SEC Filing Summary: Trey Resources, Inc. (10-K)
Business Context and Reporting Period
Company: Trey Resources, Inc. (Ticker: TYRIA)
Reporting Period: Fiscal year ended December 31, 2010
Business Overview: The Company operates as a business consultant and value-added reseller of financial accounting software (primarily Sage Software), proprietary Electronic Data Interchange (EDI) software ("MAPADOC"), and Warehouse Management Systems. It serves small and medium-sized businesses in the manufacturing and distribution sectors across the United States. The Company is a smaller reporting company traded on the OTC Bulletin Board.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Revenue | $7,486,703 | $7,414,648 |
| Gross Profit | $2,872,563 | $3,043,542 |
| Gross Margin | 38.4% | 41.0% |
| Net Loss | $(568,505) | $(1,502,262) |
| Cash and Equivalents (End of Period) | $104,344 | $300,482 |
| Working Capital | $(5.1 million) | Deficit |
| Convertible Debentures (Principal) | $1,319,000 | $1,379,900 |
| Derivative Liability | $1,177,845 | $1,660,926 |
Material Changes vs. Prior Period
- Revenue: Increased by 1% ($72,055) driven by a 29.2% increase in product sales (MAS 500 software), partially offset by a 6.3% decline in service revenues due to economic conditions.
- Profitability: Net loss improved significantly from $1.5 million in 2009 to $568,505 in 2010. This improvement was largely due to a $483,081 gain on the revaluation of derivative liabilities in 2010, compared to a $728,150 loss in 2009.
- Operating Expenses: Increased by 13.3% to $3.8 million, primarily due to higher sales salaries and professional fees, though amortization expenses decreased as intangible assets were fully amortized.
- Liquidity: Cash decreased by $196,138. The Company utilized $38,177 in operating cash flows and $31,725 in investing activities.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern Warning: The independent auditors issued a "going concern" opinion. The Company has a working capital deficiency of approximately $5.1 million and has not generated sufficient cash flows to fund operations. Continued operations depend on raising capital or generating positive cash flow.
- Debt Obligations: The Company holds significant convertible debentures with YA Global Investments ($1.3 million principal plus accrued interest). Maturity was extended to December 31, 2011, with a payment schedule requiring $175,000 initially followed by monthly payments. Failure to meet these obligations could result in default.
- Stock Issuances: The Company issued over 2.7 billion shares of Class A common stock in 2010 to settle debt, accrued expenses, and professional fees. This resulted in significant dilution.
- Related Party Transactions: Significant amounts are owed to the CEO, Mark Meller ($1.29 million), representing unpaid salary and spin-off compensation. These amounts are convertible into equity.
- Internal Controls: Management concluded that internal controls over financial reporting were not effective due to a lack of segregation of duties and a lack of independent board members.
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to meet the $175,000 initial payment and subsequent monthly payments on the YA Global debentures due in 2011.
- Dilution Risk: Assess the impact of the convertible debentures and related party debt, which could convert into billions of shares, on existing shareholder equity.
- Revenue Quality: Confirm the sustainability of service revenues, which declined in 2010, and the reliance on Sage Software product cycles.
- Related Party Exposure: Review the terms of the $1.29 million owed to the CEO and the potential for further equity conversion.
- Internal Controls: Evaluate the risks associated with the lack of segregation of duties and the single-member board structure.