As filed with the Securities and Exchange Commission on September 14, 2005
Registration Statement No. 333-109997
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
POST-EFFECTIVE AMENDMENT
NO 1. TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
_________________
TREY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other 16-1633636
Jurisdiction of 7373 (I.R.S. Employer
Incorporation or (Primary Standard Industrial Identification
Organization) Classification Code Number) Number)
5 Regent Street
Livingston, NJ 07039
(973) 758-9555
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices
and principal place of business)
_________________
Mark Meller
Chief Executive Officer
5 Regent Street
Livingston, NJ 07039
(973) 758-9555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_________________
Copies to:
Scott S. Rosenblum
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10022
Telephone: (212) 715-9100
Telecopy: (212) 715-8000
Approximate date of commencement of proposed sale to public: At such time or
times as may be determined by the selling stockholders after this registration
statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted.
TREY RESOURCES, INC.
1,117,321,098 SHARES
OF
CLASS A COMMON STOCK
_________________
This prospectus relates to the offering of up to 1,117,321,098 shares of
Class A Common Stock of Trey Resources, Inc., or Trey, by certain persons who
are, or will become, stockholders of Trey. Please refer to "Selling
Stockholders" beginning on page 13. Trey is not selling any shares of Class A
Common Stock in this offering and therefore will not receive any proceeds from
this offering. Trey will, however, receive proceeds from the sale of Class A
Common Stock under the Equity Line of Credit, as described below. All costs
associated with this registration statement will be borne by Trey. Trey has
agreed to allow Cornell Capital Partners, L.P. to retain 6% of the proceeds
raised by us under the Equity Line of Credit.
The shares of Class A Common Stock are being offered for sale by the
selling stockholders at prices established on the Over-the-Counter Bulletin
Board during the term of this offering. These prices will fluctuate based on the
demand for the shares of Class A Common Stock.
The selling stockholders consist of:
o Cornell Capital Partners, L.P. who intends to sell up to 1,112,071,098
shares of Class A Common Stock.
o Elma S. Foin, Darryl A. Moy, Henry Tyler and Steven R. LeMott as
holders of convertible debentures each of whom intends to sell up to
1,312,500 shares of Class A Common Stock purchased in a private
offering for an aggregate of up to 5,250,000 shares.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933, as amended, in connection with the sale of Class A
Common Stock under the Equity Line of Credit Agreement. Cornell Capital
Partners, L.P. will pay a net purchase price of 91% of Trey's market price as
calculated in the Equity Line of Credit Agreement. In addition, Trey has agreed
to permit Cornell Capital Partners to retain an amount equal to 6% of the
proceeds received by Trey and paid Cornell Capital Partners a one-time
commitment fee of 1.5% of the initial outstanding shares of Class A Common
Stock. The discount to market price, the retained proceeds and commitment fee
are underwriting discounts.
With the exception of Cornell Capital Partners, L.P. which is deemed an
"underwriter" within the meaning of the Securities Act of 1933, as amended, no
other underwriter or person has been engaged to facilitate the sale of shares of
Class A Common Stock in this offering. This offering will terminate after the
accompanying registration statement is declared effective by the Securities and
Exchange Commission and the selling stockholders dispose of all of the shares
registered for resale under this registration statement.
Our Class A Common Stock is traded on the Over-The-Counter Bulletin Board
under the symbol "TYRIA.OB" On September 12, 2005, the closing sale price of our
Class A Common Stock on the OTC Bulletin Board was $0.027 per share.
_________________
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. PLEASE
REFER TO "RISK FACTORS" BEGINNING ON PAGE 4.
_________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________
The date of this prospectus is ____________, 2005
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TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...........................................................1
SUMMARY CONDENSED CONSOLIDATED FINANCIAL INFORMATION.........................3
RISK FACTORS.................................................................4
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION..........................10
USE OF PROCEEDS.............................................................10
DETERMINATION OF OFFERING PRICE.............................................11
DILUTION....................................................................11
EQUITY LINE OF CREDIT.......................................................11
SELLING STOCKHOLDERS........................................................13
PLAN OF DISTRIBUTION........................................................13
LEGAL PROCEEDINGS...........................................................15
DIRECTORS AND EXECUTIVE OFFICERS............................................15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............17
DESCRIPTION OF SECURITIES...................................................17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES.................................................................20
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION........20
EXPERTS.....................................................................21
DESCRIPTION OF BUSINESS.....................................................21
WHERE YOU CAN FIND MORE INFORMATION.........................................25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................................25
DESCRIPTION OF PROPERTY.....................................................37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................37
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................39
EXECUTIVE COMPENSATION......................................................40
FINANCIAL STATEMENTS.......................................................F-1
i
PROSPECTUS SUMMARY
This summary contains basic information about us and this offering.
Because it is a summary, it does not contain all of the information that may be
important to you. You should read the entire prospectus carefully, including the
section entitled "Risk Factors," and our Consolidated Financial Statements and
the related Notes to those statements included in this prospectus. This
prospectus contains certain forward-looking statements. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed in this prospectus.
See "Cautionary Note Regarding Forward-Looking Statements."
Our Business
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 believe we are a leader in
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 significant 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.
Trey Resources, Inc. is a Delaware corporation. Our principal offices and
facilities are located at 5 Regent Street, Livingston, NJ 07039 and our
telephone number is (973) 758-9555. Our web site address is
www.treyresources.com. The information contained on our web site is not part of
this prospectus.
The Offering
This offering relates to the sale of Class A Common Stock by certain
persons who are, or will become, stockholders of Trey. The selling stockholders
consist of:
o Cornell Capital Partners, L.P. who intend to sell up to 1,112,071,098
shares of Class A Common Stock.
o Elma S. Foin, Darryl A. Moy, Henry Tyler and Steven R. LeMott as
holders of convertible debentures, each of whom intends to sell up to
1,312,500 shares of Class A Common Stock purchased in private offerings
for an aggregate of up to 5,250,000 shares.
Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically issue and sell to Cornell Capital Partners, L.P. shares of Class A
Common Stock for a total purchase price of $10.0 million. The amount of each
maximum advance amount is $150,000 per advance notice, however, at our
discretion, the first advance notice pursuant to the Equity Line of Credit may
be up to $600,000. A minimum of seven trading days must pass between each
advance notice. Cornell Capital Partners, L.P. will purchase the shares of Class
A Common Stock for a 9% discount to the prevailing market price of our Class A
Common Stock. In addition, Cornell Capital Partners retained
1
6% of each advance under the Equity Line of Credit, and received a one-time
commitment fee of 1.5% of the initial outstanding shares of Class A Common Stock
at the time we became public. Cornell Capital Partners, L.P. intends to sell any
shares purchased under the Equity Line of Credit at the then prevailing market
price. The obligation of Cornell Capital Partners, L.P. to purchase the shares
terminates upon the suspension of the effectiveness of this registration
statement for an aggregate of fifty days or the failure of Trey to remedy a
material breach of the Equity Line of Credit Agreement within thirty days of
receipt of notice. The initial closing under the Equity Line of Credit Agreement
and each subsequent closing of a purchase and sale of shares are conditioned
upon the satisfaction of customary representations and warranties by Cornell
Capital Partners, L.P. and customary clauses regarding the absence of material
adverse changes of either party.
Among other things, this prospectus relates to the shares of Class A
Common Stock to be issued under the Equity Line of Credit.
Class A Common Stock Offered 1,117,321,098 shares by selling
stockholders
Offering Price Market price
Class A Common Stock 100 shares of Class A Common Stock
Outstanding
Before the Offering
Class B Common Stock 0 shares of Class B Common Stock
Outstanding (which are convertible into Class
Before the Offering A Common Stock by dividing the
number of Class B Common Stock
being converted by a 50% discount
of the lowest price Trey had ever
issued its Class A Common Stock
Use of Proceeds We will not receive any proceeds
from the sale of shares of Class A
Common Stock, or the sale of
shares of Class A Common Stock
issuable upon conversion of the
debentures, in each case, offered
by the selling stockholders. Any
proceeds we receive from the sale
of Class A Common Stock under the
Equity Line of Credit will be used
for sales and marketing, working
capital purposes and acquisitions.
See "Use of Proceeds."
Risk Factors The securities offered hereby
involve a high degree of risk and
immediate substantial dilution.
You should read carefully the
factors discussed under Risk
Factors beginning on page 4 and
the other information included in
this prospectus before investing
in our securities. Several of the
most significant risk factors
include:
o Future sales by our stockholders may
adversely affect our stock price and
our ability to raise funds in new
stock offerings;
o Existing stockholders will experience
significant dilution from our sale of
shares under the Equity Line of
Credit;
2
o The investor under the Equity Line of
Credit will pay less than the
then-prevailing market price for our
Class A Common Stock;
o The selling stockholders intend to
sell their shares of Class A Common
Stock in the public market, which
sales may cause our stock price to
decline; and
o The sale of our stock under our Equity
Line of Credit could encourage short
sales by third parties, which could
contribute to the further decline of
our stock price.
SUMMARY CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For the six months ended For the year ended
------------------------ -----------------------
June 30, June 30, December 31, December 31,
2005 2004 2004 2003
-------- -------- ------------ ------------
Statement of Operations Data:
Sales $1,964,941 $ 215,075 $1,703,281 $ 1,350
Cost of sales 1,223,880 110,551 1,004,645 18,435
Gross profit 741,061 104,524 698,636 (17,085)
Selling, general and administration
Expenses 1,256,743 1,176,974 2,666,196 359,840
Loss from operations (515,682) (1,072,450) (1,967,560) (376,925)
Net loss (852,491) (1,268,179) (2,390,705) (397,605)
June 30, June 30 December 31, December 31,
2005 2004 2004 2003
-------- -------- ------------ ------------
Balance Sheet Data:
Current assets $1,312,708 $ 511,768 $ 707,472 $ 114,134
Intangible assets 1,062,040 1,008,041 1,062,040 9,000
Liabilities 3,570,051 2,696,922 3,104,351 453,467
Stockholders' equity (deficiency) (994,939) (1,072,999) (1,201,531) (330,333)
3
RISK FACTORS
You should carefully consider each of the following risk factors and all
of the other information in this prospectus. The following risks relate
principally to the Offering and Trey's business. If any of the following risks
and uncertainties develops into actual events, the business, financial condition
or results of operations of Trey could be materially adversely affected. If that
happens, the trading prices of Trey shares could decline significantly. The risk
factors below contain forward-looking statements regarding the Offering and
Trey. Actual results could differ materially from those set forth in the
forward-looking statements. See Cautionary Statement Regarding Forward-Looking
Statements below.
Risks Related to Our Operations
We have a limited operating history.
We did not begin our value added reseller, software, and consulting
business until June 2004. Accordingly, we have a limited operating history on
which to base an evaluation of our business and prospects. We cannot assure
stockholders that our business strategy will be successful or that we will
successfully address the risks involved in operating our business. Our failure
to do so could materially adversely affect our business, financial condition and
operating results.
We have historically lost money and may continue to lose money in the future.
For the years ended December 31, 2004 and 2003, we had net losses of
$2,390,705 and $397,605, respectively, and net losses of $0.21 and $0.13 per
share, respectively. Future losses are likely to occur. Accordingly, we may
experience significant liquidity and cash flow problems because our operations
may not be profitable. 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 short 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:
o the timing of sales of our products and services;
o the timing of product implementation, particularly large design
projects;
o unexpected delays in introducing new products and services;
o increased expenses, whether related to sales and marketing, product
development, or administration;
o deferral in the recognition of revenue in accordance with applicable
accounting principles, due to the time required to complete
projects;
o the mix of product license and services revenue; and
o costs related to possible acquisitions of technology or businesses.
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,
4
we cannot assure that we will be able to develop new products or enhancements to
our existing products in order to remain competitive.
If we cannot raise additional capital to finance future operations, we may need
to curtail our operations in the future.
We have relied on significant external financing to fund our operations.
Such financing has historically come from a combination of borrowings and sales
of securities from third parties. We cannot assure you that financing from
external sources will be available if needed or on favorable terms. Our
inability to obtain adequate financing will result in the need to curtail
business operations. Any of these events would be materially harmful to our
business and may result in a lower stock price. While we have recently raised
working capital to fund our operations that we believe should be sufficient for
the next 12 months, we will subsequently need to raise additional capital to
fund our future operations.
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 the difficulties
frequently encountered by companies in the early stage of development in new and
evolving markets. These difficulties include the following:
o substantial delays and expenses related to testing and developing
new products;
o marketing and distribution problems encountered in connection with
our new and existing products and technologies;
o competition from larger and more established companies;
o delays in reaching our marketing goals;
o difficulty in recruiting qualified employees for management and
other positions;
o lack of sufficient customers, revenues and cash flow; and
o limited financial resources.
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,
5
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 two officers control a significant percentage of our capital stock and have
sufficient voting power to control the vote on substantially all corporate
matters.
As of September 6, 2005, Jerome R. Mahoney and Mark Meller, our
Non-Executive Chairman of the Board of Directors and our Chief Executive
Officer, respectively, owned approximately 44.4% and 30.2%, respectively, 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. Mahoney and 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. Mahoney
and Mr. Meller are 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
6
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 Non-Executive
Chairman of the Board of Directors or Chief Executive Officer, our business may
suffer.
We are dependent on our key officers, Jerome R. Mahoney and Mark Meller,
our Non-Executive Chairman of the Board of Directors and our Chief Executive
Officer, respectively, and our key employees in our operating subsidiary,
specifically Jeffrey Roth, Lynn Berman, and Gary Berman. 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 $500,000 key-man term life insurance
policies on Ms. Berman and Mr. Berman, and have an application pending for a
similar amount of insurance on the life of Mr. Roth.
Following the distribution of our shares to the stockholders of iVoice, Inc.,
our Non-Executive Chairman of the Board of Directors may have conflicts of
interest, and we do not have any formal procedure for resolving any such
conflicts in the future.
Following the distribution of shares of our Class A Common Stock to the
stockholders of iVoice, Inc., as described in our registration statement on Form
SB-2 dated February 13, 2004, our Non-Executive Chairman of the Board of
Directors, Jerome R. Mahoney, has the right to convert $286,829 of indebtedness
(which includes accrued interest of 9.5% per annum) into 286,829 shares of Class
B Common Stock of Trey Resources, which will be convertible into an
indeterminable number of shares of Class A Common Stock of Trey Resources. This
could create, or appear to create, potential conflicts of interest when our
Non-Executive Chairman is faced with decisions that could have different
implications for Trey Resources. Examples of these types of decisions might
include any of the potential business acquisitions made by us or the resolution
of disputes arising out of the agreements governing the relationship between
iVoice and us following the distribution. Also, the appearance of conflicts,
even if such conflicts do not materialize, might adversely effect the public's
perception of us following the distribution. Furthermore, we do not have any
formal procedure for resolving any such conflicts of interest if they do arise.
Risks Related to Our Offering
Future sales by our stockholders may adversely affect our stock price and our
ability to raise funds in new stock offerings.
Sales of shares of our Class A Common Stock in the public market following
this offering could lower the market price of our shares. Sales may also make it
more difficult for us to sell equity securities or equity-related securities in
the future at a time and price that our management deems acceptable or at all.
In addition, we have debentures convertible into 2,230,125 shares of Class A
Common Stock (assuming a market price of $0.008 per share used in calculating
the conversion price). Upon issuance of the maximum number of shares being
registered under the Equity Line of Credit, there will be an additional
1,117,321,098 shares of Class A Common Stock outstanding (including the shares
available for issuance upon conversion of the debentures). All of these shares
of Class A Common Stock may be immediately resold in the public market upon
effectiveness of the accompanying registration statement and the sale to the
investor under the terms of the Equity Line of Credit agreement.
Existing stockholders will experience significant dilution from our sale of
shares under the Equity Line of Credit.
The sale of shares pursuant to the Equity Line of Credit 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
7
Common Stock under the Equity Line of Credit as our stock price declines. If our
stock price is lower, then our existing stockholders would experience greater
dilution.
The investor under the line of credit 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 Equity Line of Credit will
be issued at a 9% discount to the lowest closing bid price for the 5 days
immediately following the notice date of an advance. These discounted sales
could cause the price of our Class A Common Stock to decline.
Further, because the investor under the Equity Line of Credit 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.
The selling stockholders intend to sell their shares of Class A Common Stock in
the public market, which sales may cause our stock price to decline.
The selling stockholders intend to sell the shares of Class A Common Stock
being registered in this offering in the public market. That means that up to
1,117,321,098 shares of Class A Common Stock, the number of shares being
registered in this offering, may be sold. Such sales may cause our stock price
to decline.
The sale of our stock under our Equity Line of Credit 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 Equity
Line of Credit could encourage short sales by third parties. Such an event could
place further downward pressure on the price of our Class A Common Stock.
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.
The price you pay in this offering will fluctuate and may be higher or lower
than the prices paid by other people participating in this offering.
The price in this Offering will fluctuate based on the prevailing market
price of the Class A Common Stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this Offering may be higher or lower than the
prices paid by other people participating in this offering.
We may not be able to access sufficient funds under the Equity Line of Credit
when needed.
We are dependent on external financing to fund our operations. Our
financing needs are expected to be provided from the Equity Line of Credit, in
large part. No assurances can be given that such financing will be available in
sufficient amounts or at all when needed.
The issuance of shares of Class A Common Stock under this offering could result
in a change of control.
We are registering 1,117,321,098 shares of Class A Common Stock in this
offering. These shares represent greater than 93.4% of our outstanding Class A
Common Stock, and we anticipate all such shares will be sold in this offering.
If all or a significant block of these shares are held by one or more
stockholders working together, then
8
such stockholder or stockholders would have enough shares to assume control of
Trey by electing its or their own directors.
Risks Related to Our Securities
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:
o With a price of less than $5.00 per share
o That are not traded on a "recognized" national exchange;
o 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
o 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.
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. As of September 6, 2005, approximately 9,527,762
shares of our Class A Common Stock could be considered "restricted securities"
and saleable only upon registration under the Securities Act of 1933, upon
compliance with Rule 144 of the Securities Act, or pursuant to another exemption
from registration.
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.
As of September 6, 2005, we had all of our remaining 9,923,532,161 authorized
shares available for future issuance, of which approximately 1,070,327,837 are
reserved.
9
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
The prospectus and any prospectus supplement contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended.
Forward-looking statements include those regarding our goals, beliefs, plans or
current expectations and other statements regarding matters that are not
historical facts. For example, when we use words such as "project," "believe,"
"anticipate," "plan," "expect," "estimate," "intend," "should," "would,"
"could," or "may," or other words that convey uncertainty of future events or
outcome, we are making forward-looking statements. Our forward-looking
statements are subject to risks and uncertainties. You should note that many
important factors, some of which are discussed elsewhere in this prospectus,
could affect us in the future and could cause our results to differ materially
from those expressed in our forward-looking statements. You should read these
factors, including the information under "Risk Factors" beginning on page 4, and
the other cautionary statements made in this prospectus as being applicable to
all related forward-looking statements wherever they appear in this prospectus.
We do not undertake any obligation to update forward-looking statements made by
us.
USE OF PROCEEDS
This prospectus relates to shares of our Class A Common Stock that may be
offered and sold from time to time by certain selling stockholders. There will
be no proceeds to us from the sale of shares of Class A Common Stock in this
offering. However, we will receive the proceeds from the sale of shares of Class
A Common Stock to Cornell Capital Partners, L.P. under the Equity Line of
Credit. The purchase price of the shares purchased under the Equity Line of
Credit will be equal to 91% of the lowest closing bid price of our Class A
Common Stock on the Over-the-Counter Bulletin Board for the 5 days immediately
following the notice date. Cornell Capital Partners, L.P. will retain 6% of each
advance.
For illustrative purposes, Trey has set forth below its intended use of
proceeds for the range of net proceeds indicated below to be received under the
Equity Line of Credit. For the purposes of this table, Trey assumes a purchase
price per share of Class A Common Stock of $.0091, equal to 91% of an assumed
market price of $.01 per share (549,450,549 and 1,098,901,098 shares of Class A
Common Stock, respectively). The table assumes estimated total offering expenses
of $136,148, plus the 6% retainage.
Gross Proceeds $5,000,000 $10,000,000
Net Proceeds $4,563,852 $ 9,263,852
Use of Proceeds: Amount Amount
- -----------------------------------------------------------------------
Sales and Marketing $ 500,000 $1,000,000
Working Capital and general corporate $4,063,852 $8,263,852
purposes which include employee salaries, ---------- ----------
cost of additional personnel, support and
management systems, legal and professional
costs, and capital costs for computers,
related equipment, and, potentially,
acquisitions of other companies
Total $4,563,852 $9,263,852
========== ==========
Except for the Equity Line of Credit, the convertible debentures and
working capital from operations, we have no other significant sources of working
capital or cash commitments. We cannot assure you that we will raise sufficient
funds from these financing arrangements, or that we will produce sufficient
revenues from product sales to sustain our operations or, that a market will
develop for our Class A Common Stock upon which a significant amount of our
financing is dependant. To date, we have incurred substantial losses, and may
from time to time require financing for working capital to meet our operating
obligations. While we have recently raised sufficient working capital to fund
our operations for what we believe should be sufficient for the next six months,
we will subsequently need to raise additional capital to fund our future
operations. We anticipate that we will require financing on an ongoing basis for
the foreseeable future.
10
DETERMINATION OF OFFERING PRICE
The selling stockholders may sell shares in any manner at the current
market price.
DILUTION
The net tangible book value of Trey as of June 30, 2005 was $(2,056,979)
or $(.03014) per share of Class A Common Stock. Net tangible book value per
share is determined by dividing the tangible book value of Trey (total tangible
assets less total liabilities) by the number of outstanding shares of our Class
A Common Stock. Since this offering is being made solely by the selling
stockholders and none of the proceeds will be paid to Trey, our net tangible
book value will be unaffected by this offering. Our net tangible book value,
however, will be impacted by the Class A Common Stock to be issued under the
Equity Line of Credit. The amount of dilution will depend on the offering price
and number of shares to be issued under the Equity Line of Credit. The following
example shows the dilution to new investors at an offering price of $0.01 per
share.
If we assume that Trey had issued 961,923,297 (1) shares of Class A
Common Stock under the Equity Line of Credit at an assumed offering price of
$0.01 per share (i.e., the maximum number of shares needed in order to raise a
total of $10.0 million under the Equity Line of Credit), less a retention fee of
$450,000 and additional offering expenses of $40,000, our net tangible book
value as of June 30, 2005 would have been $4,953,021 or $0.00481 per share. Such
an offering would represent an immediate increase in net tangible book value to
existing stockholders of $.03495 per share and an immediate dilution to new
stockholders of $0.00519 per share, or 51.9%. The following table illustrates
the per share dilution:
Assumed public offering price per share $ .01000
Net tangible book value at June 30, 2005 ($ .03014)
Increase attributable to new investors $ .03495
Net tangible book value per share after --------- $ .00481
this offering --------
Dilution per share to new stockholders $ .00519
========
The offering price of our Class A Common Stock is based on the
then-existing market price. In order to give prospective investors an idea of
the dilution per share they may experience, we have prepared the following table
showing the dilution per share at various assumed offering prices:
Assumed No. of Shares to be Dilution Per Share to
Offering Price Issued (1) New Investors
-------------- ------------------- ---------------------
$0.010 961,923,297 $0.00519
$0.008 1,202,404,121 $0.00410
$0.006 1,603,205,495 $0.00304
$0.004 2,404,808,241 $0.00200
(1) This represents the maximum number of shares of Class A Common Stock that
will be required to be issued in order to raise a total of $10.0 million under
the Equity Line of Credit at that price. As of June 30, 2005, Trey had drawn
down $2,500,000 on the Equity Line of Credit and the remaining balance due on
the loan is $1,253,502. This table does not give effect to the conversion of the
convertible debentures.
EQUITY LINE OF CREDIT
Summary
On January 27, 2003, as subsequently amended retroactively to January 27,
2003, we entered into an Equity Line of Credit with Cornell Capital Partners,
L.P. Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically sell to Cornell Capital Partners shares of Class A Common Stock for
a total purchase price of up to $10.0 million. For each share of Class A Common
Stock purchased under the Equity Line of Credit, Cornell Capital Partners will
pay 91% of the lowest closing bid price on the Over-the-Counter Bulletin Board
or other
11
principal market on which our Class A Common Stock is traded for the 5 days
immediately following the notice date. Cornell Capital Partners is a private
limited partnership whose business operations are conducted through its general
partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners will retain
6% of each advance under the Equity Line of Credit. The effectiveness of the
sale of the shares under the Equity Line of Credit is conditioned upon us
registering the shares of Class A Common Stock with the Securities and Exchange
Commission. The costs associated with this registration statement will be borne
by us.
Equity Line of Credit Explained
Pursuant to the Equity Line of Credit, we may periodically sell shares of
Class A Common Stock to Cornell Capital Partners, L.P. to raise capital to fund
our working capital needs. The periodic sale of shares is known as an advance.
We may request an advance every 7 trading days. A closing will be held 6 trading
days after such written notice at which time we will deliver shares of Class A
Common Stock and Cornell Capital Partners, L.P. will pay the advance amount.
We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $10.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first.
The amount of each maximum advance amount is $150,000 per advance notice,
however, at Trey's discretion, the first advance notice pursuant to the Equity
Line of Credit may be up to $600,000. The amount available under the Equity Line
of Credit is not dependent on the price or volume of our Class A Common Stock.
Cornell Capital Partners may not own more than 9.9% of our outstanding Class A
Common Stock at any time. Because Cornell Capital Partners can repeatedly
acquire and sell shares, this limitation does not limit the potential dilutive
effect or the total number of shares that Cornell Capital Partners may receive
under the Equity Line of Credit.
We cannot predict the actual number of shares of Class A Common Stock that
will be issued pursuant to the Equity Line of Credit, in part, because the
purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. Nonetheless, we can estimate the number of shares of our Class A Common
Stock that will be issued using certain assumptions. For example, if Trey issued
1,098,946,098 shares of Class A Common Stock to Cornell Capital Partners, L.P.
(i.e. the number of shares needed to raise the maximum amount available under
the Equity Line of Credit at a price of $0.01 per share) for gross proceeds of
$10,000,000. These shares would represent greater than 99.9% of our outstanding
Class A Common Stock upon issuance.
Trey is registering a total of 1,117,321,098 shares of Class A Common
Stock for the sale under the Equity Line of Credit and the conversion of
debentures. The issuance of shares under the Equity Line of Credit may result in
a change of control. That is, up to 1,098,946,098 shares of Class A Common Stock
could be issued under the Equity Line of Credit (i.e., the maximum number of
shares being registered in the accompanying registration statement for the
Equity Line of Credit and Debentures). If all or a significant block of these
shares are held by one or more stockholders working together, then such
stockholder or stockholders would have enough shares to assume control of Trey
by electing its or their own directors. This could happen, for example, if
Cornell Capital Partners sold the shares purchased under the Equity Line of
Credit to the same purchaser.
Proceeds used under the Equity Line of Credit will be used in the manner
set forth in the "Use of Proceeds" section of this prospectus. We cannot predict
the total amount of proceeds to be raised in this transaction because we have
not determined the total amount of the advances we intend to draw.
We expect to incur additional expenses of approximately $40,000 consisting
primarily of professional fees incurred in connection with this registration. In
addition, Cornell Capital Partners will retain 6% of each advance. In connection
with the Equity Line of Credit, Trey has paid Cornell Capital Partners a
one-time Commitment fee of 1.5% of the initial outstanding shares of Class A
Common Stock.
12
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. None of the selling stockholders have held a position or office,
or had any other material relationship, with Trey, except as follows:
o Cornell Capital Partners, L.P. is the investor under the Equity Line of
Credit. For each share of Class A Common Stock purchased under the
Equity Line of Credit, Cornell Capital Partners will pay 91% of the
lowest closing bid price on the Over-the-Counter Bulletin Board or
other principal market on which our Class A Common Stock is traded for
the 5 days immediately following the notice date. Further, Cornell
Capital Partners will retain 6% of each advance under the Equity Line
of Credit. All investment decisions of Cornell Capital Partners are
made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the
managing partner of Yorkville Advisors, makes the investment decisions
on behalf of Yorkville Advisors. Previously, Trey had outstanding loans
from Cormell Capital Partners, L.P. in the aggregate amount of $100,000
which was evidenced by a convertible debenture. The convertible
debenture was repaid in full as of June 30, 2005 in accordance with its
terms.
o Elma S. Foin, Darryl A. Moy and Henry Tyler each have outstanding loans
to Trey in the amount of approximately $5,947 for an aggregate amount
of $17,841 as of June 30, 2005, which is evidenced by convertible
debentures. The debentures are convertible into shares of Class A
Common Stock at a Conversion Price that is equal to either (a) an
amount equal to one hundred twenty percent (120%) of the closing price
of the Class A Common Stock as of the closing date of the registration
of shares or (b) an amount equal to eighty percent (80%) of the average
closing bid price of the Class A Common Stock for the four trading days
immediately preceding the conversion date. The convertible debentures
have a term of two years with all accrued interest of 5% per year due
at the expiration of the term. All investment decisions are made by the
respective debenture holders.
The table follows:
Shares to be
Shares Acquired
Beneficially under Shares to be
Selling Owned Before the Line of Sold in the
Stockholder Offering(1) Credit Offering
- ------------------------------------------------------------------------------
Cornell Capital 181,295,626(2) 1,112,071,098(3) 1,112,071,098(3)
Partners, L.P.
Elma S. Foin 1,312,500 0 1,312,500(4)
Darryl A. Moy 1,312,500 0 1,312,500(5)
Henry Tyler 1,312,500 0 1,312,500(6)
Steven R. LeMott 1,312,500 0 1,312,500(7)
-------------- -------------- -------------
Total 186,545,626 1,112,071,098 1,117,321,098
(1) The shares of Class A Common Stock indicated are issuable upon the
conversion of convertible debentures and repayment of existing debt at the
Conversion Price described above based upon an assumed average closing bid
price of $0.01.
(2) This is based on $2.5 million drawn on the Equity Line of Credit as of
September 12, 2005.
(3) Includes the 45,000 shares of Class A Common Stock issuable as a commitment
fee.
(4) As of September 12, 2005, there were 841,681 shares beneficially held by
Ms. Foin remaining to be sold in the offering.
(5) As of September 12, 2005, there were 838,454 shares beneficially held by
Mr. Moy remaining to be sold in the offering.
(6) As of September 12, 2005, there were 838,867 shares beneficially held by
Mr. Tyler remaining to be sold in the offering.
(7) As of September 12, 2005, there were 97,984 shares beneficially held by Mr.
LeMott remaining to be sold in the offering.
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution of
Trey's Class A Common Stock owned by the selling stockholders may be effected
directly to purchasers by the selling stockholders or by pledgees, donees,
transferees or other successors in interest, as principals or through one or
more underwriters, brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) on the
over-the-counter market or in any other market on which the
13
price of Trey's shares of Class A Common Stock are quoted or (ii) in
transactions otherwise than on the over-the-counter market or in any other
market on which the price of Trey's shares of Class A Common Stock are quoted.
However, the selling stockholders are advised that this registration statement
may not cover sales by pledges or transferees of the selling stockholders and if
this prospectus is to be used in connection with the resale of any of the shares
acquired by Cornell Capital, a post-effective amendment to this registration
statement must be filed to include disclosure required by Item 507 of Regulation
S-B with respect to additional selling stockholders and such post-effective
amendment must be declared effective prior to its use.
Any transactions by the selling stockholders may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at negotiated
or fixed prices, in each case as determined by the selling stockholders or by
agreement between the selling stockholders and underwriters, brokers, dealers or
agents, or purchasers. If the selling stockholders effect such transactions by
selling their shares of Trey's Class A Common Stock to or through underwriters,
brokers, dealers or agents, such underwriters, brokers, dealers or agents may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders or commissions from purchasers of Class A Common Stock
for whom they may act as agent (which discounts, concessions or commissions as
to particular underwriters, brokers, dealers or agents may be in excess of those
customary in the types of transactions involved). The selling stockholders and
any brokers, dealers or agents that participate in the distribution of the Class
A Common Stock may be deemed to be underwriters, and any profit on the sale of
Class A Common Stock by them and any discounts, concessions or commissions
received by any such underwriters, brokers, dealers or agents may be deemed to
be underwriting discounts and commissions under the Securities Act. Cornell
Capital Partners, L.P. is an "underwriter" within the meaning of the Securities
Act of 1933 in connection with the sale of Class A Common Stock under the Equity
Line of Credit. Cornell Capital Partners, L.P. will pay Trey 91% of the lowest
closing bid price of Trey's Class A Common Stock on the Over-the-Counter
Bulletin Board or other principal trading market on which our Class A Common
Stock is traded for the 5 days immediately following the advance date. In
addition, Cornell Capital Partners will retain 6% of the proceeds received by
Trey under the Equity Line of Credit. The 9% discount, the 6% retained amount,
along with the one-time commitment fee of 1.5% of the initial outstanding shares
of Class A Common Stock are underwriting discounts.
Cornell Capital Partners, L.P. was formed in February of 2000 as a
Delaware limited partnership. Cornell Capital Partners is a domestic hedge fund
in the business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in Trey's stock or to otherwise engage
in stabilizing or other transactions intended to help support the stock price.
Prospective investors should take these factors into consideration before
purchasing Trey's Class A Common Stock.
Under the securities laws of certain states, the shares of Class A Common
Stock may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of Class A Common Stock may not be sold unless the
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of Class A Common Stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the additional expenses of the offering to be borne by us will be
approximately $40,000, as well as retention of 6% of the gross proceeds received
under the Equity Line of Credit. The estimated total offering expenses consist
of: a SEC registration fee of $1,891, printing expenses of $75,606, accounting
fees of $11,500, legal fees of $43,933 and miscellaneous expenses of $3,218. We
will not receive any proceeds from the sale of any of the shares of Class A
Common Stock by the selling stockholders. We will, however, receive proceeds
from the sale of Class A Common Stock under the Equity Line of Credit.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of Class A Common Stock by the selling stockholders, and that
there are restrictions on market-making activities by persons engaged in the
distribution of the shares. Under Registration M, the selling stockholders or
their agents may not bid for, purchase, or attempt to induce any person to
14
bid for or purchase, shares of Class A Common Stock of Trey while such selling
stockholders are distributing shares covered by this prospectus. Accordingly,
except as noted below, the selling stockholders are not permitted to cover short
sales by purchasing shares while the Offering is taking place. Cornell Capital
Partners can cover any short positions only with shares received from Trey under
the Equity Line of Credit. The selling stockholders are advised that if a
particular offer of Class A Common Stock is to be made on terms constituting a
material change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
LEGAL PROCEEDINGS
We are subject to litigation from time to time arising from our normal
course of operations. Currently, there are no open litigation matters relating
to our products, product installations or technical services provided.
DIRECTORS AND EXECUTIVE OFFICERS
We have three directors and one principal officer. Mr. Meller has served
as President, Chief Financial Officer and Director since September 15, 2003, and
as Chief Executive Officer since September 1, 2004. Mr. Mahoney has served as a
Non-Executive Chairman of the Board of Directors since January 1, 2003. Mr. Rudy
has served as a Director since May 20, 2005.
- --------------------------------------------------------------------------------
Name Age Position
- ---- --- --------
- --------------------------------------------------------------------------------
Jerome R. Mahoney 44 Non-Executive
Chairman of
the Board of
Directors
- --------------------------------------------------------------------------------
Mark Meller 46 President, Chief
Executive Officer,
Chief Financial
Officer and Director
- --------------------------------------------------------------------------------
John C. Rudy 60 Director
- --------------------------------------------------------------------------------
There are no agreements or understandings for the officer or directors to
resign at the request of another person and the above-named officers and
directors are not acting on behalf of nor will act at the direction of any other
person. As of the fiscal year ended December 31, 2004, we did not have an audit
committee in place and we had one non-executive member of the Board of
Directors.
For the year ended December 31, 2004, the Board held seven meetings. In
addition, the Board acted through written unanimous consent in lieu of a meeting
on twenty-four occasions to issue shares pursuant to the terms and conditions of
the Equity Line of Credit Agreement, and on twelve occasions to issue shares
pursuant to the terms and conditions of the Company's outstanding convertible
debentures.
Business Experience
Jerome R. Mahoney. Mr. Mahoney has been our Non-Executive Chairman of the
Board of Directors since January 1, 2003. Mr. Mahoney started at Executone
Information Systems, a telephone systems manufacturer, and was Director of
National Accounts from 1988 to 1989. In 1989, Mr. Mahoney founded Voice Express,
Inc., a New York company that sold voicemail systems and telephone system
service contracts and installed these systems. Mr. Mahoney sold Voice Express
Systems in 1993. From 1993 to 1997, Mr. Mahoney was President of IVS Corp., and
on December 17, 1997, he established International Voice Technologies, which was
merged with iVoice, Inc. on May 21, 1999. Since May 21, 1999, Mr. Mahoney has
served as President and CEO of iVoice, Inc., which was the parent of Trey
Resources before the spin-off in February 2004. Since August 2004, Mr. Mahoney
has served as Non-Executive Chairman of the Board of Directors of Deep Field
Technologies, Inc., iVoice Technology, Inc. and SpeechSwitch, Inc. Since
December 2004, Mr. Mahoney has served as Non-Executive Chairman of the Board of
15
Directors of MM2 Group, Inc. Mr. Mahoney received a B.A. in finance and
marketing from Fairleigh Dickinson University, Rutherford, N.J. in 1983.
Mark Meller. Mr. Meller has been the President, Chief Financial Officer
and Director since September 15, 2003, and was further appointed Chief Executive
Officer on September 1, 2004. Since October 1, 2004, Mr. Meller has been 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. Since August 29, 2005, Mr. Meller has been 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 & 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.
John C. Rudy . Mr. Rudy has been a Board member since May 20, 2005. Mr.
Rudy's financial and business operations career spans more than 35 years and
covers a broad spectrum of industries. Since 1992, Mr. Rudy has been President
of Beacon Consulting Associates, a firm of business consultants and accountants,
with the objective of providing "big business" financial, marketing and business
strategy skills to middle market businesses. From 1990 through 1992, he headed
Coopers & Lybrand's Turnaround Services practice for the New York Metropolitan
area. Prior to that, he was a Principal in a leveraged buyout firm and served as
Chief Financial Officer of Plymouth Lamston Stores Corporation, a chain of
women's ready-to-wear stores and a chain of hard goods variety stores. Mr. Rudy
holds an MBA degree from Emory University in Atlanta, Georgia, and is a
Certified Public Accountant in New York State.
There are no family relationships among the directors or executive
officers.
16
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Amount and
Nature of
Beneficial Percent
Name and Address Title of Class Ownership of Class
- ---------------------------- --------------------- ------------ ---------
Jerome R. Mahoney (Chairman) Class A Common Stock 133,240,839(1) 44.4%
c/o Trey Resources, Inc.
5 Regent Street, Suite 520
Livingston, New Jersey 07039
Mark Meller (Chief Executive Class A Common Stock 90,421,999(2) 30.2%
Officer)
c/o Trey Resources, Inc.
5 Regent Street, Suite 520
Livingston, New Jersey 07039
Director and executive officers Class A Common Stock 223,662,838 74.6%
as a group (two persons)
____________________________________
(1) Includes (a) 90,565,052 shares of our Class A Common Stock issuable upon
conversion of $633,955 due to related party accounts with Mr. Mahoney and
(b) 40,975,537 shares of our Class A Common Stock issuable upon conversion
of a promissory note assumed on February 11, 2004. These figures assume
that shares of Class B Common Stock are issued to satisfy these
obligations, and such Class B Common Stock shares are subsequently
converted to shares of Class A Common Stock. The note balance of $286,829
includes principle and interest through September 6, 2005. Pursuant to such
promissory note, Mr. Mahoney may, at any time, convert amounts owed to him
for monies loaned thereunder and interest thereon into (i) one share of our
Class B Common Stock for each dollar owed, (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 note, or (iii)
payment of the principal of the note, before any repayment of interest.
(2) Includes 88,721,749 shares of our Class A Common Stock issuable upon
conversion of $621,052 due to related party accounts with Mr. Meller. These
figures assume that Class B Common Stock are 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, (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.
DESCRIPTION OF SECURITIES
Pursuant to our certificate of incorporation, as amended, we are
authorized to issue 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. 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
17
will be used to finance our growth. As of December 31, 2003, there was one
record holder of Class A Common Stock and Trey had 100 shares of Class A Common
Stock issued and outstanding. As of September 6, 2005, there are 680 record
holders of Class A Common Stock, 76,467,839 shares issued and 76,450,695 shares
outstanding.
Class B Common Stock
Each holder 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 0 shares issued and outstanding as of September 6, 2005. 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 1,000 votes for
each one share 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 0 shares issued and outstanding as of September 6, 2005.
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 September 6, 2005, 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:
o the number of shares constituting that series and the distinctive
designation of that series;
o 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;
o whether that series has voting rights, in addition to voting rights
provided by law, and, if so, the terms of those voting rights;
o 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;
o 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;
18
o 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;
o 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
o any other relative powers, preferences and rights of that series, and
qualifications, limitations or restrictions on that series.
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 Warrants
During the 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.
During the year ended December 31, 2004, 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 the first quarter of 2005, the Board of Directors increased the maximum
number of shares authorized for issuance under this plan on two occasions, once
to 6 million and a second time to a maximum of 8.3 million shares.
During 2004, the Company issued to Hawk Associates, Inc. options to
purchase 75,000 Class A Common Stock at a price of $.07 per share. The options
vest 60 days from issuance and expire ten years from the date of issue.
On July 15, 2005, the Company engaged the services of Thornhill Capital
LLC to advise and assist the Company in mergers, acquisitions and in developing
an effective business strategy to increase shareholder value. The Company will
issue 3,000,000 warrants to Thornhill for services provided during the term of
the agreement at an exercise price of $.015 per share. The warrants will have a
seven-year maturity and have piggy back registration rights.
Debt
In January 2003, we entered into a subscription agreement with certain
purchasers to issue $250,000 in convertible debentures, with interest payable at
5% per annum. The notes are convertible into shares of our Class A Common Stock,
at a price equal to either (a) an amount equal to 120% of the closing bid price
for shares of Class A Common Stock on September 19, 2003, or (b) an amount equal
to 80% of the average of the four lowest closing bid prices of our Class A
Common Stock for the five (5) trading days immediately preceding the date of
conversion. During the year ended December 31, 2003, a total of $140,000 in
debenture proceeds had been received and at December 31, 2003 that amount was
outstanding . During the year ended December 31, 2004, $125,000 of the
debentures were repaid through the issuance of Trey stock. As of June 30, 2005,
$15,000 in debenture obligations remains due and owing.
In January 2003, Trey entered into an Equity Line of Credit Agreement.
Under this agreement, Trey may issue and sell to Cornell Capital Partners Class
A
19
Common Stock for a total purchase price of up to $10.0 million. The purchase
price for the shares will be equal to 91% of the market price, which is defined
as the lowest closing bid price of the Class A Common Stock during the five
trading days following the notice date. A cash fee equal to six percent (6%) of
the cash proceeds of the draw down is also payable at the time of funding such
fee. In addition, Cornell Capital Partners received, as additional compensation,
45,000 shares of Class A Common Stock on February 11, 2004. As of June 30, 2005,
Trey has drawn down $2,500,000 on the Equity Line of Credit and repaid
$1,304,723 through the issuance of 37,140,209 shares of Class A Common Stock.
On June 30, 2004, SWK Technologies, Inc. entered into an unsecured
promissory note totaling $35,000 with Wass Associates, a New York General
partnership. The unsecured note bears interest at 6% per annum and is due in
full together with unpaid interest on December 31, 2004. As of June 30, 2005,
the outstanding balance payable to Wass Associates was paid in full.
During the six-month period ending June 30, 2005, SWK Technologies, Inc.
drew down $100,000 from its $250,000 line of credit with Fleet National Bank, a
Bank of America company. The secured line of credit bears interest at prime plus
1% per annum, which can change with the fluctuations in the prime rate. Monthly
payments of interest only in arrears shall be due and payable on the fourth of
each month and these have been paid. Principal shall be due and payable on
demand from Fleet National Bank. This line of credit is also fully guaranteed by
the Company. As of June 30, 2005, the outstanding balance payable to Fleet
totaled $100,000.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A Common Stock is Fidelity
Transfer Company, 1800 SouthWest Temple, Suite 301, Salt Lake City, Utah 84115.
Its telephone number is (801) 484-7222.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our Bylaws include an indemnification provision under which we have agreed
to indemnify directors and officers of Trey to fullest extent possible from and
against any and all claims of any type arising from or related to future acts or
omissions as a director or officer of Trey.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Trey pursuant to the foregoing, or otherwise, Trey has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION
Authorized and unissued stock. The authorized but unissued shares of our
capital stock are available for future issuance without our stockholders'
approval. These additional shares may be utilized for a variety of corporate
purposes including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans. The
issuance of such shares may also be used to deter a potential takeover of Trey
that may otherwise be beneficial to stockholders by diluting the shares held by
a potential suitor or issuing shares to a stockholder that will vote in
accordance with Trey's Board of Directors' desires. A takeover may be beneficial
to stockholders because, among other reasons, a potential suitor may offer
stockholders a premium for their shares of stock compared to the then-existing
market price.
Some of the provisions of Trey's certificate of incorporation and bylaws
may have the effect of making the acquisition of control of Trey in a
transaction not approved by Trey's board of directors more difficult. Moreover,
some of the provisions of the agreement providing for tax disaffiliation and
other tax-related matters that Trey will enter into in connection with the
registration could discourage potential acquisition proposals.
20
EXPERTS
Certain legal matters in connection with the shares of our Class A Common
Stock offered for resale in this prospectus have been passed upon for us by
McCarter & English, LLP, Newark, New Jersey.
Bagell, Josephs and Company, LLC has audited our consolidated financial
statements as of December 31, 2004 and 2003, and for each of the years in the
two-year period ended December 31, 2004, as set forth in its report, which
appears herein.
DESCRIPTION OF BUSINESS
Background of the Company
Trey Resources, Inc. was incorporated as iVoice Acquisition 1, Inc. in
Delaware on October 3, 2002 as a wholly owned subsidiary of iVoice, Inc., or
iVoice. On April 24, 2003, we changed our corporate name from iVoice Acquisition
1, Inc. to Trey Industries, Inc. On September 5, 2003, we changed our corporate
name to Trey Resources, Inc. On February 13, 2004, Trey Resources, Inc. became
an independent public company when all the shares owned by iVoice, Inc. were
distributed to the iVoice shareholders. In March 2004, Trey Resources, Inc.
began trading on the OTC Bulletin Board under the symbol TYRIA.OB.
Trey initially owned iVoice's Automatic Reminder software business. That
software was sold in November 2004, and Trey is no longer engaged in the sale of
Automatic Reminder software. During 2004, we consummated business combinations
with two companies that are consultants and value added resellers of financial
accounting software to small and medium sized businesses. One company is also
the publisher of its own proprietary electronic data interchange (EDI) software.
In June 2004, Trey Resources' wholly-owned subsidiary, SWK Technologies,
Inc., completed a merger with SWK, Inc. SWK, Inc. was a value added reseller and
master developer for Best Software's MAS 90/200/500 financial accounting
software, and was also the publisher of its own proprietary EDI software,
"MAPADOC." As a result of the merger, SWK, Inc.'s shareholders were issued, in
exchange for all of the common stock of SWK, Inc., 2,750,000 restricted shares
of Trey Resources' Class A Common Stock.
In November 2004, Trey Resources' wholly-owned subsidiary, BTSG
Acquisition Corp. completed the acquisition of certain assets of Business Tech
Solutions Group, Inc. Business Tech Solutions Group, Inc. was a value added
reseller for Best Software's BusinessWorks financial accounting software. As a
result of the merger, Business Tech Solutions Group, Inc.'s shareholder was
issued, in exchange for selected assets of Business Tech Solutions Group, Inc.,
648,149 restricted shares of Trey Resources' Class A Common Stock.
Our Business
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 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.
21
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 significant 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
As of June 30, 2005, approximately 17% of our total revenue was generated
from the resale of accounting software published by Best Software, Inc. (Best)
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 have six employees who serve as 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 Best to retain their product-based teaching
certifications.
We provide end-user technical support services through our support/help
desk. A staff of 3 full-time product and technology consultants assist 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 four 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 Best 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 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.
22
We market our MAPADOC solutions to our existing and new small and
medium-sized business customers, and through a network of resellers. As of June
30, 2005, we have a sales team and 5 dedicated 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 Radio Beacon, Inc. Radio Beacon 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 Radio Beacon(TM) warehouse management software improves accuracy and
efficiency, streamlines materials handling, meets retail compliance
requirements, and refines inventory control. Radio Beacon 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 Radio Beacon solution to our existing and new small and
medium-sized business customers. As of June 30, 2005, we have five dedicated
salespeople and two dedicated technical specialists involved in marketing and
supporting sales of the Radio Beacon product and associated services.
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 Best 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.
Our Industry/Markets
Financial Accounting Software
In the financial accounting software market, we focus on providing
enterprise solutions to small- and medium-sized businesses ("SMB") with under
one hundred million dollars 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 Best
resellers in the United States. While there are numerous national, regional, and
local competitors that could be compared to us in scale, size,
23
geographical reach, and target markets for the resale of Best 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 Great Plains and Solomon 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 Radio Beacon, Inc. Radio Beacon 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 Radio Beacon(TM) warehouse management software
improves accuracy and efficiency, streamlines materials handling, meets retail
compliance requirements, and refines inventory control. Radio Beacon 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
Best Software, Inc. whereby Best appoints us as a non-exclusive partner to
market, distribute, and support MAS 90/200/500 software . This agreement
authorizes 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 Best Software
Authorized Training Center Agreement, , and also are party to a Master
Developers Program License Agreement.
24
We have also entered into an Authorized Distributor Agreement with Radio
Beacon, Inc., whereby we market and distribute Radio Beacon products in the
United States. This agreement is automatically renewable on an annual basis, and
requires no minimum payments or guarantees.
Customers
We market our products to private companies throughout the United States.
In the six months ended June 30, 2005, the revenues generated by our top ten
customers represented approximately thirty three percent (33%) of consolidated
revenues, and no single customer accounted for ten percent or more of our
consolidated revenues.
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 federally registered trademarks, including "MAPADOC," and
have a number of trademark applications pending. We have no patents or patent
applications pending.
This prospectus contains trademarks and trade names of Trey Resources,
Inc. and its affiliates as well as those of other companies. All trademarks and
trade names appearing in this report are the property of their respective
holders.
Employees
As of June 30, 2005, we had approximately 24 full time employees and 4
part time employees located in two offices in New Jersey. All but two of our
current employees were formerly employees of the companies that we acquired.
Approximately five of our employees are engaged in sales and marketing
activities and approximately nine employees are engaged in service fulfillment.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other documents with the SEC. You
may read and copy any document we file with the SEC at the public reference
facilities the SEC maintains at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain copies of these materials by
mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
The SEC also maintains a web site, the address of which is
http://www.sec.gov. That site also contains our annual, quarterly and special
reports, proxy statements, information statements and other information.
This prospectus is part of a registration statement that we filed with the
SEC. You can obtain a copy of the registration statement from the SEC at any
address listed above or from the SEC's web site.
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 we
"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
25
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.
Separation from iVoice
Trey was incorporated under the laws of the State of Delaware on October
3, 2002, as a wholly owned subsidiary of iVoice, Inc. Trey had no material
assets or activities until the contribution of the Automatic Reminder software
business which was transferred to Trey pursuant to the spin-off transaction of
Trey from iVoice. Since the spin-off, which occurred on February 11, 2004, Trey
has been an independent public company, with iVoice having no continuing
ownership interest in Trey.
Trey's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States, and reflect
the historical financial position, results of operations, and cash flows. The
financial information included in this filing, however, is not necessarily
indicative of what Trey's results of operations or financial position would have
been had it operated as an independent company during the comparative period
presented, nor is it necessarily indicative of its future performance as an
independent company.
Plan of Operation
Up until its acquisition of SWK, Inc., or SWK, on June 2, 2004, the
Company was solely engaged in the design, manufacture, and marketing of
specialized telecommunication equipment. As a result of a spin-off transaction
from iVoice, Inc., Trey was assigned the iVoice corporate assets, liabilities
and expenses related to the Automatic Reminder software business. Trey
Resources' plan of operation pursuant to its spin-off from its former parent
company was to market and sell the Automatic Reminder software product. With the
acquisition of SWK and as part of its plan to expand into new markets, the Board
of Directors decided that Trey will focus on the business software and
information technology consulting market, and is looking to acquire other
companies in this industry. SWK Technologies, Inc., Trey's wholly owned
subsidiary and the surviving company from the acquisition and merger with SWK,
Inc., is a New Jersey-based information technology company, value added
reseller, and master developer of licensed accounting software published by Best
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.
Management is uncertain whether it can generate sufficient cash to sustain
its operations in the next twelve months, or beyond. It is unclear whether the
acquisition of SWK, Inc, will result in a successful operating business, and
management 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.
Results of Operations
Results of operations for the six months ending June 30, 2005 compared to six
months ending June 30, 2004
Prior to our acquisition of SWK, Inc. on June 2, 2004, all revenues
reported by Trey were derived from the license of our automatic reminder and
call initiating software products which address a business or professional
organization's need to automatically confirm pre-set appointments or meetings
with customers or clients. For the six months ended June 30, 2004, we reported
no revenue from the sale of our Automatic Reminder software and $215,075 of
sales from SWK Technologies following the acquisition. Until February 11, 2004,
the Automatic Reminder business had only operated as a division of iVoice, Inc.
and had never operated on a stand-alone basis. The low sales volume of the
Automatic Reminder business is attributable to the minimal resources made
available by its former parent company for the sales and marketing of the
Automatic Reminder and Call Initiating software products. Revenues for the six
months period ended June 30, 2005, totaling $1,964,941 represent the sales of
SWK
26
Technologies ("SWKT") and Business Tech Solutions Group ("BTSG"). As such, the
entire increase in sales is due to the acquisition of SWKT and BTSG.
Prior to our acquisition of SWK, Inc. on June 2, 2004, the cost of sales
reported by Trey was primarily for the amortization of the purchase price of the
Automatic Reminder software. Cost of sales for SWK Technologies and Business
Tech Solutions Group represent the direct material purchases, direct labor and
employee costs, and subcontractor costs related to the sales. Cost of sales for
the six months ended June 30, 2004, totaling $110,551, included $6,750 of Trey
amortization expense and the balance represents the direct costs related to the
sales by SWKT and BTSG. Cost of sales for the six months ended June 30, 2005,
totaling $1,223,880, represents the direct costs related to the sales by SWKT
and BTSG. As such, virtually the entire increase in cost of sales from 2004 to
2005 is due to the acquisition of SWKT and BTSG.
The gross profit for the six months ended June 30, 2005 of $741,061
represent the gross profit of SWK and BTSG. As a percentage of sales, gross
margin was 37.7% for the six-month period ended June 30, 2005. Gross profit for
the six months ended June 30, 2004 was $104,524, which includes $111,274 gross
profit on the sales of SWKT and the $6,750 amortization of the original purchase
price of the Automatic Reminder software reflected in the cost of sales.
Total operating expenses were $1,256,743 for the six-month period ended
June 30, 2005, an increase of $79,769 over the six-month period ended June 30,
2004, which totaled $1,176,974. The increase in the 2005, when compared to 2004,
was primarily the effect of increases in sales and marketing expenses of
$327,719 and general and administrative and depreciation expenses of $380,847,
attributable to the acquisition and operation of SWK Technologies. In addition,
the Company increased certain expenses associated with operating as a public
company, such as insurance, investor relations, accounting, SWKT executive
bonuses and other overhead by $141,203. These increases were reduced by a
$700,000 non-recurring charge to expenses in 2004 for the successful completion
of the spin-off of the company from its former parent, and the reduction of
approximately $70,000 in printing and reproduction expenses incurred in 2004 for
the spin-off of the new company.
Other expenses for the six months ended June 30, 2005 were $336,809, an
increase of $141,080 over the six-month period ended June 30, 2004. The increase
reflects the increase in debt conversion discounts of $125,539 on Trey's
convertible debentures, equity-line financing agreements and repayment of
related party accounts, a $35,109 loss on the assignment of the Laser Energetics
securities to a third party creditor, and interest expense of $18,724 on the
equity-line financing debt, related party loans, convertible debentures and
trade leases. These amounts are offset by decreased write-off of financing costs
of $21,195, which is comprised of fees charged pursuant to the equity-line
financing agreement with Cornell Capital Partners, L.P., increases in interest
income of $13,503 on the debentures receivable and interest earned on cash
balances in the bank, and other income of $3,594 from a settlement of a
non-compete claim against a prior employee of SWK Technology.
Net loss for the six-month period ended June 30, 2005 was $852,491 as
compared to net loss of $1,268,179 for the six-month period ended June 30, 2004.
The decrease in net loss of $415,688 for the respective periods was a result of
the factors discussed above.
Results of operations for the year ended December 31, 2004 compared to year
ended December 31, 2003.
For the year ended December 31, 2004, we reported no revenue from the sale
of our Automatic Reminder software. Total revenues for the sale of our Automatic
Reminder software for the year ended December 31, 2003 was $1,350. Until
February 11, 2004, the Automatic Reminder business had only operated as a
division of iVoice, Inc. and had never operated on a stand-alone basis. The low
sales volume of the Automatic Reminder business is attributable to the minimal
resources made available by its former parent company for the sales and
marketing of the automatic reminder and call initiating software products.
Revenues for the year ended December 31, 2004, totaling $1,703,281 represent the
sales of SWK Technologies, Inc, from June 2, 2004 (the date of acquisition)
through December 31, 2004, and the sales of Business Tech Solutions Group
("BTSG") from November 11, 2004 through December 31, 2004. As such, the entire
increase in sales is due to the acquisition of SWK and BTSG.
Prior to our acquisition of SWK, Inc. on June 2, 2004, the cost of sales
reported by Trey was primarily for amortization of the purchase price of the
automatic reminder software. Cost of sales for the year period ended
27
December 31, 2003, totaling $18,435, was primarily for the amortization of the
Automatic Reminder software. Cost of sales for the year ended December 31, 2004,
totaling $1,004,645, included $9,000 of amortization of the automatic reminder
software and the balance represents the direct material purchases, direct labor
and employee costs, and subcontractor costs related to the sales by SWK
Technologies and Business Tech Solutions Group. As such, virtually the entire
increase in cost of sales from year to year is due to the acquisition of SWKT
and BTSG.
Except for negative gross profit for the year ending December 31, 2004 of
($9,000), from the Automatic Reminder business, resulting from the amortization
of the capitalized costs of the Automatic Reminder software reflected in the
cost of sales, the entire gross profit for the year ended December 31, 2004 of
$698,636 represent the gross profit of SWK Technologies, Inc. from June 2, 2004
(the date of acquisition) through December 31, 2004, and the gross profit of
Business Tech Solutions Group ("BTSG") from November 11, 2004 through December
31, 2004. As a percentage of sales, gross margin was 41% for the year ending
December 31, 2004. The year ending December 31, 2003 reflects negative gross
profit of ($17,085) which is primarily the result of the amortization of the
capitalized costs of the Automatic Reminder software reflected in the cost of
sales.
Total operating expenses were $2,666,196 for the year ending December 31,
2004, an increase of $2,306,356 over the year ending December 31, 2003 which
totaled $359,840. The increases in 2004 as compared to 2003 are as follows; a)
officers payroll increased $1,096,000 due to a $700,000 charge to expense
representing $350,000 due to each of Mark Meller, President and Chief Executive
Officer of Trey Resources and Jerome Mahoney, Non-Executive Chairman of the
Board, for the successful completion of the spin-off of the company from its
former parent, $147,534 in salary adjustment for Mr. Meller pursuant to the
terms and conditions of his employment agreement dated September 15, 2003,
$114,800 in compensation bonus declared by the Board of Directors for Mr.
Meller, and $133,666 increase in base salary expense from 2004 to 2003; b)
bonuses for SWK management of $117,700; c) $120,000 for strategic planning and
financial consultants; d) $120,000 for legal fees related to the spin-off from
iVoice and merger with SWK, Inc.; e) $599,760 increase in operating expenses for
SWK Technologies from June 2, 2004 (the date of acquisition) through December
31, 2004 and for Business Tech Solutions Group ("BTSG") from November 11, 2004
through December 31, 2004; f) $83,852 increase in Administrative Service charges
from iVoice Inc.; g) $56,820 increase in investor relations charges; h) $71,478
increase in printing and distribution costs related to public company filings
and share distributions; i) $40,746 of net increases in other expenses primarily
related to operating a public company.
Other expenses for the year ended December 31, 2004 were $423,145, an
increase of $402,465 over the year ending December 31, 2003. The increase
reflects the increase in write-off of financing costs of $188,250 in the current
year comprised of fees and market discount charged pursuant to the equity-line
financing agreement with Cornell Capital Partners, LP. Interest expense
increased by $158,970 on the equity-line financing debt, related party loans,
convertible debentures and trade leases. The current year also includes debt
conversion discounts of $155,245 on the Company's convertible debentures and
equity-line financing agreements. The company recorded a capital gain of
$350,000 on the sale of it's Automatic Reminder software and business to Laser
Energetics for shares of Laser Common Stock and a $250,000 5% convertible
debenture. At December 31, 2004, the Company determined that value of the Laser
debenture was significantly impaired and the entire debenture, including the
accrued interest income for 2004, was written down to zero as a provision for
doubtful accounts.
Net loss for the year ending December 31, 2004 was $2,390,705 as compared
to a net loss of $397,605 for the year ending December 31, 2003. The $1,993,100
increase in net loss for the year was a result of the factors discussed above.
Liquidity and Capital Resources
We are currently seeking additional operating income opportunities through
potential acquisitions or investments similar to the transaction with SWK, Inc.
and the Business Tech Solutions Group. 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.
28
To date, Trey has incurred substantial losses, and will require financing
for working capital to meet its operating obligations. While we have recently
raised sufficient working capital to fund our operations for what we believe
should be sufficient for the next 12 months, we will subsequently need to raise
additional capital to fund our future operations. We anticipate that we will
require financing on an ongoing basis for the foreseeable future.
In January, 2003, we entered into a subscription agreement with certain
accredited investors to issue $250,000 in convertible debentures, with interest
payable at 5% per annum. On March 31, 2003, Trey issued $40,000 in convertible
debentures to 4 individual investors under the subscription agreement. On
September 19, 2003, Trey issued $100,000 in convertible debentures to Cornell
Capital Partners pursuant to the subscription agreement. The debentures are
convertible into shares of Class A Common Stock at a price equal to either (a)
an amount equal to one hundred twenty percent (120%) of the closing bid price of
the Class A Common Stock as of the closing date of the registration of shares or
(b) an amount equal to eighty percent (80%) of the average closing bid price of
the Class A Common Stock for the four trading days immediately preceding the
conversion date. The convertible debentures have a term of two years with all
accrued interest due at the expiration of the term. At our option, these
debentures may be paid in cash or redeemed at a 20% premium prior to April 2004.
As of June 30, 2005, $15,000 remained due on the principal and $2,841 was due
for accrued interest on these debentures.
In January 2003, as subsequently amended retroactively to January 27,
2003, Trey entered into an Equity Line of Credit Agreement. Under this
agreement, Trey may issue and sell to Cornell Capital Partners Class A Common
Stock for a total purchase price of up to $10.0 million. The purchase price for
the shares will be equal to 91% of the market price, which is defined as the
lowest closing bid price of the Class A Common Stock during the five trading
days following the notice date. A cash fee equal to six percent (6%) of the cash
proceeds of the draw down is also payable at the time of funding such fee. In
addition, Cornell Capital Partners received, as additional compensation, 45,000
shares of Class A Common Stock on February 11, 2004. As of June 30, 2005, Trey
has drawn down $2,500,000 on the Equity Line of Credit and repaid $1,304,723
through the issuance of Class A Common Stock.
Pursuant to the Spin-Off from iVoice, Trey assumed an aggregate of
$324,000 in liabilities from iVoice and iVoice assigned to Trey assets having an
aggregate book value of $9,000. Trey believes that the fair value of these
assets may be greater than the book value, although it has not undertaken an
appraisal. The assumed obligations are described below.
Trey assumed an outstanding promissory note in the amount of $250,000
payable to Jerry Mahoney in exchange for the assets it received pursuant to the
Spin-Off of the Automatic Reminder business. This amount is related to funds
loaned to iVoice and unrelated to the operations of Trey. Trey, for value
received, promised to pay Mr. Mahoney the principal sum of $250,000 at the rate
of 9.5% per annum on the unpaid balance until paid or until default. Interest
payments are due annually. 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 share of Class B Common Stock of Trey, par
value $0.00001, for each dollar owed, (ii) the number of shares of Class A
Common Stock of Trey 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. At June 30, 2005, the principle on this note was
$250,000 and accrued interest was $32,795.
Mr. Mahoney agreed to forego receiving any shares he would have been
entitled to receive in the Spin-Off by virtue of his ownership of either iVoice
Class A or Class B Common Stock.
Trey assumed an outstanding obligation to Kevin Whalen of $74,000 for
amounts due for unpaid salary from iVoice. This amount is related to services
provided to iVoice and unrelated to the operations of Trey. However, because Mr.
Whalen assisted in the preparation of the financial statements and footnotes
related to the spin-off, Trey assumed this obligation to Kevin Whalen. A portion
of the obligation 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 June 30,
2005, Mr. Whalen has received $4,500 in cash and $20,000 in Class A Common Stock
leaving a balance due of $49,500.
29
Trey has entered into employment contracts with its Non-Executive Chairman
of the Board of Directors. As consideration, Trey agreed to pay Mr. Mahoney the
sum of $180,000 the first year with a 10% increase every year thereafter. The
employment agreement with Mr. Mahoney provides for a severance payment to him of
three hundred percent (300%), less $100, of his gross income for services
rendered to Trey in each of the five prior calendar years (or shorter period
during which Mr. Mahoney shall have been employed by Trey) should his employment
be terminated following a change in control, as defined in the employment
agreement. Mr. Mahoney is also to be paid the sum of $350,000 as a result of the
completion of the Spin-Off.
In connection with the acquisition of SWK, Inc. Trey has assumed a total
of $664,642 in liabilities and has borrowed an additional $35,000 from an
unrelated third party. Of the liabilities assumed, a total of $216,372 was
repaid by Trey at the closing and the $35,000 note is being paid at the rate of
$1,500 per week. As of June 30, 2005, the entire balance on this note was paid
in full. On its audited financial statements for the year ending December 31,
2003, SWK, Inc., was issued a going concern opinion by its auditors who cited
recurring losses, a deficiency of cash flows from operations and the lack of
liquidity as the basis of their opinion.
On September 15, 2003, Trey entered into an employment agreement with Mr.
Meller. He will serve as Trey's President, Chief Financial Officer and Director
for a term of five years. Mr. Meller was subsequently also appointed Chief
Executive Officer. As consideration, Trey agreed to pay Mr. Meller the sum of
$180,000 the first year with a 10% increase every year thereafter. The
employment agreement with Mr. Meller provides for a severance payment to him of
three hundred percent (300%), less $100, of his gross income for services
rendered to Trey in each of the five prior calendar years (or shorter period
during which Mr. Meller shall have been employed by Trey) should his employment
be terminated following a change in control, as defined in the employment
agreement. Mr. Meller is also to be paid the sum of $350,000 as a result of the
completion of the Spin-Off. In addition, Mr. Meller was awarded a cash bonus of
$114,800.
Mr. Mahoney and Mr. Meller have agreed to defer the receipt of the
$350,000 payments owed to each of them following the successful completion of
the spin-off, and Mr. Meller has further agreed to defer the receipt of the
$114,800 bonus payment granted him by the Board of Directors until Management
believes it has sufficient cash resources to fund these obligations. Mr. Mahoney
and Mr. Meller may opt to receive payment of these obligations in the form of
Class A Common Stock or Class B Common stock in lieu of cash if they so choose.
In the six months ending June 30, 2005, SWK Technologies, Inc. drew down
$100,000 from its' $250,000 line of credit with Fleet National Bank, a Bank of
America company. The secured line of credit bears interest at prime plus 1% per
annum, which can change with the changes in the prime rate. Monthly payments of
interest only in arrears shall be due and payable on the 4th of each month and
these have been paid. Principal shall be due and payable on demand from Fleet
National Bank. This line of credit is also fully guaranteed by the Company. As
of June 30, 2005, the outstanding balance payable to Fleet totaled $100,000.
During the six months ended June 30, 2005, Trey had a net increase in cash
of $49,554. Trey's principal sources and uses of funds were as follows:
Cash used by operating activities. Trey used $656,891 in cash for
operating activities in the six months ended June 30, 2005, a decrease of
$655,044 as compared to cash used for operating activities of $1,311,935 in the
six months ended June 30, 2004. The decrease is primarily the result of the
reduced losses from operations sustained by the Company in the current year and
the extension of credit to the SWK Technology customers.
Cash used by investing activities. Investing activities for the six months
ended June 30, 2005 used $412,614. Of this amount, $83,919 was used make
leasehold improvements and to purchase furniture and equipment during the move
to the new facility, and $328,695 was used to purchase convertible debentures
from Cornell Capital. For the six months ended June 30, 2004, the Company
received net cash of $29,874 from the acquisition of SWK Inc, and used $2,659 to
purchase equipment.
Cash provided by financing activities. Financing activities in the six
months ended June 30, 2005 provided a total of $1,119,059 in cash. This total
primarily consisted of $1,136,196 in note payable proceeds representing advances
under the equity line of credit with Cornell Capital Partners and an additional
borrowing of $100,000 from an unrelated party. In addition, some of the new
equipment purchases were financed by the supplier for a total of
30
$27,344. Financing activities in the six months ended June 30, 2004 provided a
total of $1,603,054. This was made up of $1,035,000 in notes payable proceeds
representing advances under the equity line of credit with Cornell Capital
Partners and Wass Associates and $754,423 of assumed related party loans at the
spin-off from iVoice, Inc in February 2004.
During the year ended December 31, 2004, Trey had a net increase in cash
of $342,087. Trey's principal sources and uses of funds were as follows:
Cash used by operating activities. Trey used $1,019,036 in cash for
operating activities in the year ended December 31, 2004 an increase of $953,353
as compared to $65,683 in cash used for operating activities in the year ended
December 31, 2003. The increase is primarily the result of the loss from
operations sustained by us in the current year. We accrued a total of $1,278,450
to related parties which represented accrued salaries, expense reimbursements,
interest on unpaid obligations, $114,800 bonus to Mr. Meller, and two one-time
payments of $350,000 each to Mr. Mahoney and Mr. Meller, the cash payment of
which has been deferred until such time as Management believes it has sufficient
resources to fund these obligations, although the Company may make payments
against these obligations, with the consent of Messrs. Mahoney and Meller and at
the direction of the Board of Directors, in the form of the company's Class A
Common Stock and/or Class B Common Stock
Cash provided by investing activities. Investing activities for the year
ended December 31, 2004 used $23,501. Of this amount, $2,437 was received as a
result of the acquisition of SWK, Inc, and Business Tech Solutions Group, and
was offset by the purchase of equipment totaling $25,938. For the year ended
December 31, 2003, the company used no cash related to investing activities.
Cash provided by financing activities. Financing activities in the year
ended December 31, 2004 provided a total of $1,384,624 in cash. This total
primarily consisted of $1,513,672 in notes payable proceeds representing
advances under the Equity Line of Credit with Cornell Capital Partners in the
amount of $1,478,672 and an additional unsecured borrowing of $35,000 from an
unrelated party.
Impact of Recent Accounting Pronouncements
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information" requires that a public company report financial and descriptive
information about its reportable operating segments. It also requires that an
enterprise report certain information about its products and services, the
geographic areas in which they operate and their major customers. In determining
the requirements of this pronouncement, Management currently believes that there
is no materially reportable segment information with respect to Trey's
operations and does not provide any segment information regarding products and
services, major customers, and the material countries in which Trey holds assets
and reports revenue.
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities" requires that certain derivative instruments be recognized in
balance sheets at fair value and for changes in fair value to be recognized in
operations. Additional guidance is also provided to determine when hedge
accounting treatment is appropriate whereby hedging gains and losses are offset
by losses and gains related directly to the hedged item. While the standard, as
amended, must be adopted in the fiscal year beginning after June 15, 2000, its
impact on Trey's financial statements is not expected to be material as Trey has
not historically used derivative and hedge instruments.
SFAS No. 142, "Goodwill and Other Intangible Assets" requires goodwill to
be tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards require. It is
effective for fiscal years beginning after December 15, 2001. Early application
is permitted for entities with fiscal years beginning after March 15, 2001
provided the first interim period financial statements have not been previously
issued. Trey is currently assessing the impact of this pronouncement on its
operating results and financial condition.
Statement of Position ("SOP") No. 98-1 specifies the appropriate
accounting for costs incurred to develop or obtain computer software for
internal use. The new pronouncement provides guidance on which costs should be
31
capitalized, and over what period such costs should be amortized and what
disclosures should be made regarding such costs. This pronouncement is effective
for fiscal years beginning after December 15, 1998, but earlier application is
acceptable. Previously capitalized costs will not be adjusted. Trey believes
that it is already in substantial compliance with the accounting requirements as
set forth in this new pronouncement and therefore believes that adoption will
not have a material effect on its financial condition or operating results.
SOP No. 98-5 requires that companies write-off defined previously
capitalized start-up costs including organization costs and expense future
start-up costs as incurred. Trey believes that it is already in substantial
compliance with the accounting requirements as set forth in this new
pronouncement and therefore believes that adoption will not have a material
effect on its financial condition or operating results.
SFAS No. 145 - "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." Under SFAS No. 4, all
gains and losses from extinguishment of debt were required to be aggregated and,
if material, classified as an extraordinary item, net of related income tax
effect. This Statement eliminates SFAS No. 4 and, thus, the exception to
applying APB No. 30 to all gains and losses related to extinguishments of debt.
As a result, gains and losses from extinguishment of debt should be classified
as extraordinary items only if they meet the criteria in APB No. 30. Applying
the provisions of APB No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual or infrequent or that
meet the criteria for classification as an extraordinary item. The Company does
not expect the adoption of SFAS No. 145 to have a material impact on its
financial position or results of operations.
SFAS No. 146 - "Accounting for Costs Associated with Exit or Disposal
Activities." This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The principal difference between this Statement and EITF 94-3
relates to its requirements for recognition of a liability for a cost associated
with an exit or disposal activity. This Statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF 94-3, a liability was recognized at the date
of an entity's commitment to an exit plan. This Statement is effective for exit
or disposal activities that are initiated after December 31, 2002. The Company
does not expect the adoption of SFAS No. 146 to have a material impact on its
financial position or results of operations.
SFAS No. 148, "Accounting for Stock Based Compensation-Transition and
Disclosure." This statement was issued to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. This statement is effective for financial statements for fiscal years
ending after December 15, 2002. This statement does not have any impact on the
Company because the Company does not plan to implement the fair value method.
In January 2003, FASB Interpretation No. 46 ("FIN No. 46"),"Consolidation
of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51," was issued. In general, a variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes that
either (a) does not have equity investors with voting rights or (b) has equity
investors that do not provide sufficient financial resources for the entity to
support its activities. FIN No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual returns or both. Currently, this standard
has no effect on the Company's financial statements.
During April 2003, the Financial Accounting Standards Board issued SFAS
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement requires that contracts with
comparable characteristics be accounted for similarly and clarifies when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. SFAS 149 is effective for contracts entered into or
modified after June 30, 2003, except in certain circumstances, and for hedging
32
relationships designated after June 30, 2003. Currently, this standard has not
had a material effect on the Company's financial statements.
In May 2003, the FASB issued "SFAS 150", "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". "SFAS 150"
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatorily redeemable stock, certain financial
instruments that require or may require the issuer to buy back some of its
shares in exchange for cash or other assets and certain obligations that can be
settled with shares of stock. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. Currently, this standard has no effect on the Company's financial
statements.
In December 2003, the FASB issued Interpretation No. 46-R, "Consolidation
of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain
provisions and effective dates of FIN No. 46, sets forth criteria to be used in
determining whether an investment in a variable interest entity should be
consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN 46 became effective for the Company
during the third quarter of Fiscal 2004. The adoption of this new standard did
not have any impact on the Company's financial position, results of operations
or cash flows.
In December 2003, the FASB issued a revision to SFAS No. 132 "Employers'
Disclosures about Pensions and Other Post retirement Benefits." This revised
statement requires additional annual disclosures regarding types of pension plan
assets, investment strategy, future plan contributions, expected benefit
payments and other items. The statement also requires quarterly disclosure of
the components of net periodic benefit cost and plan contributions. This
currently has no effect on the Company.
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 and Results of Operations where such policies affect our
reported and expected financial results.
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.
Line of Business. We are business consultants for small and medium sized
businesses and are also value-added resellers and master developers of financial
accounting software published by Best Software. We also publish our own
proprietary EDI software. We are a leader in 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.
33
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.
Cash and Cash Equivalents. The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Revenue recognition. With respect to the sale of software license fees,
the Company recognizes revenue in accordance with Statement of Position 97-2,
Software Revenue Recognition (SOP 97-2), as amended, and generally recognizes
revenue when all of the following criteria are met: (1) persuasive evidence of
an arrangement exists generally evidenced by a signed, written purchase order
from the customer, (2) delivery of the software product on Compact Disk (CD) or
other means to the customer has occurred, (3) the perpetual license fee is fixed
or determinable and (4) collectibility, 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, 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 revenues
and recognized over the respective terms of the agreements.
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) services. Presently, 100% of
the revenues reported by the Company are derived from the licensing of the
Company's Automatic Reminder. The Company's standard license agreement provides
for a one-time fee for use of the Company's product in perpetuity for each
computer or CPU in which the software will reside. The Company's software
application is fully functional upon delivery and implementation and does not
require any significant modification or alteration. The Company also offers
customers an optional annual software maintenance and support agreement for the
subsequent one-year periods. Such maintenance and support services are free for
the first year the product is licensed. The software maintenance and support
agreement provides free software updates, if any, and technical support the
Customer may need in deploying or changing the configuration of the software.
Generally, the Company does not license its software in multiple element
arrangements whereby the customer purchases a combination of software and
maintenance. In a typical arrangement, software maintenance services are sold
separately from the software product; are not considered essential to the
functionality of the software and are purchased at the customer's option upon
the completion of the first year licensed.
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy not to provide customers the right to refund any
portion of its license fees. The Company accepts Visa and MasterCard as well as
company checks.
Customers may license the Company's products through our telesales
organization, which needs to be hired and through promotions or reseller
agreements with independent third parties. A customer may return a product under
very limited circumstances during the first thirty days for a replacement if the
media is damaged or for a full refund if the software does not perform in
accordance with written specifications. Accordingly, the Company records a
provision for product returns and allowances against product revenue in the same
period the revenue is recorded. The estimates are based on historical sales
returns and other known data as well as market and economic conditions.
Our current products are not sold through retail distribution channels.
Current reseller agreements do not provide for a contractual right of return,
future price concessions, minimum inventory commitments nor is payment
contingent upon the reseller's future sales or our products. Revenues generated
from products licensed through marketing channels where the right of return
exists, explicitly or implicitly, is reduced by reserves for estimated product
returns. Such reserves are estimates based on returns history and current
economic and market trends.
34
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. Commissions are recognized when payments
are received, since the Company has no obligation to perform any future
services.
Software Costs. Software license costs are recorded at cost, which
approximates fair market value as of the date of purchase. These costs represent
the purchase of various exploitation rights to certain software, pre-developed
codes and systems developed by a non-related third party. These costs are
capitalized pursuant to Statement of Financial Accounting Standards ("SFAS") 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed". The Company has adopted SFAS No. 121. The carrying value of software
license costs are regularly reviewed by the Company and a loss would be
recognized if the value of the estimated un-discounted cash flow benefit related
to the asset falls below the unamortized cost. The Company develops software for
licensing to its customers and capitalizes software development costs when
technological feasibility has been established. Software development costs not
qualifying for capitalization are expensed and classified as research and
development expenses in the statements of operations. Research and development
expenses and the capitalization rate will fluctuate from period to period
depending upon the number and status of software development projects that are
in process and the related number of people assigned to those projects.
Purchased software and capitalized software development costs are
amortized using the greater of the revenue method or the straight-line method
with useful lives ranging from three to five years. Amortization expense is
classified in costs of revenue on the statements of operations. Our products
operate on or with other third party software and operating systems. When
determining the useful life of a product we consider factors such as the current
state of the technology, operating systems on which our products run,
competitive products and the potential use of our products by the end user.
Technological advances in software operating systems and other software
technologies on which our products rely may shorten the expected life cycle of
our products. We make an assessment of the useful lives of our products at each
balance sheet date. If that assessment determines that a shortened product life
has occurred, we amortize the remaining unamortized balances over the new
estimated useful life of the product and provide disclosure regarding a change
in estimate in the notes to the financial statements pursuant to Accounting
Principles Board Opinion No. 20 "Accounting Changes."
The Company evaluates the estimated net realizable value of each software
product at each balance sheet date. The estimate is based on historical and
forecasted net revenue for each product. Net revenue is the product revenue
reduced by the estimated costs of revenue and, if in development, the estimated
cost to complete the development of the product. When the net book value exceeds
the estimate of net realizable value, the Company records a write-down to net
realizable value on each product affected. Management's ability to achieve its
revenue forecast is subject to judgment, competitive pressures, market and
economic conditions and management's ability to successfully license its
products to its customers. A change in one or more of these factors may
influence management's estimates. Accordingly, currently estimated net
realizable values are subject to being reduced resulting in corresponding
charges for impairment in the future.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which requires
variable interest entities to be consolidated by the primary beneficiary of the
entity if certain criteria are met. FIN 46 is effective for all new variable
interest entities created after January 31, 2003. For variable interest entities
created or acquired before February 1, 2003, the provisions of FIN 46 become
effective for the Company on September 1, 2003. The Company does not expect that
the adoption of FIN 46 will have a material impact on its financial position,
results of operations or cash flows.
In April, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." Except
as noted below, the Company is required to adopt this statement by the first
quarter of the fiscal year, 2004. Certain provisions of this statement relating
to SFAS No. 133 implementation issues that have been effective for prior fiscal
quarters will continue to be applied in accordance with their respective
effective dates. The Company does not expect that the adoption of SFAS No. 149
will have a material impact on its financial position, results of operations or
cash flows.
35
In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for the Company on September 1, 2003. The Company does not
expect that the adoption of SFAS No. 150 will have a material impact on the
Company's financial position, results of operations or cash flows.
Marketable Securities. The Company has evaluated its investment policies
consistent with Financial Accounting Standards Board Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("FASB 115"),
and determined that all of its investment securities are to be classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in Stockholders' Equity
(Deficiency).
Concentration of Credit Risk. The Company places its cash in what it
believes to be credit-worthy financial institutions. However, cash balances
exceeded FDIC insured levels at various times during the year. For the six
months ended June 30, 2005, our top ten customers had approximately $640,000 in
sales and these represented 33% 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.
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.
Financing Costs. Financing costs consist primarily of professional fees
and various paid commissions relating to the issuance of the Company's
convertible debentures and equity credit lines. These costs are expensed as
incurred.
Income Taxes. The Company accounts for income taxes in accordance with
Statements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income taxes and liabilities are
computed annually for differences between the financial statement and the tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Debt Issue Costs. Debt issue costs represent the estimated cost of the
conversion discount feature relating to the issuance of the Company's
convertible debentures. Conversion costs are charged to expense the fair value
of the beneficial conversion features of the convertible debt as measured at the
date of issuance in accordance with Emerging Issues Task Force (EITF) Issue
98-5.
Fair Value of Financial Instruments. The Company estimates that the fair
value of all financial instruments at June 30, 2005 and December 31, 2004, as
defined in FASB 107, does not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying 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.
Long-Lived Assets. SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," requires that
long-lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted this statement and determined that an
impairment loss should not be recognized for applicable assets of continuing
operations.
Stock-Based Compensation. SFAS No. 123, "Accounting for Stock-Based
Compensation" establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement also
36
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
For stock options, fair value is determined using an option-pricing model that
takes into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock and the
expected dividends on it, and the risk-free interest rate over the expected life
of the option. The Company has adopted this statement and recorded the option
value as outlined above.
Earnings (Loss) Per Share. SFAS No. 128, "Earnings per Share" requires
presentation of basic earnings per share ("basic EPS") and diluted earnings per
share ("diluted EPS").
The computation of basic EPS is computed by dividing income (loss)
available to common stockholders by weighted average number of common shares
outstanding for the six months ending June 30, 2005. The number of shares used
in the calculation for the six months ending June 30, 2004, assumes the shares
issued in connection with the Company's spin - off from iVoice, Inc. were issued
and outstanding for those respective periods. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during the period.
The computation of diluted EPS does not assume conversion, exercise, or
contingent exercise of securities that would have an anti-dilutive effect on
earnings resulting from the Company's net loss position. The Company had 75,000
options outstanding as of June 30, 2005.
The shares used in the computations are as follows:
As of June 30, As of December 31,
2005 2004 2004 2003
---- ---- ---- ----
Basic and Diluted EPS Purposes 54,766,857 4,889,871 11,320,556 3,000,000
========== ========= ========== =========
Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income",
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. The items of other comprehensive
income that are typically required to be displayed are foreign currency items,
minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
DESCRIPTION OF PROPERTY
We do not own any real property for use in our operations or otherwise. On
June 10, 2005, we consolidated our two New Jersey offices and moved into 6,986
square feet of space at 5 Regent Street, Livingston, NJ 07039 at a monthly rent
of $7,423. In addition, we sublet 1,090 square feet of space in Clifton, NJ at a
monthly rent of $1,998. Effective March 15, 2005, we entered into a lease for
621 square feet of space at 900 Walt Whitman Road, Melville, NY 11747, at a
monthly rent of $932. 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 2003, Trey issued an aggregate of $40,000 in convertible
debentures to Elma S. Foin, Darryl A. Moy, Henry Tyler and Steven R. LeMott.
These debentures are convertible into shares of Class A Common Stock at a price
equal to either (a) an amount equal to one hundred twenty percent (120%) of the
closing bid price of the Class A Common Stock as of the closing date of the
distribution or (b) an amount equal to eighty percent (80%) of the average
closing bid price of the Class A Common Stock for the four trading days
immediately preceding the conversion date. These convertible debentures accrue
interest at a rate of 5% per year and are convertible at the holder's option.
These convertible debentures have a term of two years with all accrued interest
due and payable at
37
the end of the term. At our option, these debentures may be paid in cash or
redeemed at a 20% premium prior to April 2004.
In September 2003, Trey issued $100,000 in convertible debentures to
Cornell Capital Partners, LP. These debentures are convertible into shares of
Class A Common Stock at a price equal to either (a) an amount equal to one
hundred twenty percent (120%) of the closing bid price of the Class A Common
Stock as of the closing date of the distribution or (b) an amount equal to
eighty percent (80%) of the average closing bid price of the Class A Common
Stock for the four trading days immediately preceding the conversion date. These
convertible debentures accrue interest at a rate of 5% per year and are
convertible at the holder's option. These convertible debentures have a term of
two years with all accrued interest due and payable and the end of the term. At
our option, these debentures may be paid in cash or redeemed at a 20% premium
prior to April 2004.
Effective January 2003, Trey entered into an Equity Line of Credit
Agreement, subsequently amended effective as of January 2003. Under this
agreement, Trey may issue and sell to Cornell Capital Partners Class A Common
Stock for a total purchase price of up to $10.0 million. Subject to certain
conditions, Trey will be entitled to commence drawing down on the Equity Line of
Credit when the Class A Common Stock under the Equity Line of Credit is
registered with the Securities and Exchange Commission and will continue for two
years thereafter. The purchase price for the shares will be equal to 91% of the
market price, which is defined as the lowest closing bid price of the Class A
Common Stock during the five trading days following the notice date. A cash fee
equal to six percent (6%) of the cash proceeds of the draw down is also payable
at the time of funding. To date, Trey has not drawn down on the Equity Line of
Credit. Other than the Equity Line of Credit, no other financing agreement is
currently available to Trey. The Equity Line of Credit Agreement does not
involve affiliated persons, natural, or corporate.
Upon the effective date of the registration statement relating to the
Spin-Off, Trey assumed an aggregate of $324,000 in liabilities from iVoice and
iVoice assigned to Trey assets having an aggregate book value of $13,500. Trey
believes that the fair value of these assets may be greater than the book value,
although it has not undertaken an appraisal. The assumed obligations are
described below.
In connection with the assumption of assets and liabilities by Trey from
iVoice, Trey assumed from iVoice immediately prior to the effectiveness of the
registration statement relating to the Spin-Off $250,000 of outstanding
indebtedness from iVoice to Jerry Mahoney. The debt is subject to a promissory
note having substantially the same terms as the note from iVoice to Mr. Mahoney.
Trey, upon the effectiveness of the registration statement relating to the
Spin-Off, issued a promissory note in the amount of $250,000 payable to Mr.
Mahoney at the rate of 9.5% per annum on the unpaid balance until paid or until
default. Interest payments are due and payable annually. Mr. Mahoney may, at his
sole discretion, convert the $250,000 note (including accrued interest) into
Class B Common Stock of Trey at the rate of one dollar per share. The Class B
Common Stock is convertible at any time into Class A Common Stock at a rate
equal to 50% of the lowest price that Trey issues shares of Class A Common Stock
subsequent to the date of the note.
Mr. Mahoney did forego receipt of Trey's Class A Common Stock that he
otherwise would have been eligible to receive from the Spin-Off by virtue of his
ownership of iVoice's Class B Common Stock.
In January and September 2003, Trey entered into two separate employment
agreements with Mr. Mahoney its Chairman of the Board and Mr. Meller its
President. The agreements call for annual compensation of $180,000 per annum,
and the usual and customary perquisites and benefits valued at approximately
$25,000. The agreements also provide for a bonus of $350,000 per employment
agreement to be paid upon successful completion of the Spin-Off. Trey believes
that the compensation provided to each of Mr. Mahoney and Mr. Meller are
commensurate with compensation levels paid by other companies to management
having equivalent experiences and capabilities.
In February 2003, Trey entered into an administrative services agreement
with iVoice. Pursuant to that agreement, iVoice will provide Trey with physical
premises, clerical and support staff, and administrative services, as defined in
the agreement, for a period of approximately two years. For these services Trey
will pay iVoice $95,000 during the initial year of the term, $95,000 during the
second year of the term, and $95,000 during the third year of the term, if
extended. The annual fee we will pay iVoice for these services is smaller than
what we would incur if Trey had to outsource these services. On May 16, 2005,
Trey terminated its administrative services
38
agreement with iVoice and iVoice agreed to accept the assignment of 10 million
shares of Laser Energetics Class A Common Stock as settlement of all
administrative fees owed by us. The value of the exchanged securities was
determined to be $64,891.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market
Our Class A Common Stock, $0.00001 par value, is traded in the OTC
Bulletin Board under the symbol "TYRIA." The following table shows the high and
low closing prices for the periods indicated.
High Low
---- ---
2004
----
First Quarter $0.900 $0.120
Second Quarter $0.320 $0.060
Third Quarter $0.180 $0.044
Fourth Quarter $0.080 $0.022
2005
First Quarter $0.046 $0.023
Second Quarter $0.027 $0.011
Third Quarter (through
September 12, 2005) $0.043 $0.0128
As of September 12, 2005, the number of record holders of our common
shares was approximately 680.
Dividends
To date, the Company has never paid a dividend. We have no plans to pay
any dividends in the near future. We intend to retain all earnings, if any, for
the foreseeable future, for use in our business operations.
39
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by or paid to the
Named Executive Officers for services rendered in all capacities during the
fiscal years ended December 31, 2004, 2003 and 2002.
Other Securities All
Annual Restricted Underlying Other
Name and Position(s) Year Salary($) Bonus(3) Compensation Stock Options Compensation
- -------------------- ---- --------- -------- ------------ ----- ------- ------------
Jerome R. Mahoney(1)
Non-Executive 2004 $181,583 $350,000 $0 $0 $0 $0
Chairman of the Board 2003 $180,000 $0 $0 $0 $0 $0
Of Directors 2002 $0 $0 $0 $0 $0 $0
Mark Meller (2) 2004 $279,617 $464,800 $0 $0 $0 $0
President, Chief 2003 $0 $0 $0 $0 $0 $0
Executive Officer, 2002 $0 $0 $0 $0 $0 $0
Chief Financial
Officer and Director
(1) Mr. Mahoney has been serving as our Non-Executive Chairman of the Board of
Directors since January 1, 2003.
(2) Mr. Meller has been serving as our President, Chief Financial Officer and
Director since September 15, 2003. Mr. Meller did not draw a salary in
2003. In 2004, Mr. Meller received, pursuant to his employment agreement,
a retro-active salary adjustment back to August 1, 2003 in the amount of
$147,534. In addition, the Board of Directors declared a cash bonus for
Mr. Meller's benefit in the amount of $114,800.
(3) Mr. Mahoney and Mr. Meller both received a one-time payment of $350,000
upon the successful completion of the spin-off from its former parent
company, iVoice Inc.,
Director Compensation
Effective May 20, 2005, Mr. Rudy will receive $3,000 per quarter in cash
and/or Trey stock for his services. Prior to this date, we did not have any
arrangements to provide compensation to our outside directors. During the fiscal
years ended December 31, 2004 and 2003, we did not compensate any of our outside
directors.
Employment Agreements
We have entered into employment contracts with its Non-Executive Chairman
of the Board of Directors. As consideration, we agreed to pay Mr. Mahoney the
sum of $180,000 the first year with a 10% increase every year thereafter. The
employment agreement with Mr. Mahoney provides for a severance payment to him of
three hundred percent (300%), less $100, of his gross income for services
rendered to Trey in each of the five prior calendar years (or shorter period
during which Mr. Mahoney shall have been employed by Trey) should his employment
be terminated following a change in control, as defined in the employment
agreement. Mr. Mahoney shall also be paid the sum of $350,000 upon the
completion of the Spin-Off.
On September 15, 2003, we entered into an employment agreement with Mr.
Meller. He will serve as our President and Chief Financial Officer for a term of
five years. As consideration, we agreed to pay Mr. Meller the sum of $180,000
the first year with a 10% increase every year thereafter. The employment
agreement with Mr. Meller provides for a severance payment to him of three
hundred percent (300%), less $100, of his gross income for services rendered to
Trey in each of the five prior calendar years (or shorter period during which
Mr. Meller shall have been employed by Trey) 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. This retroactive compensation is equal to
40
$147,534. In addition, Mr. Meller was awarded a cash bonus of $114,800. The
bonus has been accrued, but has not as yet been paid.
Mr. Mahoney and Mr. Meller have agreed to defer cash payment of any monies
due and owing them representing fixed compensation, which have been accrued on
the Company's balance sheet, and the one-time payment in connection with the
spin-off, until such time as the Board of Directors determines that the Company
has sufficient capital and liquidity to make such cash payments. Alternatively,
Mr. Mahoney and Mr. Meller have further agreed, however, to accept payment or
partial payment, from time to time, as determined in the sole discretion of the
Board of Directors in the form of cash, the Company's Class A Common Stock
and/or the Company's Class B Common Stock.
41
TREY RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS Page
- -------- ----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 2
CONSOLIDATED FINANCIAL STATEMENTS - AUDITED
Balance Sheets - December 31, 2004 and 2003 3-4
Statements of Operations - for the years ended
December 31, 2004 and 2003 5
Statements of Stockholders' Equity (Deficiency) - for the
years ended December 31, 2004 and 2003 6
Statement of Accumulated Other Comprehensive Income (Loss) -
for the years ended December 31, 2004 and 2003 7
Statements of Cash Flows - for the years ended
December 31, 2004 and 2003 8-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11-32
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Balance Sheet - June 30, 2005 33
Statements of Operations - for the six months ended
June 30, 2005 and 2004 34
Statement of Accumulated Other Comprehensive Income (Loss) -
for the six months ended June 30, 2005 35
Statements of Cash Flows - for the six months ended
June 30, 2005 and 2004 36-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38-51
F-1
Bagell, Josephs & Company, LLC
200 Haddonfield Berlin Road, Gibbsboro, NJ 08026
Tel: 856.346.2628 Fax: 856.346.2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS' OF
TREY RESOURCES, INC.
Livingston, New Jersey
We have audited the accompanying consolidated balance sheet of Trey Resources,
Inc. and Subsidiaries as of December 31, 2004 and December 31, 2003, and the
related consolidated statements of operations, stockholders' equity
(deficiency), accumulated other comprehensive income (loss) and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. 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 audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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.
The accompanying consolidated financial statements for December 31, 2004 and
December 31, 2003 have been prepared assuming the Company will continue as a
going concern. As discussed in Note 12 to the consolidated financial statements,
the Company has incurred substantial accumulated deficits. These issues lead to
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also discussed in Note 12.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Trey Resources, Inc.
and Subsidiaries as of December 31, 2004 and December 31, 2003, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/Bagell, Josephs & Company, LLC
Gibbsboro, New Jersey
March 24, 2005
F-2
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------
2004 2003
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 346,635 $ 4,548
Securities available for sale 50,000 --
Convertible debentures receivable, net of
allowance for doubtful accounts of $252,199
and $0 -- --
Accounts receivable, net of allowance for
doubtful accounts of $30,300 and $0 273,086 --
Due from related parties -- 54,586
Prepaid expenses and other current assets 37,751 55,000
---------- ----------
Total current assets 707,472 114,134
---------- ----------
PROPERTY AND EQUIPMENT, net 92,834 --
---------- ----------
OTHER ASSETS
Goodwill, net 1,062,040 --
Intangible assets, net -- 9,000
Deposits and other assets 40,474 --
---------- ----------
Total other assets 1,102,514 9,000
---------- ----------
TOTAL ASSETS $1,902,820 $ 123,134
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
December 31,
-----------------------------
2004 2003
----------- -----------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 632,591 $ 126,267
Due to related parties 1,388,064 187,200
Current portion of obligations under capital leases 17,223 --
Convertible debentures payable 17,469 140,000
Notes payable 703,357 --
Notes payable to related parties 314,417 --
Deferred revenue 12,099 --
----------- -----------
Total current liabilities 3,085,220 453,467
LONG TERM DEBT
Obligations under capital leases, net of current portion 19,131 --
----------- -----------
Total liabilities 3,104,351 453,467
----------- -----------
COMMITMENTS AND CONTINGENCIES - Note 8 -- --
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $1.00 par value; authorized 1,000,000
shares; no shares issued and outstanding -- --
Common stock, Class A:
2004 - par value $.00001; Authorized 10,000,000,000,
29,645,284 shares issued, 28,719,358 shares outstanding
2003 - par value $.01; Authorized 10,000,000,000, 100
shares issued and outstanding 287 1
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 1,916,320 35,099
Net investment - iVoice, Inc -- 135,187
Stock options and warrants granted 5,250 --
Accumulated comprehensive loss (50,000) --
Accumulated deficit (3,073,388) (500,620)
----------- -----------
Total stockholders' equity (deficiency) (1,201,531) (330,333)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 1,902,820 $ 123,124
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
-------------------------------
2004 2003
------------ ------------
SALES, net $ 1,703,281 $ 1,350
COST OF SALES 1,004,645 18,435
------------ ------------
GROSS PROFIT (LOSS) 698,636 (17,085)
------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 263,735 305
General and administrative expenses 2,386,539 358,508
Research and development -- 572
Depreciation and amortization 15,922 455
------------ ------------
Total selling, general and administrative
expenses 2,666,196 359,840
------------ ------------
LOSS FROM CONTINUING OPERATIONS (1,967,560) (376,925)
------------ ------------
OTHER INCOME (EXPENSE)
Sale of assets, net of provision for bad debt 100,000 --
Amortization of discounts on debt conversion (155,245) --
Write off of financing costs (202,250) (14,000)
Interest expense (165,650) (6,680)
------------ ------------
Total other expense (423,145) (20,680)
------------ ------------
LOSS BEFORE INCOME TAXES (2,390,705) (397,605)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (2,390,705) $ (397,605)
============ ============
NET LOSS PER COMMON SHARE
Basic $ (.21) $ (.13)
============ ============
Diluted $ (.21) $ (.13)
============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic (Post Spin-Off in 2003) 11,320,556 3,000,000
========== ============
Diluted (Post Spin-Off in 2003) 11,320,556 3,000,000
========== ============
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Stock
Additional Net Options and Accumulated
Common Stock Class A Paid in Investment Warrants Comprehensive
Shares Amount Capital iVoice, Inc Granted Loss
-------- ----------- ---------- ----------- ----------- -------------
Balance at January 1, 2003 100 $ 1 $ 99 $ 129,601 $ -- $ --
Sale of convertible debentures -- -- 35,000 -- -- --
Net transactions with
iVoice, Inc -- -- -- 5,586 -- --
Net loss for the year
ended December 31, 2003 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 100 1 35,099 135,187 -- --
30,000:1 stock split
and spin off from
iVoice, Inc 2,907,248 28 (28) (135,187) -- --
Issuance of stock on
equity line conversion 15,127,179 152 846,182 -- -- --
Issuance of stock on
accrued salary conversion 2,400,000 24 122,376 -- -- --
Issuance of stock on
debenture conversion 2,444,177 24 162,649 -- -- --
Issuance of stock on
debt conversion 212,766 2 9,998 -- -- --
Issuance of stock for
acquisitions 3,398,149 34 584,966 -- -- --
Issuance of stock for
compensation and services 2,239,815 22 155,078 -- -- --
Stock options and
warrants granted -- -- -- -- 5,250 --
Cancellation of certificates (10,076) -- -- -- -- --
Net loss for the
year ended December 31, 2004 -- -- -- -- -- (50,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2004 28,719,358 $ 287 $ 1,916,320 $ -- $ 5,250 $ (50,000)
=========== =========== =========== =========== =========== ===========
Total
Stock Stockholders'
Accumulated Equity
Deficit (Deficiency)
------- ------------------
Balance at January 1, 2003 $ (103,015) $ 26,686
Sale of convertible debentures -- 35,000
Net transactions with
iVoice, Inc. -- 5,586
Net loss for the year
ended December 31, 2003 (397,605) (397,605)
----------- -----------
Balance at December 31, 2003 (500,620) (330,333)
30,000:1 stock split
and spin off from
iVoice, Inc (182,063) (317,250)
Issuance of stock on
equity line conversion -- 846,334
Issuance of stock on
accrued salary conversion -- 122,400
Issuance of stock on
debenture conversion -- 162,673
Issuance of stock on
debt conversion -- 10,000
Issuance of stock for
acquisitions -- 585,000
Issuance of stock for
compensation and services -- 155,100
Stock options and
warrants granted -- 5,250
Cancellation of certificates -- --
Net loss for the
year ended December 31, 2004 (2,390,705) (2,440,705)
----------- -----------
Balance at December
31, 2004 $(3,073,388) $(1,201,531)
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ACCULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive
Income (Loss)
-------------
Balance at January 1, 2003 $ --
Net transactions for the year ended December 31, 2003 --
--------
Balance at December 31, 2003 --
Unrealized loss on securities available for sale (50,000)
--------
Balance at December 31, 2004 $(50,000)
========
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
-----------------------------
2004 2003
----------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(2,390,705) $(397,605)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 13,820 455
Amortization of other intangibles 2,102 --
Amortization of software licenses 9,000 18,000
Amortization of debt conversion discounts 155,245 --
Common stock issued for compensation and services 155,100 --
Common stock issued for interest charges 9,162 --
Equity recorded for stock options granted 5,250 --
Write off debt issue costs 55,000 --
Net change in other comprehensive loss (50,000) --
Net realized gain from sale of automatic reminder
software (50,000) --
Changes in certain assets and liabilities:
Accounts receivable (185,488) --
Prepaid and other assets (44,476) --
Accounts payable and accrued expenses 12,514 313,467
Deferred revenue 5,990 --
Related party accounts for accrued compensation 1,278,450 --
---------- ----------
Total cash used in operating activities (1,019,036) (65,683)
---------- ----------
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended
December 31,
-------------------------------
2004 2003
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (25,938) --
Business acquisition, net of cash received 2,437 --
----------- -----------
Total cash used in investing activities (23,501) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans 21,017 6,481
Repayments of related party loans (5,187) (76,250)
Proceeds from notes payable 1,513,672 --
Repayment of notes payable (152,410) --
Proceeds from capital leases payable 14,102 --
Repayment of capital leases payable (6,570) --
Proceeds from sales of convertible debentures -- 140,000
----------- -----------
Total cash provided by financing activities 1,384,624 70,231
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 342,087 4,548
CASH AND EQUIVALENTS - Beginning of year 4,548 --
----------- -----------
CASH AND EQUIVALENTS - END OF YEAR $ 346,635 $ 4,548
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 9,413 $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-9
TREY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2004 AND 2003
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the Year Ended December 31, 2004
- ------------------------------------
During the year ended December 31, 2004, the Company:
a) Issued 15,127,179 shares of Class A common stock with a total value of
$846,334 for repayment of principal and interest on outstanding notes
payable, issued as advances on the equity line financing with Cornell
Capital Partners, LP.
b) Issued 3,398,149 shares of Class A common stock with a total value of
$585,000 for the acquisition of SWK, Inc and the client list of Business
Tech Solutions, Inc.
c) Issued 2,444,177 shares of Class A common stock with a total value of
$162,673 for the repayment of convertible debentures with Cornell Capital
Partners, LP and four other unrelated parties.
d) Issued 2,400,000 shares of Class A common stock with a value of $122,400
for repayment of accrued salaries for two officers of the Company.
f) Issued 2,239,815 shares of Class A common stock with a value of $155,100
for compensation and bonuses to SWK employees, commitment and agent
placement fees for the equity line financing and other services.
g) Issued 212,766 shares of Class A common stock with a value of $10,000 to a
previous officer of iVoice, Inc. per the spin-off agreement.
h) Granted 75,000 options for shares of Class A common stock for investor
relations services.
For the Year Ended December 31, 2003
- ------------------------------------
During the year ended December 31, 2003, the Company:
a) On March 31, and on September 19, 2003 the Company issued $40,000 and
$100,000 respectively, of its 5% Convertible Debentures with a 20%
beneficial conversion feature.
The accompanying notes are an integral part of the consolidated
financial statements.
F-10
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Description of business
-----------------------
Trey Resources, Inc. (the "Company"), was incorporated in Delaware on
October 3, 2002 as a wholly owned subsidiary of iVoice Inc. On February
11, 2004, the Company was spun off from iVoice, Inc. and is now an
independent publicly traded company.
The spin-off transaction was accomplished by the distribution of certain
intellectual property, representing the software codes of the Automatic
Reminder, and certain accrued liabilities and related party debt into a
wholly-owned subsidiary of iVoice., Trey Resources, Inc. ("Trey", formerly
known as iVoice Acquisition 1, Inc. and Trey Industries, Inc.) and
subsequently distributed on a pro-rata basis to iVoice shareholders in the
form of a taxable dividend.
Up until its acquisition of SWK, Inc. on June 2, 2004, the Company was
engaged in the design, manufacture, and marketing of specialized
telecommunication equipment. With the acquisition of SWK and as part of
its plan to expand into new markets, Trey is focusing on the business
software and information technology consulting market, and is looking to
acquire other companies in this industry. SWK Technologies, Inc., ("SWK")
the surviving entity in the merger and acquisition of SWK, Inc., is a New
Jersey-based information technology company, value added reseller, and
master developer of licensed accounting software. The Company also
publishes its own proprietary supply-chain software, "MAPADOC.". The
Company sells services and products to various end users, manufacturers,
wholesalers and distributor industry clients located throughout the United
States.
Certain intellectual property, representing the software codes of the
Automatic Reminder, was sold in November 2004 to Laser Energetics, Inc.
(LEI), a New Jersey based technology company. The Company received 10
million shares of Laser Energetics Class A Common Stock and was further
issued a convertible debenture by Laser Energetics, Inc. in the amount of
$250,000. The debenture, which bears interest at the rate of 3% per annum,
has a five year term, and is convertible into shares of LEI Class A Common
Stock at a rate equal to fifty percent (50%) of the average closing bid
price of the Class A Common Stock for the four trading days immediately
preceding the conversion date. The convertible debenture is convertible at
the holder's option.
The Company is publicly traded and is currently traded on the Over The
Counter Bulletin Board ("OTCBB") under the symbol "TYRIA".
b) Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
Trey Resources, Inc. (the "Company" or "Trey") and its wholly owned
subsidiary, SWK Technologies, Inc. On February 11, 2004, the Company was
spun off from iVoice, Inc. and is now an independent publicly traded
company. These consolidated financial statements
F-11
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
have been prepared in accordance with accounting principles generally
accepted in the United States for financial information and with the
instructions to Form 10-QSB and Regulation S-B. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included.
Prior to its spin-off from iVoice in February 2004, the Company operated
as a non-reporting component of iVoice, Inc. and accordingly, the results
of operations, and cash flows of the Company for the year ending December
31, 2003, have been derived from the consolidated financial statements and
accounting records of iVoice, Inc., reflect significant assumptions and
allocations and do not necessarily reflect the financial position of Trey
Resources, Inc., had it been a stand-alone Company for that period.
On June 2, 2004, the Company completed its acquisition of SWK, Inc through
a merger into its wholly owned subsidiary SWK Technologies, Inc. ("SWKT").
As such, the consolidated statement of operations for the year ending
December 31, 2004, include the operations of SWKT from June 2, 2004 (the
date of acquisition) though December 31, 2004.
On November 11, 2004, Trey Resources' wholly-owned subsidiary, BTSG
Acquisition Corp. acquired certain assets of Business Tech Solutions
Group, Inc. Business Tech Solutions Group, Inc. was a value added reseller
for Best Software's BusinessWorks financial accounting software. As a
result of the acquisition, Business Tech Solutions Group, Inc.'s
shareholder was issued, in exchange for certain assets of Business Tech
Solutions Group, Inc., 648,149 restricted shares of Trey Resources' Class
A Common Stock.
The result of operations for the year ended December 31, 2004 and 2003 are
not necessarily indicative of the results to be expected for the full
year. For further information, refer to the financial statements and
footnotes included in Form 10-KSB for the year ended December 31, 2003.
References to the "Company," "we," "us" and "our" refer to Trey Resources
Inc. and its subsidiary.
c) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
transactions and accounts have been eliminated in consolidation.
d) Line of Business
----------------
We are business consultants for small and medium sized businesses and are
also value-added resellers and master developers of financial accounting
software published by Best Software. We also publish our own proprietary
EDI software. We are a leader in 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
F-12
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
our financial accounting software is concentrated in the northeastern
United States, while our EDI software and programming services are sold to
corporations nationwide.
e) 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.
f) Revenue Recognition
-------------------
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. Commissions are recognized
when payments are received, since the Company has no obligation to perform
any future services.
g) Advertising Costs
-----------------
Advertising costs are expensed as incurred and are included in selling
expenses. For the years ended December 31, 2004 and 2003, advertising
expense amounted to $257 and $0, respectively.
h) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
i) Marketable Securities
---------------------
The Company has evaluated its investment policies consistent with
Financial Accounting Standards Board Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities ("FASB 115"), and
determined that all of its investment securities are to be classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the unrealized gains and losses reported in Stockholders'
Equity (Deficiency).
j) Concentration of Credit Risk
----------------------------
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded FDIC insured
levels at various times during the year.
For the year ended December 31, 2004, our top ten customers had
approximately $560,000 in sales and these represented 33% 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.
k) 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.
F-13
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
l) Software License Cost
---------------------
Software license costs are recorded at cost, which approximates fair
market value as of the date of purchase. These costs represent the
purchase of various exploitation rights to certain software, pre-developed
codes and systems patented by a non-related third party. These costs are
capitalized pursuant to Statement of Financial Accounting Standards
("SFAS") 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed", and were being amortized using the
straight-line method over a period of five years. As described later in
Note 1, the Company has adopted SFAS No. 121. The carrying value of
software license costs are regularly reviewed by the Company and a loss
would be recognized if the value of the estimated un-discounted cash flow
benefit related to the asset falls below the unamortizated cost. The
remaining unamortized cost was written off in 2004.
m) Income Taxes
------------
The Company accounts for income taxes in accordance with Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes and liabilities are
computed annually for differences between the financial statement and the
tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
n) Financing Costs
---------------
Financing costs consist primarily of professional fees and various paid
commissions relating to the issuance of the Company's convertible
debentures and equity credit lines. These costs are expensed as incurred.
o) Debt Issue Costs
----------------
Debt issue costs represent the estimated cost of the conversion discount
feature relating to the issuance of the Company's convertible debentures.
Conversion costs are charged to expense the fair value of the beneficial
conversion features of the convertible debt as measured at the date of
issuance in accordance with Emerging Issues Task Force (EITF) Issue 98-5.
p) Fair Value of Financial Instruments
-----------------------------------
The Company estimates that the fair value of all financial instruments at
December 31, 2004 and 2003, as defined in FASB 107, does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying 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.
F-14
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
q) Long-Lived Assets
-----------------
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted this statement and determined that an
impairment loss should not be recognized for applicable assets of
continuing operations.
r) Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This statement also applies to transactions in which
an entity issues its equity instruments to acquire goods or services from
nonemployees. Those transactions must be accounted for based on the fair
value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. For stock
options, fair value is determined using an option-pricing model that takes
into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock and
the expected dividends on it, and the risk-free interest rate over the
expected life of the option. The Company has adopted this statement and
recorded the option value as outlined above.
s) Earnings Per Share
------------------
SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings
per share ("basic EPS") and diluted earnings per share ("diluted EPS").
The computation of basic EPS is computed by dividing income (loss)
available to common stockholders by weighted average number of common
shares outstanding for the year ending December 31, 2004. The number of
shares used in the calculation for the year ending December 31, 2003,
assumes the shares issued in connection with the Company's spin - off from
iVoice, Inc. were issued and outstanding for those respective periods.
Diluted earnings per share gives effect to all dilutive potential common
shares outstanding during the period. The computation of diluted EPS does
not assume conversion, exercise, or contingent exercise of securities that
would have an anti-dilutive effect on earnings resulting from the
Company's net loss position.
The shares used in the computations are as follows:
As of December 31,
2004 2003
---- ----
Basic and Diluted EPS Purposes 11,320,556 3,000,000
========== =========
F-15
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
t) Comprehensive Income
--------------------
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
the reporting and display of comprehensive income and its components in
the financial statements. The items of other comprehensive income that are
typically required to be displayed are foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities.
u) Recent Accounting Pronouncements
--------------------------------
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information" requires that a public company report financial and
descriptive information about its reportable operating segments. It also
requires that an enterprise report certain information about its products
and services, the geographic areas in which they operate and their major
customers. In determining the requirements of this pronouncement,
Management believes that there is no materially reportable segment
information with respect to the Company's operations and does not provide
any segment information regarding products and services, major customers,
and the material countries in which the Company holds assets and reports
revenue.
SFAS No. 142, "Goodwill and Other Intangible Assets" requires goodwill to
be tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards require. In
accordance with the requirements of this pronouncement, the Company has
assessed the value of the intangible assets reflected as goodwill on its
books and has determined that no future benefit for these assets exists.
SFAS No. 145 - "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." Under SFAS No. 4,
all gains and losses from extinguishment of debt were required to be
aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. This Statement eliminates SFAS No. 4 and, thus,
the exception to applying APB No. 30 to all gains and losses related to
extinguishments of debt. As a result, gains and losses from extinguishment
of debt should be classified as extraordinary items only if they meet the
criteria in APB No. 30. Applying the provisions of APB No. 30 will
distinguish transactions that are part of an entity's recurring operations
from those that are unusual or infrequent or that meet the criteria for
classification as an extraordinary item. The Company does not expect the
adoption of SFAS No. 145 to have a material impact on its financial
position or results of operations.
SFAS No. 146 - "Accounting for Costs Associated with Exit or Disposal
Activities." This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." The principal difference between this
Statement and EITF 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is
F-16
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
incurred. Under EITF 94-3, a liability was recognized at the date of an
entity's commitment to an exit plan. This Statement is effective for exit
or disposal activities that are initiated after December 31, 2002. The
Company does not expect the adoption of SFAS No. 146 to have a material
impact on its financial position or results of operations.
SFAS No. 148, "Accounting for Stock Based Compensation-Transition and
Disclosure." This statement was issued to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and
the effect of the method used on reported results. This statement is
effective for financial statements for fiscal years ending after December
15, 2002. This statement does not have any impact on the Company because
the Company does not plan to implement the fair value method.
In January 2003, FASB Interpretation No. 46 ("FIN No. 46"),"Consolidation
of Variable Interest Entities, an interpretation of Accounting Research
Bulletin No. 51," was issued. In general, a variable interest entity is a
corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN No. 46
requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the
variable interest entity's activities or is entitled to receive a majority
of the entity's residual returns or both. Currently, this standard has no
effect on the Company's financial statements.
During April 2003, the Financial Accounting Standards Board issued SFAS
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement requires
that contracts with comparable characteristics be accounted for similarly
and clarifies when a derivative contains a financing component that
warrants special reporting in the statement of cash flows. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003,
except in certain circumstances, and for hedging relationships designated
after June 30, 2003. Currently, this standard has not had a material
effect on the Company's financial statements.
In May 2003, the FASB issued "SFAS 150", "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". "SFAS
150" requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include mandatorily
redeemable stock, certain financial instruments that require or may
require the issuer to buy back some of its shares in exchange for cash or
other assets and
F-17
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
certain obligations that can be settled with shares of stock. SFAS 150 is
effective for all financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. Currently, this standard has no
effect on the Company's financial statements.
NOTE 2 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment is summarized as follows:
December 31,
------------------------
2004 2003
---------- --------
Leasehold improvements $ 3,171 $ -
Furniture and fixtures 103,483 -
------------ --------
106,654 -
Less: Accumulated depreciation 13,820 -
------------ --------
Property and equipment, net $ 92,834 $ -
=========== ========
Depreciation expense for the years ended December 31, 2004 and 2003 was
$13,820 and $455, respectively.
NOTE 3 - CONVERTIBLE DEBENTURES RECEIVABLE
- ------------------------------------------
In November 2004, the Company sold certain intellectual property,
representing the software codes of the Automatic Reminder to Laser
Energetics, Inc. (LEI), a New Jersey based technology company. As part of
the sale, the Company was issued a convertible debenture in the amount of
$250,000. The debenture, which bears interest at the rate of 3% per annum,
has a five year term, and is convertible into shares of LEI Class A Common
Stock at a rate equal to fifty percent (50%) of the average closing bid
price of the Class A Common Stock for the four trading days immediately
preceding the conversion date. The convertible debenture is convertible at
the holder's option. At December 31, 2004, the Company determined that
value of the debenture was significantly impaired and the entire
debenture, including the accrued interest income for 2004, was written
down to zero as a provision for doubtful accounts.
NOTE 4 - GOODWILL AND INTANGIBLES
- ---------------------------------
In June 2004, Trey Resources' wholly-owned subsidiary, SWK Technologies,
Inc., completed a merger with SWK, Inc. The Company recorded total
consideration for the acquisition of $577,437 comprised of acquisition
costs of $27,437 and 2,750,000 Class A common stock of Trey Resources,
Inc. valued at $550,000. This consideration has been allocated to the
tangible and identifiable intangible assets acquired according to their
respective estimated fair values, with the excess purchase consideration
being allocated to goodwill at the closing of the transaction. Goodwill on
this transaction amounted to
F-18
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
$1,008,040, which represented amounts paid in excess of the fair market
value of the acquired assets and liabilities assumed of SWK, Inc.
On November 11, 2004, Trey Resources' wholly-owned subsidiary, BTSG
Acquisition Corp. completed the acquisition of certain assets of Business
Tech Solutions Group, Inc. Business Tech Solutions Group, Inc. was a value
added reseller for Best Software's BusinessWorks financial accounting
software. As a result of the acquisition, Business Tech Solutions Group,
Inc.'s shareholder was issued, in exchange for certain assets of Business
Tech Solutions Group, Inc., 648,149 restricted shares of Trey Resources'
Class A Common Stock. In addition, Business Tech also received $19,000 of
cash at the closing. The aggregate amount of this transaction, $54,000,
was recorded as Goodwill.
These acquisitions are being valued by the strength of the client lists
and as such have been reviewed for impairment at December 31, 2004. In
doing so, management has determined that no write-down for impairment is
required.
Under SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill and
other intangible assets are tested for impairment under certain
circumstances, and written off when impaired, rather than being amortized
as previous standards require.
Total goodwill amounted to $1,062,040 less accumulated amortization of $0
at December 31, 2004.
At December 31, 2004 and 2003, intangible assets totaled $27,000 net of
accumulated amortization of $27,000 and $18,000, respectively.
NOTE 5 - INCOME TAXES
- ---------------------
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax Charge (Credit) -
Effect on Valuation Allowance 38.7 %
State Income Tax, Net of Federal Benefit (4.1)%
-----
Effective Income Tax Rate 0.0%
=====
Prior to February 11, 2004, Trey Resources was a non-reporting entity of
iVoice, Inc. and as such had no net operating loss carry forwards. As of
December 31, 2004, the Company has net operating loss carry forwards of
approximately $3,000,000 that can be utilized to offset future taxable
income for Federal income tax purposes through 2025. 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 full realization of
the tax benefit associated with the carry forward
F-19
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
depends predominantly upon the Company's ability to generate taxable
income during the carry forward period.
For state income taxes, the Company's net operating loss carry forwards
may, if the Company is deemed eligible for the program, be reduced by
future participation in the Technology Tax Certificate Transfer Program
sponsored by the New Jersey Economic Development Authority and the State
of New Jersey. Under the program, eligible businesses may sell their
unused net-operating-loss carry forwards and unused research and
development tax-credit carry forwards to any corporate taxpayer in the
State of New Jersey for at least 75% of the value of the tax benefits.
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
2004
------------
Net Operating Loss Carry forwards $ 960,000
Less: Valuation Allowance (960,000)
-----------
Net Deferred Tax Assets $ -
===========
Net operating loss carry forwards expire starting in 2007 through 2025.
NOTE 6 - NOTE PAYABLE
- ---------------------
In 2004, the Company issued five promissory notes payable to Cornell
Capital Partners, LP totaling $1,350,000 for advances on the equity-line
financing agreement entered into with Cornell in January 2003. The notes
mature 120 days from the date of issue with interest accruing at 12% per
annum on any balance left unpaid after the maturity date. As of December
31, 2004, the company had issued 15,127,179 shares of Class A common stock
with a value of $846,334 for which $800,000 was repayment of principle,
$4,024 for payment of interest and $42,310 for amortization of conversion
discounts. At December 31, 2004, a balance of $550,000 remained
outstanding.
On February 11, 2004, March 3, 2004, and April 4, 2004, Wass Associates, a
New York General partnership loaned the company $21,835, $10,000 and
$25,000, respectively. Pursuant to the Agreement and Plan of Merger and
Reorganization among Trey, SWK and SWK Technologies, Inc., the notes were
assumed by SWK Technologies in the acquisition of SWK. The unsecured notes
bear interest at 6% per annum and are payable
F-20
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
in weekly installments of $1,000 and $500 respectively. At December 31,
2004 all of these notes were paid off.
On June 30, 2004, SWK Technologies, Inc. entered into an unsecured
promissory note totaling $35,000 with Wass Associates, a New York General
partnership. The unsecured note bears interest at 6% per annum and is due
in full together with unpaid interest on December 31, 2004. At December
31, 2004, the outstanding balance payable to Wass Associates totaled
$28,709.
NOTE 7 - DUE TO RELATED PARTIES
- -------------------------------
At December 31, 2004, the Company owes its former parent company iVoice,
Inc. $29,265 for: a) the unpaid balance on the Administrative Service
charges; b) $9,000 for the amortization of the original purchase price of
the Automatic Reminder software; c) operating costs of $4,492; and d)
interest expense of $524 that were paid by iVoice, Inc. The general
corporate expenses allocation is primarily for cash management, selling
expenses, legal, accounting, tax, insurance, public relations,
advertising, and human resources. Some of these operating expenses have
been incurred by iVoice and represent costs specifically related to the
operation and spin-off of Trey from iVoice. Management believes the costs
of these services charged are a reasonable representation of the costs
that would have been incurred if the Company had performed these functions
as a stand - alone company.
Pursuant to the spin-off, the Company entered into an Administrative
Services Agreement whereby iVoice will provide the Company with services
in such areas as information management and technology, employee benefits
administration, payroll, financial accounting and reporting, and other
areas where the Company may need transitional assistance and support
following the spin-off distribution. The term of the agreement commences
upon the effective date of the spin-off and continues for two years, but
may be terminated earlier under certain circumstances, including a
default, and may be renewed for additional one-year terms. In exchange for
services under the administrative services agreement, Trey Resources has
agreed to pay iVoice an annual fee of $95,000.
Pursuant to the spin-off transaction from iVoice, the Company has assumed
a promissory note totaling $250,000 payable to Jerry Mahoney, President
and Chief Executive Officer of iVoice and Non- Executive Chairman of the
Board of Trey Resources. This amount is related to funds loaned to iVoice
and is unrelated to the operations of Trey. The note bears 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)
F-21
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
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. At December 31,
2004, the principle on this note was $250,000 and accrued interest was
$21,017.
Pursuant to the employment contract dated January 1, 2003 between the
Company and Jerome Mahoney, the Non-Executive Chairman of the Board, Mr.
Mahoney is to receive a salary of $180,000 per year subject to 10%
increases every year thereafter as well as a monthly expense allowance of
$600 and an auto allowance of $800. Also, pursuant to the employment
contract with Mr. Mahoney, following the completion of the spin-off from
its former parent company, iVoice Inc., which occurred on February 11,
2004, Mr. Mahoney is entitled to receive a one-time payment of $350,000.
Total amounts owed to Mr. Mahoney at December 31, 2004, representing
unpaid salary, unpaid expense and auto allowances, the one-time payment in
connection with the spin-off, liabilities assumed in the spin-off
transaction and interest on the liabilities assumed in the spin-off
totaled $937,457.
Pursuant to the employment contract dated September 15, 2003 between the
Company and Mark Meller, the President, Chief Financial Officer and
Director 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 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. The bonus has been accrued but has not as yet been paid.
Total amounts owed to Mr. Meller at December 31, 2004, representing unpaid
salary, unpaid expense and auto allowances, and the one-time payment in
connection with the spin-off, totaled $666,736.
Mr. Mahoney and Mr. Meller have agreed to defer receipt of cash payment of
any monies due and owing them representing unpaid salary, unpaid expense
and auto allowances which have been accrued on the Company's balance
sheet, and the one-time payment in connection with the spin-off, until
such time as the Board of Directors determines that the Company has
sufficient capital and liquidity to make such payments. Mr. Mahoney and
Mr. Meller have further agreed, however, to accept payment or partial
payment, from time to time, in the form of the Company's Class A Common
Stock and/or the Company's Class B Company Stock, at such time as the
Board of Directors determines to issue such shares in satisfaction of
these accrued liabilities.
In connection with the acquisition of SWK, Inc, the Company assumed a note
payable to Gary Berman, a former shareholder of SWK, Inc. and current
shareholder of Trey. 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. At
December 31, 2004, the outstanding balance to Mr. Berman was $21,700.
In connection with the acquisition of SWK, Inc, the Company assumed a note
payable to Lynn Berman, a former shareholder of SWK, Inc. and current
shareholder of Trey. On
F-22
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
April 1, 2004, Ms. Berman loaned the company $25,000 pursuant to the
Agreement and Plan of Merger and Reorganization among Trey, SWK and SWK
Technologies, Inc. The unsecured note bears interest at 5% per annum and
is payable in bi-weekly amounts of $217. At December 31, 2004, the
outstanding balance to Ms. Berman was $21,700.
In connection with the acquisition of Business Tech Solutions Group, Inc,
the Company agreed to collect the outstanding receivables of Business Tech
and to remit the collected funds to the owner of Business Tech within 30
days of receipts. At December 31, 2004, the Company owed the Business Tech
owner $25,623.
NOTE 8 - CONVERTIBLE DEBENTURES
- -------------------------------
In January 2003, the Company entered into a subscription agreement with
certain purchasers to issue $140,000 in convertible debentures, with
interest payable at 5% annum. The notes are convertible into the Company's
Class A common stock at a price equal to either (a) an amount equal to one
hundred twenty percent (120%) of the closing bid price for the Common
Stock on the Closing Date, or (b) an amount equal to eighty percent (80%)
of the average of the four (4) lowest Closing Bid Prices of the Common
Stock for the five (5) trading days immediately preceding the Conversion
Date. On March 31, 2003, the Company issued $40,000 and on September 19,
2003, the Company issued an additional $100,000 in 5% convertible
debentures to the private investors under the subscription agreement. The
20% beneficial conversion feature was previously recorded as a prepaid
financing costs until such time as the Company's Class A common stock into
which the debentures are convertible was registered and deemed effective
by the U.S Securities and Exchange Commission. The Company completed the
effective registration of the Company's common stock, and any amounts
capitalized have been charged to expense in accordance with EITF Issue
98-5.
As of December 31, 2004, the Company had issued 2,444,177 shares of Trey's
Class A common stock with a value of $162,673, of which $125,000 was a
repayment of principal, $5,138 was payment of interest, and $32,535 was
amortization of conversion discount. Total outstanding principal balance
of the convertible debentures at December 31, 2004 was $15,000, plus
accrued interest of $2,469.
F-23
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
a) The Company leases its primary office space at 293 Eisenhower Parkway,
Livingston, New Jersey at a rate of $8,706 per month. This lease expires
is September 2005. The Company also leases 1,090 square feet at 777
Passaic Avenue, Clifton, NJ and an executive suite in New York City on a
month-to-month obligation of $1,098 per month and $208 per month,
respectively.
The Company will be relocating and consolidating the New Jersey offices
into a single larger space in May 2005. The Company maintains a good
relationship with its landlords and believes that these facilities will be
adequate for the foreseeable future.
In 2003, the parent company of Trey Resources was co-located with iVoice,
Inc. and was not charged any rent.
Combined rent expense under the operating leases for the year ended
December 31, 2004 and 2003 was $63,062 and $0, respectively.
b) The Company has entered into employment contracts with its Non-Executive
Chairman of the Board of Directors. As consideration, the Company agreed
to pay Mr. Mahoney the sum of $180,000 the first year with a 10% increase
every year thereafter. The employment agreement with Mr. Mahoney provides
for a severance payment to him of three hundred percent (300%), less $100,
of his gross income for services rendered to Trey in each of the five
prior calendar years (or shorter period during which Mr. Mahoney shall
have been employed by Trey) should his employment be terminated following
a change in control, as defined in the employment agreement. Mr. Mahoney
shall also be paid the sum of $350,000 upon the completion of the
Spin-Off.
c) On September 15, 2003, the Company entered into an employment agreement
with Mr. Meller. He will serve as the Company's President, Chief Financial
Officer and Director 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. The employment agreement with Mr.
Meller provides for a severance payment to him of three hundred percent
(300%), less $100, of his gross income for services rendered to Trey in
each of the five prior calendar years (or shorter period during which Mr.
Meller shall have been employed by Trey) 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.
Mr. Mahoney and Mr. Meller have agreed to defer the receipt of the
$350,000 payments owed to each of them for the successful completion of
the spin-off until Management believes it has sufficient liquidity and
capital resources to fund these obligations. They have each, agreed,
however, to accept payment or partial payment, from time to time, in the
form of the Company's Class A Common Stock and/or the Company's Class B
F-24
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
Company Stock, at such time as the Board of Directors determines to issue
such shares in satisfaction of these accrued liabilities.
d) The Company has entered into a subscription agreement with certain
purchasers for the sale of $140,000 in convertible debentures. The notes
are convertible into Class A common stock at the discretion of the
holders.
e) In January 2003, as subsequently amended retroactively to January 27,
2003, the Company entered into an Equity Line of Credit with Cornell
Capital Partners, LP. Pursuant to the Equity Line of Credit, the Company,
at their discretion, may periodically sell to Cornell Capital Partners
shares of Class A common stock for a total purchase price of up to $10.0
million to raise funds for its working capital needs. For each share of
Class A common stock purchased under the Equity Line of Credit, Cornell
Capital Partners will pay 91% of the 5 lowest closing bid prices on the
Over-the-Counter Bulletin Board or other principal market on which the
Company's common stock is traded for the 5 days immediately following the
notice date. In addition, Cornell Capital Partners, L.P. has received as
additional compensation, those number of Class A Common Stock shares equal
to one and one half percent (1.5%) of the number of shares of Class A
Common Stock outstanding on that date in which the registration statement
filed by the Company to effectuate the spin - off goes effective (February
2004). Pursuant to the agreement with Cornell Capital Partners, LP, the
Company has registered for resale on Form SB-2, shares of Class A common
stock with the Securities and Exchange Commission. The offering terminates
February 2006.
f) During 2004, the Company issued five promissory notes payable to Cornell
Capital Partners, LP totaling $1,350,000 for advances on the equity-line
financing agreement entered into with Cornell in January 2003. The notes
mature 120 days from the date of issue with interest accruing at 12% per
annum on any balance left unpaid after the maturity date. It is
anticipated that the notes, plus any accrued interest, will be paid
through the issuance of Class A common shares registered for resale with
Securities and Exchange Commission.
g) The Company has entered into an Administrative Services Agreement whereby
iVoice will provide the Company with services in such areas as information
management and technology, employee benefits administration, payroll,
financial accounting and reporting, and other areas where the Company may
need transitional assistance and support following the spin-off
distribution. The term of the agreement is two years, but may be
terminated earlier under certain circumstances, including a default, and
may be renewed for additional one-year terms. In exchange for services
under the administrative services agreement, Trey Resources has agreed to
pay iVoice an annual fee of approximately $95,000.
h) The Company had assumed a total of $324,000 in accrued liabilities and
related party debt presently outstanding and incurred by iVoice. The terms
and conditions of the liabilities and debt being assumed are as follows:
F-25
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
Kevin Whalen, a former officer of iVoice, was 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 December 31, 2004, Mr. Whalen has received $4,500
in cash and $10,000 in Class A Common Stock leaving a balance due of
$59,500.
The Company had also assumed an outstanding promissory note in the amount
of $250,000 payable to Mr. Mahoney, President and Chief Executive Officer
of iVoice and Non- Executive Chairman of the Board of Trey Resources. This
amount is related to funds loaned to iVoice and is unrelated to the
operations of Trey. The terms of this obligation are further discussed in
Note 8.
NOTE 10 - COMMON 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
rights to prescribe and authorize the issuance of 1,000,000 preferred
shares, $1.00 par value.
CLASS A COMMON STOCK
Class A Common Stock consists of the following as of December 31, 2004:
10,000,000,000 shares of authorized common stock with a par value of
$.00001, 29,645,284 shares were issued and 28,719,358 shares were
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 ending December 31, 2004, the company had the
following transactions in its Class A common stock:
o In connection with the spin-off from its former parent company
iVoice, Inc., the Company issued 2,907,248 Class A common shares on
February 13, 2004. This amount represents one share of Trey
Resources, Inc. Class A common stock for every 1,793 shares of
iVoice Class A common stock held as of the record date of February
9, 2004.
The Company issued 45,000 shares of Class A common stock for commitment
fees pursuant to the Equity Line of Credit with Cornell Capital valued at
$18,000.
F-26
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
o The Company issued 20,000 shares of Class A common stock for
placement agent fees pursuant to the Equity Line of Credit with
Cornell Capital valued at $8,000.
o The Company issued 110,000 shares of Class A common stock as
compensation for services valued at $17,600.
o The Company issued 2,750,000 shares of Class A common stock pursuant
to the acquisition and merger agreement with SWK Inc, valued at
$550,000.
o The Company issued 648,149 shares of Class A common stock pursuant
to the acquisition and merger agreement with Business Tech
Solutions, Inc., valued at $35,000.
o The Company issued 15,127,179 shares of Class A common stock with a
total value of $846,334. Of this amount, $800,000 was for repayment
of principal and $4,024 in interest on outstanding notes payable,
issued as advances on the equity line financing with Cornell Capital
Partners, LP. The balance of $42,310 represents discount on
conversions of the principal and interest on the advances on the
equity line to common stock.
o The Company issued 2,444,177 shares of its Class A common stock for
the repayment of $125,000 in principal, $5,138 in interest and
$32,535 for amortization of conversion discount on its 5%
Convertible Debentures.
o The Company issued 2,400,000 shares of its Class A common stock with
a total value of $122,400 to officers of the Company as repayment of
accrued salaries. Of this amount, $42,000 was for repayment of
principal and $80,400 represents discount on conversions.
o The Company issued 2,064,815 shares of Class A common stock for
compensation and bonuses to employees of SWK Technologies, Inc.
valued at $111,500.
o The Company issued 212,766 shares of Class A common stock for a
partial repayment of an obligation to a previous officer of iVoice,
Inc. valued at $10,000.
o The Company cancelled 10,076 shares of Class A common stock that
were surrendered by their owner per a previous agreement with the
Company.
F-27
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
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, 2004, 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. As of December 31, 2004, no shares were
issued or outstanding.
PREFERRED STOCK
Preferred Stock consists of 1,000,000 shares of authorized preferred stock
with $1.00 par value. As of December 31, 2004, no shares were issued or
outstanding.
NOTE 11 - STOCK OPTIONS
- -----------------------
During 2004, the Company issued the following stock options:
On August 1, 2004, the Company issued to Hawk Associates, Inc, options to
purchase 75,000 Class A common stock at a price of $.07 per share. The
options vest in 60 days from issuance and expire ten years from the date
of issue.
Options outstanding, except options under employee stock option plan, are
as follows as of December 31, 2004:
Expiration Date Exercise Price Shares
--------------- -------------- ------
July 31, 2014 $ .07 75,000
======
Stock Option Plan
-----------------
During the year ended December 31, 2004, 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
F-28
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
"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, 2004, 75,000 options to purchase shares were granted. None of
these options were exercised during 2004.
The Company has adopted the provisions of SFAS No. 123. "Accounting for
Stock-Based Compensation" which establishes financial accounting and
reporting standards for stock-based employee compensation plans. This
statement also applies to transactions in which an entity issues its
equity instruments to acquire goods or services from nonemployees. These
transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The fair value of these options
were estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for the year ended
December 31, 2004: dividend yield of 0%; expected volatility of 320%;
risk-free interest rates of 2.00%; and expected life of 3.21.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
The following summarizes the stock option transactions:
Weighted
Stock Average
Option Exercise
Outstanding Price
----------- ----------
Balance, January 1, 2004 - $ .000
Granted 75,000 $ .070
Exercised - $ .000
Canceled - $ .000
------- -------
Balance, December 31, 2004 75,000 $ .070
======= =======
Outstanding and Exercisable,
December 31, 2004 75,000 $ .070
======= =======
F-29
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 12 - 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, experiences a deficiency of
cash flow from operations, and current liabilities exceeded current assets
by approximately $2.4 million as of December 31, 2004. 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.
In order to provide necessary working capital, in January 2003, the
Company entered into a subscription agreement with certain purchasers to
issue $250,000 in convertible debentures, with interest payable at 5% per
annum. The notes are convertible into the Company's Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty
percent (120%) of the closing bid price for the Common Stock on the
Closing Date, or (b) an amount equal to eighty percent (80%) of the
average of the four (4) lowest Closing Bid Prices of the Common Stock for
the five (5) trading days immediately preceding the Conversion Date.
In January 2003, as subsequently amended retroactively to January 27,
2003, the Company entered into an Equity Line of Credit with Cornell
Capital Partners, LP. Pursuant to the Equity Line of Credit, the Company,
at their discretion, may periodically sell to Cornell Capital Partners
shares of Class A common stock for a total purchase price of up to $10.0
million to raise funds for its working capital needs. For each share of
Class A common stock purchased under the Equity Line of Credit, Cornell
Capital Partners will pay 91% of the 5 lowest closing bid prices on the
Over-the-Counter Bulletin Board or other principal market on which the
Company's common stock is traded for the 5 days immediately following the
notice date. In addition, Cornell Capital Partners, L.P. has received as
additional compensation, those number of Class A Common Stock shares equal
to one and one half percent (1.5%) of the number of shares of Class A
Common Stock outstanding on that date in which the registration statement
filed by the Company to effectuate the spin - off goes effective (February
2004). Pursuant to the agreement with Cornell Capital Partners, LP, the
Company has registered for resale on Form SB-2, shares of Class A common
stock with the Securities and Exchange Commission. The offering terminates
24 months after the Securities and Exchange Commission declared the
registration statement effective.
F-30
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
These two financing transactions required the Company to register its
common stock under Section 12(g) of the U.S. Securities Exchange Act of
1934 and subsequently register for resale a number of shares to facilitate
these financing transactions.
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 13 - SUBSEQUENT EVENTS
- ---------------------------
o On March 2, 2005, the Company issued 2,010,724 shares of Class A
common stock valued at $75,000, $60,000 in cash, and an $80,000
promissory note payable over 24 months, pursuant to the employment
agreement with a former executive of Business Consulting Solutions
LLC.
o Through March 24, 2005, the Company issued 16,183,593 shares of
Class A common stock with a total value of $424,110. Of this amount,
$350,000 was for repayment of principal and $53,392 in interest on
outstanding notes payable, issued as advances on the equity line
financing with Cornell Capital Partners, LP. The balance of $20,718
represents discount on conversions of the principal and interest on
the advances on the equity line to common stock.
o On March 23, 2005, the Company issued 5,403,229 shares of its Class
A common stock to Cornell Capital Partners, LP as escrow for the
repayments of the equity line financing accounts.
o On January 19, 2005 and February 16, 2005, the Company issued
5,900,000 shares of its Class A common stock with a total value of
$175,909 to officers of the Company as repayment of accrued
salaries. Of this amount, $68,920 was for repayment of principal and
$106,989 represents discount on conversions.
o On March 2, 2005, the Company issued 1,367,292 shares of Class A
common stock for compensation and bonuses to employees of SWK
Technologies, Inc. valued at $54,692.
o On February 16, 2005, the Company issued 270,270 shares of Class A
common stock for a partial repayment of an obligation to a previous
officer of iVoice, Inc. valued at $10,000.
o On February 25, 2005, the Company issued 350,000 restricted shares
of Class A common stock for a marketing services valued at $13,650.
F-31
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
o On January 27, 2005, the Company drew down $1,150,000 on its Equity
Line of Credit with Cornell Capital. Deducted from these proceeds
was $92,500 of fees paid to Cornell and $350,000 to reimburse
Cornell for the purchase of a 5% convertible debenture issued by
Voyager One, to Cornell. The debentures issued by Voyager One are
convertible at a price equal to the lower of (i) 150% of the lowest
initial bid price of Voyager One common stock as submitted by a
market maker and approved by the NASD or (ii) 50% of the lowest
closing bid price of Voyager One common stock for the five trading
days immediately preceding the conversion date.
F-32
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 2005
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 396,189
Convertible debentures, net of allowance for
doubtful accounts of $255,918 335,630
Accounts receivable, net of allowance for doubtful
accounts of $30,300 399,688
Prepaid expenses and other current assets 181,201
-----------
Total current assets 1,312,708
-----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $22,820 160,253
OTHER ASSETS
Goodwill 1,062,040
Deposits and other assets 40,111
-----------
Total other assets 1,102,151
-----------
TOTAL ASSETS $ 2,575,112
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 551,143
Deferred revenue 21,905
Obligations under capital leases - current 26,019
Convertible debentures payable 17,841
Notes payable 1,353,502
Due to related parties 1,573,117
-----------
Total current liabilities 3,543,527
-----------
LONG TERM DEBT
Obligations under capital leases - non-current 26,524
-----------
Total liabilities 3,570,051
-----------
COMMITMENTS AND CONTINGENCIES - Note 9 --
STOCKHOLDERS' DEFICIENCY
Preferred stock, $1.00 par value; authorized 1,000,000
shares; no shares issued and outstanding --
Common stock:
Class A - par value $.00001; authorized 10,000,000,000
shares; 68,244,093 shares issued and outstanding 682
Class B - par value $.00001; authorized 50,000,000
shares; no shares issued and outstanding --
Class C - par value $.00001; authorized 20,000,000
shares; no shares issued and outstanding --
Additional paid in capital 2,925,008
Stock options and warrants granted 5,250
Accumulated other comprehensive income (loss) --
Accumulated deficit (3,925,879)
-----------
Total stockholders' (deficiency) (994,939)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $ 2,575,112
===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-33
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended
June 30,
------------------------------
2005 2004
------------ ------------
SALES, net $ 1,964,941 $ 215,075
COST OF SALES 1,223,880 110,551
------------ ------------
GROSS PROFIT 741,061 104,524
------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 364,002 36,283
General and administrative expenses 873,184 1,138,521
Depreciation and amortization 19,557 2,170
------------ ------------
Total selling, general and administrative
expenses 1,256,743 1,176,974
------------ ------------
LOSS FROM OPERATIONS (515,682) (1,072,450)
------------ ------------
OTHER EXPENSE
Write-off of financing costs (113,805) (135,000)
Other expense (189,708) (46,157)
Interest expense (33,296) (14,572)
------------ ------------
Total other expense (336,809) (195,729)
------------ ------------
LOSS FROM OPERATIONS
BEFORE INCOME TAXES (852,491) (1,268,179)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS $ (852,491) $ (1,268,179)
============ ============
NET LOSS PER COMMON SHARE
Basic $ ( 0.02) $ ( 0.25)
============ ============
Diluted $ ( 0.02) $ ( 0.25)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic (post spin-off in 2003) 54,766,857 4,889,871
============ ============
Diluted (post spin-off in 2003) 54,766,857 4,889,871
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-34
TREY RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Comprehensive
Income (Loss)
-------------
Balance at December 31, 2004 $ (50,000)
Net transactions for the six months ended
June 30, 2005 50,000
---------
BALANCE AT JUNE 30, 2005 $ -
=========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-35
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months
Ended
June 30,
------------------------------
2005 2004
---- ----
CASH FLOW (USED IN) OPERATING ACTIVITIES
Net loss $ (852,491) $(1,268,179)
Adjustments to reconcile net loss to net cash used in
operating activities, net of effects of acquisition
Depreciation
16,500 2,170
Amortization of other intangibles 3,057 --
Amortization of software license -- 6,750
Debt issue costs 113,805 55,000
Common stock issued for services 68,342 43,600
Common stock issued for debt conversion discount 172,119 11,578
Deferred interest income on convertible debentures (6,935) --
Accrued interest expense on notes payable 14,189 --
Accrued interest expense on related party loans 11,777 --
Accrued interest expense on debentures payable 372 582
Net loss on conversion of securities available for sale 35,109 --
Changes in certain assets and liabilities:
Accounts receivable (126,602) (56,679)
Prepaid expenses and other assets (71,144) --
Accounts payable and accrued liabilities (71,448) (120,701)
Deferred revenue 9,806 (9,177)
Related party accounts 26,653 23,121
----------- -----------
Total cash (used in) operating activities (656,891) (1,311,935)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (83,919) (2,659)
Net cash acquired in acquisition of SWK, Inc -- 29,874
Purchase of convertible debentures (328,695) --
----------- -----------
Total cash provided by (used in) financing activities (412,614) 27,215
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans -- 793,779
Repayment of related party loans (4,617) (1,025)
Proceeds from notes payable 1,136,196 1,035,000
Repayment of notes payable (28,709) (7,440)
Repayment of debt assumed in acquisition -- (216,372)
Proceeds of capital leases 27,344 --
Repayment of capital leases (11,155) (888)
----------- -----------
Total cash provided by financing activities 1,119,059 1,603,054
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 49,554 318,334
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 346,635 4,548
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 396,189 $ 322,882
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 4,570 $ 440
=========== ===========
Income taxes $ -- $ --
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-36
TREY RESOURCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the Six Months Ended June 30, 2005:
- ---------------------------------------
a) Issued 22,073,544 shares of Class A Common Stock with a total value of
$533,101 for repayment of principal on outstanding notes payable, issued
as advances on the equity line financing with Cornell Capital Partners,
LP.
b) Issued 2,010,724 shares of Class A common stock valued at $75,000 pursuant
to the employment agreement with A. Rudin.
c) Issued 4,290,113 shares of Class A common stock with a total value of
$84,738 for interest due on the equity line financing with Cornell Capital
Partners, LP.
e) Issued 9,162,792 shares of Class A common stock with a value of $237,902
for repayment of accrued salaries for two officers of the Company.
f) Issued 1,367,292 shares of Class A common stock with a value of $54,692
for compensation and bonuses to employees of SWK Technologies, Inc.
g) Issued 350,000 shares of Class A common stock with a value of $13,650 for
marketing services.
h) Issued 270,270 shares of Class A common stock with a value of $10,000 for
a partial repayment of an obligation to a previous officer of iVoice, Inc.
For the Six Months Ended June 30, 2004:
- ---------------------------------------
a) Issued 45,000 shares of Class A common stock for commitment fees pursuant
to the Equity Line of Credit with Cornell Capital valued at $18,000.
b) Issued 20,000 shares of Class A common stock for placement agent fees
pursuant to the Equity Line of Credit with Cornell Capital valued at
$8,000.
c) During the six months ended June 30, 2004, the Company issued 110,000
shares of Class A common stock as compensation for services valued at
$17,600.
d) On June 2, 2004, the Company issued 2,750,000 shares of Class A common
stock pursuant to the acquisition and merger agreement with SWK Inc,
valued at $550,000.
e) During the six months ended June 30, 2004, the Company issued 2,186,370
shares of Class A common stock with a total value of $231,578. Of this
amount, $220,000 was for repayment of principal on outstanding notes
payable, issued as advances on the equity line financing with Cornell
Capital Partners, LP. The balance of $11,578 was amortization of discount
on conversions of the equity line to common stock.
f) During the six months ended June 30, 2004, the Company issued 322,424
shares of its Class A common stock for the repayment of $26,000 in
principal and $582 in interest on its 5% Convertible Debentures.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-37
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
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.
The spin-off transaction was accomplished by the distribution of certain
intellectual property, representing the software codes of the Automatic
Reminder, and certain accrued liabilities and related party debt into a
wholly-owned subsidiary of iVoice., Trey Resources, Inc. ("Trey", formerly
known as iVoice Acquisition 1, Inc. and Trey Industries, Inc.) and
subsequently distributed on a pro-rata basis to iVoice shareholders in the
form of a taxable dividend.
Up until its acquisition of SWK, Inc. on June 2, 2004, the Company was
engaged in the design, manufacture, and marketing of specialized
telecommunication equipment. With the acquisition of SWK and as part of
its plan to expand into new markets, Trey is focusing on the business
software and information technology consulting market, and is looking to
acquire other companies in this industry. SWK Technologies, Inc., ("SWK")
the surviving entity in the merger and acquisition of SWK, Inc., is a New
Jersey-based information technology company, value added reseller, and
master developer of licensed accounting software. The Company also
publishes its own proprietary supply-chain software, "MAPADOC". The
Company sells services and products to various end users, manufacturers,
wholesalers and distributor industry clients located throughout the United
States.
Certain intellectual property, representing the software codes of the
Automatic Reminder, was sold in November 2004 to Laser Energetics, Inc.
(LEI), a New Jersey based technology company. The Company received 10
million shares of Laser Energetics Class A Common Stock and was further
issued a convertible debenture by Laser Energetics, Inc. in the amount of
$250,000. The debenture, which bears interest at the rate of 3% per annum,
has a five year term, and is convertible into shares of LEI Class A Common
Stock at a rate equal to fifty percent (50%) of the average closing bid
price of the Class A Common Stock for the four trading days immediately
preceding the conversion date. The convertible debenture is convertible at
the holder's option. On May 16, 2005, the 10 million shares of Laser
Energetics Class A Common Stock were assigned to iVoice, Inc. as
settlement of all Administrative Fees owed by the Company to iVoice.
The Company is publicly traded and is currently traded on the NASD Over
The Counter Bulletin Board ("OTCBB") under the symbol "TYRIA".
F-38
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
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. On
February 11, 2004, the Company was spun off from iVoice, Inc. and is now
an independent publicly traded company. These condensed consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for financial
information and with the instructions to Form 10-QSB and Regulation S-B.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have
been included.
Prior to its spin-off from iVoice in February 2004, the Company operated
as a non-reporting component of iVoice, Inc. and accordingly, the results
of operations, and cash flows of the Company for the periods before
December 31, 2003, have been derived from the consolidated financial
statements and accounting records of iVoice, Inc., reflect significant
assumptions and allocations and do not necessarily reflect the financial
position of Trey Resources, Inc., had it been a stand-alone Company for
that period.
On June 2, 2004, the Company completed its acquisition of SWK, Inc through
a merger into its wholly owned subsidiary SWK Technologies, Inc. ("SWKT").
As such, the condensed consolidated statements of operations for the six
months ending June 30, 2005 and 2004, include the operations of SWKT.
On November 11, 2004, Trey Resources' wholly-owned subsidiary, BTSG
Acquisition Corp. acquired certain assets of Business Tech Solutions
Group, Inc. Business Tech Solutions Group, Inc. was a value added reseller
for Best Software's BusinessWorks financial accounting software. As a
result of the acquisition, Business Tech Solutions Group, Inc.'s
shareholder was issued, in exchange for certain assets of Business Tech
Solutions Group, Inc., 648,149 unregistered shares of Trey Resources'
Class A Common Stock.
On March 1, 2005, Trey Resources' wholly-owned subsidiary, SWK
Technologies, Inc., executed an employment agreement with Mr. Andrew Rudin
of Business Consulting Solutions LLC ("BCS"), whereby Mr. Rudin was to be
paid a commission in cash and stock of Trey Resources in the event he was
successful in arranging for the clients of BCS to transfer over to SWKT.
On March 25, 2005, this employment agreement was amended that made the
commission payable to Mr. Rudin contingent upon the retention of the
clients transferred from BCS through March 1, 2007 and payable over a
thirty-six month period from the employment agreement's commencement date.
Following the successful transfer of BCS clients to SWKT, SWKT will assume
responsibility for maintenance and support of the BCS clients.
The result of operations for the six months ended June 30, 2005 and 2004
are not necessarily indicative of the results to be expected for the full
year. For further information, refer to the
F-39
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
financial statements and footnotes included in Form 10-KSB for the year
ended December 31, 2004. References to the "Company," "we," "us" and "our"
refer to Trey Resources Inc. and its subsidiaries.
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.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
-------------------
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. Commissions are recognized
when payments are received, since the Company has no obligation to perform
any future services.
Marketable Securities
---------------------
The Company has evaluated its investment policies consistent with
Financial Accounting Standards Board Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities ("FASB 115"), and
determined that all of its investment securities are to be classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the unrealized gains and losses reported in Stockholders'
Equity (Deficiency).
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.
F-40
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
Financing Costs
---------------
Financing costs consist primarily of professional fees and various paid
commissions relating to the issuance of the Company's convertible
debentures and equity credit lines. These costs are expensed as incurred.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes and liabilities are
computed annually for differences between the financial statement and the
tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This statement also applies to transactions in which
an entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for based on the fair
value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. For stock
options, fair value is determined using an option-pricing model that takes
into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock and
the expected dividends on it, and the risk-free interest rate over the
expected life of the option. The Company has adopted this statement and
recorded the option value as outlined above.
Earnings (Loss) Per Share
-------------------------
SFAS No. 128, "Earnings per Share" requires presentation of basic earnings
per share ("basic EPS") and diluted earnings per share ("diluted EPS").
The computation of basic EPS is computed by dividing income (loss)
available to common stockholders by weighted average number of common
shares outstanding for the six months ending June 30, 2005. The number of
shares used in the calculation for the six months ending June 30, 2004,
assumes the shares issued in connection with the Company's spin - off from
iVoice, Inc. were issued and outstanding for those respective periods.
Diluted earnings per share gives effect to all dilutive potential common
shares outstanding during the period. The computation of diluted EPS does
not assume conversion, exercise, or contingent exercise of securities that
would have an anti-dilutive effect on earnings resulting from the
Company's net loss position. The Company had 75,000 options granted as of
June 30, 2005.
F-41
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
The shares used in the computations are as follows:
As of June 30,
2005 2004
---------- ---------
Basic and Diluted EPS Purposes 54,766,857 4,889,871
========== =========
Comprehensive Income
--------------------
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
the reporting and display of comprehensive income and its components in
the financial statements. The items of other comprehensive income that are
typically required to be displayed are foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities.
NOTE 3 - GOODWILL AND INTANGIBLES
---------------------------------
In June 2004, Trey Resources' wholly-owned subsidiary, SWK Technologies,
Inc., completed a merger with SWK, Inc. The Company recorded total
consideration for the acquisition of $577,437 comprised of acquisition
costs of $27,437 and 2,750,000 Class A common stock of Trey Resources,
Inc. valued at $550,000. This consideration has been allocated to the
tangible and identifiable intangible assets acquired according to their
respective estimated fair values, with the excess purchase consideration
being allocated to goodwill at the closing of the transaction. Goodwill on
this transaction amounted to $1,008,040, which represented amounts paid in
excess of the fair market value of the acquired assets and liabilities
assumed of SWK, Inc.
On November 11, 2004, Trey Resources' wholly-owned subsidiary, BTSG
Acquisition Corp. completed the acquisition of certain assets of Business
Tech Solutions Group, Inc. Business Tech Solutions Group, Inc. was a value
added reseller for Best Software's BusinessWorks financial accounting
software. As a result of the acquisition, Business Tech Solutions Group,
Inc.'s shareholder was issued, in exchange for certain assets of Business
Tech Solutions Group, Inc., 648,149 unregistered shares of Trey Resources'
Class A Common Stock. In addition, Business Tech also received $19,000 of
cash at the closing. The aggregate amount of this transaction, $54,000,
was recorded as Goodwill. These acquisitions are being valued by the
strength of the client lists and as such have been reviewed for impairment
at June 30, 2005. In doing so, management has determined that no
write-down for impairment is required.
Under SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill and
other intangible assets are tested for impairment under certain
circumstances, and written off when impaired, rather than being amortized
as previous standards require.
As of June 30, 2005, the Company has determined that there has been no
impairment of goodwill.
F-42
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
NOTE 4 - GOING CONCERN
- ----------------------
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America, which contemplates continuation of the
Company as a going concern.
The Company has suffered recurring losses, experiences a deficiency of
cash flow from operations, and current liabilities exceed current assets
by approximately $2.2 million as of June 30, 2005. 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.
In order to provide necessary working capital, in January 2003, the
Company entered into a subscription agreement with certain purchasers to
issue $250,000 in convertible debentures, with interest payable at 5% per
annum. The notes are convertible into the Company's Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty
percent (120%) of the closing bid price for the Common Stock on the
Closing Date, or (b) an amount equal to eighty percent (80%) of the
average of the four (4) lowest Closing Bid Prices of the Common Stock for
the five (5) trading days immediately preceding the Conversion Date.
In January 2003, as subsequently amended retroactively to January 27,
2003, the Company entered into an Equity Line of Credit with Cornell
Capital Partners, LP. Pursuant to the Equity Line of Credit, the Company,
at their discretion, may periodically sell to Cornell Capital Partners
shares of Class A common stock for a total purchase price of up to $10.0
million to raise funds for its working capital needs. For each share of
Class A common stock purchased under the Equity Line of Credit, Cornell
Capital Partners will pay 91% of the 5 lowest closing bid prices on the
Over-the-Counter Bulletin Board or other principal market on which the
Company's common stock is traded for the 5 days immediately following the
notice date. In addition, Cornell Capital Partners, L.P. has received as
additional compensation, those number of Class A Common Stock shares equal
to one and one half percent (1.5%) of the number of shares of Class A
Common Stock outstanding on that date in which the registration statement
filed by the Company to effectuate the spin - off goes effective (February
2004). Pursuant to the agreement with Cornell Capital Partners, LP, the
Company has registered for resale on Form SB-2, shares of Class A common
stock with the Securities and Exchange Commission. The offering
F-43
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
terminates 24 months after the Securities and Exchange Commission declared
the registration statement effective.
These two financing transactions required the Company to register its
common stock under Section 12(g) of the U.S. Securities Exchange Act of
1934 and subsequently register for resale a number of shares to facilitate
these financing transactions.
These condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
NOTE 5 - CONVERTIBLE DEBENTURES RECEIVABLE
- ------------------------------------------
In November 2004, the Company sold certain intellectual property,
representing the software codes of the Automatic Reminder to Laser
Energetics, Inc. (LEI), a New Jersey based technology company. As part of
the sale, the Company was issued a convertible debenture in the amount of
$250,000. The debenture, which bears interest at the rate of 3% per annum,
has a five year term, and is convertible into shares of LEI Class A Common
Stock at a rate equal to fifty percent (50%) of the average closing bid
price of the Class A Common Stock for the four trading days immediately
preceding the conversion date. The convertible debenture is convertible at
the holder's option. As of June 30, 2005, the Company has determined that
value of the debenture was significantly impaired and the entire
debenture, including the accrued interest income for 2004 and 2005, were
written down to zero as a provision for doubtful accounts.
In January 2005, the Company purchased $328,695 of Voyager One, Inc.
convertible debentures from Cornell Capital Partners. The debentures,
which bear interest at the rate of 5% per annum, have a three year term,
and are convertible into shares of Voyager One, Inc. Common Stock at a
conversion price equal to the lower of (i) 150% of the lowest initial bid
price of the common stock as submitted by a market maker and approved by
the NASD or (ii) 50% of the lowest closing bid price of the common stock
for the five trading days immediately preceding the conversion date. The
convertible debentures are convertible at the holder's option any time up
to the maturity date. At June 30, 2005, the aggregate value of the
debentures plus deferred interest income is $335,630.
NOTE 6- CONVERTIBLE DEBENTURES PAYABLE
- --------------------------------------
In January 2003, the Company entered into a subscription agreement with
certain purchasers to issue $140,000 in convertible debentures, with
interest payable at 5% annum. The notes are convertible into the Company's
Class A common stock at a price equal to either (a) an amount equal to one
hundred twenty percent (120%) of the closing bid price for the Common
Stock on the Closing Date, or (b) an amount equal to eighty
F-44
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
percent (80%) of the average of the four (4) lowest Closing Bid Prices of
the Common Stock for the five (5) trading days immediately preceding the
Conversion Date.
On March 31, 2003, the Company issued $40,000 and on September 19, 2003,
the Company issued an additional $100,000 in 5% convertible debentures to
the private investors under the subscription agreement. The 20% beneficial
conversion feature was previously recorded as prepaid financing costs,
until such time as the Company's Class A common stock into which the
debentures are convertible was registered and deemed effective by the U.S
Securities and Exchange Commission. The Company completed the effective
registration of the Company's common stock, and any amounts capitalized
have been charged to expense in accordance with EITF Issue 98-5.
During 2004, the Company had issued 2,444,177 shares of Trey's Class A
common stock with a value of $162,673, of which $125,000 was a repayment
of principal, $5,138 was payment of interest, and $32,535 was amortization
of conversion discount.
During 2005, no additional payments have been made. Total outstanding
principal balance of the convertible debentures at June 30, 2005 was
$15,000, plus accrued interest of $2,841.
NOTE 7- NOTES PAYABLE
- ---------------------
In 2004, the Company issued five promissory notes payable to Cornell
Capital Partners, LP totaling $1,350,000 for advances on the equity-line
financing agreement entered into with Cornell in January 2003. The notes
mature 120 days from the date of issue with interest accruing at 24% per
annum on any balance left unpaid after the maturity date. As of June 30,
2005, $1,304,723 was repaid through the issuance of 37,140,209 shares of
Class A common stock. As of June 30, 2005, a balance of $45,277 remains on
these notes.
On June 30, 2004, SWK Technologies, Inc. entered into an unsecured
promissory note totaling $35,000 with Wass Associates, a New York General
partnership. The unsecured note bears interest at 6% per annum and is due
in full together with unpaid interest on December 31, 2004. As of June 30,
2005, the outstanding balance payable to Wass Associates was paid in full.
In January 2005, the Company issued the sixth promissory note payable to
Cornell Capital Partners, LP for $1,150,000 for advances on the
equity-line financing agreement entered into with Cornell in January 2003.
The notes mature 120 days from the date of issue with interest accruing at
12% per annum on any balance left unpaid after the maturity date. As of
June 30, 2005, a balance of $1,150,000 remains on the principle and
$58,225 of accrued interest.
F-45
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
During the six-month period ending June 30, 2005, SWK Technologies, Inc.
drew down $100,000 from its $250,000 line of credit with Fleet National
Bank, a Bank of America company. The secured line of credit bears interest
at prime plus 1% per annum, which can change with the fluctuations in the
prime rate. Monthly payments of interest only in arrears shall be due and
payable on the 4th of each month and these have been paid. Principal shall
be due and payable on demand from Fleet National Bank. This line of credit
is also fully guaranteed by the Company. As of June 30, 2005, the
outstanding balance payable to Fleet totaled $100,000.
NOTE 8 - DUE TO RELATED PARTIES
- -------------------------------
Pursuant to the spin-off, the Company entered into an Administrative
Services Agreement whereby iVoice will provide the Company with services
in such areas as information management and technology, employee benefits
administration, payroll, financial accounting and reporting, and other
areas where the Company may need transitional assistance and support
following the spin-off distribution. The term of the agreement commences
upon the effective date of the spin-off and continues for two years, but
may be terminated earlier under certain circumstances, including a
default, and may be renewed for additional one-year terms. In exchange for
services under the administrative services agreement, Trey Resources has
agreed to pay iVoice an annual fee of $95,000. On May 16, 2005, the
iVoice, Inc terminated its administrative services agreement with the
Company and iVoice agreed to accept the assignment of 10 million shares of
Laser Energetics Class A Common Stock as settlement of all Administrative
Fees owed by the Company. The value of the exchanged securities was
determined to be $64,891.
Pursuant to the spin-off transaction from iVoice, the Company has assumed
a promissory note totaling $250,000 payable to Jerry Mahoney, President
and Chief Executive Officer of iVoice and Non- Executive Chairman of the
Board of Trey Resources. This amount is related to funds loaned to iVoice
and is unrelated to the operations of Trey. The note bears 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.
Pursuant to the employment contract dated January 1, 2003 between the
Company and Jerome Mahoney, the Non-Executive Chairman of the Board, Mr.
Mahoney is to receive a salary of $180,000 per year subject to 10%
increases every year thereafter, as well as a monthly unaccountable travel
expense allowance of $725, an auto allowance of $800 and a health
insurance allowance of $1,400 per month. Also, pursuant to the employment
F-46
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
contract with Mr. Mahoney, following the completion of the spin-off from
its former parent company, iVoice Inc., which occurred on February 11,
2004, Mr. Mahoney is entitled to receive a one-time payment of $350,000.
Total amounts owed to Mr. Mahoney at June 30, 2005, representing unpaid
salary, unpaid expense and auto allowances, the one-time payment in
connection with the spin-off, liabilities assumed in the spin-off
transaction and interest on the liabilities assumed in the spin-off
totaled $913,362.
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. The bonus has been accrued, but
has not as yet been paid.
Total amounts owed to Mr. Meller at June 30, 2005, representing unpaid
salary, unpaid expense and auto allowances, and the one-time payment in
connection with the spin-off, totaled $620,968.
Mr. Mahoney and Mr. Meller have agreed to defer payment of any monies due
and owing them representing fixed compensation, which have been accrued on
the Company's balance sheet, and the one-time payment in connection with
the spin-off, until such time as the Board of Directors determines that
the Company has sufficient capital and liquidity to make such payments.
Mr. Mahoney and Mr. Meller have further agreed, however, to accept payment
or partial payment, from time to time, as determined in the sole
discretion of the Board of Directors in the form of cash, the Company's
Class A Common Stock and/or the Company's Class B Common Stock.
In connection with the acquisition of SWK, Inc, the Company assumed a note
payable to Gary Berman, a former shareholder of SWK, Inc. and current
shareholder of Trey. 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. At
June 30, 2005, the outstanding balance to Mr. Berman was $19,391.
In connection with the acquisition of SWK, Inc, the Company assumed a note
payable to Lynn Berman, a former shareholder of SWK, Inc. and current
shareholder of Trey. 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
F-47
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
unsecured note bears interest at 5% per annum and is payable in bi-weekly
amounts of $217. At June 30, 2005, the outstanding balance to Ms. Berman
was $19,391.
In connection with the acquisition of Business Tech Solutions Group, Inc,
the Company agreed to collect the outstanding receivables of Business Tech
and to remit the collected funds to the owner of Business Tech within 30
days of receipts. At June 30, 2005, the Company owed the Business Tech
owner $742.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
o In June 2005, the Company relocated its primary office space from
293 Eisenhower Parkway to 5 Regent Street, Livingston, New Jersey.
The rent on this new space is $7,423 per month. This lease expires
in August 2010. The Company also leases 1,090 square feet at 777
Passaic Avenue, Clifton, NJ and an office in Long Island at 900 Walt
Whitman Road, Melville, NY for $1,908 per month and $932 per month,
respectively. The Long Island lease expires in February 2008.
The Company maintains a good relationship with its landlords and
believes that these facilities will be adequate for the foreseeable
future.
o See Note 8 to the Financial Statements for information related to
the employment agreements between Jerome Mahoney and Mark Meller.
o The Company has entered into a subscription agreement with certain
purchasers for the sale of $140,000 in convertible debentures. The
notes are convertible into Class A common stock at the discretion of
the holders.
o In January 2003, as subsequently amended retroactively to January
27, 2003, the Company entered into an Equity Line of Credit with
Cornell Capital Partners, LP. Pursuant to the Equity Line of Credit,
the Company, at their discretion, may periodically sell to Cornell
Capital Partners shares of Class A common stock for a total purchase
price of up to $10.0 million to raise funds for its working capital
needs. For each share of Class A common stock purchased under the
Equity Line of Credit, Cornell Capital Partners will pay 91% of the
5 lowest closing bid prices on the Over-the-Counter Bulletin Board
or other principal market on which the Company's common stock is
traded for the 5 days immediately following the notice date. In
addition, Cornell Capital Partners, L.P. has received as additional
compensation, those number of Class A Common Stock shares equal to
one and one half percent (1.5%) of the number of shares of Class A
Common Stock outstanding on that date in which the registration
statement filed by the Company to effectuate the spin - off goes
effective (February 2004). Pursuant to the agreement with Cornell
Capital Partners, LP, the Company has registered for resale on Form
SB-2, shares of Class A common stock with the Securities and
Exchange Commission. The offering
F-48
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
terminates 24 months after the Securities and Exchange Commission
declared the registration statement effective.
o During 2004 and 2005, the Company issued six promissory notes
payable to Cornell Capital Partners, LP totaling $2,500,000 for
advances on the equity-line financing agreement entered into with
Cornell in January 2003. The notes mature 120 days from the date of
issue with interest accruing at either 12% or 24% per annum on any
balance left unpaid after the maturity date. It is anticipated that
the notes, plus any accrued interest, will be paid through the
issuance of Class A common shares registered for resale with
Securities and Exchange Commission.
o 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 June 30, 2005, Mr.
Whalen has received $4,500 in cash and $20,000 in Class A Common
Stock leaving a balance due of $49,500.
The Company has also assumed an outstanding promissory note in the
amount of $250,000 payable to Mr. Mahoney, President and Chief
Executive Officer of iVoice and Non- Executive Chairman of the Board
of Trey Resources. This amount is related to funds loaned to iVoice
and is unrelated to the operations of Trey. The terms of this
obligation are further discussed in Note 8.
NOTE 10 - COMMON 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 rights to prescribe and authorize the
issuance of 1,000,000 preferred shares, $1.00 par value.
CLASS A COMMON STOCK
Class A Common Stock consists of the following as of June 30, 2005:
10,000,000,000 shares of authorized common stock with a par value of
$.00001, 68,244,093 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
F-49
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
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 six months ending June 30, 2005, the company had the
following transactions in its Class A common stock:
o The Company issued 350,000 shares of Class A common stock as
compensation for marketing services valued at $13,650.
o The Company issued 2,010,724 shares of Class A common stock pursuant
to the employment agreement with Andrew Rudin, valued at $75,000.
o The Company issued 26,363,657 shares of Class A common stock with a
total value of $617,839. Of this amount, $504,723 was for repayment
of principal and $80,613 in interest on outstanding notes payable,
issued as advances on the equity line financing with Cornell Capital
Partners, LP. The balance of $32,503 represents discount on
conversions of the principal and interest on the advances on the
equity line to common stock.
o The Company issued 9,162,792 shares of its Class A common stock with
a total value of $237,902 to officers of the Company as repayment of
accrued salaries. Of this amount, $98,286 was for repayment of
principal and $139,616 represents discount on conversions.
o The Company issued 1,367,292 shares of Class A common stock for
compensation and bonuses to employees of SWK Technologies, Inc.
valued at $54,692.
o The Company issued 270,270 shares of Class A common stock for a
partial repayment of an obligation to a previous officer of iVoice,
Inc. valued at $10,000.
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 100 to 1 with respect to Class A Common Stock. As of June
30, 2005, 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,
F-50
TREY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
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 1,000 to 1 with respect to Class A Common Stock. As of
June 30, 2005, no shares were issued or outstanding.
PREFERRED STOCK
Preferred Stock consists of 1,000,000 shares of authorized preferred
stock with $1.00 par value. As of June 30, 2005, no shares were
issued or outstanding.
NOTE 11 - SUBSEQUENT EVENTS
o On July 15, 2005, the Company engaged the services of Thornhill
Capital LLC to advise and assist the Company in mergers,
acquisitions and in developing an effective business strategy to
increase shareholder value. The Company will issue 3,000,000
warrants to Thornhill for services provided during the term of the
agreement at an exercise price of $.015 per share. The warrants will
have a seven-year maturity and have piggy back registration rights.
o On July 15, 2005, the Company issued 2,223,746 shares of its Class A
common stock with a total value of $66,712 for legal services
provided to the Company during its formation and subsequent reviews
and filings. Of this amount, $15,636 was for these services and
$51,076 represents discount on beneficial conversions.
o On July 12, 2005, the Company issued 2,500,000 shares of its Class A
common stock with a total value of $80,000 to officers of the
Company as repayment of accrued salaries. Of this amount, $17,500
was for repayment of principal and $62,500 represents discount on
conversions.
o On July 22, 2005, the Company issued 3,500,000 shares of its Class A
common stock to Cornell Capital for their escrow holding account
pursuant to the Equity Line Credit. These shares were issued with a
restrictive legend pending effectiveness of a Post Effective
Amendment to the Form SB-2 being filed by the Company for those
shares issuable pursuant to the Equity Credit Line with Cornell
Capital Partners, LP.
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PROSPECTUS
_____________
1,117,321,098 Shares of Class A Common Stock
TREY RESOURCES, INC.
______________, 2005
We have not authorized any dealer, salesperson or other person to
provide any information or make any representations about Trey
Resources, Inc. except the information or representations contained
in this prospectus. You should not rely on any additional
information or representations if made.
_____________
This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy any securities:
o except the common stock offered by this prospectus;
o in any jurisdiction in which the offer or solicitation is not
authorized;
o in any jurisdiction where the dealer or other salesperson is not
qualified to make the offer or solicitation;
o to any person to whom it is unlawful to make the offer or
solicitation; or
o to any person who is not a United States resident or who is outside
the jurisdiction of the United States.
The delivery of this prospectus or any accompanying sale does not imply that:
o there have been no changes in the affairs of Trey Resources, Inc. after
the date of this prospectus; or
o the information contained in this prospectus is correct after the date of
this prospectus.
_____________
ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We amended and restated by-laws provide that we shall indemnify our
directors and officers to the fullest extent permitted by Section 145 of the
General Corporation Law of Delaware.
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Section 102 of the Delaware General Corporation Law allows a corporation
to eliminate the personal liability of directors of a corporation to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Our restated certificate of incorporation also provides that no director
shall be liable to us or our stockholders for monetary damages for breach of his
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to us or our stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transaction in which the director derived an improper personal benefit.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be incurred in
connection with the registration of the securities being registered hereby, all
of which will be borne by us. All amounts shown are estimates except the SEC
registration fee.
SEC registration fee $1,891
Transfer agent's, trustee's and depository's
fees and expenses
Printing and engraving expenses 75,606
Legal fees and expenses 43,933
Accounting fees and expenses 11,500
Miscellaneous 3,218
--------
Total expenses $136,148
--------
--------
RECENT SALES OF UNREGISTERED SECURITIES
Since February 2004, the Company issued the following unregistered
securities pursuant to various exemptions from registration under the Securities
Act of 1933:
o From January 19, 2005 to April 18, 2005, the Company issued
9,162,792 shares of its Class A Common Stock with a total value of
$237,902 to officers of the Company as repayment of accrued
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salaries. Of this amount, $98,286 was for repayment of principal and
$139,616 represents discount on conversions.
o From January 1, 2005 to May 31, 2005, the Company issued 26,363,657
shares of Class A Common Stock with a total value of $617,839. Of
this amount, $504,723 was for repayment of principal and $80,613 in
interest on outstanding notes payable, issued as advances on the
equity line financing with Cornell Capital Partners, LP. The balance
of $32,503 represents discount on conversions of the principal and
interest on the advances on the equity line to Class A Common Stock.
o On March 1, 2005, the Company issued 2,010,724 shares of Class A
Common Stock at $ 0.37 per share valued at $75,000 to Andrew Rudin
pursuant to an employment agreement.
o On February 8, 2005, the Company issued 350,000 shares of Class A
Common Stock at $ 0.39 per share to Evergreen Marketing as
compensation for marketing services valued at $13,650.
o On March 2, 2005 the Company issued 1,367,292 shares of Class A
common stock for compensation and bonuses to certain employees of
the Company's wholly-owned subsidiary, SWK Technologies, Inc. valued
at $54,692.
o On February 16, 2005, the Company issued 270,270 shares of Class A
common stock to a consultant who provided accounting advisory
services to the Company valued at $10,000.
o During the year ended December 31, 2004, the Company issued 20,000
shares of Class A Common Stock for placement fees associated with
the Equity Line of Credit with Cornell Capital valued at $8,000.
o During the year ended December 31, 2004, the Company issued 110,000
shares of Class A Common Stock with a total value of $17,600 for
administrative and consulting services.
o During the year ended December 31, 2004, the Company issued
15,127,179 shares of Class A Common Stock with a total value of
$846,334. Of this amount, $800,000 was for repayment of principal
and $4,024 in interest on outstanding notes payable, issued as
advances on the equity line financing with Cornell Capital Partners,
LP. The balance of $42,310 represents discount on conversions of the
principal and interest on the advances on the equity line to Class A
Common Stock.
o During the year ended December 31, 2004, the Company issued 45,000
shares of Class A Common Stock with a total value of $18,000 for
fees associated with the Equity Line of Credit with Cornell Capital.
o During the year ended December 31, 2004, the Company issued
2,444,177 shares of its Class A Common Stock for the repayment of
$125,000 in principal, $5,138 in interest and $32,535 for
amortization of conversion discount on its 5% Convertible
Debentures.
o During the year ended December 31, 2004, the Company issued
2,750,000 shares of the Class A Common Stock with a total value of
$550,000 to the shareholders of SWK, Inc. as consideration for the
merger of SWK, Inc. with the Company's wholly-owned subsidiary, SWK
Technologies, Inc.
o During the year ended December 31, 2004, the Company issued
2,064,815 shares of Class A Common Stock with a total value of
$111,500 as compensation and bonuses to certain employees of the
Company's wholly-owned subsidiary, SWK Technologies, Inc.
o During the year ended December 31, 2004, the Company issued 648,149
shares of Class A Common Stock with a total value of $35,000 to the
shareholder of Business Tech Solutions Group, Inc. as purchase price
consideration for the acquisition of certain assets.
o During the year ended December 31, 2004, the Company issued 212,766
shares of Class A Common Stock with a total value of $10,000 to a
consultant who provided accounting advisory services to the Company.
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o During the year ended December 31, 2004, the Company issued
2,400,000 shares of its Class A Common Stock with a total value of
$122,400 to officers of the Company as repayment of accrued
salaries. Of this amount, $42,000 was for repayment of principal and
$80,400 represents discount on conversions.
o During the year ended December 31, 2004, the Company canceled 10,076
shares of Class A Common Stock that were surrendered by their owner
per a previous agreement with the Company.
We relied upon the exemption provided in Section 4(2) of the Securities
Act and/or Rule 506 thereunder, which covers "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.
EXHIBITS
Exhibit Description
- ------- -----------
3.1 Second Amended and Restated Certificate of Incorporation of Trey
Industries, Inc. (1)
3.2 By-laws of Trey Industries, Inc. (1)
4.1 iVoice Acquisition 1, Inc. 5% Convertible Debenture due September
19, 2005 issued to Cornell Capital Partners, LP (1)
4.2 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20,
2005 issued to Elma S. Foin (2)
4.3 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20,
2005 issued to Darryl A. Moy (2)
4.4 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20,
2005 issued to Henry Tyler (2)
4.5 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20,
2005 issued to Steven R. LeMott (2)
4.6 Employment Agreement, dated March 1, 2005, between SWKTechnologies,
Inc., and Andrew Rudin. (4)
4.7 Amendment No. 1 dated March 25, 2005 to the Employment Agreement
dated March 1, 2005 by and among SEK Technologies, Inc., Trey
Resources, Inc. and Andrew Rudin. (4)
4.8 5% Secured Convertible Debenture dated January 27, 2005 issued by
Voyager One, Inc. for the sum of $50,000. (4)
4.9 5% Secured Convertible Debenture dated January 27, 2005 issued by
Voyager One, Inc. for the sum of $62,500. (4)
4.10 5% Secured Convertible Debenture dated January 27, 2005 issued by
Voyager One, Inc. for the sum of $62,500. (4)
4.11 5% Secured Convertible Debenture dated January 27, 2005 issued by
Voyager One, Inc. for the sum of $150,000. (4)
4.12 5% Secured Convertible Debenture dated January 27, 2005 issued by
Voyager One, Inc. for the sum of $3,695.21 (4)
4.13 Assignment Agreement dated January 27, 2005 between the Company and
Cornell Capital Partners LP. (4)
4.14 Lease dated April 8, 2005 by and between SWK Technologies, Inc., a
wholly owned subsidiary of Trey Resources, Inc. and Five Regent Park
Associates (5)
4.15 Consulting Agreement dated July 15, 2005 by and between Trey
Resources, Inc. and Thornhill Capital, LLC. (5)
5.1 Opinion of McCarter & English, LLP (3)
10.1 Equity Line of Credit Agreement, dated January 27, 2003, between
Cornell Capital Partners, LP and Trey Resources, Inc. (2)
10.2 Securities Purchase Agreement, dated January 27, 2003, between
iVoice Acquisition 1, Inc. and The May Davis Group Inc. (1)
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10.3 Escrow Agreement, dated January 27, 2003, between iVoice Acquisition
1, Inc., Cornell Capital Partners, LP and Butler Gonzalez LLP (1)
10.4 Registration Rights Agreement, dated January 27, 2003, between
iVoice Acquisition 1, Inc. and Cornell Capital Partners, LP (1)
10.5 Escrow Agreement, dated January 27, 2003, between iVoice Acquisition
1, Inc., The May Davis Group Inc. and Butler Gonzalez LLP (1)
10.6 Investor Registration Rights Agreement, dated January 27, 2003,
between iVoice Acquisition 1, Inc. and The May Davis Group, Inc. (1)
10.7 Guaranty, dated January 27, 2003, by iVoice, Inc. in favor of The
May Davis Group, Inc. (1)
10.8 Employment Agreement, dated January 1, 2003, between iVoice
Acquisition 1, Inc. and Jerome Mahoney (1)
10.9 Employment Agreement, dated September 15, 2003, between Trey
Resources, Inc. and Mark Meller (1)
10.10 Administrative Services Agreement, dated February 22, 2003, between
iVoice Inc. and iVoice Acquisition 1, Inc. (1)
23.1 Consent of Bagell, Josephs and Company, LLC*
23.2 Consent of McCarter & English, LLP (included in Exhibit 5.1) (3)
________________________
* Filed herewith.
(1) Previously filed as an exhibit to Amendment No. 1 to Form SB-2 filed on
November 25, 2003, File No. 333-109454 and incorporated by reference.
(2) Previously filed as an exhibit to Amendment No. 1 to Form SB-2 filed on
December 22, 2003, File No. 333-109997 and incorporated by reference.
(3) Previously filed as an exhibit to Amendment No. 3 to Form SB-2 on February
11, 2004, File No. 333-109997 and incorporated by reference.
(4) Previously filed on Form 10QSB for the three months ended March 31, 2005,
File No. 000-50302 and incorporated by reference.
(5) Previously filed on Form 10QSB for the three months ended June 30, 2005,
File No. 000-50302 and incorporated by reference.
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that paragraphs (1) (i) and (1) (ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") that are incorporated by reference in this registration statement.
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(2) That, for the purposes of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at the time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned on September 14, 2005.
TREY RESOURCES, INC.
By: /s/ Mark Meller
---------------------------------------
Mark Meller
President, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Jerome R. Mahoney Non-Executive Chairman of September 14, 2005
- --------------------- the Board and Director
Jerome R. Mahoney
/s/ Mark Meller President, Chief Executive September 14, 2005
- --------------------- Officer, Chief Financial
Mark Meller Officer and Director
/s/ John C. Rudy Director September 14, 2005
- ---------------------
John C. Rudy
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