10KSB 1 form10-ksb_15790.txt FORM 10-KSB FOR THE YEAR ENDED 12-31-07 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-50302 Trey Resources, Inc. (Name of small business issuer in its charter) Delaware 16-1633636 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5 Regent Street, Suite 520, Livingston, NJ 07039 (Address of principal executive offices) (Zip Code) Issuer's telephone number (973) 958-9555 Securities registered under Section 12(b) of the Exchange Act: None. Securities registered under Section 12(g) of the Exchange Act: Class A common, $.00001 par value Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [_] Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [_] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] Issuer's revenues for its most recent fiscal year. $7,378,029 As of March 31, 2008, the Registrant had 3,745,473,533 shares of Class A, $.00001 par value common stock outstanding. The aggregate market value of the voting stock held by non-affiliates as of that date based upon the average bid and ask prices on that date was $374,547. Transitional Small Business Disclosure Format (Check one): Yes [_]; No [X] ================================================================================ PART I Item 1. Description of business 3 Item 2. Description of property 17 Item 3. Legal proceedings 18 PART II Item 5. Market for common equity and related stockholder matters. 19 Item 6. Management's discussion and analysis or plan of operations. 24 Item 7. Financial statements 30 Item 8A (T). Controls & Procedures 30 PART III Item 9. Directors, executive officers, promoters and control persons, compliance with Section 16(a) of the Exchange Act 32 Item 10.Executive compensation. 35 Item 11.Security ownership of certain beneficial owners and management 37 Item 12.Certain relationships and related transactions 39 Item 13.Exhibits 40 Item 14. Principal Accountant Fees and Services 42 2 PART I ITEM 1. DESCRIPTION OF BUSINESS BACKGROUND Trey Resources, Inc. (the "Company"), was incorporated as iVoice Acquisition 1, Inc. in Delaware on October 3, 2002 as a wholly owned subsidiary of iVoice, Inc. ("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 NASD 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 Sage 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 Sage 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. On March 25, 2006, Trey Resources' wholly-owned subsidiary, SWK Technologies, entered into an Asset Purchase Agreement and an Employment Agreement with Jodi Katz to consummate the acquisition of Wolen Katz Associates. Wolen Katz is a value-added reseller of Sage Software's category leading ABRA Human Resources Management Solution. On June 2, 2006, Trey Resources' wholly-owned subsidiary, SWK Technologies, Inc., executed an asset purchase agreement between and among AMP-Best Consulting, Inc. ("AMP-Best"), a New York Corporation, Patrick Anson, Crandall Melvin III and 3 Michelle Paparo for acquisition of certain assets, the customer list and business name of AMP-Best. AMP-Best Consulting, Inc. is an information technology company and value added reseller of licensed accounting software published by Sage Software. AMP-Best Consulting, Inc. sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, with special emphasis on companies located in the upstate New York region. Terms of the agreement provided for a cash payment at closing of $85,000, issuance of a $380,000 promissory note to Crandall Melvin III, the issuance of 6,000,000 shares of Trey Resource's Class A Common Stock and employment agreements for Patrick Anson, Crandall Melvin III and Michelle Paparo. Payments on the promissory note are to commence 120 days after the closing for a term of 5 years. Our principal offices and facilities are located at 5 Regent Street, Suite 520, Livingston, NJ 07039 and our telephone number is (973) 758-9555. GENERAL We are business consultants for small and medium sized businesses and value-added resellers and developers of financial accounting software. We also publish our own proprietary EDI software. We are a leader in marketing financial accounting solutions across a broad spectrum of industries focused on manufacturing and distribution. We specialize in software integration and deployment, programming, and training and technical support, aimed at improving the financial reporting and operational efficiencies of small and medium sized companies. The sale of our financial accounting software is concentrated in the northeastern United States, while our EDI software and programming services are sold to corporations nationwide. We differentiate ourselves from traditional software resellers through our wide range of value-added services, consisting primarily of programming, training, technical support, and other consulting and professional services. We also provide software customization, data migration, business consulting, and implementation assistance for complex design environments. Our strategic focus is to respond to our customers' requests for interoperability and provide solutions that address broad, enterprise-wide initiatives. Our product sales are cyclical, and increase when the developer of a specific software product offers new versions, promotions or discontinues support of an older product. As is common among software resellers, we purchase our products from our suppliers with a combination of cash and credit extended by the supplier. We do not carry 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. 4 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 December 31, 2007, approximately 12.4% of our total revenue was generated from the resale of accounting software published by Sage Software, Inc. (Sage) for the financial accounting requirements of small and medium sized businesses focused on manufacturing and distribution, and the delivery of related services from the sales of these products, including installation, support and training. These product sales are primarily packaged software programs installed on a user workstation, on a local area network server, or in a hosted environment. The programs perform and support a wide variety of functions related to accounting, including financial reporting, accounts payable and accounts receivable, and inventory management. We provide a variety of services along with our financial accounting software sales to assist our customers in maximizing the benefits from these software applications. These services include training, technical support, and professional services. We 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 Sage 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 Sage Software's market-leading MAS family of accounting software products with a feature rich product that is easy to use. "MAPADOC" provides the user with 5 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. We market our "MAPADOC" solutions to our existing and new small and medium-sized business customers, and through a network of resellers. As of December 31, 2007, we have a sales team and 5 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 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 medium-sized business customers. As of December 31, 2007, we have six salespeople and two 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 Sage Software. They are Microsoft Certified Systems Engineers and Microsoft Certified Professionals, and they provide a host of services for our clients, including server implementation, support and assistance, operation and maintenance of large central systems, technical design of network infrastructure, technical troubleshooting for large scale problems, network and server security, and backup, archiving, and storage of data from servers. There are numerous competitors, both larger and smaller, nationally and locally, with whom we compete in this market. We also provide, as consultants, the information technology (IT) audit required by Section 404 of the Sarbanes Oxley Act of 2002. Section 404 (SOX 404) requires CEOs, CFOs, and outside auditors to attest to the effectiveness of internal controls for financial 6 reporting. To satisfy Section 404 requirements, CEO's, CFO's, and outside auditors must sign off on company's internal controls. They need to know that the company can document its adherence to IT procedures and processes, and that IT processes supporting financial management systems are well controlled. Our qualified staff of certified network engineers and certified public accountants allows us to provide these audits to small and medium sized publicly traded corporations. Our competition to render these services includes accounting firms and independent information technology consultants like ourselves. MARKETS Financial Accounting Software. ------------------------------ In the financial accounting software market, we focus on providing enterprise solutions to small- and medium-sized businesses ("SMB") with less than $100 million of annual revenue, primarily in the manufacturing and distribution industries. The SMB market is comprised of thousands of companies in the New York region alone. While several local and regional competitors exist in the various geographic territories where we conduct business, we have a competitive advantage in terms of geographic reach, comprehensive training and support, and the provision of other products and services. We are one of the larger Sage resellers in the United States. While there are numerous national, regional, and local competitors that could be compared to us in scale, size, geographical reach, and target markets for the resale of Sage products, there is no one dominant competitor or dominant group of competitors with whom we compete for contracts or assignments on a regular basis. There are also numerous competitors who publish and/or resell competing product lines, such as Microsoft's 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 7 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 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 Sage Software, Inc. whereby Sage 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 Sage Software Authorized Training Center Agreement and also are party to a Master Developers Program License Agreement. CUSTOMERS We market our products to private companies throughout the United States. In the year ended December 31, 2007, the revenues generated by our top ten customers 8 represented approximately nineteen percent (19%) 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 trademarks registered with the U.S. Patent and Trademark Office, including "MAPADOC" and have a number of trademark applications pending. We have no patents or patent applications pending. EMPLOYEES As of December 31, 2007, we had approximately 37 full time employees and 1 part time employee located in one office in New Jersey, two offices in New York and one office in California. Approximately six of our employees are engaged in sales and marketing activities and approximately seventeen employees are engaged in service fulfillment. Our future success depends in significant part upon the continued services of our key sales, technical, and senior management personnel and our ability to attract and retain highly qualified sales, technical, and managerial personnel. None of our employees are represented by collective bargaining agreements, and we have never experienced a work stoppage. We believe our employee relations are good. FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS This annual report on Form 10-K contains forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934 as amended. The statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms or other similar terminology. These forward-looking statements involve risks and uncertainties and other factors that may cause the actual results, performance or achievements to differ from any future results, performance or achievements expressed or implied by such forward-looking statements. Except for the historical information and statements contained in this Report, the matters and items set forth in this Report are forward looking statements that involve uncertainties and risks 9 some of which are discussed at appropriate points in the Report and are also summarized as follows: AS OF DECEMBER 31, 2007 THERE WAS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. THE COMPANY MAY NOT BE ABLE TO CONTINUE ITS OPERATIONS AND THE FINANCIAL STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS THAT MIGHT RESULT FROM THE OUTCOME OF THIS UNCERTAINTY. As of December 31, 2007, the Company's independent public accounting firm issued a "going concern opinion" wherein they stated that the accompanying financial statements were prepared assuming the Company will continue as a going concern. The Company did not generate sufficient cash flows from revenues during the year ended December 31, 2007 to fund its operations. Also, as of December 31, 2007, the Company had negative net working capital of approximately $4.4 million. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. WE HAVE 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 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. We have historically lost money. For the years ended December 31, 2007 and 2006, we had net losses of $1,614,008 and $2,351,573, respectively, and net losses of $0.00 and $0.02 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; 10 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, 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 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. 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; 11 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, 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 12 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 March 31, 2008, Jerome R. Mahoney and Mark Meller, our Non-Executive Chairman of the Board of Directors and our President, respectively, collectively owned approximately 87% 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 13 product strategy. The trend toward consolidation in our industry may result in increased competition in acquiring these technologies, people or products, resulting in increased acquisition costs or the inability to acquire the desired technologies, people or products. Any of these changes may have a significant adverse effect on our future revenues and operating results. WE FACE INTENSE PRICE-BASED COMPETITION FOR LICENSING OF OUR PRODUCTS WHICH COULD REDUCE PROFIT MARGINS. Price competition is often intense in the software market. Price competition may continue to increase and become even more significant in the future, resulting in reduced profit margins. IF WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR 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 a $1,000,000 key-man term life insurance policies on Mr. Roth, Ms. Berman and Mr. Berman. 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. As of December 31, 2007, our Non-Executive Chairman of the Board of Directors, Jerome R. Mahoney, will have the right to convert $89,125 of indebtedness into 89,125 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. 14 OUR SECURITIES WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. We intend to retain any future earnings to finance the growth and development of our business. Therefore, we do not expect to pay any cash dividends in the foreseeable future. Any future dividends will depend on our earnings, if any, and our financial requirements. EXISTING STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF SHARES UNDER THE YA GLOBAL INVESTMENTS, LP. F/K/A CORNELL CAPITAL PARTNERS LP. DEBENTURES. The sale of shares of Class A Common Stock pursuant to the terms of the YA Global Investments, LP. f/k/a Cornell Capital Partners, LP. ("YA Global") Debentures will have a dilutive impact on our stockholders. As a result, our net income per share could decrease in future periods, and the market price of our Class A Common Stock could decline. In addition, for a given advance, we will need to issue a greater number of shares of Class A Common Stock under the YA Global Debentures as our stock price declines. If our stock price is lower, then our existing stockholders would experience greater dilution. [See "Liquidity and Capital Resources" in Item 6. Management's Discussion and Analysis or Plan of Operation.] THE INVESTORS HOLDING OUR CONVERTIBLE DEBENTURES WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR CLASS A COMMON STOCK. The Class A Common Stock to be issued under the YA Global Debentures will be issued at ninety percent (90%) of the lowest Closing Bid Price of the Common Stock during the thirty (30) days trading days immediately preceding the Conversion Date, as quoted by Bloomberg, LP. These discounted sales could cause the price of our Class A Common Stock to decline. Further, because the investor under the YA Global (f/k/a. Cornell) Debentures will acquire our Class A Common Stock at a discount, it will have an incentive to sell immediately in order to realize a gain on the difference. This incentive to sell immediately into the public market to realize a gain on the difference accelerates if the market price of our Class A Common Stock declines. [See "Liquidity and Capital Resources" in Item 6. Management's Discussion and Analysis or Plan of Operation.] THE INVESTORS HOLDING OUR CONVERTIBLE DEBENTURES INTEND TO SELL THEIR SHARES OF CLASS A COMMON STOCK IN THE PUBLIC MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE. The investors holding our convertible debentures intend to sell the shares of Class A Common Stock in the public market. The number of shares of Class A Common Stock that may be sold is undeterminable at this time. Such sales may cause our stock price to decline. 15 THE SALE OF OUR CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OF THE YA GLOBAL DEBENTURES COULD ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FURTHER DECLINE OF OUR STOCK PRICE. The significant downward pressure on the price of our Class A Common Stock caused by the sale of material amounts of Class A Common Stock under the YA Global Debentures could encourage short sales by third parties. Such an event could place further downward pressure on the price of our Class A Common Stock. 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. WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO ACCESS EXTERNAL FUNDING WHEN NEEDED. We currently depend on external financing to fund our operations, and we have no current plans to obtain other financing. We cannot assure you that we will be able to obtain such financing on favorable terms, in sufficient amounts, or at all, when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, and our business, financial condition and results of operations. 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 Section 240.3a51-1 of the regulations promulgated by the Securities Exchange 16 Commission pursuant to 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 March 25, 2008, approximately 21,538,777 shares of our Class A Common Stock could be considered "restricted securities" and saleable only upon registration under the Securities Act of 1933, as amended (the "Securities Act"), 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. ITEM 2. 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 17 of space at 5 Regent Street, Livingston, NJ 07039 at a monthly rent of $7,423. Our executive offices are located at the Livingston, NJ office. 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. On October 30, 2007, we entered into a one-year lease for office space at 1902 Wright Place, Carlsbad, CA 92008, at a monthly rent of $567. On June 2, 2006, the Company entered into a two-year lease for office space at 6834 Buckley Road, North Syracuse, New York, at a monthly rent of $1,800. We use our facilities to house our corporate headquarters and operations and believe our facilities are suitable for such purpose. We also believe that our insurance coverage adequately covers our interest in our leased space. We have a good relationship with our landlords. We believe that these facilities will be adequate for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS. We are 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. 18 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION Our Class A common stock, $0.00001 par value, is quoted on the NASD OTC Bulletin Board under the symbol "TYRIA." The following table shows the high and low closing bid prices for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. High Low ---- --- 2006 First Quarter $0.01488 $0.0080 Second Quarter $0.0200 $0.0090 Third Quarter $0.0110 $0.0064 Fourth Quarter $0.0080 $0.0055 2007 First Quarter $0.0056 $0.0023 Second Quarter $0.0025 $0.0004 Third Quarter $0.0007 $0.0002 Fourth Quarter $0.0004 $0.0001 HOLDERS OF COMMON EQUITY. As of December 31, 2007, the number of record holders of our common shares was approximately 687. DIVIDEND INFORMATION. To date, the Company has never paid a cash dividend. We have no plans to pay any dividends in the near future. We intend to retain all earnings, if any, for the foreseeable future, for use in our business operations. DESCRIPTION OF SECURITIES Pursuant to our certificate of incorporation, as amended, we are authorized to issue up to: 10,000,000,000 shares of Class A common stock, par value $0.00001 per 19 share; 50,000,000 shares of Class B common stock, par value $.00001 per share; 20,000,000 shares of Class C common stock, par value $0.00001; and 1,000,000 shares of preferred stock, par value of $1.00 per share. Below is a description of Trey Resources' outstanding securities, including Class A common stock, Class B common stock, options, warrants and debt. CLASS A COMMON STOCK Each holder of our Class A Common Stock is entitled to one vote for each share held of record. Holders of our Class A Common Stock have no preemptive, subscription, conversion, or redemption rights. There are 10,000,000,000 shares authorized and 3,119,362,422 issued and outstanding at December 31, 2007. Upon liquidation, dissolution or winding-up, the holders of Class A Common Stock are entitled to receive our net assets pro rata. Each holder of Class A Common Stock is entitled to receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. We have not paid any dividends on our Common Stock and do not contemplate doing so in the foreseeable future. We anticipate that any earnings generated from operations will be used to finance our growth. CLASS B COMMON STOCK Each share of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. Holders of Class B Common Stock are entitled to receive dividends in the same proportion as the Class B Common Stock conversion and voting rights have to Class A Common Stock. There are 50,000,000 shares authorized and 0 shares issued and outstanding as of December 31, 2007. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 50% discount of the lowest price that Trey had ever issued its Class A Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions. CLASS C COMMON STOCK Each holder of our Class C Common Stock is entitled to 1 vote for each 1,000 shares held of record. Holders of our Class C Common Stock have no preemptive, subscription, conversion, or redemption rights. Shares of Class C Common Stock are not convertible into Class A Common Stock. There are 20,000,000 shares authorized and 0 shares issued and outstanding as of December 31, 2007. 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. 20 PREFERRED STOCK Trey filed an amendment to its certificate of incorporation, authorizing the issuance of 1,000,000 shares of Preferred Stock, par value $1.00 per share. As of December 31, 2007, 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; 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 STOCK AWARDS During the fiscal year ended December 31, 2004, the Company adopted the Trey Resources, Inc. 2004 Stock Incentive Plan (the "Stock Incentive Plan") to: (i) provide 21 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. As of December 31, 2007, the Stock Incentive Plan was authorized to issue up to 200 million shares of Class A Common Stock.. As of December 31, 2007, there were 75,000 options and warrants to purchase 7,000,000 shares of Class A common stock outstanding. None of these options or warrants was exercised during 2007. During the fiscal year ended December 31, 2007, the Company adopted the Trey Resources, Inc. 2007 Consultant Stock Incentive Plan (the "Consultant Plan") to: (i) provide long-term incentives, payment in stock in lieu of cash and rewards to consultants, advisors, attorneys, independent contractors or agents ("Eligible Participants") of Trey Resources, Inc. ("the Company") and its subsidiaries; (ii) assist the Company in attracting and retaining independent contractors or agents with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such independent contractors or agents with those of the Company's stockholders. Total shares issuable under this plan may not exceed twenty (20) percent of the issued and outstanding shares of the Company's Class A Common Stock. As of December 31, 2007, the Consultant Plan was authorized to issue up to 200 million shares of Class A Common Stock.. During 2007, the following securities were issued pursuant to Stock Incentive and Consultant Plans: o At various times during the year ended December 31, 2007, the Company issued the aggregate of 2,500,000 and 175,866,802 for consultant and professional services rendered, respectively. o At various times during the year ended December 31, 2007, the Company issued the aggregate of 170,000,000 shares of Class A common stock for compensation and bonuses to SWK employees. During 2006, the following securities were issued pursuant to this Stock Incentive Plan: o On April 20, 2006 and September 15, 2006, the Company issued the aggregate of 6,900,000 shares of Class A common stock for compensation and bonuses to SWK employees. 22 During the fiscal 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. As of December 31, 2007, the Directors' and Officers' Plan was authorized to issue up to 200 million shares of Class A Common Stock.. During 2007, the following securities were issued pursuant to this Plan: o At various times during the year ended December 31, 2007, the Company issued 170 million shares of Class A common stock for repayment of accrued salaries for two officers of the Company. During 2006, the following securities were issued pursuant to this Plan: o At various times during the year ended December 31, 2006, the Company issued 6,212,208 shares of Class A common stock for repayment of accrued salaries for two officers of the Company. EQUITY COMPENSATION PLANS The following table sets forth information as of December 31, 2007 with respect to compensation plans (including individual compensation arrangements) under which our common shares are authorized for issuance, aggregated as follows:
ALL COMPENSATION PLANS PREVIOUSLY APPROVED BY SECURITY HOLDERS; AND ALL COMPENSATION PLANS NOT PREVIOUSLY APPROVED BY SECURITY HOLDERS ------------------------------------------------------------------------------------------------------------------ Number of securities to be Weighted average exercise issued upon exercise of price of outstanding Number of securities outstanding options, options, warrants and remaining available for Plan category warrants and rights rights future issuance ------------------------------------------------------------------------------------------------------------------ (a) (b) (c) ------------------------------------------------------------------------------------------------------------------ Equity compensation plans 0 $0.00 0 approved by security holders ------------------------------------------------------------------------------------------------------------------ Equity compensation plans not approved by security holders. 7,075,000 (1,2,3) $0.024 8,059,405(4) ------------------------------------------------------------------------------------------------------------------ Total 7,075,000 $0.024 8,059,405 ------------------------------------------------------------------------------------------------------------------
(1) Consists of options to purchase 75,000 Class A common shares of Trey Resources, Inc. issued to unrelated third parties for contractual services and fees related to investor relations transactions of the Company. These options have an exercise price of $0.07 per share. These options will expire on July 31, 2014. (2) Consists of warrants to purchase 3,000,000 Class A common shares of Trey Resources, Inc. issued to unrelated third parties for professional consulting services to the Company. These warrants have an exercise price of $0.015 per share. These warrants will expire on July 11, 2012. 23 (3) Consists of warrants to purchase 4,000,000 Class A common shares of Trey Resources, Inc. issued to Cornell Capital Partners as additional consideration for funding the $200,000 Secured Convertible Debenture of this same date. These warrants have an exercise price of $0.03 per share. These warrants will expire on August 31, 2008. (4) Represents the balance of shares authorized and unissued under the 2004 Stock Incentive Plan. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 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 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. ("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 24 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 Sage Software, Inc. SWK Technologies also publishes its own proprietary supply-chain software, the integrated Electronic Data Interchange (EDI) solution "MAPADOC". SWK Technologies sells and services products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States. On June 2, 2006, SWK Technologies, Inc. completed the acquisition of certain assets of AMP-Best Consulting, Inc. of Syracuse, New York. AMP-Best Consulting, Inc. is an information technology company and value added reseller of licensed accounting software published by Sage Software. AMP-Best Consulting, Inc. sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, with special emphasis on companies located in the upstate New York region. 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. DECEMBER 31, 2007 COMPARED TO DECEMBER 31, 2006 Up until its acquisition of SWK, Inc. ("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, 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 Sage Software. SWK Technologies also publishes its own proprietary supply-chain software, the Electronic Data Interchange (EDI) solution "MAPADOC". SWK Technologies sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States. 25 Revenues for the fiscal year ended December 31, 2007, totaled $7,378,209, an increase of $792,326, or 12.0%. These sales were all generated by the Company's operating subsidiary, SWK Technologies ("SWKT"). SWKT sales increased as the result of increased focus by management on marketing and sales across all its product lines. The gross profit for the year ended December 31, 2007 of $2,565,197 represents the gross profit of SWK. As a percentage of sales, gross profit margin was 34.8% for the year period ending December 31, 2007. Gross profit for the year ended December 31, 2006 was $2,484,483 and 37.7% of sales. Total gross profit increased by $80,714 when compared to the prior year. The mix of products being sold by the company changes from time to time, such that the overall gross margin percentage marginally decreased. Sales of the larger Sage Software products carries lower gross margin percentage as the relative discount percentage from the supplier decreases, while consulting and network services typically carry higher gross margins. Total operating expenses were $3,572,759 for the year ending December 31, 2007, a decrease of $642,842 over the prior year period ending December 31, 2006, which totaled $4,215,601. The decrease in the write off of impairment of goodwill of $700,940 and a decrease primarily a result of SWKT decreased selling and marketing expenses for salaries and benefits as management decreased headcount necessary to offset by increased amortization of intangible assets related to customer lists purchased of $93,384. Other expenses for the year ended December 31, 2007 were $606,446, an increase of $15,991 over the year period ending December 31, 2006. The increase in other expenses primarily reflects the gain on the revaluation of derivatives of $925,212, a decrease of $50,090 in the gain on sales of securities available for sale, and a decrease in the write off of financing costs in the amount of $60,000, and a decrease in amortization of discounts on debt conversion in the amount of $70,182. These changes were also offset by an increase of $17,841 in interest expense on outstanding indebtedness and an increase in other expenses of $232,890. Net loss for the year ending December 31, 2007 was $1,614,008 as compared to net loss of $2,321,573 for the year ending December 31, 2006. The decrease in net loss of $707,565 for the respective periods 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., Business Tech Solutions Group, and AMP-Best Consulting, Inc. 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. 26 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, the Company 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, LP. ("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 December 31, 2007, $15,000 remained due on the principal and $4,673 was due for accrued interest on these debentures. On December 30, 2005, the Company entered into a Securities Purchase Agreement with YA Global Investments, LP. f/k/a Cornell Capital Partners, LP ("YA Global"). Pursuant to such purchase agreement, YA Global shall purchase up to $2,359,047 of secured convertible debentures which shall be convertible into shares of the Company's Class A common stock. Pursuant to the Securities Purchase Agreement, two Secured Convertible Debentures were issued on December 30, 2005 for an aggregate of $1,759,047. A portion of this financing was used to convert promissory notes and accrued interest equal to $1,159,047 into new secured convertible debentures and the balance was new financing in the form of secured convertible debentures equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold on the closing of this Securities Purchase Agreement and a second secured convertible debenture equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold two business days prior to the filing of the registration statement that will register the common stock shares issuable upon conversion of the secured convertible debentures. The debentures are due on December 30, 2007 and May 2, 2008, respectively, and carry an interest rate of 7.5% per annum. The principal and accrued interest on the debentures are convertible into shares of Class A Common Stock at a price per share equal to 90% of the lowest closing bid price of our Class A Common Stock for the thirty trading days immediately preceding conversion. The aggregate balance due of the YA Global debentures at December 31, 2007 is $1,975,702 for principal and interest. 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 27 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 the end of the term. On December 31, 2007, the balance on these debentures is $15,000. 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 December 31, 2007, the entire balance on this note was paid in full. 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 December 31, 2007, the principal on this note was $89,125 and accrued interest was $66,616. 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 28 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, 2007, Mr. Whalen has received $4,500 in cash and $20,000 in Class A Common Stock leaving a balance due of $49,500. In the year ended December 31, 2007, SWK Technologies, Inc. drew down $635,000 and repaid $$472,000 from its $250,000 line of credit with Bank of America f/k/a Fleet National Bank. 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 Bank of America. This line of credit is also fully guaranteed by the Company. As of December 31, 2007, the outstanding balance payable to Fleet totaled $185,000. In connection with the acquisition of AMP-Best consulting, Inc., SWKT issued a note in the amount of $380,000 to Crandall Melvin III and further assumed a capitalized lease with M&T Bank in the amount of $88,153 for certain furniture, fixtures, and equipment. At December 31, 2007, the principal on this note was $304,104. During the year ended December 31, 2007, Trey had a net decrease in cash of $226,994. Trey's principal sources and uses of funds were as follows: CASH USED BY OPERATING ACTIVITIES. Trey used $542,857 in cash for operating activities in the year ended December 31, 2007, a decrease of $436,304 as compared to $979,161 in cash used for operating activities in the year ended December 31, 2006. The decrease is primarily the result of the decreased accounts receivables, increase in accounts payable and accrued expenses and overall reduction in the net loss. CASH PROVIDED BY INVESTING ACTIVITIES. For the year ended December 31, 2007, cash provided by investing activities totaled $132,813 as compared to $40,788 in cash provided by investing activities in the year ended December 31, 2006. During 2007, the Company used $115,904 for the purchase and upgrade of computers and network equipment, and business acquisition costs, offset by $248,717 net proceeds realized from the sale of securities. During 2006, the Company used $98,229 for the purchase and upgrade of computers and network equipment, and $97,000 for business acquisition costs, offset by $236,017 net proceeds realized from the sale of securities. CASH PROVIDED BY FINANCING ACTIVITIES. Financing activities in the year ended December 31, 2007 provided a total of $183,050 in cash as compared to $294,817 in the year ended December 31, 2006. The 2007 decrease primarily consisted of net proceeds from notes payable, capital leases and convertible debentures in the amount of $781,650. This was offset by repayments of related party loans of $77,617, and repayments on the SWKT line of credit and repayment of capital leases of $520,983. The 2006 increase primarily consisted of net proceeds from the notes payable and convertible debentures in 29 the amount of $803,000 and proceeds from capital leases of $60,835. This was offset by repayments of related party loans of $142,445, $386,000 net repayments on the SWKT line of credit and other notes payable and repayment of capital leases of $40,573. OFF BALANCE SHEET ARRANGEMENTS During fiscal 2007, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities. ITEM 7. FINANCIAL STATEMENTS. The financial statements and notes of this Form 10-KSB appear after the signature page to this Form 10-KSB. ITEM 8A (T). CONTROLS AND PROCEDURES. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the fiscal year covered by this Annual Report on Form 10-KSB. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company's disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-KSB are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that the information required to be disclosed in the reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the criteria set forth in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our 30 evaluation under the criteria set forth in Internal Control -- Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report. Our registered public accounting firm will be required to attest to our management's assessment of internal control over financial reporting beginning with our Annual Report for the year ended December 31, 2008. CHANGES IN INTERNAL CONTROLS. Management of the Company has also evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, any change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year covered by this Annual Report on Form 10-KSB. There was no change in the Company's internal control over financial reporting identified in that evaluation that occurred during the fiscal year covered by this Annual Report on Form 10-KSB that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 31 Part III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The Company has three directors and one principal officer. Listed below is certain information concerning individuals who currently serve as directors and executive officers of the Company. Period Served as Name Age Position Officer\Director ---- --- -------- ---------------- Jerome R. Mahoney 48 Non-Executive 1-1-03 to present Chairman of the Board of Directors Mark Meller 48 President, Chief 9-15-03 to present Executive Officer, Chief Financial Officer and Director John C. Rudy 62 Director 6-9-05 to present 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, Chief Executive Officer, Chief Financial Officer and Secretary of iVoice Technology, Inc., which was the parent of Trey Resources before the spin-off in February 2004. Mr. Mahoney has served as Non-Executive Chairman of the Board of Directors of SpeechSwitch, Inc., Matawan, New Jersey, from November 10, 2004 until February 2008. He has served as Non-Executive Chairman of the Board of Thomas Pharmaceuticals, Ltd. (f/k/a iVoice Acquisition Corp), Matawan, New Jersey since May 19, 2005. He has also served as Non-Executive Chairman of the Board of MM2 Group, Inc., Matawan, New Jersey since October 19, 2005. He was also the Non-Executive Chairman of the Board of Deep Field Technologies, Inc., Matawan, New Jersey, until January 27, 2007. Mr. Mahoney received a B.A. in finance and marketing from Fairleigh Dickinson University, Rutherford, N.J. in 1983. 32 MARK MELLER. Mr. Meller has been the President, Chief Financial Office and Director since September 15, 2003, and was further appointed Chief Executive Officer on September 1, 2004. From October 2004 until February 2007, Mr. Meller was the President, Chief Executive Officer, Chief Financial Officer and Director of Deep Field Technologies, Inc. Since December 15, 2004, Mr. Meller has been the President, Chief Executive Officer, Chief Financial Officer and Director of MM2 Group, Inc. From August 29, 2005 until August 2006, Mr. Meller was the President, Chief Executive Officer and Chief Financial Officer of iVoice Technology, Inc. Since 1988, Mr. Meller has been Chief Executive Officer of Bristol Townsend & 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 our outside Board Member since June 9, 2005 and is the Chairman of The Audit Committee. 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 Lampston 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 agreements or understandings for the officer or directors to resign at the request of another person and the above-named officers and director is not acting on behalf of nor will act at the direction of any other person. As of the fiscal year ended December 31, 2007, the Company has an audit committee in place and has two non-executive members of the Board of Directors and one independent member of the Board of Directors. For the year ended December 31, 2007, the Board held one meeting. In addition, the Board acted through written unanimous consent in lieu of a meeting on seven occasions. AUDIT COMMITTEE During 2007, Messrs. Mahoney and Rudy served on the Audit Committee. The Audit Committee currently consists of Messrs. Mahoney and Rudy, with Mr. Rudy serving as the Chairman of the committee. The Audit Committee has one independent member and one member that may be deemed a financial expert as defined in ss.228.401(e) of the regulations promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended. Management is responsible for the Company's 33 internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company's consolidated financial statements in accordance with accounting principles generally accepted in the United States and to issue a report thereon and as to management's assessment of the effectiveness of internal controls over financial reporting. The Audit Committee's responsibility is to monitor and oversee these processes, although the members of the Audit Committee are not engaged in the practice of auditing. The Audit Committee met once in 2007. The Board of Directors approved an Audit Committee Charter on March 23, 2006. As of this date, the Audit Committee operates pursuant to this Audit Committee Charter. AUDIT COMMITTEE REPORT The following is the Audit Committee's report submitted to the Board of Directors for the fiscal year ended December 31, 2007. The Audit Committee has: o reviewed and discussed the Company's audited financial statements with management and Bagell, Josephs, Levine & Company, L.L.C., the Company's independent registered accounting firm; o discussed with Bagell, Josephs, Levine & Company, L.L.C. the matters required to be discussed by Statement on Auditing Standards No. 61, as may be modified or supplemented; and o received from Bagell, Josephs, Levine & Company, L.L.C. the written disclosures and the letter regarding their independence as required by Independence Standards Board Standard No. 1, as may be modified or supplemented, and discussed the auditors' independence with them. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, for filing with the Securities and Exchange Commission. AUDIT COMMITTEE John C. Rudy, Director Jerome Mahoney, Non-executive Chairman of the Board THE AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS ANNUAL REPORT ON FORM 10-KSB INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER THESE ACTS. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. No person who was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the registrant registered pursuant to section 12 34 ("Reporting Person") failed to file on a timely basis the necessary reports, on Forms 3, 4, or 5, as required by section 16(a) of the Exchange Act during the most recent fiscal year except for: (i) Jerome Mahoney's untimely filing of Form 4 for sales of Class A Common Stock for the period of February 28, 2007 through October 15, 2007 and (ii) Mark Meller's untimely filing of Form 4 for sales of Class A Common Stock for the period of September 28, 2007 through October 4, 2007. CODE OF ETHICS. The Company has adopted a Code of Ethics for adherence by its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller to ensure honest and ethical conduct; full, fair and proper disclosure of financial information in the Company's periodic reports filed pursuant to the Securities Exchange Act of 1934; and compliance with applicable laws, rules, and regulations. Any person may obtain a copy of our Code of Ethics by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-KSB. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth compensation information for services rendered by certain of our executive officers in all capacities during the last two completed fiscal years. The following information includes the dollar value of base salaries and certain other compensation, if any, whether paid or deferred. The executive officers of the company did not receive any stock award, option award, non-equity incentive plan compensation, or nonqualified deferred compensation earnings during the last two completed fiscal years.
SUMMARY COMPENSATION TABLE STOCK ALL OTHER TOTAL NAME AND POSITION(S) YEAR SALARY($) BONUS(2) AWARDS COMPENSATION COMPENSATION -------------------- ---- --------- -------- ------ ------------ ------------ Jerome R. Mahoney (1) Non-Executive 2007 $263,538(2) $1,500 $0 $0 $265,038 Chairman of the Board 2006 $239,580(3) $4,000 $0 $0 $243,580 Of Directors Mark Meller (4) 2007 $246,568(5) $1,500 $0 $0 $248,068 President, Chief 2006 $224,153(6) $4,000 $0 $0 $228,153 Executive Officer, Chief Financial Officer and Director
(1) Mr. Mahoney has been serving as our Non-Executive Chairman of the Board since January 1, 2003. Mr. Mahoney's employment contract is for a term of five-years at a base salary of $180,000 in the first year with annual increases based on the Consumer Price Index every year thereafter. (2) $111,664 was accrued and unpaid in fiscal year 2007. (3) $64,580 was accrued and unpaid in fiscal year 2006. 35 (4) Mr. Meller served as our President, Chief Executive Officer and Chief Financial Officer since September 13, 2003. Mr. Meller employment contract is for a term of five-years at a base salary of $180,000 in the first year with annual increases based on the Consumer Price Index every year thereafter. (5) $94,694 was accrued and unpaid in fiscal year 2007. (6) $49,153 was accrued and unpaid in fiscal year 2006. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The Company had no outstanding equity awards at the end of the most recent completed fiscal year. COMPENSATION OF DIRECTORS Effective May 20, 2005, Mr. Rudy will receive $3,000 per quarter in cash and/or Trey stock for his services. Prior to this date, we did not have any arrangements to provide compensation to our non employee directors. The following table sets forth compensation information for services rendered by our non employee directors during the year ended December 31, 2007. The following information includes the dollar value of fees earned or paid in cash and certain other compensation, if any, whether paid or deferred. Our directors did not receive any bonus, stock awards, option awards, non-equity incentive plan compensation, or nonqualified deferred compensation earnings during the last completed fiscal year. DIRECTOR COMPENSATION NAME FEES EARNED ALL OTHER TOTAL OR PAID IN COMPENSATION COMPENSATION CASH ($) ($) ($) --------------------------------------------------------------------------- John C. Rudy(2) $12,000 $0 $12,000 (1) Mr. Mahoney had served as our Non-Executive Chairman of the Board since January 1, 2003. His compensation during that period is included in the Executive Compensation Summary Table. (2) Mr. Rudy has been serving as our outside director since June 9, 2005 at a fee of $12,000 per year. EMPLOYMENT CONTRACTS Trey has entered into an employment contract with its Non-Executive Chairman of the Board of Directors for the period January 1, 2003 through December 31, 2007. The Company anticipates that it will renew this employment agreement with Mr. Mahoney for a new term with essentially the same terms. As consideration, Trey agreed to pay Mr. Mahoney the sum of $180,000 the first year with a 10% increase every year 36 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.. 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. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following tables set forth certain information regarding the beneficial ownership of our voting securities as of March 30, 2007 of (i) each person known to us to beneficially own more than 5% of the applicable class of voting securities, (ii) our directors, (iii) and each named executive officer and (iv) all directors and executive officers as a group. As of March 31, 2008 there were a total of 3,745,473,533 shares of Class A common stock outstanding. Each share of Class A common stock and Class B common stock is entitled to one vote on matters on which holders of common stock are eligible to vote. The column entitled "Percentage of Total Voting Stock" shows the percentage of total voting stock beneficially owned by each listed party. The number of shares beneficially owned is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power 37 or investment power and also any shares which the individual has the right to acquire within 60 days of March 30, 2008, through the exercise or conversion of any stock option, convertible security, warrant or other right. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person's spouse) with respect to all shares of capital stock listed as owned by that person or entity.
OWNERSHIP OF COMMON STOCK COMMON STOCK BENEFICIALLY OWNED ------------------ NAME/ADDRESS TITLE OF CLASS NUMBER PERCENT ------------ -------------- ------ ------- Jerome R. Mahoney (Chairman) Class A Common Stock 15,974,083,333(1) 81.0% c/o Trey Resources, Inc. 5 Regent Street, Suite 520 Livingston, New Jersey 07039 Mark Meller (President) Class A Common Stock 10,094,816,667(2) 72.9% c/o Trey Resources, Inc. 5 Regent Street, Suite 520 Livingston, New Jersey 07039 John C. Rudy (Director) Class A Common Stock -- 0.0% c/o Beacon Consulting Associates 245 Main Street, Suite 2N Matawan, New Jersey 07747 Directors and executive officer as a group Class A Common Stock 26,068,900,000 87.4%
____________________________________ (1) Includes a)13,378,400,000 shares of our Class A common stock issuable upon conversion of $802,704 due to related party accounts with Mr. Mahoney and (b) 2,595,683,333 shares of our Class A common stock issuable upon conversion of a promissory note assumed on February 11, 2004. These figures assume that Class B Common Stock is issued to satisfy these obligations, and such Class B Common Stock shares are subsequently converted to shares of Class A Common Stock. Note balance of $155,741 includes principle and interest through 12/31/07. 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 10,094,816,667 shares of our Class A common stock issuable upon conversion of $605,689 due to related party accounts with Mr. Meller. These figures assume that Class B Common Stock is issued to satisfy these obligations, and such Class B Common Stock shares are subsequently converted to shares of Class A Common Stock. Pursuant to an agreement between the Company and Mr. Meller, Mr. Meller may, at any time, convert amounts owed to him for monies thereon into (i) one share of our Class B common stock for each dollar owed, (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. 38 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. RELATED PARTY NOTES AND ACCOUNTS DUE 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. See "Employment Agreements", Item 10. Executive Compensation. 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, 2007, the outstanding balance to Mr. Berman was $6,942. 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 unsecured note bears interest at 5% per annum and is payable in bi-weekly amounts of $217. At December 31, 2007, the outstanding balance to Ms. Berman was $6,942. ADMINISTRATIVE SERVICE AGREEMENTS 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. 39 On May 16, 2005, 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. ITEM 13. EXHIBITS (a) Exhibits No. Description --- ----------- 3.1 Second Amended Certificate of incorporation of Trey Resources, Inc., filed September 5, 2003 (incorporated herein by reference to Exhibit 3.1 of the registration statement on Form SB-2, filed with the SEC on November 25, 2003). 3.2 By-laws of iVoice, Inc., a New Jersey corporation, incorporated herein by reference to Exhibit 3.2 of the Registrant's Form 10-QSB for the period ended March 31, 2003. 4.1 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Elma S. Foin (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003). 4.2 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Darryl A. Moy (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003). 4.3 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Henry Tyler (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003). 4.4* Trey Resources, Inc. 7.5% Secured Convertible Debenture, for a value of $600,000, due December 30, 2007 to Cornell Capital Partners, LP. 4.5* Trey Resources, Inc. 7.5% Secured Convertible Debenture, for a value of $1,159,047, due December 30, 2007 to Cornell Capital Partners, LP. 4.6 * SWK Technologies, Inc. secured line of credit with Bank of America f/k/a Fleet National Bank. 10.1 Employment Agreement, dated January 1, 2003, between iVoice Acquisition 1, Inc. and Jerome Mahoney. (incorporated herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003). 10.2 Employment Agreement, dated September 15, 2003, between Trey Resources, Inc. and Mark Meller. (incorporated herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003). 10.3 Equity Line of Credit Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc. (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003) 40 10.4 Registration Rights Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc. (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003). 10.5 Stock Purchase Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and listed Buyers (incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003). 10.6 Placement Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and Cornell Capital Partners LP. (incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003). 10.7 Termination Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 10.8 Escrow Agreement dated December 30, 2005 between David Gonzalez, Esq. And Trey Resources, Inc. 10.9 Securities Purchase Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 10.10* Investor Rights Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 10.11* Amended and Restated Security Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 14.1 Code of Ethics incorporated by reference to Exhibit 14.1 filed with the Registrant's Form 10-KSB for the fiscal year ended December 31, 2003. 31.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herein. 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herein. 41 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth fees billed to the Company by the Company's independent auditors for the years ended December 31, 2007 and December 31, 2006 for (i) services rendered for the audit of the Company's annual financial statements and the review of the Company's quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of the Company's financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance. SERVICES 2007 2006 -------- ---- ---- Audit Fees $25,000 $34,755 Audit - Related Fees - - Tax fees $ 3,500 $ 4,995 All Other Fees $13,430 $13,500 Total $41,930 $53,250 Prior to engaging our accountants to perform a particular service, our Audit Committee obtains an estimate for the service to be performed. All of the services described above were approved by the Audit Committee in accordance with its procedures. 42 Signatures In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report on Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized. Trey Resources, Inc.. By: /s/ MARK MELLER April 1, 2008 --------------------------------------- Mark Meller President, Chief Executive Officer, Chief Financial Officer and Director In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Mark Meller April 1, 2008 --------------------------------------- Mark Meller President, Chief Executive Officer, Chief Financial Officer and Director By: /s/ Jerome R. Mahoney April 1, 2008 --------------------------------------- Jerome R. Mahoney Non-executive Chairman of the Board By: /s/ John C. Rudy April 1, 2008 --------------------------------------- John C. Rudy Director 43 INDEX OF EXHIBITS (TO BE UPDATED BY ATTORNEYS) 3.1 Second Amended Certificate of incorporation of Trey Resources, Inc., filed September 5, 2003 (incorporated herein by reference to Exhibit 3.1 of the registration statement on Form SB-2, filed with the SEC on November 25, 2003). 3.2 Bylaws of Trey Industries, Inc (incorporated herein by reference to Exhibit 3.2 of the registration statement on Form SB-2, filed with the SEC on November 25, 2003). 4.1 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Elma S. Foin (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003). 4.2 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Darryl A. Moy (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003). 4.3 iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Henry Tyler (incorporated herein by reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003). 4.4* Trey Resources, Inc. 7.5% Secured Convertible Debenture, for a value of $600,000, due December 30, 2007 to Cornell Capital Partners, LP. 4.5* Trey Resources, Inc. 7.5% Secured Convertible Debenture, for a value of $1,159,047, due December 30, 2007 to Cornell Capital Partners, LP. 4.6* SWK Technologies, Inc. secured line of credit with Bank of America f/k/a Fleet National Bank. 10.1 Employment Agreement, dated January 1, 2003, between iVoice Acquisition 1, Inc. and Jerome Mahoney. (incorporated herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003). 10.2 Employment Agreement, dated September 15, 2003, between Trey Resources, Inc. and Mark Meller. (incorporated herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003). 10.3 Equity Line of Credit Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc. (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003) 44 10.4 Registration Rights Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc. (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003). 10.5 Stock Purchase Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and listed Buyers (incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003). 10.6 Placement Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and Cornell Capital Partners LP. (incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with the SEC on May 12, 2003). 10.7 Termination Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 10.8 Escrow Agreement dated December 30, 2005 between David Gonzalez, Esq. And Trey Resources, Inc. * 10.9 Securities Purchase Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 10.10 Investor Rights Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 10.11 Amended and Restated Security Agreement dated December 30, 2005 between Cornell Capital Partners, LP and Trey Resources, Inc. 14.1 Code of Ethics incorporated by reference to Exhibit 14.1 filed with the Registrant's Form 10-KSB for the fiscal year ended December 31, 2003. 31.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herein. 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herein. * Filed herewith 45 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS CONTENTS Page(s) ------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 2 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets 3-4 Statements of Operations 5 Statement of Stockholders' Deficit 6-7 Statements of Cash Flows 8-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12-33 BAGELL, JOSEPHS, LEVINE & COMPANY, LLC 406 LIPPINCOTT DRIVE, SUITE J, MARLTON, NJ 08053 TEL: 856.346.2828 FAX: 856.396.0022 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 sheets of Trey Resources, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' deficit, 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 of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trey Resources, Inc. and Subsidiaries as of December 31, 2007 and 2006, 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. The accompanying consolidated financial statements as of December 31, 2007 and 2006have been prepared assuming the Company will continue as a going concern. As discussed in Note 15 to the consolidated financial statements, the Company has incurred substantial accumulated deficits and operating losses. 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 15. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Bagell, Josephs, Levine & Company, LLC Marlton, New Jersey March 27, 2008 2 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS ------
December 31, ------------------------- 2007 2006 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 146,443 $ 373,450 Accounts receivable, net of allowance for doubtful accounts of $147,647 and $42,036, respectively 687,282 798,805 Notes Receivable 66,471 -- Inventory 45,647 51,294 Prepaid expenses and other current assets 106,722 97,365 ---------- ---------- Total current assets 1,052,565 1,320,914 ---------- ---------- PROPERTY AND EQUIPMENT, NET 270,177 264,949 ---------- ---------- OTHER ASSETS Intangible assets, net of accumulated amortization of $294,550 and $97,580, respectively 298,681 487,901 Convertible debentures receivable, net of allowance for doubtful accounts of $0 and $265,925, respectively -- 243,778 Deposits and other assets 32,267 37,638 ---------- ---------- Total other assets 330,948 769,317 ---------- ---------- TOTAL ASSETS $1,653,690 $2,355,180 ========== ==========
The accompanying notes are an integral part of the consolidated financial statement. 3 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' DEFICIT -------------------------------------
December 31, -------------------------- 2007 2006 ----------- ----------- CURRENT LIABILITIES Accounts payable and accrued expenses $ 1,385,998 $ 1,502,591 Due to related parties 1,408,393 1,311,515 Current portion of convertible debentures payable, net of discounts of $ 73,393 and $ 753,290, respectively 1,603,207 995,757 Current portion of derivative liability 216,497 833,813 Current portion of notes payables and capital leases 83,550 51,210 Line of credit 185,000 22,000 Warrant liability 75,450 75,450 Notes payable torelated parties 407,122 426,422 Deferred revenue 127,809 109,651 ----------- ----------- Total current liabilities 5,493,016 5,328,409 LONG TERM DEBT Convertible debentures payable, net of discounts of $0 and $ 293,571, respectively, net of current portion -- 276,429 Derivative liability, net of current portion -- 307,896 Notes payable and capital leases, net of current portion 74,261 97,616 ----------- ----------- Total liabilities 5,567,277 6,010,350 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT Preferred stock, $1.00 par value; authorized 1,000,000 shares; no shares issued and outstanding -- -- Common stock, Class A: 2007 - par value $.00001; Authorized 10,000,000,000, 3,119,362,422 shares issued and outstanding 2006 - par value $.00001; Authorized 10,000,000,000, 160,621,297 shares issued and outstanding 31,194 1,606 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 5,347,666 4,021,663 Additional paid in capital - warrants 125,166 125,166 Accumulated deficit (9,417,613) (7,803,605) ----------- ----------- Total stockholders' deficit (3,913,587) (3,655,170) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,653,690 $ 2,355,180 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, ------------------------------------ 2007 2006 --------------- --------------- SALES, NET $ 7,378,209 $ 6,585,883 COST OF SALES 4,813,012 4,101,400 --------------- --------------- GROSS PROFIT 2,565,197 2,484,483 --------------- --------------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling expenses 1,234,362 1,292,813 General and administrative expenses 1,875,891 2,039,813 Depreciation and amortization 305,523 182,035 Research and development 156,983 -- Impairment of goodwill -- 700,940 --------------- --------------- Total selling, general and administrative expenses 3,572,759 4,215,601 --------------- --------------- LOSS FROM OPERATIONS (1,007,562) (1,731,118) --------------- --------------- OTHER INCOME (EXPENSE) Gain on revaluation of derivatives 925,212 770,564 Gain on sale of securities available for sale 71,413 121,503 Other expense, net (403,566) (170,676) Amortization of discounts on debt conversion (973,468) (1,043,650) Write off of financing costs -- (60,000) Interest expense (226,037) (208,196) --------------- --------------- Total other income (expense) (606,446) (590,455) --------------- --------------- LOSS BEFORE INCOME TAXES (1,614,008) (2,321,573) PROVISION FOR INCOME TAXES -- -- --------------- --------------- NET LOSS $ (1,614,008) $ (2,321,573) NET LOSS PER COMMON SHARE Basic and Diluted $ (.00) $ (.02) =============== =============== WEIGHTED AVERAGE SHARES OUTSTANDING Basic and Diluted 1,054,240,963 143,090,746 =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. 5 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Additional Additional Paid in Total Common Stock Class A Paid in Capital - Accumulated Stockholders' Shares Amount Capital Warrants Deficit Deficit ----------- --------- ----------- ---------- ----------- ----------- Balance at January 1, 2006 114,950,388 $ 1,149 $ 3,541,929 $ 165,953 $(5,482,032) $(1,773,001) Issuance of stock on asset purchase 10,347,826 104 acquisitions 114,896 -- -- 115,000 Issuance of stock on accrued salary conversion 16,212,208 162 176,460 -- -- 176,622 Issuance of stock on debt conversion, net of revaluation of debenture 9,810,875 98 77,471 (40,787) -- 36,782 Issuance of stock for compensation and services 9,300,000 93 110,907 -- -- 111,000 Net loss for the year ended December 31, 2006 -- -- -- -- (2,321,573) (2,321,573) ----------- --------- ----------- ---------- ----------- ----------- Balance at December 31, 2006 160,621,297 $ 1,606 $ 4,021,663 $ 125,166 $(7,803,605) $(3,655,170) =========== ========= =========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 6 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Additional Additional Paid in Total Common Stock Class A Paid in Capital - Accumulated Stockholders' Shares Amount Capital Warrants Deficit Deficit ------------- ------- ----------- -------- ----------- ----------- Balance at January 1, 2007 160,621,297 $ 1,606 $ 4,021,663 $125,166 $(7,803,605) $(3,655,170) Issuance of stock for compensation, accrued salaries and ervices 518,366,802 5,184 250,423 -- -- 255,607 Issuance of stock on debt conversion, net of revaluation of debenture 2,280,649,779 22,807 619,451 -- -- 642,258 Issuance of stock for debt repayment 159,724,544 1,597 28,778 -- -- 30,375 Beneficial conversion on conjunction with stock issued for compensation, accrued services, and debt repayment and conversion -- -- 427,351 -- -- 427,351 Net loss for the year ended December 31, 2007 -- -- -- -- (1,614,008) (1,614,008) ------------- ------- ----------- -------- ----------- ----------- Balance at December 31, 2007 3,119,362,422 $31,194 $ 5,347,666 $125,166 $(9,417,613) $(3,913,587) ============= ======= =========== ======== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 7 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, ---------------------------- 2007 2006 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net loss $(1,614,008) $(2,321,573) Adjustments to reconcile net loss to net cash used in operating activities: Net gain on conversion of securities available for sale (71,413) (121,503) Depreciation and amortization 102,926 78,449 Amortization of other intangibles 202,597 103,586 Gain on revaluation of derivatives (925,212) (770,564) Amortization of debt discounts 973,468 900,075 Impairment of goodwill -- 700,940 Bad debts 105,611 -- Common stock issued for compensation, accrued salaries and services 255,607 81,000 Common stock issued for debt conversion discount 427,351 143,574 Deferred interest income on convertible debentures -- (14,530) Write off debt issue costs -- 60,000 Changes in assets and liabilities: Accounts receivable 5,912 (397,778) Inventory 5,647 (619) Prepaid expenses and other assets (9,786) 35,736 Accounts payable and accrued liabilities (116,593) 469,953 Deferred revenue 18,158 85,897 Related party accounts 96,878 (11,804) ----------- ----------- Total cash used in operating activities (542,857) (979,161) =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 8 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31, ---------------------------- 2007 2006 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (108,154) (98,229) Net proceeds from sale of securities available for sale 248,717 236,017 Purchase of intangible assets (7,750) -- Business acquisition, net of cash received -- (97,000) ----------- ----------- Total cash provided by investing activities 132,813 40,788 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments of related party loans (77,617) (142,445) Proceeds from notes payable, capital leases and convertible debentures 781,650 863,835 Repayment of notes payable, capital leases and convertible debentures (520,983) (426,573) ----------- ----------- Total cash provided by financing activities 183,050 294,817 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (226,994) (643,556) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 373,437 1,016,993 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 146,443 $ 373,437 =========== =========== CASH PAID DURING THE YEAR FOR: Interest expense $ 55,074 $ 45,486 =========== =========== Income taxes $ -- $ 250,712 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES During the year ended December 31, 2007, the company assigned all of its rights to a debenture receivable to THI, Inc. for $184,387 and received $13,000 down payment and promissory note for $171,387 (see Note 4).
The accompanying notes are an integral part of these consolidated financial statements. 9 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2007 AND 2006 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES For the Year Ended December 31, 2007 ------------------------------------ During the year ended December 31, 2007, the Company: a) Issued 2,280,649,779 shares of Class A Common Stock with a total value of $782,280 for conversion of $642,258 of principal on outstanding debentures held by YA Global Investments (f/k/a. Cornell Capital Partners, LP.) b) Issued 159,724,544 shares of Class A common stock with a value of $109,666 for a conversion of $30,375 to an officer of the Company for repayment of a note payable. c) Issued 170,000,000 shares of Class A common stock with a value of $137,215 for repayment of $44,236 accrued salaries for two officers of the Company. d) Issued 175,866,802 shares of Class A common stock with a value of $179,575 for conversion of $64,516 of debt for legal services. e) Issued 170,000,000 shares of Class A common stock with a value of $137,215 for compensation and bonuses to employees of SWK Technologies, Inc. f) Issued 2,500,000 shares of Class A common stock with a value of $8,500 for investor relation services to Wall Street Savant Corporation. For the Year Ended December 31, 2006 ------------------------------------ During the year ended December 31, 2006, the Company: a) Issued 9,810,875 shares of Class A Common Stock with a total value of $77,569 for conversion of $55,000 of principal on outstanding debentures with YA Global (f/k/a Cornell Capital Partners, LP). d) Issued 4,347,826 shares of Class A common stock valued at $40,000 pursuant to the asset purchase agreement with Jodi Katz. e) Issued 16,212,208 shares of Class A common stock with a value of $176,622 for repayment of $74,577 of loans and accrued salaries for two officers of the Company. d) Issued 2,400,000 shares of Class A common stock with a value of $30,000 for conversion of $11,040 of debt for legal services. e) Issued 6,900,000 shares of Class A common stock with a value of $81,000 for compensation and bonuses to employees of SWK Technologies, Inc. The accompanying notes are an integral part of these consolidated financial statements. 10 TREY RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2006 AND 2005 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES (CONTINUED) f) On June 2, 2006, the Company concluded the acquisition of AMP-Best Consulting, Inc. Pursuant to the asset purchase agreement, Trey issued 6,000,000 shares of Class A common stock valued at $75,000 to Patrick J. Anson, Crandall Melvin III and Michelle Paparo. The net effect on cash flows is as follows: Cash at closing $ (85,000) Inventory 5,058 Prepaid expenses & security deposit 1,461 Property and equipment 88,153 Goodwill 533,481 Lease obligations (88,153) Promissory notes (380,000) Common stock (75,000) ----------- Total $ -- =========== The accompanying notes are an integral part of these consolidated financial statements. 11 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2007 AND 2006 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. As of December 31, 2007, the Company has determined that the value of the debenture was significantly impaired and the entire debenture, including the accrued interest income for 2007 and 2006, were written down to zero as a provision for doubtful accounts. The Company is publicly traded and is currently traded on the Over The Counter Bulletin Board ("OTCBB") under the symbol "TYRIA". 12 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED) ---------------------------------------------------------------------- Basis of Presentation --------------------- The accompanying consolidated financial statements include the accounts of Trey Resources, Inc. (the "Company" or "Trey") and its wholly owned subsidiaries, SWK Technologies, Inc. and BTSG Acquisition Corp. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for financial information and with the instructions to Form 10-KSB and Regulation S-B. 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. On February 7, 2006, Trey Resources' wholly-owned subsidiary, SWK Technologies, Inc., executed an asset purchase agreement and employment agreement with Ms. Jodie Katz of Wolen Katz Associates ("Wolen Katz"), whereby Ms. Katz was paid compensation in cash and stock of Trey Resources for successfully arranging for the clients of Wolen Katz to transfer over to SWKT. The cash portion of the compensation is payable in twelve (12) equal monthly installments commencing on the 90th day following the Closing Date. Following the successful transfer of Wolen Katz clients to SWKT, SWKT assumed responsibility for maintenance and support of the BCS clients. On June 2, 2006, Trey Resources' wholly-owned subsidiary, SWK Technologies, Inc., executed an asset purchase agreement between and among AMP-Best Consulting, Inc. ("AMP-Best"), a New York Corporation, Patrick Anson, Crandall Melvin III and Michelle Paparo for acquisition of certain assets, the customer list and business name of AMP-Best. Terms of the agreement provided for a cash payment at closing of $85,000, issuance of a $380,000 promissory note to Crandall Melvin III, the issuance of 6,000,000 shares of Trey Resource's Class A Common Stock and employment agreements for Patrick Anson, Crandall Melvin III and Michelle Paparo. Payments on the promissory note are to commence 120 days after the closing for a term of 5 years. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------- Principles of Consolidation --------------------------- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation. 13 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) --------------------------------------------------------------- Use of Estimates ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition ------------------- Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred, the amount is fixed or determinable, and cash is received. The Company recognizes revenues from consulting and support services as the services are performed. The assessment of collectability is critical in determining whether revenue should be recognized. As part of the revenue recognition process, we determine whether trade receivables are reasonably assured of collection based on various factors. Revenue and related costs are deferred if we are uncertain as to whether the receivable can be collected. Revenue is deferred but costs are recognized when we determine that the collection of the receivable is unlikely. Hardware and software revenues are recognized when the product is shipped to the customer. The Company separates the software component and the professional services component into two distinct parts for purposes of determining revenue recognition. In that situation where both components are present, software sales revenue is recognized when the cash is received and the product is delivered, and professional service revenue is recognized as the service time is incurred. Commissions are recognized when payments are received, since the Company has no obligation to perform any future services. Advertising Costs ----------------- Advertising costs are expensed as incurred and are included in selling expenses. For the years ended December 31, 2007 and 2006, advertising expenses were $8,235 and $2,759, respectively. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had cash equivalents at December 31, 2007 and 2006 of $112,547 and $245,465, respectively. The cash equivalents represent investments in Triple A credit rated money market funds that have 7 day auction rates competitive with current market conditions. 14 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) --------------------------------------------------------------- Concentration of Credit Risk ---------------------------- For the years ended December 31, 2007 and 2006, our top ten customers had approximately $1,454,733 and $1,000,000 in sales and these represented 19% and 15%, respectively, of our total sales for the period. Generally, we do not rely on any one specific customer for any significant portion of our revenue base. For the year ended December 31, 2007, purchases from one supplier were approximately $772,956 or 49% of the Company's total purchases cost. Generally, the Company does not rely any one specific supplier for all of its purchases and maintains relationships with other suppliers that could replace its existing supplier if the need arose. Accounts Receivable ------------------- Accounts receivables consist primarily of uncollected invoices for maintenance and professional services. Payment for software sales are due in advance of ordering from the software supplier. Payment for maintenance and support plan renewals are due before the beginning of the maintenance period. Payment for professional services are due 50% in advance and the balance on completion of the services. The Company maintains a small provision for bad debts and reviews the provision quarterly. Inventory --------- Inventory consists primarily of pre-packaged software programs that are held for resale to customers. Cost is determined by specific identification related to the purchase order from the software supplier. Property and Equipment ---------------------- Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally five to seven years. Maintenance and repairs are charged to expense as incurred. 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 2005. 15 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) --------------------------------------------------------------- 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. 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 amortized over the life of the loan, or charged to equity, as incurred. 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 at 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 December 31, 2007 and 2006, 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. 142, "Goodwill and Other Intangible Assets" requires goodwill to be tested for impairment under certain circumstances, and written off when impaired, rather than being amortized as previous standards require. In accordance with the requirements of this pronouncement, the Company has assessed the value of the intangible assets reflected as goodwill on its books and has determined that future benefit for these assets exists. However, the Company has realized a decline in the value of the Goodwill as of December 31, 2007 and has recorded cumulative impairments of $1,062,040. Stock-Based Compensation ------------------------ SFAS No. 123R, "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- 16 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) --------------------------------------------------------------- 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 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 during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted EPS is not presented due the Company incurring a loss and to do so would be anti-dilutive. The shares used in the computations are as follows: As of December 31, 2007 2006 ------------- ----------- Basic and Diluted for EPS Purposes 1,054,240,963 143,090,746 ============= =========== The Company had common stock equivalents of 7,075,000 at December 31, 2007 and 2006, respectively. Derivative Liabilities ---------------------- During April 2003, the Financial Accounting Standards Board issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires that contracts with comparable characteristics be accounted for similarly and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. The financial statements for the years ended December 31, 2007 and 2006 include the recognition of the derivative liability on the underlying securities issuable upon conversion of the YA Global (f/k/a Cornell Partners LP) Convertible Debentures. 17 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) --------------------------------------------------------------- Recent Accounting Pronouncements -------------------------------- In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS-AN AMENDMENT OF ARB NO. 51, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary or variable interest entity requiring consolidation and for the deconsolidation thereof. SFAS No. 160 will be effective for fiscal years beginning after December 15, 2008, and early adoption is prohibited. Since we do not now have and do not contemplate acquiring any interests in subsidiaries or variable interest entities with noncontrolling interests, or deconsolidation thereof, we currently expect that SFAS No. 160 will not have an impact on our future financial position, results of operations and operating cash flows. In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations SFAS No. 141(R) will significantly change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific acquisition-related items including: (1) expensing acquisition-related costs as incurred; (2) valuing non-controlling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Company expects SFAS No. 141(R) will have an impact on its accounting for future business combinations, if any, once adopted. In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 will become effective for financial statements issued for fiscal years beginning after November 15, 2007, except for non-financial assets as to which the effective date is delayed one year. In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES -- INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115 , which will permit the option of choosing to measure certain eligible items at fair value at specified election dates and report unrealized gains and losses in earnings. SFAS No. 159 will become effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the effect that SFAS No. 157 and SFAS No. 159 will have on our future financial position, results of operations and operating cash flows. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans -- An Amendment of FASB Statements No. 87, 88, 106, and 132R." This standard requires an employer to: (a) recognize in its statement of financial position an asset for a plan's overfunded status or a liability for a plan's underfunded status; (b) measure a plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the 18 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) --------------------------------------------------------------- fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The adoption of FAS 158 is not anticipated to have a material impact on the Company's financial position or results of operations. NOTE 3 - PROPERTY AND EQUIPMENT ------------------------------- Property and equipment is summarized as follows: December 31, -------------------------- 2007 2006 ---------- ---------- Leasehold improvements $ 30,557 $ 24,762 Equipment, furniture and fixtures 477,477 375,118 ---------- ---------- 508,034 399,880 Less: Accumulated depreciation 237,857 134,931 ---------- ---------- Property and equipment, net $ 270,177 $ 264,949 ========== ========== Depreciation and amortization expense for the years ended December 31, 2007 and 2006 was $102,926 and $78,449, respectively. NOTE 4 - NOTES AND 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, 2007, the Company determined that value of the debenture was significantly impaired and the entire debenture, including the accrued interest income for 2007 and 2006, 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 YA Global (f/k/a 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. During the year ended December 31, 2007, the Company converted $61,500 of principal into 4,573,788 shares of Class A Common Stock of Voyager One. In May 2007 the Company assigned all of its rights to the Voyager securities to THI, Inc. for $184,387 and received a $13,000 down payment and promissory note for $171,387. The promissory note is payable in equal monthly installments of $8,500 per month and bears interest at 5% per annum. 19 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 4 - NOTES AND CONVERTIBLE DEBENTURES RECEIVABLE (CONTINUED) ---------------------------------------------------------------- The note is collateralized by the assigned Voyager securities. At December 31, 2007, the aggregate value of the note receivable plus accrued interest income is $66,471. At December 31, 2006, the aggregate value of the debentures plus deferred interest income was $243,778. NOTE 5 - 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 Sage Software's Business Works 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. On February 27, 2006, Trey Resources' wholly owned subsidiary, SWK Technologies, Inc. completed the acquisition of certain assets of Wolen Katz. Wolen Katz was an authorized reseller for Sage Software's ABRA HRMS software solution and an authorized reseller of Employee Based Systems' E-Z Product line. As a result of the acquisition, Ms. Jodie Katz, the sole proprietor of Wolen Katz Associates, was issued, in exchange for certain assets of Wolen Katz, 4,347,825 unregistered shares of Trey Resources' Class A Common Stock, valued at $40,000. In connection with the acquisition of Wolen Katz, the Company agreed to pay Ms. Katz $12,000 payable in twelve (12) equal monthly installments commencing on the 90th day following the Closing Date. At December 31, 2007 and 2006, the outstanding balance was $0 and $5,000, respectively. On June 2, 2006, Trey Resources' wholly owned subsidiary, SWK Technologies, Inc. completed the acquisition of certain assets of AMP-Best Consulting. AMP-Best Consulting was an information technology company, a value added reseller, and master developer of the Sage Software family of products. Among the solutions they sold and supported are: Sage MAS 500 ERP, Sage MAS 90, 200, and 200 SQL, Sage BusinessWorks, Sage MIP, Sage Abra, ACT! by Sage, Sage CRM, Sage FAS Asset Accounting and JobOps. As a result of the acquisition, Patrick Anson, Crandall Melvin III and Michelle Paparo collectively were issued 6,000,000 unregistered shares of Trey Resources' Class A Common Stock, valued at $75,000. In addition, the SWK Technologies paid an aggregate of $85,000 at the closing and issued a $380,000 promissory note to Crandall Melvin III. Payments on the promissory note commence 120 days from the closing and are for a term of 5 years. The aggregate amount of consideration paid at the 20 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 5 - GOODWILL AND INTANGIBLES (CONTINUED) --------------------------------------------- closing of $540,000 was reduced by assets acquired of $6,519 and $533,481 was recorded as other intangible assets, customer list and are being amortized over a three year period. These acquisitions are being valued by the strength of the client lists and as such have been reviewed for impairment. At December 31, 2007 and 2006, management determined that the goodwill should be impaired by $0 and $700,940, respectively based on the reduced repeat sales from the clients acquired at the acquisition. In doing so, management has determined that no further write-down for impairment is required. Intangible assets consist of the following: December 31, ------------------------ 2007 2006 --------- --------- Intangible Assets, customer lists $ 593,231 $ 585,481 Less: accumulated amortization (294,550) (97,580) --------- --------- Intangible assets, net $ 298,681 $ 487,901 ========= ========= Amortization expense for the year ended December 31, 2007 and 2006 was $196,970 and $97,580, respectively. The weighted average amortization period is 2.2 years. The estimated aggregate amortization expense for each of the succeeding periods is as follows: 2008 $197,743 2009 100,164 2010 774 -------- $298,681 ======== NOTE 6 - 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 38.1% State Income Tax, Net of Federal Benefit (4.1)% ---- Effective Income Tax Rate 0.0% ==== As of December 31, 2007, the Company has net operating loss carry forwards of approximately $6,517,000 that can be utilized to offset future taxable income for Federal income tax purposes through 2026. 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. 21 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 6 - INCOME TAXES (CONTINUED) --------------------------------- The full realization of the tax benefit associated with the carry forward depends predominantly upon the Company's ability to generate taxable income during the carry forward period. 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, -------------------------- 2007 2006 ----------- ----------- Deferred Tax Asset $ 3,040,000 $ 2,450,000 Less: Valuation Allowance (3,040,000) (2,450,000) Net Deferred Tax Assets $ -- $ -- =========== =========== Net operating loss carry forwards expire starting in 2024 through 2026. Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company's assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company's tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. NOTE 7 - NOTES PAYABLE ---------------------- In January 2005, the Company issued the ninth promissory note payable to YA Global Investments LP. (f/k/a. Cornell Capital Partners, LP.) ("YA Global") for $1,150,000 for advances on the equity-line financing agreement entered into with YA Global 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, 2005, $325,000 was repaid for principal through the issuance of 32,559,098 shares of Class A common stock. On December 30, 2005, the balance of the principal ($825,000) and accrued interest ($126,091) was transferred to a Secured Convertible Debenture as discussed below. In August 2005, the Company issued a promissory note payable to YA Global for $200,000 for advances on the equity-line financing agreement entered into with YA Global 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. On December 30, 2005, the balance of the principal ($200,000) and accrued interest ($7,956) was transferred to a Secured Convertible Debenture as discussed below. During the year ended December 31, 2007, SWK Technologies, Inc. repaid $472,000 and borrowed and additional $635,000 on its line of credit with Fleet National Bank, a Bank of America Company. The secured line of credit bears interest at prime plus 1% (8.75% at 22 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 7 - NOTES PAYABLE (CONTINUED) ---------------------------------- December 31, 2007) 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. As of December 31, 2007, the aggregate balance of the line of credit is $185,000. Interest payments during the years ended December 31, 2007 and 2006 were $4,643 and $12,076, respectively. On December 30, 2005, the various promissory notes payable to YA Global were terminated and replaced with a Secured Convertible Debenture for the principal amount of $1,159,047, as discussed in Note 10. On December 30, 2005, the Company issued a Secured Convertible Debenture for the principal amount of $600,000 to YA Global as discussed in Note 10. NOTE 8 - DUE TO RELATED PARTIES ------------------------------- Pursuant to the employment contract dated January 1, 2003 between the Company and Jerome Mahoney, the Non-Executive Chairman of the Board, Mr. Mahoney is to receive a salary of $180,000 per year subject to 10% increases every year thereafter, as well as a monthly unaccountable travel expense allowance of $725, an auto allowance of $800 and a health insurance allowance of $1,400 per month. Also, pursuant to the employment contract with Mr. Mahoney, following the completion of the Spin-off from its former parent company, iVoice Inc., which occurred on February 11, 2004, Mr. Mahoney is entitled to receive a one-time payment of $350,000. Total amounts owed to Mr. Mahoney at December 31, 2007 and 2006, representing unpaid salary, unpaid expense and auto allowances and the one-time payment in connection with the Spin-off totaled $802,704 and $859,090, respectively. 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. During the year ending December 31, 2006, Mr. Meller received $125,000 cash payments and $37,289 of the Company's Class A Common Stock as approved by the Board of Directors as repayment of his accrued compensation. Total amounts owed to Mr. Meller at December 31, 2007 and 2006, representing unpaid salary, unpaid expense and auto allowances, and the one-time payment in connection with the Spin-off, totaled $605,689 and $526,820, respectively. 23 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 8 - DUE TO RELATED PARTIES (CONTINUED) ------------------------------------------- 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. NOTE 9 - NOTES PAYABLE 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 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. During the year ending December 31, 2006, Mr. Mahoney received $129,000 cash payment and $95,182 of the Company's Class A Common Stock, both of which were applied to the principal of the loan. At December 31, 2007 and 2006, the principal balance on this note was $89,125 and $25,819, respectively and accrued interest was $66,616 and $48,576, respectively. 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, 2007 and 2006, the outstanding balance to Mr. Berman was $6,942 and $12,109, respectively. 24 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 9 - NOTES PAYABLE TO RELATED PARTIES (CONTINUED) ----------------------------------------------------- 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 unsecured note bears interest at 5% per annum and is payable in bi-weekly amounts of $217. At December 31, 2007 and 2006, the outstanding balance to Mr. Berman was $6,942 and $12,109, respectively. In connection with the acquisition of Wolen Katz, the Company agreed to pay Ms. Katz $12,000 payable in twelve (12) equal monthly installments commencing on the 90th day following the closing date. At December 31, 2006, the outstanding balance to Ms. Katz was $5,000. This amount was repaid during 2007. In connection with the acquisition of AMP-Best, the Company agreed to collect some outstanding receivables and to pay some outstanding payables of the previous company. At December 31, 2007 and 2006, the outstanding balance due to the previous owners of AMP-Best was $0 and $33,497, respectively. Pursuant to the asset purchase agreement with AMP-Best, SWK Technologies, Inc. issued a $380,000 promissory note to Crandall Melvin III. The note carries an interest rate of 7.75% and is payable in 60 monthly payments, commencing 120 days from the closing. As of December 31, 2007 and 2006, the principal balance on the note is $304,104 and $371,386, respectively. NOTE 10 - CONVERTIBLE DEBENTURES PAYABLE ---------------------------------------- In January 2003, the Company entered into subscription agreements with certain purchasers to issue $140,000 in convertible debentures, with interest payable at 5% annum. The notes are convertible into the Company's Class A common stock at a price equal to either (a) an amount equal to one hundred twenty percent (120%) of the closing bid price for the Common Stock on the Closing Date, or (b) an amount equal to eighty percent (80%) of the average of the four (4) lowest Closing Bid Prices of the Common Stock for the five (5) trading days immediately preceding the Conversion Date. Pursuant to the subscription agreements set forth above, on March 25, 2003, the Company issued $40,000 in 5% convertible debentures and on September 19, 2003, the Company issued an additional $100,000 in 5% convertible debentures to the private investors under the subscription agreement. The 20% beneficial conversion feature was previously recorded as prepaid financing costs, until such time as the Company's Class A common stock into which the debentures are convertible was registered and deemed effective by the U.S Securities and Exchange Commission. The Company completed the effective registration of the Company's common stock, and any amounts capitalized have been charged to expense in accordance with EITF Issue 98-5. During the year ended December 31, 2007, no additional payments have been made on these outstanding convertible debentures. Total outstanding principal balance of the convertible debentures as of December 31, 2007 and 2006 was $15,000, plus accrued interest of $4,673 and $3,923, respectively. On December 30, 2005, the Company entered into a Securities Purchase Agreement with YA Global (f/k/a Cornell Capital Partners, LP) ("Cornell"). Pursuant to such purchase agreement, Cornell shall purchase up to $2,359,047 of secured convertible debentures which shall be convertible into shares of the Company's Class A common stock. Pursuant to the Securities Purchase Agreement, two Secured 25 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 10 - CONVERTIBLE DEBENTURES PAYABLE (CONTINUED) ---------------------------------------------------- Convertible Debentures were issued on December 30, 2005 for an aggregate of $1,759,047. A portion of this financing was used to convert promissory notes and accrued interest therefrom equal to $1,159,047 into new secured convertible debentures and the balance was new financing in the form of secured convertible debentures equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold on the closing of this Securities Purchase Agreement and a second secured convertible debenture equal to $600,000 with interest payable at the rate of 7.5% per annum to be issued and sold two business days prior to the filing of the registration statement that will register the common stock shares issuable upon conversion of the secured convertible debentures. On May 2, 2006, the second $600,000 was funded 2 business days prior to the date the registration statement was filed with the United States Securities and Exchange Commission. Interest on the outstanding principal balance of the Secured Convertible Debentures accrues at the annual rate of 7.5%. Payment of principal and accrued interest shall be paid on or before December 30, 2007 on the 2005 debentures, (the Company is currently in the process of renegotiating an extension of these notes and have included them in the current liabilities section of the consolidated balance sheets at December 31, 2007) and May 2, 2008 for the 2006 debenture. The Company has the option to redeem a portion or all of the outstanding debentures at 120% of the amount redeemed plus accrued interest. The holder shall be entitled to convert in whole or in part at any time and from time to time, any amount of principal and accrued interest at a price equal to 90% of the lowest closing bid price of the Common Stock during the 30 trading days immediately preceding the conversion date, as quoted by Bloomberg, LP ("Conversion Price"). In the event of a default, the full principal amount of this Debenture, together with interest and other amounts owing, shall be due and payable in cash, provided however, the holder of the debenture may request payment of such amounts in Common Stock of the Obligor at the Conversion Price then in-effect. A holder of the debenture may not convert this Debenture or receive shares of Common Stock as payment of interest hereunder to the extent such conversion or receipt of such interest payment would result in the holder of the debenture beneficially owning in excess of 4.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of, and payment of interest on, this Debenture. Providing that the holder of the debenture meets all restrictions and that the Company does not enter into default, then the Company would expect to issue approximately 344,000,000 shares of Common Stock in settlement of the three secured convertible debentures, over the life of these debentures at the current Conversion Price of $.0075. During the year ended December 31, 2007, the Company issued 2,280,649,779 shares of Class A common stock for repayment of $642,250 of principal on the convertible debenture held by YA Global Investments (f.k.a. Cornell Capital Partners, LP). The aggregate principal value of the Cornell debentures is $1,661,600. This amount is shown net of the unamortized portion of the discount on conversion of $73,393. This discount is being amortized over the life of the debenture and is being recorded as a charge to amortization of discount on debt conversion on the consolidated statements of operations. 26 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 11 - DERIVATIVE LIABILITY ------------------------------ In accordance with SFAS 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" and EITF 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK", the conversion feature associated with the Cornell Secured Convertible Debentures represents embedded derivatives. As such, the Company had recognized embedded derivatives in the amount of $1,946,936 as a liability in the accompanying consolidated balance sheet, and it is now measured at its estimated fair value of $216,497 and $1,141,709 as of December 31, 2007 and 2006, respectively. In addition the Company issued $4 million warrants which were valued at $75,450 and are not subject to revaluation. These warrants are include in the consolidated balance sheets as warrant liability. The estimated fair value of the embedded derivative has been calculated based on a Black-Scholes pricing model using the following assumptions: 2007 2006 ---- ---- Fair market value of stock $0.0002 $0.00550 Exercise price $0.00018 $0.00495 Dividend yield 0.00% 0.00% Risk free interest rate 4.00% 4.00% Expected volatility 210.62% 101.47% Expected life 0.00 to 1.63 Years 0.00 to 1.63 years NOTE 12 - COMMITMENTS AND CONTINGENCIES --------------------------------------- The Company does not own any real property for use in its operations or otherwise. On June 10, 2005, the Company consolidated its 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, it sublets 1,090 square feet of space in Clifton, NJ at a monthly rent of $1,998. Effective March 15, 2005, the Company entered into a lease for 621 square feet of space at 900 Walt Whitman Road, Melville, NY 11747, at a monthly rent of $932. On October 30, 2007, the Company entered into a one-year lease for office space at 1902 Wright Place, Carlsbad, CA 92008, at a monthly rent of $567. On June 2, 2006, the Company entered into a two-year lease for office space at 6834 Buckley Road, North Syracuse, New York at a monthly rent of $1,800. The Company uses its facilities to house its corporate headquarters and operations and believe that these facilities are suitable for such purpose. The Company maintains a good relationship with its landlords and believes that these facilities will be adequate for the foreseeable future. Total rent expense under these operating leases for the year ended December 31, 2007 and 2006 was $203,290 and $207,356, respectively. See Notes 9 and 10 to the Financial Statements for information related to the employment agreements between Jerome Mahoney and Mark Meller. The Company has entered into subscription agreements with certain purchasers for the sale of $140,000 in convertible debentures. The convertible debentures are convertible into Class A common stock at the discretion of the holders. During 2004, the Company issued 2,444,177 shares of Trey's Class A common stock for repayment of $125,000 of principal. As of December 31, 2007, $15,000 remained due on the principal and $4,673 was due for accrued interest on these debentures. 27 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED) --------------------------------------------------- The Company assumed a total of $324,000 in accrued liabilities and related party debt outstanding and incurred by iVoice. The terms and conditions of the liabilities and debt being assumed are as follows: o 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 December 31, 2006 and 2005, Mr. Whalen has received $4,500 in cash and $20,000 in Class A Common Stock leaving a balance due of $49,500. o 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 12. On December 30, 2005, the Company entered an Investor Registration Rights Agreement with Cornell Capital Partners, LP. Pursuant to the terms of the agreement, the Company was to file a registration statement with the SEC within 60 calendar days and to use its best efforts to have the Initial Registration Statement declared effective by the SEC no later than 120 calendar days after the date of the agreement. In the event of default of the registration rights agreement, the Company will pay liquidated damages, either in cash or shares of the Company's Common Stock, at 2% of the liquidated value of the Convertible Debentures outstanding for each thirty (30) day period after the Scheduled Filing Deadline or the Scheduled Effective Deadline as the case may be. Any Liquidated Damages payable hereunder shall not limit, prohibit or preclude the Investor from seeking any other remedy available to it under contract, at law or in equity. As of December 31, 2007 and 2006, the Company has incurred and accrued $198,905 in Liquidated Damages in the in the consolidated balance sheets. There is no maximum stipulated in the agreement. NOTE 13 - CAPITAL STOCK ----------------------- In accordance with its Certificate of Incorporation as amended on April 24, 2003, the Company is authorized to issue up to: 10,000,000,000 shares of Class A common stock at $.00001 par value; 50,000,000 shares of Class B Common Stock, par value $.00001; and 20,000,000 shares of Class C Common Stock, par value $.00001. Additionally, the board of directors has the rights to prescribe and authorize the issuance of 1,000,000 preferred shares, $1.00 par value. PREFERRED STOCK Preferred Stock consists of 1,000,000 shares of authorized preferred stock with $1.00 par value. For the year ending December 31, 2007, the Company had no transactions in its Preferred Stock. 28 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 13 - CAPITAL STOCK (CONTINUED) ----------------------------------- CLASS A COMMON STOCK Class A Common Stock consists of the following as of December 31, 2007: 10,000,000,000 shares of authorized common stock with a par value of $.00001, 3,119,362,422 shares were issued and outstanding. Each holder of Class A common stock is entitled to receive ratably dividends, if any, as may be declared by the Board of Directors out of funds legally available for the payment of dividends. The Company has never paid any dividends on its common stock and does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance the growth objectives. For the year ended December 31, 2007, the Company had the following transactions in its Class A Common Stock: >> The company issued 2,280,649,779 shares of Class A common stock with a total value of $782,280. Of this amount $642,258 was repayment of principal on the convertible debenture with YA Global Investments (f/k/a. Cornell Capital Partners, LP). The balance of $140,022 represents discount on conversions of principal. >> The Company issued 159,724,544 shares of Class A common stock with a total value of $109,666 to an officer of the Company for repayment of a note payable. Of this amount, $30,375 was for payment of principal and $79,291 represents discount on conversions. >> The Company issued 2,500,000 shares of Class A common stock with a value of $8,500 for compensation for investor relations services to Savant Corporation. >> The Company issued 170,000,000 shares of Class A common stock with a total value of $137,215 to officers of the Company as repayment accrued salaries. Of this amount, $44,236 was for the payment of accrued salaries and $92,979 represents discount on conversions. >> The Company issued 175,866,802 shares of Class A common stock with a total value of $179,575. Of this amount, $64,516 was for repayment legal services. The balance of $115,059 represents discount on conversions. >> The Company issued 170,000,000 shares of Class A common stock for compensation and bonuses to employees of SWK Technologies, Inc., valued at $137,215. For the year ending December 31, 2006, the company had the following transactions in its Class A Common Stock: >> The Company issued 9,810,875 shares of Class A common stock with a total value of $77,569. Of this amount $55,000 was repayment of principal on the convertible debenture with YA Global (f/k/a Cornell Capital Partners, LP). The balance of $22,569 represents discount on conversions of principal. 29 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 13 - CAPITAL STOCK (CONTINUED) ----------------------------------- >> The Company issued 4,347,826 shares of Class A common stock pursuant to the asset purchase agreement with Jodie Katz, valued at $40,000. >> The Company issued 6,000,000 shares of Class A common stock pursuant to the asset purchase agreement with Patrick J. Anson, Crandall Melvin III and Michelle Paparo, valued at $75,000. >> The Company issued 16,212,208 shares of Class A common stock with a total value of $176,622 to officers of the Company as repayment of loans and accrued salaries. Of this amount, $74,577 was repayment of principal and $102,045 represents discount on conversions. >> The Company issued 2,400,000 shares of Class A common stock with a total value of $30,000. Of this amount, $11,040 was for repayment legal services. The balance of $18,960 represents discount on conversions. 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 December 31, 2007, no shares were issued and outstanding; Class B common stockholders are entitled to receive dividends in the same proportion as the Class B Common Stock conversion and voting rights have to Class A Common Stock. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 50% discount of the lowest price that Trey had ever issued its Class A Common Stock. Upon the liquidation, dissolution, or winding - up of the Company, holders of Class B Common Stock will be entitled to receive distributions. For the year ended December 31, 2007, the company had no transactions in its Class B Common Stock. CLASS C COMMON STOCK Class C Common Stock consists of 20,000,000 shares of authorized common stock with a par value of $0.00001. Class C stock has voting rights of 1 vote for every 1,000 shares. For the year ended December 31, 2007, the company had no transactions in its Class C Common Stock. NOTE 14 - STOCK OPTIONS, STOCK INCENTIVES & WARRANTS ---------------------------------------------------- 2004 Stock Incentive Plan ------------------------- During the year ended December 31, 2004, and as amended in 2004 and 2005, the Company adopted the 2005 Stock Incentive Plan (the "2004 Plan") in order to attract and retain qualified employees, directors, independent contractors or agents of Trey Resources, Inc. Under the Plan, the Board of Directors (the "Board"), in its discretion may grant stock options (either incentive or non-qualified stock options) to employees, directors, independent contractors or agents to purchase the 30 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 14 - STOCK OPTIONS, STOCK INCENTIVES & WARRANTS (CONTINUED) ---------------------------------------------------------------- Company's common stock at no less than 50% of the fair market price on the date the option is granted. Options generally vest over four years and have a maximum term of ten years. During the fiscal year ended December 31, 2007, the Company adopted the 2007 Consultant Stock Incentive Plan (the "2007 Plan") to: (i) provide long-term incentives, payment in stock in lieu of cash and rewards to consultants, advisors, attorneys, independent contractors or agents ("Eligible Participants") of the Company; (ii) assist the Company in attracting and retaining independent contractors or agents with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such independent contractors or agents with those of the Company's stockholders. Total shares issuable under this plan may not exceed twenty (20) percent of the of the issued and outstanding shares of the Company's Class A Common Stock. During 2007 and 2006, the following securities were issued pursuant to the 2004 Plan and 2007 Plan: >> On March 5, 2007 the Company issued 2,500,000 shares of Class A common stock for investor relations to Savant Corporation. >> At various times during the year ended December 31, 2007, the Company issued the aggregate of 170,000,000 shares of Class A common stock for compensation and bonuses to SWK employees. >> On May 18, 2006, the Company issued 2,400,000 shares of Class A common stock to Meritz & Muenz LLP for legal services provided. >> At various times during the year ended December 31, 2007 the Company issued 175,866,802 shares of Class A common stock to a Meritz & Muenz LLP for legal services provided. >> On April 20, 2006 and September 15, 2006, the Company issued the aggregate of 6,900,000 shares of Class A common stock for compensation and bonuses to SWK employees. 2004 Directors' and Officers' Stock Incentive Plan During the year ended December 31, 2004, and as amended in 2004 and 2005, the Company adopted the 2004 Directors' and Officers' Stock Incentive Plan (the "2004 D&O Plan") in order to provide long-term incentive and rewards to officers and directors of Trey Resources and subsidiaries and to attract and retain qualified employees, directors, independent contractors or agents of Trey Resources, Inc. Under the Plan, the Board, in its discretion may grant stock options (either incentive or non-qualified stock options) to employees, directors, independent contractors or agents to purchase the Company's common stock at no less than 50% of the market price on the date the option is granted. Options generally vest over four years and have a maximum term of ten years. During 2007 and 2006, the following securities were issued pursuant to the 2004 D&O Plan: 31 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 14 - STOCK OPTIONS, STOCK INCENTIVES & WARRANTS (CONTINUED) ---------------------------------------------------------------- >> At various times during the year ended December 31, 2007, the Company issued 170,000,000 shares of Class A common stock for repayment of accrued salaries for two officers of the Company. >> At various times during the year ended December 31, 2006, the Company issued 16,212,208 shares of Class A common stock for repayment of accrued salaries for the two officers of the Company. Options/Warrants Outstanding During the years ending December 31, 2007 and 2006, the following options and warrants were issued pursuant to their respective agreements. Unexpired options and warrants outstanding are as follows as of December 31, 2007: Expiration Date Exercise Price Shares --------------- -------------- ------ August 31, 2008 .030 4,000,000 July 11, 2012 .015 3,000,000 July 31, 2014 .070 75,000 --------- 7,075,000 ========= The following table summarizes the stock option and warrants transactions: Stock Weighted Option & Average Warrants Exercise Outstanding Price ----------- -------- Balance, January 1, 2006 7,075,000 $ .024 Granted -- $ .000 Exercised -- $ .000 Canceled -- $ .000 ---------- ------- Balance, December 31, 2006 7,075,000 $ .024 Granted -- $ .000 Exercised -- $ .000 Canceled -- $ .000 ---------- ------- Balance, December 31, 2007 7,075,000 $ .024 ========== ======= Outstanding and Exercisable, December 31, 2007 7,075,000 $ .024 ========== ======= 32 TREY RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2007 AND 2006 NOTE 15 - 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 $4.4 million, as of December 31, 2007. These matters raise substantial doubt about the Company's ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flows from operations. In addition to developing new products, obtaining new customers and increasing sales to existing customers, management plans to achieve profitability through acquisitions of companies in the business software and information technology consulting market with solid revenue streams, established customer bases, and generate positive cash flow. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. NOTE 16 - SUBSEQUENT EVENTS >> During the period from January 1, 2008 through March 26, 2008, the Company issued 626,111,111 shares of its Class A common stock to YA Global (f/k/a Cornell Capital Partners) for $70,100 repayment of principal on the convertible debentures payable. 33