,182 | ||||
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CASH PAID DURING THE PERIOD FOR:
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Interest expense
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$ | - | $ | - | ||||
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Income taxes
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$ | - | $ | - | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the three months ended March 31, 2010:
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 beneficial interest in the amount of $4,500.
See accompanying footnotes to the condensed consolidated financial statements.
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TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Trey Resources, Inc. (the “Company” or “Trey”) and its wholly owned subsidiary, SWK Technologies, Inc. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2009 audited financial statements and the accompanying notes thereto filed with the Securities and Exchange Commission on Form 10-K.
On May 6, 2009, the Company sold 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.
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 also publishes its own proprietary supply-chain software, “MAPADOC”. The Company sells services and products to various end users, manufacturers, wholesalers and distributor industry clients located throughout the United States.
On June 2, 2006, SWK Technologies, Inc. completed the acquisition of certain assets of AMP-Best Consulting, Inc. of Syracuse, New York. AMP-Best Consulting, Inc. is an information technology company and value added reseller of licensed accounting software published by Sage Software. AMP-Best Consulting, Inc. sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, with special emphasis on companies located in the upstate New York region.
The Company is publicly traded and is currently traded on the NASD Over The Counter Bulletin Board (“OTCBB”) under the symbol “TYRIA.”
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TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when 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.
The Company recognizes revenues from consulting and support services as the services are performed.
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 collectibility is reasonably assured 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, the Company recognizes revenue in accordance with in FASB ASC 985-605 (Prior authoritative literature: Statement of Position 97-2, software Revenue Recognition (SOP 97-2)), as amended, and generally recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists generally evidenced by a signed, written purchase order from the customer, (2) delivery of the software product on Compact Disk (CD) or other means to the customer has occurred, (3) the perpetual license fee is fixed or determinable and (4) collectability, which is assessed on a customer-by-customer basis, is probable.
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TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 three months ended March 31, 2010 and 2009, advertising expenses were $150 and $-0-.
Income Taxes
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740-10 (Prior authoritative literature: FASB Statement 109, “Accounting for Income Taxes,”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes and liabilities are computed annually for differences between the financial statement and the tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company adopted the provisions of FASB ASC 740-10 (Prior authoritative literature Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109, on April 1, 2007. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company does not believe it has any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing FASB ASC 740-10.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2010 and December 31, 2009.
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TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents (Continued)
The Company maintains cash balances at a financial institution that is insured by the Federal Deposit Insurance Corporation. 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.
Accounts Receivable
Accounts receivables consist primarily of uncollected invoices for maintenance and professional services. Payments for software sales are due in advance of ordering from the software supplier. Payments for maintenance and support plan renewals are due before the beginning of the maintenance period. Payments for professional services are due 50% in advance and the balance on completion of the services. The Company maintains a small provision for bad debts and reviews the provision quarterly.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash. As of March 31, 2010 The Company believes it has no significant risk related to its concentration within its accounts receivable. One major supplier accounted for approximately 27% of the Company’s total purchases for the three months ended March 31, 2010.
Inventory
Inventory consists primarily of pre-packaged software programs that are held for resale to customers. Cost is determined by specific identification related to the purchase order from the software supplier.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally five to seven years. Maintenance and repairs are charged to expense as incurred.
Deferred Revenues
Deferred revenues consist primarily of annual telephone support plan revenues that will be earned in future periods.
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TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at March 31, 2010 and December 31, 2009, as defined in FASB ASC 825-10, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Effective January 1, 2009, we implemented FASB ASC 825-10, Fair Value Measurements, or SFAS 157, for our assets and liabilities that are re-measured at fair value. The adoption of FASB ASC 825-10 for our assets and liabilities that are re-measured at fair value did not impact our financial position or results of operations.
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 period ending March 31, 2010, the Company has not granted any stock options.
Income Per Common Share
FASB Accounting Standards Codification (“ASC”) 260-10 (Prior authoritative literature: FASB Statement 128, “Earnings Per Share”) requires the presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS").
11
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Per Common Share (Continued)
The Company’s basic income 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.
At March 31, 2010 and 2009, stock warrants to purchase 3,075,000 shares were excluded from the calculation of diluted net income per share due to their anti-dilutive effect. For the three months ended March 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.
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Three Months Ended
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Three Months Ended
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March 31, 2010
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March 31, 2009
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Basic net income per share attributable to common shareholders computation:
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Net income attributable to common stockholders
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$ | 423,295 | $ | 27,045 | ||||
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Weighted-average common shares outstanding
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5,969,695,306 | 4,105,473,533 | ||||||
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Basic net income per share attributable to common Stockholders
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$ | 0.00 | $ | 0.00 | ||||
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Diluted net income per share attributable to common shreholders computation
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Net loss attributable to common stockholders
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$ | 423,295 | $ | 27,045 | ||||
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Weighted-average common shares outstanding
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5,969,695,306 | 4,105,473,533 | ||||||
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Incremental shares attributable to the common stock equivalents
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4,030,304.694 | 5,894,526,467 | ||||||
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Total adjusted weighted-average shares
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10,000,000,000 | 10,000,000,000 | ||||||
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Diluted net income per share attributable to common Stockholders
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$ | 0.00 | $ | 0.00 | ||||
Derivative Liabilities
The Company accounts for its embedded conversion features in its convertible debentures in accordance FASB ASC 815-10 (Prior authoritative literature: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,” 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. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income.”
12
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Subsequent Events
The Company has adopted FASB ASC 855-10, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Company has evaluated subsequent events after the balance sheet date of March 31, 2010 through the date the financial statements were issued.
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 $4.7 million, as of March 31, 2010. The maturity date of the 7.5% convertible debt which was due on December 30, 2007 and May 2008 was extended to December 30, 2010. 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 consolidated balance sheet is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flows from operations.
In addition to developing new products, obtaining new customers and increasing sales to existing customers, management plans to achieve profitability through acquisitions of companies in the business software and information technology consulting market with solid revenue streams, established customer bases, and generate positive cash flow.
These 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.
13
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (the “Update”), which provides amendments to Accounting Standards Codification 820-10 (Fair Value Measurements and Disclosures – Overall Subtopic) of the Codification. The Update requires improved disclosures about fair value measurements. Separate disclosures need to be made of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with a description of the reasons for the transfers. Also, disclosure of activity in Level 3 fair value measurements needs to be made on a gross basis rather than as one net number. The Update also requires: (1) fair value measurement disclosures for each class of assets and liabilities, and (2) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements, which are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The enhanced disclosure requirements have not had a material impact on the Company’s financial reporting.
14
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 3 - FAIR VALUE MEASUREMENTS
FASB Codification Topic 820-10, Fair Value Measurements and Disclosures defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements; however, it does not require any new fair value measurements, rather, its application is made pursuant to other accounting pronouncements that require or permit fair value measurements.
Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
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.
15
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 3 - 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 March 31, 2010 and December 31, 2009.
|
March 31, 2010
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Convertible debentures
|
$ | - | $ | 1,394,900 | $ | - | $ | 1,394,900 | ||||||||
|
Notes payable and capital leases
|
- | 27,290 | - | 27,290 | ||||||||||||
|
Notes payable to related parties
|
- | 135,973 | - | 135,973 | ||||||||||||
|
Derivative liabilities
|
- | 1,030,843 | - | 1,030,843 | ||||||||||||
|
Total Liabilities
|
$ | - | $ | 2,589,006 | $ | - | $ | 2,589,006 | ||||||||
|
December 31, 2009
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Convertible debentures
|
$ | - | $ | 1,394,900 | $ | - | $ | 1,394,900 | ||||||||
|
Notes payable and 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 | ||||||||
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
|
March 31,
|
Dec 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Leasehold improvements
|
$ | 30,557 | $ | 30,557 | ||||
|
Equipment, furniture and fixtures
|
571,053 | 552,555 | ||||||
| 601,610 | 583,112 | |||||||
|
Less: Accumulated depreciation
|
441,465 | 419,740 | ||||||
|
Property and equipment, net
|
$ | 160,145 | $ | 163,372 | ||||
Depreciation and amortization expense for the three months ended March 31, 2010 and 2009 was $21,912 and $25,307.
16
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 5- CONVERTIBLE DEBENTURES PAYABLE
In June 2003, the Company issued $40,000 in 5% convertible debentures and in September 2003, the Company issued an additional $100,000 in 5% convertible debentures to the private investors under the subscription agreement. During the three months ended March 31, 2010 and during the year ended December 31, 2009, no additional payments have been made on these outstanding convertible debentures. Total outstanding principal balance of the convertible debentures as of March 31, 2010 and December 31, 2009 was $15,000, plus accrued interest of $6,360 and $6,175.
On December 30, 2005, the Company entered into a Securities Purchase Agreement with YA Global (f/k/a Cornell Capital Partners, LP) ("Cornell"). Pursuant to such purchase agreement, Cornell shall purchase up to $2,359,047 of secured convertible debentures, which shall be convertible into shares of the Company’s Class A common stock. Pursuant to the Securities Purchase Agreement, two Secured Convertible Debentures were issued on December 30, 2005 for an aggregate of $1,759,047. A portion of this financing was used to convert promissory notes and accrued interest equal to $1,159,047 into new secured convertible debentures and the balance was new financing in the form of secured convertible debentures equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold on the closing of this Securities Purchase Agreement and a second secured convertible debenture equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold two business days prior to the filing of the registration statement that will register the common stock shares issuable upon conversion of the secured convertible debentures which occurred on May 2, 2006.
Interest on the outstanding principal balance of the Secured Convertible Debentures accrues at the annual rate of 7.5%. Payment of principal and accrued interest shall be paid on or before December 30, 2007 on the 2005 debentures, and May 2, 2008 for the 2006 debenture. The Company has the option to redeem a portion or all of the outstanding debentures at 120% of the amount redeemed plus accrued interest. The holder shall be entitled to convert in whole or in part at any time and from time to time, any amount of principal and accrued interest at a price equal to
90% of the lowest closing bid price of the Common Stock during the 30 trading days immediately preceding the conversion date, as quoted by Bloomberg, LP (“Conversion Price”).
In the event of a default, the full principal amount of this Debenture, together with interest and other amounts owing, shall be due and payable in cash, provided however, the holder of the debenture may request payment of such amounts in Common Stock of the Obligor at the Conversion Price then in-effect. A holder of the debenture may not convert this Debenture or receive shares of Common Stock as payment of interest hereunder to the extent such conversion or receipt of such interest payment would result in the holder of the debenture beneficially owning in excess of 4.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of, and payment of interest on, this Debenture. During the three months ended March 31, 2010, the Company did not issue any shares of Class A common stock for repayment of principal on the convertible debenture held by YA Global Investments, f/k/a Cornell Capital Partners. The aggregate principal value of the debentures as of March 31, 2010 and December 31, 2009 is $1,379,900, plus accrued interest of $577,172 and $551,299.
On October 30, 2009, YA Global Investments, L.P. agreed to extend the maturity date of the Convertible Debentures to December 30, 2010.
17
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 6 - DERIVATIVE LIABILITY
In accordance with FASB ASC 815-10 (Prior authoritative literature: SFAS 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" and FASB ASC 815-40, formerly EITF 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK," the conversion feature associated with the YA Global Investments, f/k/a Cornell Capital Partners Convertible Debentures represents embedded derivatives. As such, the Company had recognized embedded derivatives in the amount of $1,946,936 as a liability in the accompanying condensed consolidated balance sheet, and it is now measured at its estimated fair value of $1,030,843 at March 31, 2010.
The estimated fair value of the embedded derivative has been calculated based on a Black-Scholes pricing model using the following assumptions at March 31, 2010:
|
Fair market value of stock
|
$ | 0.00013 | ||
|
Exercise price
|
$ | 0.00012 | ||
|
Dividend yield
|
0.00 | % | ||
|
Risk free interest rate
|
0.41 | % | ||
|
Expected volatility
|
217.54 | % | ||
|
Expected life
|
0.75Years
|
|||
NOTE 7 - DUE TO RELATED PARTIES
In May 2009 the Company issued 100,000,000 shares of Class A Common stock to Mr. Mahoney 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 beneficial interest in the amount of $10,250. In May 2009, 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 $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. Total amounts owed to Mr. Mahoney at March 31, 2010 and December 31, 2009 was $-0-.
Pursuant to the employment contract dated September 15, 2003 between the Company and Mark Meller, the President, Chief Executive Officer and Chief Financial Officer of Trey Resources, Mr. Meller is to receive a salary of $180,000 per year subject to 10% increases every year thereafter, as well as a monthly unaccountable travel expense allowance of $600 and an auto allowance of $800. Also, pursuant to the employment contract dated September 15, 2003 between the Company and Mr. Meller, following the completion of the Spin-off from its former parent company, iVoice Inc., which occurred on February 11, 2004, Mr. Meller is entitled to receive a one-time payment of $350,000. In addition, Mr. Meller was awarded a cash bonus of $114,800 on September 14, 2004. Total amounts owed to Mr. Meller as of March 31, 2010 and December 31, 2009, representing unpaid salary, unpaid expense and auto allowances, and the one-time payment in connection with the Spin-off, totaled $1,108,9055 and $1,024,985.
18
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 7 - DUE TO RELATED PARTIES (Continued)
Mr. Meller has agreed to defer payment of any 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. 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.
NOTE 8 – NOTES PAYABLE TO RELATED PARTIES
Pursuant to the Spin-off from iVoice, the Company has assumed a promissory note totaling $250,000 payable to Jerome Mahoney, President and Chief Executive Officer of iVoice and Non- Executive Chairman of the Board of Trey Resources. The note bore interest at the rate of 9.5% per annum on the unpaid balance until paid or until default. At the time of default (if any) the interest rate shall increase to 20% until the principal balance has been paid. Under the terms of the Promissory Note, at the option of the Note holder, principal and interest can be converted into either (i) one Class B common stock share of Trey Resources, Inc., par value $0.00001, for each dollar owed, (ii) the number of Class A common stock shares of iVoice, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has decided to prepay by (y) fifty percent (50%) of the lowest issue price of Series A common stock since the first advance of funds under this Note, or (iii) payment of the principal of this Note, before any repayment of interest.
In May 2009, 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.
There was no balance due to Mr. Mahoney at March 31, 2010 and December 31, 2009.
In connection with the acquisition of SWK, Inc., the Company assumed a note payable to Gary Berman, VP – MAPADOC EDI Service of SWK Technologies, Inc., our wholly owned subsidiary. On April 1, 2004, Mr. Berman loaned the company $25,000 pursuant to the Agreement and Plan of Merger and Reorganization among Trey, SWK and SWK Technologies, Inc. The unsecured note bears interest at 5% per annum and is payable in bi-weekly amounts of $217. As of December 31, 2009, the note had been fully paid.
19
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 8 – NOTES PAYABLE TO RELATED PARTIES (Continued)
In connection with the acquisition of SWK, Inc, the Company assumed a note payable to Lynn Berman, President of SWK Technologies, Inc., our wholly owned subsidiary. On April 1, 2004, Ms. Berman loaned the company $25,000 pursuant to the Agreement and Plan of Merger and Reorganization among Trey, SWK and SWK Technologies, Inc. The unsecured note accrued interest at 5% per annum and was payable in bi-weekly amounts of $217. As of December 31, 2009, the note had been fully paid.
Pursuant to the asset purchase agreement with AMP-Best, SWK Technologies, Inc. issued a $380,000 promissory note to Crandall Melvin III, former officer of AMP-Best and current Chief Financial Officer of SWK Technologies, Inc. The note carries an interest rate of 7.75% and is payable in 60 monthly payments, commencing 120 days from the closing. As of March 31, 2010 and December 31, 2009, the principal balance on the note is $103,435 and $125,716.
NOTE 9 – INCOME TAXES
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company does not believe it has any uncertain tax provisions which cannot be recognized for financial reporting purposes
The tax effect of temporary differences, primarily net operating loss carryforwards, asset reserves and accrued liabilities, gave rise to the Company's deferred tax asset in the accompanying March 31, 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.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
See Note 8 to the Financial Statements for information related to the employment agreements between Jerome Mahoney and Mark Meller.
The Company has entered into subscription agreements with certain purchasers for the sale of $140,000 in convertible debentures. The convertible debentures are convertible into Class A common stock at the discretion of the holders. During 2004, the Company issued 2,444,177 shares of Trey's Class A common stock for repayment of $125,000 of principal. The outstanding principal balance was $15,000 as of March 31, 2010 and December 31, 2009, and $6,360 and $6,175 was due for accrued interest on these debentures as of March 31, 2010 and December 31, 2009.
20
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company assumed a total of $324,000 in accrued liabilities and related party debt outstanding and incurred by iVoice. The terms and conditions of the liabilities and debt being assumed are as follows:
|
·
|
Kevin Whalen, a former officer of iVoice, is owed $74,000 in amounts due for unpaid salary from iVoice and is unrelated to the operations of Trey. A portion of this amount is convertible into Class A Common Stock of Trey calculated by dividing (x) the sum of the principal the obligee requests to be converted by (y) the average closing bid price of Class A Common Stock of Trey for the five (5) business days immediately preceding the conversion date. As of March 31, 2010 and December 31, 2009, the balance due Mr. Whalen was $25,000.
|
On December 30, 2005, the Company entered an Investor Registration Rights Agreement with YA Global Investments, f/k/a Cornell Capital Partners. 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 statatement was effective in December 2006 and liquidated damages stopped accruing at that time. As of March 31, 2010 and December 31, 2009, the Company has accrued $198,905 in Liquidated Damages in the consolidated balance sheets. There is no maximum stipulated in the agreement.
NOTE 11 - CAPITAL STOCK
In accordance with its Certificate of Incorporation as amended on April 24, 2003, the Company is authorized to issue 10,000,000,000 shares of Class A common stock at $.00001 par value; 50,000,000 shares of Class B Common Stock, par value $.00001; and 20,000,000 shares of Class C Common Stock, par value $.00001. Additionally, the board of directors has the right to prescribe and authorize the issuance of 1,000,000 preferred shares, $1.00 par value.
PREFERRED STOCK
Preferred Stock consists of 1,000,000 shares of authorized preferred stock with $1.00 par value. As of March 31, 2010, no shares were issued or outstanding.
CLASS A COMMON STOCK
Class A Common Stock consists of the following as of March 31, 2010: 10,000,000,000 shares of authorized common stock with a par value of $.00001, 5,984,695,306 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.
21
TREY RESOURCES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
NOTE 11 - CAPITAL STOCK (Continued)
CLASS A COMMON STOCK (continued)
For the three months ended March 31, 2010, the Company had the following transaction in its Class A common stock:
The Company issued 150,000,000 shares of Class A Common Stock for repayment of accrued expenses of $15,000 with a fair value of $19,500. The difference in the market value and deferred compensation repaid was charged to beneficial interest in the amount of $4,500.
CLASS B COMMON STOCK
Class B Common Stock consists of 50,000,000 shares of authorized common stock with a par value of $0.00001. Class B stock has voting rights of 1 to 100 with respect to Class A Common Stock. As of March 31, 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.
CLASS C COMMON STOCK
Class C Common Stock consists of 20,000,000 shares of authorized common stock with a par value of $0.00001. Class C stock has voting rights of 1 vote for every 1,000 shares with respect to Class A Common Stock. As of March 31, 2010, no shares were issued or outstanding.
NOTE 12 – NONCONTROLLING INTEREST
On January 1, 2009 the Company adopted FASB ASC 810-10, formerly SFAS No. 160, “Noncontrolling Interests in Financial Statements,” which requires reporting for minority interests by classifying them as a component of equity in the consolidated balance sheet. As also required by this standard, the consolidated statement of operations includes the net income attributed to the noncontrolling interest. On May 6, 2009, the Company sold 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, representing a Noncontrolling interest in SWK technologies, Inc.
NOTE 13 – SUBSEQUENT EVENT
In April 2010, the Company issued 293,162,393,162 shares of Class A Common Stock for conversion of $34,300 of principal on outstanding debentures with YA Global Investments, (f/k/a Cornell Capital Partners).
22
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Readers should read the following discussion in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this filing as well as our audited consolidated financial statements and related notes for the year ending December 31, 2009 filed with Form 10-K. The following discussion contains forward-looking statements. Please see “Forward Looking Statements - Cautionary Factors” for a discussion of uncertainties, risks and assumptions associated with these financial statements
Overview
The Company concentrates in the business software and information technology consulting market, and is looking to acquire other companies in this industry. SWK Technologies, Inc., Trey’s wholly owned subsidiary and the surviving company from the acquisition and merger with SWK, Inc., is a New Jersey-based information technology company, value added reseller, and master developer of licensed accounting software published by Sage Software. SWK Technologies also publishes its own proprietary supply-chain software, the Electronic Data Interchange (EDI) solution “MAPADOC.” SWK Technologies sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with network services provided by the Company.
On June 2, 2006, SWK Technologies, Inc. completed the acquisition of certain assets of AMP-Best Consulting, Inc. of Syracuse, New York. AMP-Best Consulting, Inc. is an information technology company and value added reseller of licensed accounting software published by Sage Software. AMP-Best Consulting, Inc. sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, with special emphasis on companies located in the upstate New York region.
Management is uncertain that it can generate sufficient cash to sustain its operations in the next twelve months, or beyond. There is no assurance that we will be able to generate sufficient revenues to be profitable, obtain adequate capital funding or continue as a going concern.
Three months ended March 31, 2010 as compared to the three months ended March 31, 2009
All revenues reported by Trey are derived from the sales and service of Sage Software and MAPADOC products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with network services provided by the Company.
Revenues for the three months ended March 31, 2010 decreased $260,061 (12.5%) to $1,828,722 as compared to $2,088,783 for the three months ended March 31, 2009. These sales were all generated by the Company’s operating subsidiary, SWK Technologies (“SWKT”). This decrease is primarily due to lower consulting revenues offset partially by higher software sales.
Gross profit for the three months ended March 31, 2010 decreased $227,764 (27.1%) to $613,111 as compared to $840,875 for the three months ended March 31, 2009. For the three months ended March 31, 2010 the gross profit percentage was 33.5% as compared to 40.3% for the three months ended March 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 larger Sage Software products carries 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 quarter ended March 31, 2010 resulted in gross profit being lower as a percent of sales.
23
Total operating expenses decreased $154,171 (16%) to $808,396 for the three months ended March 31, 2010 as compared to $962,567 for the three months ended March 31, 2009. This decrease is mainly attributed to a decrease in general and administrative salaries.
Total other income for the three months ended March 31, 2010 was $597,275 as compared to income of $148,737 for the three months ended March 31, 2009. This increase is primarily attributed to the higher gain on valuation of derivatives.
For three months ended March 31, 2010 the Company had net income of $401,990 as compared to net income of $27,045 for the three months ended March 31, 2009. The change in net income 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 $4.7 million, as of March 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 therefrom equal to $1,159,047 into new secured convertible debentures and the balance was new financing in the form of secured convertible debentures equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold on the closing of this Securities Purchase Agreement and a second secured convertible debenture equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold two business days prior to the filing of the registration statement that will register the common stock shares issuable upon conversion of the secured convertible debentures. The debentures were due on December 30, 2007 and May 2, 2008, and carry an interest rate of 7.5% per annum. The principal and accrued interest on the debentures are convertible into shares of Class A Common Stock at a price per share equal to 90% of the lowest closing bid price of our Class A Common Stock for the thirty trading days immediately preceding conversion. The aggregate balance due of the YA Global debentures at March 31, 2010 is $1,379,900 for principal and $577,172 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.
24
During the three months ended March 31, 2010, Trey had a net increase in cash of $73,129. Trey’s principal sources and uses of funds were as follows:
Cash provided by (used in) operating activities. Trey provided cash from operating activities of $112,169 for the three months ended March 31, 2010, an increase of $393,165 as compared to cash used in operating activities of $280,996 for the three months ended March 31, 2009. This increase is primarily attributed to the increase in accounts payable and accrued expenses.
Cash provided by (used in) investing activities. Investing activities for the three months ended March 31, 2010 used cash of $17,278 as compared to $4,830 for the three months ended March 31, 2009. This increase is primarily attributed to the an increase in purchases of property and equipment.
Cash provided by (used in) financing activities. Financing activities for the three months ended March 31, 2010 used a total of $21,672 in cash as compared to using $48,034 of cash for the three months ended March 31, 2009. This decrease is primarily attributed to lower repayments of related party loans, notes payable, convertible debentures and capital leases.
Off Balance Sheet Arrangements
During the three months ended March 31, 2010, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.
Forward Looking Statements - Cautionary Factors
Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Information set forth in this discussion and analysis contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.
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ITEM 4T. CONTROLS AND PROCEDURES
Management's report on internal control over financial reporting.
Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company had concluded that the Company's disclosure controls and procedures as of the period covered by this Quarterly Report on Form 10-Q were not effective for the following reasons:
a) The deficiency was identified as the Company's limited segregation of duties amongst the Company's employees with respect to the Company's control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.
b) The deficiency was identified in respect to the Company's Board of Directors. This deficiency is the result of the Company's limited number of external board members. This deficiency may give the impression to the investors that the board is not independent from management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship of possible changes in the organization of the Board of Directors.
Changes in internal control over financial reporting.
Management of the Company has also evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q and determined that there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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(b)
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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 that would consist of the same number of members as the full board of directors. The sole Board member participates in the consideration of director nominees.
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ITEM 6. EXHIBITS
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Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
Trey Resources, Inc.
By: /s/ Mark Meller Date: May 17, 2010
Mark Meller, President
Chief Executive Officer and
Principal Financial Officer
In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Mark Meller Date: May 17, 2010
Mark Meller, President
Chief Executive Officer and
Principal Financial Officer
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Index of Exhibits
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