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EX-32 - EXHIBIT 32 - root9B Holdings, Inc. | cer906.htm |
EX-31 - EXHIBIT 31 - root9B Holdings, Inc. | cert302.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2009
or
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
transition period
from to
Commission
File Number: 000-50502
PREMIER
ALLIANCE GROUP, INC
(Exact
Name of registrant as Specified in Its Charter)
Nevada
|
20-0443575
|
(State
of other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
4521
Sharon Road
Suite
300
Charlotte,
North Carolina 28211
(Address
of principal executive offices)
(704)
521-8077
(Registrant’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class
|
Name of Each Exchange On Which
Registered
|
N/A
|
N/A
|
Securities
registered pursuant to Section 12(g) of the Act:
Common
stock, par value $0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
[ ]
Yes [X] No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.
[ ]
Yes [X] No
Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under
those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K.
[
]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer [
] Accelerated
filer [ ]
Non-accelerated
filer [
] Smaller
reporting company [X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ] Yes
[X] No
State
issuer’s revenues for its most recent fiscal year (ended December 31, 2009):
$9,347,993
The
aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second quarter
was. N/A
The total
number of shares of Common Stock of the Registrant outstanding as of the latest
practicable date, March 16, 2010 were 6,226,835.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
sections of the Company’s definitive proxy statement to be filed with the
Securities and Exchange Commission (SEC) within 120 days of the end of the
Company’s fiscal year ended December 31, 2008, are incorporated by
reference into Part III hereof. Except for those portions specifically
incorporated by reference herein, such document shall not be deemed to be filed
with the SEC as part of this annual report on Form 10-K.
FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
GENERAL
INFORMATION
Corporate
Information
Premier
Alliance Group, Inc. was incorporated on January 5, 2000, as Continuum Group C
Inc. under the laws of the State of Nevada in accordance with a joint plan of
reorganization (the “Plan”) for The Continuum Group, Inc. (“CGI”) in bankruptcy
case 95-B-44222 (Chapter 11) in the U.S. Bankruptcy Court, Southern District of
New York. The bankruptcy court entered an order on September 15, 1999
approving the Plan. We, along with three other companies, Continuum
Group A Inc., Continuum Group B Inc. and Continuum Group D Inc., were
specifically formed as public shells to effect the terms of the Plan (the
“Continuum Shells”).
The Plan
provided for the formation of the Continuum Shells and (a) the issuance of
shares of each of the Continuum Shells’ common stock to Hanover Capital
Corporation, which funded the Plan; (b) the issuance of shares of the Continuum
Shells’ common stock to holders of CGI’s allowed unsecured claims; and (c) the
issuance of shares of Continuum Shells’ common stock to CGI’s pre-bankruptcy
stockholders.
Prior to
November 5, 2004 and since inception, we had not engaged in any business
operations other than organizational activities; and other than issuing shares
to our stockholders, we never commenced operational activities. On
that date, we consummated the share exchange agreement dated as of October 12,
2004, among the Company, Premier Alliance Group, Inc., a North Carolina
corporation (“North Carolina Premier”), and the shareholders of North Carolina
Premier. As a result, North Carolina Premier became our wholly-owned
subsidiary, and we changed our name to Premier Alliance Group,
Inc. Prior to this merger, management operated the Company as a
separate organization. Our financial statements included in this
prospectus for periods prior to the merger are those of North Carolina
Premier.
On
December 16, 2004, we effected a 7:1 reverse split of our outstanding common
stock resulting in 5,811,093 common shares outstanding. All share and
per share amounts in this prospectus are restated retroactively for the
split.
As part
of this transaction, we issued 5,811,093 shares of our common stock and 617,598
shares of our Class A convertible preferred stock to the shareholders of
North Carolina Premier in exchange for all of North Carolina Premier’s
outstanding shares of common stock and preferred stock. The
shares of common stock issued to the shareholders of North Carolina Premier
constitute approximately 88% of our currently outstanding shares of common
stock. The shares of our common stock and Class A preferred stock issued to
the shareholders of North Carolina Premier represent approximately 90% of the
voting power of our capital stock, on a fully diluted basis.
For
accounting purposes, this transaction was accounted for as a reverse merger,
since the shareholders of North Carolina Premier now own a majority of the
issued and outstanding shares of our common stock and our current directors and
executive officers were nominated by North Carolina Premier and were appointed
effective the closing of the share exchange.
Overview
From 1995
until it merged with us, North Carolina Premier was a provider of information
technology consulting services to businesses, primarily throughout the
Southeast. The customer base includes businesses in the education, financial,
healthcare, insurance, manufacturing, professional service, retail, textile,
transportation, and utility industries, as well as governmental agencies. Upon
consummation of our share exchange with the shareholders of North Carolina
Premier, we acquired North Carolina Premier’s business by acquiring North
Carolina Premier itself; on merging North Carolina Premier into our company, we
started conducting that business directly. Throughout the rest of “Description
of Business,” the words “us,” “we,” and “our” refer to North Carolina Premier
with respect to the period prior to the share exchange and refer to our company
with respect to the subsequent period.
Our
business consists of providing business consulting services to our customers.
Our services began a transformation in 2005 from a pure technology focus to a
business consulting focus which can encompass technology impact and
effort. Our consulting team provides deep business knowledge which
helps our customers drive key initiatives forward. Much of our
expertise is focused on core areas of business processes used throughout the
corporate world including: project management, business analysis, business
consulting, and strategic consulting. Typical initiatives in which we
provide expertise include compliance and regulatory, merger and acquisition, and
business process reengineering efforts. With technology being such an
integral part of business, many of our consultants possess solid knowledge and
experience that encompasses technology and are typically well versed in the IT
business-solution software development life cycle. The IT
business-solution software development life cycle refers to industry standard
steps typically followed in developing or creating software (the blueprint
methodology), including phases for planning, developing, implementing, and
managing the solution.
A
typical customer is an organization with complex business processes, large
amounts of data to manage, and changing business requirements. We
promote our services through our two delivery channels, Business Consulting and
Business Solution – Information Technology divisions. These divisions
operate as one from an accounting and overall management perspective; however
they are differentiated from a marketing and customer presentation perspective
only. Management reviews and oversees the divisions as one combined
entity, utilizes resources across both areas, and makes operational assessments
and plans together. In light of this,Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
131 “Business segments” does not require separate financial reporting and the
two channels are consolidated in all financial report
presentations.
Business Consulting Division.
This division provides consulting expertise across a broad range of knowledge,
skills and expertise. We recruit, retain, manage, and provide to our clients
skilled business and technical expertise to help lead and train our customers or
supplement their knowledge requirements. Our core areas of expertise in this
group revolve around efforts in 1) Governance, Risk Management, and Compliance
(GRC), 2) Organizational effectiveness and 3) Mergers and
Acquisitions. In these engagements we typically bill our customers on
a time-and-materials basis for all work performed. We are focused on providing
Knowledge Based Expertise (KBE) and because of the expertise involved and the
complexity of a typical initiative, customers seeking such services from us
typically commit to long-term engagements that are usually a minimum of 9 months
in which our consultants work on site at customer facilities under the daily
direction of the customer management. It is very common that we
obtain contract extensions with our customers for our consulting
resources.
Business Solutions – Information
Technology Division. This division handles advanced technologies and
solutions and provides expertise in project management, architecture, and
information management or business intelligence. Its focus is to service
customers on a time and material, project or deliverable basis. The work can be
performed at customer facilities or at our facilities. Services
provided by this group include helping customers assess their business needs and
identifying the right technology solution, helping manage or implement
methodologies, designing, architecting and constructing new systems and
integrating them with the customer’s existing technology. Our core
expertise has been creating customized applications or systems that are web
enabled and transaction based systems. In a Solution based contract,
we typically have complete control and accountability over the effort and
delivery from a day to day perspective by picking resources, managing and
directing them.
Recent Acquisitions. In
October 2009, the Company completed an asset purchase of Peoplesource Inc, a
Winston Salem, NC based organization. This transaction contributed to
a broader customer base, better geographic coverage, and more capabilities on
the business development and fulfillment ends. Back office operations
were successfully integrated in October with the rest of processes and roles
integrated successfully by the end of December. We are continually
seeking to expand our base and coverage, and accordingly, may seek out future
acquisitions and/or mergers to pursue this strategy.
Summary
Our focus
is to provide subject matter expertise through our consulting team in a variety
of ways that continue to help our clients navigate the changing business climate
they must deal with. Our approach is built 100% around our
people - it is about knowledge, expertise and execution. We
have a focus on building our knowledge practices with talent in core areas we
feel offer opportunity: compliance/regulatory, merger and acquisition, and
business process reengineering/analysis. Our recruiting and sales
organization work with customers closely - a consultative approach - to
understand the business direction, initiatives or issues they are dealing
with. It is our focus to then provide subject matter experts that can
bring the expertise and knowledge to the client to allow for successful
efforts. If, as we expect, we continue to grow and attract
specialized expertise in our focused areas of discipline, we will continue to be
recognized as a value add partner for existing customers, add new customers, and
will identify opportunities to provide additional value add services to our
customers.
Our
typical customers are Fortune 500 companies (including AIG, Lincoln Financial
Group, Duke Power, Bank of America, and Wells Fargo), and they continually seek
expertise and knowledge in areas such as project management, business
consulting, and business analysis.
In
delivering our services, Premier Alliance Group has 4 key functional areas or
groups that ensure delivery:
(a) Recruiting - sources and
identifies the consulting staff we hire;
(b) Sales - works with our
customers in a consultative approach to identify opportunities for our
services;
(c) Operations
- provides the day to day support of the consulting staff in the field as well
as all back office functions (HR, finance);
(d) Consultants – these are
our knowledge based experts that deliver the service our customers
need.
Recruiting
Our
success depends on our ability to hire and retain qualified employees. Our
recruiting team contacts prospective employment candidates by telephone, through
postings on the internet, and by means of our internal recruiting software and
databases. For internet postings, we maintain our own web page at
www.premieralliance.com and use other internet job-posting bulletin board
services as well as professional and social networking sites. We use a
sophisticated computer application as our central repository to track
applicants’ information, manage skills verification, background checks, etc. and
then match them with potential customer opportunities. We only hire candidates
after they have gone through a rigorous qualification process involving multiple
interviews and repeated screening.
Sales
Our sales
team is our primary interface with the customer. They develop and
maintain business relationships by building knowledge on our client businesses,
technical environments and strategic direction. Our sales team uses
the same central repository system as recruiting, this links recruiter
information with customer information to manage our process efficiently and
effectively.
Operations
Our
operations team encompasses several core functions within the company (Human
resources and Finance). Encompassed in HR is our employee relations
function, this provides primary support and service for our consultants on a
daily basis, which is critical. This support ensures regular
interaction and information sharing leading to quality services, better
retention, and successful delivery to our client. Within HR we also
have the standard human resource functions (benefit administration, payroll,
background processing). Finance provides all financial processing -
billing, AP, AR, and SEC reporting.
Competition
The
market for professional services is highly competitive. It is also highly
fragmented, with many providers and no single competitor maintaining clear
market leadership. Our competition varies by location, type of service provided,
and the customer to whom services are provided. Our competitors fall into four
categories: large national or international vendors; software vendors and
suppliers of packaged software systems; small regional consulting firms, and
internal technology staff at our customers and potential customers. As a
professional service firm with a focus on providing business expertise and
talent our customers can group us with IT staffing firms for procurement
purposes. We believe that to compete successfully, we must
differentiate ourselves from the glut of technology “staffing” firms by
providing expertise that encompass business and process knowledge first and
technology capabilities second. This approach is truly recognized as
providing expertise and value to the customer and can have a very positive
impact on our relationship with the customers as well as alter the procurement
process (in a positive manner) that we engage with to service our
customers.
When
servicing our customers today, Premier typically signs master contracts for a
one to three year period. The contracts typically set rules of
engagement and can include pricing guidelines. The contracts manage
the relationship and are not indicators of guaranteed
work. Individual contracts are put in place (under the master
agreement) for each consultant assigned to the client site and cover logistics
of length of contract and bill rate per hour for the particular
assignment. In most cases contracts can be terminated with a notice
of 10 to 30 days.
ITEM
1A. RISK
FACTORS
We are
subject to various risks that may materially harm our business, financial
condition and results of operations. If any of these risks or uncertainties
actually occurs, the trading price of our common stock could decline and you
could lose all or part of your investment.
Risks
Related to Our Business and Industry
A
decline in the price of, or demand for, any of our business consulting and
solution services, would seriously harm our revenues and operating
margins.
Our
business consulting and business solutions accounted for substantially all of
our revenues in 2009. We anticipate that revenues from our business consulting
and solution services will continue to constitute substantially all of our
revenues for the foreseeable future. Consequently, a decline in the price of, or
demand for, business consulting and solution services would seriously harm our
business.
Our
revenues depend on a small number of large sales. If any of these
customers decide they will no longer use our services, our revenues will
decrease and our financial performance will be severely impacted.
To date,
we have received a significant portion of our revenues from large sales to a
small number of customers. During 2009, our six largest customers, Wells Fargo,
Charlotte Mecklenburg Schools, GMAC Financial Services, Mecklenburg County, Bank
of America, and Duke Energy together comprised approximately 85% of our total
annual revenues. Our operating results may be harmed if we are not
able to complete one or more substantial sales to any large customers or we are
unable to collect accounts receivable from any of our large customers in any
future period.
Intense
competition in our target market could impair our ability to grow and to achieve
profitability. If we do not grow, our competitive ability will be
severely restricted, which would decrease our profitability.
Our
competitors vary in size and in the scope and breadth of the products and
services they offer. Our competitors include Deloitte, Comsys, North Highland,
Accenture, CIBER as well as other national firms and a number of smaller
regional firms. Many of our competitors have longer operating histories,
substantially greater financial, technical, marketing, or other resources, or
greater name recognition than we do. Our competitors may be able to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements. Increased competition is likely to result in price reductions,
reduced gross margins, and loss of market share, any one of which could
seriously harm our business.
Our
lengthy sales cycle could cause delays in revenue growth, which could make it
more difficult to achieve our growth objectives.
The
period between our initial contact with a potential customer and that customer’s
purchase of our services is often long. A customer’s decision to
purchase our services involves a significant allocation of resources on our
part, is influenced by a customer’s budgetary cycles, and in many instances
involves a preferred-vendor process. To successfully sell our services,
generally we must educate our potential customers regarding the uses and
benefits of our services, which can require significant time and resources. Many
of our potential customers are large enterprises that generally take longer to
designate preferred vendors; our typical sales cycle in connection with becoming
an approved vendor has been approximately six to 12 months. Delay or failure to
complete sales in a particular quarter could reduce our revenues in that
quarter, as well as subsequent quarters over which revenues for the sale would
likely be recognized. If our sales cycle unexpectedly lengthens in general or
for one or more large orders, it would adversely affect the timing of our
revenues and our revenue growth. If we were to experience a delay of several
weeks on a large order, it could harm our ability to meet our forecasts for a
given quarter.
If
we provide services containing errors, our business and reputation would be
harmed.
Services
as complex as ours often contain unknown and undetected errors or performance
problems. Many serious defects are frequently found during the period
immediately following introduction. Although we attempt to resolve all errors
that we believe would be considered serious by our customers, our products and
services are not error-free. Any errors that remain could, if they are serious,
result in lost revenues or delays in customer acceptance and would be
detrimental to our business and reputation.
We
may not be able to secure necessary funding in the future and may be forced to
curtail our planned growth, which would slow or stop our ability to grow,
increase revenues, and achieve profitability.
For our
business to grow, we will require substantial working capital. We believe that
our existing capital resources will be sufficient to meet our capital
requirements for the next twelve months, but if our capital requirements
increase materially from those currently planned, we may require additional
financing sooner than anticipated. If we raise additional funds by issuing
equity securities, the percentage of our company owned by our current
shareholders would be reduced, and those equity securities may have rights that
are senior to those of the holders of our currently outstanding securities.
Additional financing may not be available when needed on terms favorable to us,
or at all. If adequate funds are not available or are not available on
acceptable terms, we may be forced to curtail our planned growth, and we may be
unable to develop or enhance our products and services, take advantage of future
opportunities, or respond to competitive pressures.
Our executive officers and directors
will be able to exert control over us to the detriment of minority
shareholders, which will limit our shareholders’
ability to influence the outcome of key decisions.
Our
executive officers and directors collectively control approximately 61% of the
shareholder vote of our company. As a result, if they act together they will be
able to control our management and affairs and all matters requiring shareholder
approval, including significant corporate transactions. This concentration of
ownership may have the effect of delaying or preventing any change in control of
our company and might affect the market price of our common stock.
Risks
Related to Our Stock
Because
we have less than 300 record holders of our common stock, we may elect at any
time to terminate our reporting obligations under the Securities Exchange
Act. If we choose to do so, our stock price would likely
decline.
Since we
have less 300 record holders of our common stock, we can suspend our reporting
obligations under the Securities Exchange Act at any time by filing a Form 15
with the SEC. If we were to terminate our reporting obligations, we
would no longer be required to file periodic reports, including financial
information, proxy solicitation materials, or other information with the
SEC.
This action would
cause our common stock to be de-listed from the OTC Bulletin Board, which would
likely cause our stock price to decline. If we choose not to
periodically report, our ability to raise additional financing would likely be
negatively impacted due to a lack of publicly available information about the
Company.
No
market currently exists for our securities and we cannot assure you that such a
market will ever develop. If an active market is not developed, you
may not be able to sell your shares.
Although
we are listed on the OTC Bulletin Board, there is currently no trading market
for our securities. Consequently, holders of shares of our common stock may not
be able to liquidate their investment in our shares, and shares of our common
stock will not be readily acceptable as collateral for
loans. Furthermore, even if a trading market in our shares is
established, it may not be sustained, and it may not be sufficiently liquid to
enable holders of shares of our common stock to liquidate their investment in
our company.
Our
common stock may be considered a “penny stock."
The SEC
has adopted regulations that generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. This designation requires any broker or dealer
selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to sell our common stock and may
affect the ability of investors hereunder to sell their shares. In
addition, since our common stock is traded on the OTC Bulletin Board, investors
may find it difficult to obtain accurate quotations of the stock and may
experience a lack of buyers to purchase such stock or a lack of market makers to
support the stock price.
There
are risks associated with our stock trading on the OTC Bulletin Board rather
than a national exchange.
There are
significant consequences associated with our stock trading on the OTC Bulletin
Board rather than a national exchange. The effects of not being able to list our
securities on a national exchange include:
·
|
Limited
release of the market prices of our
securities;
|
·
|
Limited
news coverage of us;
|
·
|
Limited
interest by investors in our
securities;
|
·
|
Volatility
of our stock price due to low trading
volume;
|
·
|
Increased
difficulty in selling our securities in certain states due to “blue sky”
restrictions;
|
·
|
Limited
ability to issue additional securities or to secure
financing.
|
Our
practice is to lease commercial office space for all of our offices. Our
headquarters are located in a modern four-story building in Charlotte, North
Carolina. We lease approximately 5200 square feet of space at that location,
under a lease that will expire in August 2012. In addition we have an
office in Winston Salem, North Carolina. We lease approximately 2000
square feet at that location, under a lease that will expire in December
2010.
Any other
locations utilized would be leased facilities. Most of these facilities serve as
sales and support offices and vary in size, generally from approximately 200 to
1200 square feet, depending on the number of people employed at that office. Our
lease terms vary from periods of less than a year to three years and generally
have flexible renewal options. We believe that our existing facilities are
adequate to meet our current needs.
As of
December 31, 2009, and as of the date of this filing, we are not a party to any
pending or threatened legal proceeding.
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
common stock commenced trading on the OTC Bulletin Board (“OTCBB”) on February
5, 2007 under the symbol PIMO.OB. As of March 10, 2010, no
significant trading market has developed. On March 10, 2010 the
closing price of the common stock as reported on OTCBB was $0.71, although, as
stated above, the stock is thinly traded. On March 20, 2010 there
were approximately 164 record holders of our common stock, excluding those
holders whose stock is held in street name.
We have
not declared or paid a cash dividend on our common stock since our
incorporation, and have no intention to do so in the future.
Equity
Compensation Plan
Plan
Category
|
A
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
B
Weighted-average
exercise price of outstanding options, warrants and rights
|
C
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
Equity
compensation plans approved by security holders
|
0
|
0
|
0
|
Equity
compensation plans not approved by security holders
|
600,000
(1)
|
$.075
|
9,400,000
|
Total
|
600,000
|
$.075
|
9,400,000
|
|
(1)
|
The Board of
Directors approved the 2008 Stock Incentive Plan in May 2008. The plan
reserves 10,000,000 shares of common stock for issuance, and allows the
board to issue Incentive Stock Options, non-statutory Stock Options, and
Restricted Stock Awards, whichever the Board or the Committee shall
determine, subject to the terms and conditions contained in the plan
document. The purpose of the plan is to provide a method
whereby selected key employees, selected key consultants, professionals
and non-employee directors of Premier Alliance Group, Inc. may have the
opportunity to invest in shares of the Company's common stock, thereby
giving them a proprietary and vested interest in the growth and
performance of the Company, and in general, generating an increased
incentive to contribute to the Company's future success and prosperity,
thus enhancing the value of the Company for the benefit of
shareholders. Further, the Plan is designed to enhance the
Company's ability to attract and retain individuals of exceptional
managerial talent upon whom, in large measure, the sustained progress,
growth, and profitability of the Company
depends.
|
|
The
Board did approve a grant of non-statutory stock options under the 2008
Stock Incentive Plan to the following members of the executive management
team as follows:
|
·
|
Mark
Elliott with options to purchase 200,000 shares of the Company’s common
stock at a purchase price of $0 .75. The option expires on May 16,
2018.
|
·
|
Kevin
Hasenfus with options to purchase 200,000 shares of the Company’s common
stock at a purchase price of $0.75. The option expires on May 16,
2018.
|
·
|
Robert
Yearwood with options to purchase 200,000 shares of the Company’s common
stock at a purchase price of $0.75. The option expires on May 16,
2018.
|
ITEM
6. SELECTED
FINANCIAL DATA
As a Smaller Reporting Company as
defined Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of
Regulation S-K, we are electing scaled disclosure reporting obligations and
therefore are not required to provide the information requested by this
Item 6.
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Certain
information contained in this Form 10-K includes forward-looking statements that
reflect the Company’s current views with respect to future events and financial
performance. Certain factors, such as unanticipated technological difficulties,
changes in domestic and foreign economic, market and regulatory conditions, the
inherent uncertainty of financial estimates and projections, and other
considerations described as “Risk Factors” in this Form 10-K could cause actual
results to differ materially from those in the forward-looking statements. We
assume no obligation to update the matters discussed in this
prospectus.
The
following discussion should be read in conjunction with our financial statements
and the related notes included in this Form 10-K.
Results
of Operations
2009
As Compared to 2008
In 2009,
we recorded revenue of $9.3 million, an increase of 3.4% when compared to 2008
revenue of $9.0 million. We attribute this slight increase to 2 items, 1) the
addition of revenue from the PeopleSource acquisition completed in October and
2) progress made in transitioning to more business consulting initiatives versus
pure technology focused efforts. The business consulting work we have
focused on includes compliance/regulatory, M&A, and business
process/engineering efforts. This work has been less impacted from
economic downturn allowing us to avoid the significant drops in revenue that
affected pure technology consulting companies.
Cost of
goods, defined as all costs for billable staff, were $6.9 million or 74.2% of
revenue in 2009 as compared to $6.5 million or 72.2% of revenue in 2008. Major
components making up Cost of goods are wages, subcontract labor, payroll taxes,
and benefit costs.
General
and administrative (G&A) expenses were $2.1 million or 22.6% of revenue in
2009 as compared to $2.3 million or 25.6% of revenue in 2008. We were able to
effectively manage the overall key G&A expense items to offset any
increases; such as overhead benefit costs, legal, accounting, other professional
services, rent, travel, business insurance and network/phone
expenses. The decrease in dollars for G&A is attributed to two
main cost categories from 2008, we had higher overhead wages as we had more
overhead personnel in 2008 as well as we had a non cash charge of $50,700 for
stock option grants in 2008.
Operating
income was $295,006 or 3.1% of revenue in 2009 as compared to $223,662 or 2.5%
of revenue in 2008.
Other
income and expense consisted of net income of $71,757 in 2009 compared to a net
expense of $1,490,821in 2008. The net expense in 2008 is primarily attributable
to three items, 1) a one time impairment of goodwill relating to the merger in
1999 of SDS of $1,179,464, 2) decline in value of life insurance policies based
on market fluctuation of $276,787 and 3) interest expense of
$35,411.
Income
taxes for 2009 resulted in an effective tax rate of 31.4%, compared to 5.9% in
2008.
In 2009
our Net income was $251,588, or $.04 per diluted share as compared to 2008 with
a net loss of $1,341,653, or ($.23) per diluted share. This Net loss
includes a one time charge of $1,179,464 for goodwill impairment.
2008
As Compared to 2007
In 2008,
we recorded revenue of $9.0 million, an increase of 18.4% when compared to
2007 revenue of $7.6 million. We attribute this increase in revenue to progress
made in transitioning to more business consulting initiatives versus pure
technology focused efforts. The business consulting work we have
focused on includes compliance/regulatory, M&A, and business
process/engineering efforts. This type of work has allowed for better
bill rates and margins specifically based on the knowledge and expertise
required. In addition this work is less impacted from the ups and
downs in business flows that have typically had large impacts on technology
based consulting.
Cost of
goods, defined as all costs for billable staff, were $6.5 million or 72.2% of
revenue in 2008 as compared to $5.47 million or 72.0% of revenue in 2007. Major
components making up Cost of goods are wages, subcontract labor, payroll taxes,
and benefit costs.
General
and administrative (G&A) expenses were $2.3 million or 25.6% of revenue in
2008 as compared to $2.07 million or 27.2% of revenue in 2007. We were able to
effectively manage the overall key G&A expense items; such as overhead
benefit costs, legal, accounting, other professional services, rent, travel,
business insurance and network/phone expenses. The increase in
dollars for G&A is attributed to two main cost categories, we had higher
overhead wages as we had more personnel in 2008 in sales and recruiting as well
as we had a non cash charge of $50,700 for stock option grants
Operating
income was $223,662 or 2.6% of revenue in 2008 as compared to $100,092 or 1.3%
of revenue in 2007.
Other
income and expense consisted of net expense of $1,490,821 in 2008 compared to
net expense of $40,176 in 2007. The net expense in 2008 is primarily
attributable to three items, 1) a one time impairment of goodwill relating to
the merger in 1999 of SDS of $1,179,464, 2) decline in value of life insurance
policies based on market fluctuation of $276,787 and 3) interest expense of
$35,411.
Income
taxes for 2008 resulted in an effective tax rate of 5.9%, compared to 14.9% in
2007.
In 2008
our Net loss was $1,341,653, or ($.23) per diluted share as compared to 2007
with net income of $68,860, or $.00 per diluted share. This Net loss
includes a one time charge of $1,179,464 for goodwill impairment.
Critical
Accounting Policies
Revenue
Recognition
The
Company follows the guidance of the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 104 for revenue recognition. In general, the
Company records revenue when persuasive evidence of any agreement exists,
services have been rendered, and collectibility is reasonably assured,
therefore, revenue is recognized when the Company invoices customers for
completed services at contracted rates and terms.
Other
Income
The most
significant changes in other income were in the following areas.
In 2001
North Carolina Premier purchased variable life insurance policies for its
shareholders. In 2009 no premiums were paid, income of $76,274 was recorded as a
result of the cash surrender value exceeding premiums, the cash surrender value
equaled $370,032 on December 31, 2009. In 2008 no premiums were paid,
a loss of $276,787 was recorded as a result of the decrease in cash surrender
value, the cash surrender value equaled $293,758.
Net
interest expense decreased $25,287 from $35,411 in 2008 to $10,124 in
2009.
Marketable
securities are accounted for as trading securities and are stated at market
value with unrealized gains and losses accounted for in net income before income
taxes. In 2009 marketable securities were a gain of $12,522, as
compared to a gain of $6,015 in 2008.
Income
Taxes
Income
taxes for 2009 resulted in an effective tax rate of 31.4%, compared to 5.9% in
2008.
Property
and Equipment
Furniture,
fixtures, and equipment are stated at cost. We provide for depreciation on a
straight-line basis over estimated useful life of five years (for computer
equipment) and seven years (for furniture and fixtures).
Business
Combinations and Goodwill
In 1999
the company merged Software Data Services into North Carolina Premier. The
client base represented the most substantial asset acquired during the
merger. An annual analysis of clients acquired and the annual billing
are factors used to determine goodwill and impairment. The percentage of retained
client billings (which remains significant) to the overall billing of the
company and then compared to the value factor of the company. The
value factor was calculated using the most recent share price as quoted on the
OTC and the percentage of ownership represented by those shares to extrapolate a
fair market value for the company as a whole. Based on these
calculations, the value of the client base acquired and retained to that of the
company as a whole are significantly higher then the value reported on the books
and therefore no impairment has been recorded.
Purchased
goodwill in the amount of $2,718,385 was being amortized over 15 years until
December 31, 2001. Accumulated amortization at December 31, 2001 was
$487,101. North Carolina Premier adopted SFAS No. 142 effective
January 1, 2002. SFAS No. 142 requires that all goodwill and indefinite
life intangibles no longer be amortized. Goodwill must be evaluated for
impairment on an annual basis. In accordance with SFAS No. 142, an annual
impairment test is performed under which the estimated fair value of goodwill is
compared with its carrying value. On December 31, 2008 we recorded a non-cash
goodwill impairment charge in the amount of $1,179,464. This included
a tax benefit of $27,000 for the impairment of tax deductible goodwill of
$72,000. We have completed our annual impairment evaluation for
the year ended December 31, 2009, and have concluded that there is no
goodwill impairment loss to be recognized. As of December 31,
2009 and December 31, 2008 we have goodwill of $1,051,820.
In
September 2004, North Carolina Premier invested in Critical Analytics Inc, a
company that is developing a unique trading platform for analysts, traders, and
investors. The venture combines our software development and support strengths
with the architectural and industry specific business knowledge of Critical
Analytics. We own 350,000 shares of stock representing approximately a 33%
ownership interest in Critical Analytics. We use the equity method for recording
earnings and losses. We recorded a loss on this investment of $9,607 for 2009
as compared to a loss of $11,071 for 2008.
In
October 2009, Premier completed an Asset Purchase of Peoplesource
Inc. The client base and goodwill represented the most
substantial assets acquired during the purchase. An annual analysis
of clients acquired and the annual billing are factors used to determine
goodwill and impairment. No impairment has been
recorded.
.
We own
one unit of ownership (representing 3% of the entire ownership interest) in
Sharon Road Properties LLC, the entity that owns the property where our offices
are located. We purchased that unit for $100,000. We recognize income as we
receive distributions.
Executive
Compensation Agreements
We have
executive compensation agreements with key executives. We own three separate
life insurance policies (Flexible Premium Multifunded Life), each with a face
amount of $3,000,000. We pay all scheduled monthly premiums and retain all
interests in each policy. If an insured employee were to die, we would pay the
employee’s designated beneficiary an annual survivor’s benefit of $300,000 per
year for 10 consecutive years after the employee’s death.
Stock
Option Plan
We
account for stock-based compensation using the provisions of SFAS
123(R). SFAS 123(R) requires companies to recognize the fair value of
stock-based compensation expense in the financial statements based on the grant
date fair value of the options. We have only awarded stock options since May
2008. We measure the fair value of restricted shares based upon the closing
market price of our common stock on the date of grant. Restricted stock awards
that vest in accordance with service conditions are amortized over their
applicable vesting period using the straight-line method. The fair value of our
stock option awards or modifications is estimated at the date of grant using the
Black-Scholes option pricing model.
The
Black-Scholes valuation calculation requires us to estimate key assumptions such
as future stock price volatility, expected terms, risk-free rates and dividend
yield. Due to the limited trading history of our common stock, expected stock
price volatility for stock option grants prior to 2008 is based on an analysis
of the actual realized historical volatility of our common stock. The expected
volatility assumption for stock option grants or modifications during 2008 was
based on actual historical volatility of our common stock from the period after
our initial trading date on January 31, 2007 through May 2008. The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time
of grant. We have never paid cash dividends, and do not currently intend to pay
cash dividends, and thus have assumed a 0% dividend yield. If our actual
experience differs significantly from the assumptions used to compute our
stock-based compensation cost, or if different assumptions had been used, we may
have recorded too much or too little stock-based compensation cost.
On May
16, 2008, 600,000 non-statutory stock options were granted to three officers and
directors and no vesting was involved. The options have an exercise
price of $0.75 per share and expire on May 16, 2018. The estimated
fair value of the options of $50,700 was calculated using the Black-Scholes
option valuation method with the following assumptions: a risk free interest
rate of 4.57 percent, an estimated volatility of 5.32 percent and no dividend
yield.
Employee
Benefit Plan
We have a
401(k) plan that covers substantially all employees. Plan participants can make
voluntary contributions of up to 15% of compensation, subject to certain
limitations, and we match a portion of employee contributions. Total
contributions to the plan for the years ended December 31, 2009 and
2008 were approximately $10,253 and $29,700 respectively, not including
forfeitures that are applied to the contributions by the company.
Financial
Condition and Liquidity
As of
December 31, 2009, we had no cash and cash equivalents, no change from the prior
year. We continue to use our revolving Line of Credit to fund
operations and have decreased our end of year balance by $37,000 over the prior
year balance. Net working capital at December 31, 2009, was
$122,065, representing a decrease of $50,814. We had long term debt
of $114,606 for the purchase of PeopleSource. Shareholders’ equity as
of December 31, 2009, was $2,262,128, which represented 65% of total
assets.
During
the year ended December 31, 2009, the net cash provided by operating activities
was $177,000 and was primarily attributable to increases in issuance of stock
options for services rendered of $25,500, increases in accounts payable of
$71,465 and accrued expenses of $23,387 and decreases in prepaid expenses of
$2,808, net deferred tax assets of $5,000 and equity in loss of equity-method
investee of $9,607,offset by increases in accounts receivable of $86,357,
marketable securities of $12,523 and cash surrender value of officers’ life
insurance of $76,274 and decreases in income tax payable of $47,118. Cash flows
from investing activities used $$140,000 for the purchase of
PeopleSource.
Financing
activities used $237,078 of cash in 2009. Of that decrease, $237,078
was due to advances on our revolving line of credit. We borrow or repay the
revolving debt as needed based upon our working capital obligation.
We
believe that internally generated funds, current cash on hand, and available
borrowings under our revolving credit line will be adequate to meet foreseeable
liquidity needs for the next 12 months.
Because
of the nature of our business, we are able to monitor variable expenses tied to
our revenue generation and we are able to manage and adjust our fixed costs
based on overall profitability.
The
following table represents the company’s most liquid assets:
2009
|
2008
|
|||||||
Cash
and cash equivalents
|
$ | 0 | $ | 0 | ||||
Marketable
securities
|
30,918 | 18,395 | ||||||
Officers
life insurance cash surrender value
|
370,032 | 293,758 | ||||||
Investment
in cost method investee
|
100,000 | 100,000 | ||||||
500,950 | 411,790 |
The
company manages cash and liquid investments in order to internally fund
operating needs. The company plans to use its available resources
including any borrowing under its line of credit to invest in its
operations.
The
company has entered into a loan agreement for a line of credit with a financial
institution which provides credit to 75% of accounts receivable aged less than
90 days up to $900,000. Borrowings under the agreement bear interest at the
LIBOR rate plus 3 percent (3.23094 percent at December 31, 2009), payable
monthly. Management believes cash flows generated from operations,
along with current cash and investments as well as borrowing capacity under the
line of credit should be sufficient to finance capital requirements required by
operations. No additional requirements are anticipated. If new
business opportunities do arise additional outside funding may be
required.
Outlook
Major
trends that we must deal with involve the following: 1) consolidation
of customer’s primary vendor lists and standardized pricing and 2) surge in
off-shore and outsourced development work for technology
resources. These trends have altered the competitive landscape
and viability of a domestic focused technology consulting firm, which has caused
us to shift our focus.
Customers
are consolidating their primary vendor lists to much smaller numbers and/or
primary vendors with a subset of sub vendors that are approved to provide
technology based work for the client. In addition the surge to
off-shore work has shifted the competitive landscape for technology based
resources to more of a commodity driven process. These trends have
altered the industry and opportunity level hence affecting the viability of a
domestic focused technology consulting firm, which has caused us to shift our
focus. Premier Alliance Group is addressing this shift from 2
perspectives. First we have laid the foundation and made a shift of
our core services from a pure technology focus to a complete business consulting
focus. This shift will move us away from a commodity to a value add
focus. Secondly we are working to diversify and enhance our business
model geographically as well as in our service offerings.
By
providing key business consulting skills and establishing internal “practice
areas of knowledge and expertise” we can expand into other geographic markets
easier, diversify our customer base and increase our overall presence as a
knowledge based consulting firm. To accomplish this we are looking at
organic growth as well as merger and acquisition strategies. We have
retooled our sales and recruiting efforts to increase our focus on higher end
business consulting services. This is a growing area of need amongst
clients as they place more and more value on business knowledge and business
process capability. Key initiatives have been to attract specific
talent to our consulting team and to target efforts that require (1) more
specialized process skills: project management, business analysis, and process
reengineering and (2) specialized business skills: regulatory and compliance,
merger knowledge, and financial expertise. We see these areas as
growth areas in the future. These types of customer based initiatives will allow
us to separate ourselves from the “general” vendor perspective and allow us to
be a value added partner, increasing opportunity and long term
viability.
Our top
priority is to broaden the range of services we offer by building “areas of
business expertise and knowledge” and at the same time build a more
geographically diverse client base. We believe that achieving this goal will
require a combination of merger activity and organic growth. This will in part
depend on continued improvement in the U.S. business market.
In
October, the Company completed an asset purchase of Peoplesource Inc, a Winston
Salem, NC based organization. This transaction contributed to a
broader customer base, better geographic coverage, and more capabilities on the
business development and fulfillment ends. Back office operations
were successfully integrated 100% in October with the rest of processes and
roles integrated successfully by the end of December.
Contractual
Obligations
As of
December 31, 2009, our contractual obligations consisted of the following lease
and contractual obligations:
2010
|
$162,737
|
|
2011
|
$140,413
|
|
2012
|
$87,457
|
The
leases cover office premises and leased vehicles. Of these leases a
total of $24,360 is allocated for vehicle leases and $363,747 is for office
premises. Non-cancellable contracts with job search firms account for $2,500 of
the obligations.
We have a
loan agreement for a line of credit with a financial institution that provides
us with a maximum credit line of $900,000. The line of credit is due on demand.
We may only borrow up to 75% of accounts receivable aged at 90 days or less.
Borrowings under the agreement bear interest at the LIBOR rate plus 3.7%,
payable monthly. In addition, the loan is collateralized by
substantially all our assets and personal guarantees by the executive management
team. Outstanding borrowings under the loan agreement were $211,000 and $248,000
at December 31, 2009 and 2008, respectively.
Off-Balance-Sheet
Arrangements
The Class
A Preferred Stock accrues 8 percent per annum dividends on a stated “dividend
value”. “Dividend value” is the amount equal to $0.98 per share for
each share of Class A Preferred Stock outstanding. The dividends
began accruing June 1, 2004, and are cumulative. No additional
dividends were paid in 2008 as the obligation for this dividend ended July 1,
2007.
As of
December 31, 2009, and during the prior year then ended, there were no
transactions, agreements or other contractual arrangements to which an
unconsolidated entity was a party under which we (1) had any direct or
contingent obligation under a guarantee contract, derivative instrument, or
variable interest in the unconsolidated entity, or (2) had a retained or
contingent interest in assets transferred to the unconsolidated
entity.
Preferred
Stock
On June
7, 2004, North Carolina Premier issued 597,500 shares of Class A preferred
stock in a private placement. The holders of shares of preferred stock were
entitled to receive an 8% annual dividend until the earlier of (1) the
third anniversary of the date of issuance or (2) automatic conversion of
shares of Class A preferred stock into shares of common stock. No such
dividend has yet been declared. Attached with each preferred share was a warrant
entitling the holder to purchase one share of common stock at an exercise price
of $2.00. The warrants were immediately exercisable and had a term of three
years.
On
consummation of the share exchange, holders of these shares of preferred stock
were issued in exchange shares of our Class A preferred stock having
substantially identical terms, as well as warrants with substantially identical
terms, except that the exercise price of the warrants was adjusted to
$1.96.
Material
Consulting Agreements
In
October 2003, we engaged Cyndel & Co., Inc. as consultants and financial
advisors to furnish advice with respect to operations, financing, and potential
business combinations. We paid Cyndel consulting fees of $5,000 per month during
portions of 2008. We terminated the agreement in relation to the monthly fee and
are structuring a performance based agreement regarding potential business
combinations. In November 2004, we granted Patrick M. Kolenik and
Steven J. Bayern, the principals of Cyndel, jointly an option to purchase a
number of shares of our common stock equal to 4.5% of the number of shares of
our common stock outstanding on the 90th day following commencement of trading
of shares of our common stock (the “Option Price Date”). On March 7, 2006, the
parties agreed to modify the option to provide for the purchase of a fixed
number of shares of Common Stock. As a result, the option provides
for the purchase of 289,291 shares of common stock at an exercise price equal to
the average market price of a share of our Common Stock during the ten trading
days immediately preceding the Option Price Date. This option expired
in May 2009.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Our
financial statements, including notes and the report of our independent
accountants, can be found at page F-1 of this annual report.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
ITEM
9A(T). CONTROLS
AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such information
is accumulated and communicated to this company’s management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As
required by Securities and Exchange Commission Rule 13a-15(b), we carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2009.
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States,
and includes those policies and procedures that:
1
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
2.
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and,
|
3.
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the Company’s financial
statements.
|
The
Company has in place controls for financial process and reporting that encompass
the following: (a) use of an automated financial system with built in controls
and balance points, (b) fully documented compliance and audit processes for the
operations team, (c) segregation of duties, (d) daily and monthly
reconciliation/balance and audit points, (e) established review points with
external accounting / auditors and SEC counsel, (f) review points by management
for all unique or key financial transactions/activity, and (g) a Code of Ethics
guiding activity of all employees.
Despite
these controls, because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance
of achieving their control objectives. Furthermore, smaller reporting companies,
like us, face additional limitations. Smaller reporting companies employ fewer
individuals and can find it difficult to properly segregate all duties. Often,
one or two individuals control every aspect of the Company's operation and are
in a position to override any system of internal control. Additionally, smaller
reporting companies tend to utilize general accounting software packages that
lack a rigorous set of software controls.
Our
management, with the participation of the President, evaluated the effectiveness
of the Company's internal control over financial reporting as of December 31,
2009. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control -- Integrated Framework. Based on this evaluation,
our management, with the participation of the President, concluded that as of
December 31, 2009 our internal control over financial reporting was effective
and provides reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting
principles
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During
the fiscal year ended December 31, 2009, there were no changes in the Company's
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
LIMITATIONS
ON CONTROLS
Disclosure
controls and procedures, no matter how well designed and implemented, can
provide only reasonable assurance of achieving the Company's disclosure
objectives. The likelihood of achieving such objectives is affected by
limitations inherent in such controls and procedures, including the fact that
human judgment in decision making can be faulty and that breakdowns in internal
controls can occur because of human failures such as simple errors or mistakes
or intentional circumvention of the established process.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
ITEM
9B. OTHER
INFORMATION
None.
ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required by Item 10 is incorporated by reference to our definitive
proxy statement relating to our 2009 annual meeting of shareholders. In
accordance with Regulation 14A, we will be filing that proxy statement no later
than 120 days after the end of the last fiscal year.
ITEM
11. EXECUTIVE
COMPENSATION
The
information required by Item 11 is incorporated by reference to our definitive
proxy statement relating to our 2009 annual meeting of shareholders. In
accordance with Regulation 14A, we will be filing that proxy statement no later
than 120 days after the end of the last fiscal year.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information required by Item 12 is incorporated by reference to our definitive
proxy statement relating to our 2009 annual meeting of shareholders. In
accordance with Regulation 14A, we will be filing that proxy statement no later
than 120 days after the end of the last fiscal year.
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
information required by Item 13 is incorporated by reference to our definitive
proxy statement relating to our 2009 annual meeting of shareholders. In
accordance with Regulation 14A, we will be filing that proxy statement no later
than 120 days after the end of the last fiscal year.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
information required by Item 14 is incorporated by reference to our definitive
proxy statement relating to our 2009 annual meeting of shareholders. In
accordance with Regulation 14A, we will be filing that proxy statement no later
than 120 days after the end of the last fiscal year.
ITEM
15. EXHIBITS,
FINANCIAL STATEMENTS AND SCHEDULES
The
following exhibits are filed as a part of, or incorporated by reference into,
this report.
No.
|
Description
|
3.1
|
Articles
of incorporation (incorporated by reference to exhibit 3.1 to Form 10-SB
of the registrant filed with the Commission on December 12,
2003).
|
3.2
|
Certificate
of designations, powers, preferences and other rights and qualifications
of the Class A convertible preferred stock (incorporated by reference to
exhibit 3.1 to current report on Form 8-K of the registrant filed
with the Commission on November 19,
2004).
|
3.2
|
Bylaws
(incorporated by reference to exhibit 3.2 to Form 10-SB of the registrant
filed with the Commission on December 12,
2003).
|
10.1
|
Share
exchange agreement dated as of October 12, 2004, between the registrant,
Premier Alliance Group, Inc., and the individual shareholders of Premier
Alliance Group, Inc. (incorporated by reference to exhibit 10.1 to current
report on Form 8-K of the registrant filed with the Commission on
October 18, 2004)
|
10.2
|
Merger
agreement dated as of October 29, 2004, between the registrant and Premier
Alliance Group, Inc. (incorporated by reference to exhibit 10.1 to current
report on Form 8-K of the registrant filed with the Commission on
November 12, 2004).
|
10.3
|
Form
of warrant issued to holders of shares of Class A convertible
preferred stock (incorporated by reference to exhibit 10.3 to Form 10-KSB
of the registrant filed with the Commission on March 31,
2005).
|
10.4
|
Lease
Agreement between Bissell Porter Siskey, LLC and the
Company (incorporated by reference to exhibit 10.4 to Form
10-KSB/A of the registrant filed with the Commission on April 27,
2006).
|
14.1
|
Code
of ethics (incorporated by reference to exhibit 14.1 to Form 10-KSB of the
registrant filed with the Commission on March 31,
2005
|
31.1
|
Certification
of Principal Executive and Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec.
1350). (filed herewith).
|
32.1
|
Written
Statement of Chief Executive and Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (filed
herewith).
|
In
accordance with the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PREMIER
ALLIANCE GROUP, INC.
Date:
March 28, 2010
|
By:
|
/s/ Mark S. Elliott
|
|
Mark
S. Elliott, President
|
In
accordance with the requirements of the Exchange Act, this report is signed
below by the following persons on behalf of the registrant in the capacities and
on the dates indicated.
Date:
March 28, 2010
|
By:
|
/s/ Mark S. Elliott
|
|
Mark
S. Elliott, President
|
Date:
March 28, 2010
|
By:
|
/s/ Kevin J. Hasenfus
|
|
Kevin
J. Hasenfus, Director
|
Date:
March 28, 2010
|
By:
|
/s/ Gregory C. Morris
|
|
Gregory
C. Morris, Director
|
Date:
March 28, 2010
|
By:
|
/s/ Robert N. Yearwood
|
|
Robert
N. Yearwood, Director
|
Certified Public
Accountants
4600 Park Road
Suite 112
Charlotte, North Carolina
28209
704-372-1167
Fax: 704-377-3259
Audit
Committee
Premier
Alliance Group, Inc.
Charlotte,
North Carolina
INDEPENDENT AUDITORS’
REPORT
We have
audited the accompanying balance sheets of Premier Alliance Group, Inc. as of
December 31, 2009 and 2008, and the related statements of operations,
stockholders’ equity, and cash flows for the years then ended. These
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 the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Premier Alliance Group, Inc. as of
December 31, 2009 and 2008 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.
Scharf Pera & Co.,
PLLC
March 16,
2010
Charlotte,
North Carolina
(F1)
PREMIER ALLIANCE GROUP,
INC.
BALANCE
SHEETS
DECEMBER 31, 2009 AND
2008
See
Notes to Financial Statements
(F2)
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Note
payable
|
$ | 211,000 | $ | 248,000 | ||||
Current
portion of long-term debt
|
133,152 | |||||||
Accounts
payable
|
320,027 | 248,562 | ||||||
Accrued
expenses
|
384,990 | 361,604 | ||||||
Income
taxes payable
|
33,086 | 80,204 | ||||||
Total
current liabilities
|
1,082,255 | 938,370 | ||||||
LONG-TERM
DEBT
|
114,606 | - | ||||||
COMMITMENTS
AND CONTINGENCIES
|
- | - | ||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Class A
convertible preferred stock,
|
||||||||
liquidation
preference of $0.05 per share,
|
||||||||
$.001
par value, 5,000,000 shares authorized,
|
||||||||
560,746
shares issued and outstanding
|
561 | 561 | ||||||
Common
stock, $.001 par value, 45,000,000
|
||||||||
shares
authorized, 6,071,791 shares
|
||||||||
issued
and outstanding
|
6,072 | 5,868 | ||||||
Additional
paid-in capital
|
3,414,635 | 3,289,339 | ||||||
Accumulated
deficit
|
(1,159,139 | ) | (1,410,727 | ) | ||||
2,262,129 | 1,885,041 | |||||||
$ | 3,458,990 | $ | 2,823,411 | |||||
See
Notes to Financial Statements
(F3)
PREMIER ALLIANCE GROUP,
INC.
|
||||||||
STATEMENTS OF OPERATIONS
|
||||||||
FOR THE YEARS ENDED DECEMBER 31, 2009 AND
2008
|
||||||||
2009
|
2008
|
|||||||
NET
REVENUES
|
$ | 9,347,993 | $ | 9,038,197 | ||||
OPERATING
EXPENSES:
|
||||||||
Cost
of revenues
|
6,926,166 | 6,501,996 | ||||||
Selling,
general and administrative
|
2,117,122 | 2,299,790 | ||||||
Depreciation
and amortization
|
9,699 | 12,749 | ||||||
9,052,987 | 8,814,535 | |||||||
INCOME
FROM OPERATIONS
|
295,006 | 223,662 | ||||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
expense, net
|
(12,232 | ) | (35,411 | ) | ||||
Goodwill
impairment loss
|
(1,179,464 | ) | ||||||
Gain/(Loss)
on marketable securities
|
12,522 | 6,015 | ||||||
Officers'
life insurance income(expense)
|
76,274 | (276,787 | ) | |||||
Equity
in net loss of equity-method investee
|
(9,607 | ) | (11,071 | ) | ||||
Other
income
|
4,800 | 5,897 | ||||||
71,757 | (1,490,821 | ) | ||||||
NET
INCOME (LOSS)BEFORE INCOME TAXES
|
366,763 | (1,267,159 | ) | |||||
INCOME
TAX (EXPENSE) BENEFIT
|
(115,175 | ) | (74,494 | ) | ||||
NET
INCOME (LOSS)
|
251,588 | (1,341,653 | ) | |||||
PREFERRED
STOCK DIVIDEND
|
- | - | ||||||
NET
INCOME (LOSS)AVAILABLE FOR
|
||||||||
COMMON
STOCKHOLDERS
|
$ | 251,588 | $ | (1,341,653 | ) | |||
Net
income (loss) per share:
|
||||||||
Basic
|
$ | 0.04 | $ | (0.23 | ) | |||
Diluted
|
$ | 0.03 | $ | (0.23 | ) | |||
Weighted
average number of shares, basic and diluted:
|
||||||||
Basic
|
5,926,438 | 5,867,945 | ||||||
Diluted
|
6,487,184 | 5,867,945 |
See
Notes to Financial Statements
(F4)
STATEMENT
OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||||||||||||||||||||||
Retained
|
||||||||||||||||||||||||||||
Class
A
|
Additional
|
Earnings
|
Total
|
|||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-In
|
(Accumulated
|
Stockholders'
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit)
|
Equity
|
||||||||||||||||||||||
Balance
at
|
||||||||||||||||||||||||||||
December
31, 2007
|
560,746 | 561 | 5,867,945 | $ | 5,868 | $ | 3,238,639 | $ | (69,074 | ) | $ | 3,175,994 | ||||||||||||||||
Stock
options issued for
|
||||||||||||||||||||||||||||
services
rendered
|
50,700 | 50,700 | ||||||||||||||||||||||||||
Net
loss
|
(1,341,653 | ) | (1,341,653 | ) | ||||||||||||||||||||||||
Balance
at
|
||||||||||||||||||||||||||||
December
31, 2008
|
560,746 | 561 | 5,867,945 | 5,868 | 3,289,339 | (1,410,727 | ) | 1,885,041 | ||||||||||||||||||||
Stock
options issued for
|
||||||||||||||||||||||||||||
services
rendered
|
50,000 | 50 | 25,450 | 25,500 | ||||||||||||||||||||||||
Stock
issued for acquisition
|
153,846 | 154 | 99,846 | 100,000 | ||||||||||||||||||||||||
Net
income
|
251,588 | 251,588 | ||||||||||||||||||||||||||
Balance
at
|
||||||||||||||||||||||||||||
December
31, 2009
|
560,746 | $ | 561 | 6,071,791 | $ | 6,072 | $ | 3,414,635 | (1,159,139 | ) | $ | 2,262,129 |
See
Notes to Financial Statements
(F5)
See
Notes to Financial Statements
(F6)
PREMIER ALLIANCE GROUP,
INC.
|
||||||||
STATEMENTS OF CASH FLOWS
|
||||||||
FOR THE YEARS ENDED DECEMBER 31, 2009 AND
2008
|
||||||||
(continued)
|
||||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
2009
|
2008
|
|||||||
Cash
payments for:
|
||||||||
Interest
|
$ | 9,444 | $ | 36,159 | ||||
Income
taxes
|
$ | 157,293 | $ | 23,636 | ||||
Cash
received for:
|
||||||||
Interest
|
$ | - | $ | 747 | ||||
Summary
of non-cash operating activities:
|
||||||||
Stock
issued for services rendered
|
$ | 25,500 | $ | |||||
Stock
options issued for services rendered
|
$ | - | $ | 50,700 | ||||
See
Notes to Financial Statements
(F7)
PREMIER ALLIANCE GROUP,
INC.
NOTES TO FINANCIAL
STATEMENTS
YEARS ENDED DECEMBER 31,
2009 AND 2008
Note 1 - Organization and
Business:
Premier
Alliance Group, Inc. (“Old Premier”) was organized under the laws of North
Carolina in June 1995. Old Premier provided information technology
solution and consulting services to customers operating in a variety of
industries throughout the United States.
On
November 5, 2004, Old Premier and its shareholders consummated a share exchange
agreement with the Company. The Company was an inactive public
company that was organized in Nevada in January 2000. Pursuant to the
exchange agreement, shareholders of Old Premier were issued 36,176,863 shares of
common stock and 4,323,157 shares of Class A convertible preferred stock in
exchange for all of their outstanding common stock and preferred stock in Old
Premier. As a result of the share exchange agreement, the
shareholders of Old Premier acquired a majority (90%) of the issued and
outstanding common and preferred stock of the merged company. For
accounting purposes, the transaction was accounted for as a reverse
merger. Old Premier was merged into the Company and immediately after
the merger the Company was renamed Premier Alliance Group, Inc. The Company
accounted for the share exchange using the purchase method of accounting as
prescribed by Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 141 “Business Combinations”. The
Company did not record any amount for goodwill on the share
exchange.
Acquisition:
On
October 1, 2009, the Company purchased substantially all of the assets of
Peoplesource, Inc., a North Carolina corporation pursuant to an Asset Purchase
Agreement dated September 18, 2009. In consideration of the Purchased
Assets, including service contracts and office equipment, the Company agreed to
pay 153,846 shares of common stock, equal to $100,000 at the closing date and an
estimated $400,000 in cash over two years ($140,000 after closing, $120,000
thirteen months from closing, and the balance 24 months from
closing). The total consideration, including value of stock, is
calculated as the gross revenue from Peoplesource, Inc.’s unit during the first
year after acquisition multiplied by 25%. The potential payout under
this calculation is unlimited. The Company accounted for this acquisition under
the acquisition method as described in Accounting Standards Codification (“ASC”)
805 – “Business Combinations”.
The
following table summarizes the estimated fair values of the assets acquired at
October 1, 2009:
Current
assets
|
$ -
|
|
Property
and equipment
|
5,000
|
|
Intangible
assets – customer relationships
|
84,000
|
|
Goodwill
|
398,758
|
|
Total
assets acquired
|
487,758
|
|
Current
liabilities assumed
|
-
|
|
Net
assets acquired
|
$
487,758
|
Goodwill
acquired in this acquisition of $398,758 is expected to be deductible for income
tax purposes.
The
business acquisition provided broader geographic coverage, added additional
strength in sales and fulfillment as well as broadened the customer base for the
Company.
(F8)
Note 2 - Summary of
Significant Accounting Policies:
Cash
and cash equivalents:
The
Company considers all highly liquid investments having an original maturity of
three months or less to be cash equivalents. Amounts invested may
exceed federally insured limits at any given time. As a result of the
Company’s cash management system, checks issued but not presented to the banks
for payment may create negative book cash balances. Such negative
balances are included in trade accounts payable and totaled $61,481 and $114,147
at December 31, 2009 and 2008, respectively.
Accounts
receivable:
The
Company considers accounts receivable to be fully collectible. If amounts become
uncollectible, they are charged to operations when that determination is
made.
Marketable
securities:
Marketable
equity securities are accounted for as trading securities and are stated at
market value with unrealized gains and losses accounted for in current income
from operations.
Property
and equipment:
Property
and equipment are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets ranging from three to seven
years. Maintenance and repair costs are expensed as
incurred. Gains or losses on dispositions are reflected in
income.
Goodwill
and intangible assets:
Purchased
goodwill in the amount of $2,718,385 was being amortized over 15 years until
December 31, 2001. Accumulated amortization at December 31, 2001 was
$487,101. Effective January 1, 2002, the Company ceased amortization
of goodwill in accordance with FASB SFAS No. 142, “Goodwill and Other Intangible
Assets”. The Company assesses goodwill for impairment
annually.
Acquired
intangible assets consist of customer relationships. The fair market
value of the customer relationships was determined by discounting the expected
future cash flows from the acquired customers. The $84,000 of
customer relationships acquired are being amortized over the estimated useful
life of five years. At December 31, 2009 accumulated amortization
totaled $4,200. The amortization expense of $4,200 for the year ended
December 31, 2009 is included under depreciation and amortization on the
statement of operations.
Amortization
expense related to customer lists are expected to be as follows for the years
ended:
December
31, 2010
|
$16,800
|
|
December
31, 2011
|
16,800
|
|
December
31, 2012
|
16,800
|
|
December
31, 2013
|
16,800
|
|
December
31, 2014
|
16,800
|
|
$79,800
|
(F9)
Revenue
recognition:
The
Company follows the guidance of the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 104 for revenue recognition. In general, the
Company records revenue when persuasive evidence of any agreement exists,
services have been rendered, and collectibility is reasonably assured,
therefore, revenue is recognized when the Company invoices customers for
completed services at contracted rates and terms.
Income
taxes:
Effective
with the conversion to a C Corporation, the Company accounts for income taxes
under FASB ASC Topic 740 “Income Taxes”. Under FASB ASC 740-10-30,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be removed or settled (See Note
12).
The
Company accounts for income taxes in accordance with the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 740.
FASB ASC 740-10 clarifies the accounting for income taxes, by prescribing a
minimum recognition threshold a tax position is required to meet before being
recognized in the balance sheet. It also provides guidance on derecognition,
measurement and classification of amounts related to uncertain tax positions,
accounting for and disclosure of interest and penalties, accounting in interim
period disclosures and transition relating to the adoption of new accounting
standards. Under FASB ASC 740-10, the recognition for uncertain tax positions
should be based on a more-likely-than-not threshold that the tax position will
be sustained upon audit. The tax position is measured as the largest amount of
benefit that has a greater than fifty percent probability of being realized upon
settlement.
Use
of accounting 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 certain assets and
liabilities and disclosures. Accordingly, the actual amounts could
differ from those estimates. Any adjustments applied to estimated
amounts are recognized in the year in which such adjustments are
determined.
Fair
value of financial instruments:
The
Company’s financial instruments include cash, accounts receivable, prepaid
expenses, accounts payable, accrued expenses, and credit
facilities.
The
Company did not have any outstanding financial derivative
instruments.
Reclassifications:
Certain
reclassifications have been made in the prior year financial statements to
conform to classifications used in the current year.
Subsequent
events:
The Company evaluated all events and transactions through March 15, 2010,
the date we issued these financial statements. During this period we did not
have any material recognizable or non-recognizable subsequent events.
Subsequent
to December 31, 2009, the Company entered into a letter of intent to purchase
the assets of Intronics Solutions, LLC, a privately held, Kansas-based
technology consulting and staffing company. The acquisition is subject to
certain requirements including due diligences and is targeted to be completed by
April 30, 2010. This acquisition is a type 2 subsequent event and no
adjustments were made in these financial statements as a result of this
transaction.
(F10)
Note 2 - Summary of
Significant Accounting Policies (continued):
Recent
pronouncements:
In June
2009, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”).
SFAS 168 establishes the FASB Accounting Standards Codification
(“Codification”) as the single source of authoritative GAAP to be applied by
nongovernmental entities, except for the rules and interpretive releases of the
SEC under authority of federal securities laws, which are sources of
authoritative GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. The Codification does not
change GAAP. Instead, it takes the thousands of individual pronouncements that
currently comprise GAAP and reorganizes them into approximately 90 accounting
Topics, and displays all Topics using a consistent structure. Contents in each
Topic are further organized first by Subtopic, then Section and finally
Paragraph. The Paragraph level is the only level that contains substantive
content. Citing particular content in the Codification involves specifying the
unique numeric path to the content through the Topic, Subtopic, Section and
Paragraph structure. FASB suggests that all citations begin with “FASB ASC,”
where ASC stands for Accounting Standards Codification. SFAS 168, now
included within FASB ASC 105, is effective for interim and annual periods ending
after September 15, 2009. The adoption of FASB ASC 105 did not have an
impact on the Company’s results of operations and financial position, but
changes the referencing system for accounting standards.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)” (“SFAS 167”), now included in FASB ASC 810. FASB ASC 810
amends the evaluation criteria to identify the primary beneficiary of a variable
interest entity and requires ongoing reassessment of whether an enterprise is
the primary beneficiary of the variable interest entity. FASB ASC 810 is
effective for fiscal years beginning after November 15, 2009, and interim
periods within those years. The Company does not expect the adoption of FASB ASC
810 to have a material impact on its results of operations and financial
position.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140”
(“SFAS 166”), now included in FASB ASC 860. FASB ASC 860 amends the
derecognition guidance in FASB Statement No. 140 and eliminates the
exemption from consolidation for qualifying special-purpose entities. FASB ASC
860 is effective for fiscal years beginning after November 15, 2009, and
interim periods within those years. The Company does not expect the adoption of
FASB ASC 860 to have a material impact on its results of operations and
financial position.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”
(“SFAS 165”), now referred to as FASB ASC 855 “Subsequent Events” (“FASB
ASC 855”). FASB ASC 855 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before the
financial statements are issued or are available to be issued. FASB ASC 855
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. This disclosure is intended to
alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. FASB ASC 855 is effective on a prospective basis for interim or
annual periods ending after June 15, 2009. The adoption of FASB ASC 855 did
not have an impact on the Company’s results of operations and financial
position.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”, now included within FASB ASC 815. FASB ASC
815 requires companies with derivative instruments to disclose information that
should enable financial statement users to understand how and why a company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for under FASB ASC 815 and how derivative instruments and related
hedged items affect a company’s financial position, financial performance and
cash flows. FASB ASC 815 is effective for financial statements issued for fiscal
years beginning after November 15, 2008. The adoption of this statement did
not have an impact on the Company’s results of operations or financial
position.
(F11)
Note 2 - Summary of
Significant Accounting Policies (continued):
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements”, now included within FASB ASC 810
“Consolidation” (“FASB ASC 810”). FASB ASC 810 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent’s ownership
interest and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. FASB ASC 810 also establishes reporting
requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. The adoption of this statement did not have an impact on
the Company’s results of operations or financial position.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”,
now included within FASB ASC 805 “Business Combinations” (“FASB ASC 805”). FASB
ASC 805 establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. FASB ASC 805 also establishes disclosure requirements which
will enable users to evaluate the nature and financial effects of the business
combination. This standard is effective for fiscal years beginning after
December 15, 2008 and early adoption is prohibited. The adoption of this
statement did not have an impact on the Company’s results of operations or
financial position.
(F12)
Note 3 - Property and
Equipment:
The
principal categories and estimated useful lives of property and equipment are as
follows:
Estimated
|
|||||||||
2009
|
2008
|
Useful Lives
|
|||||||
Office
Equipment
|
$ | 293,846 | $ | 288,846 |
5
years
|
||||
Furniture
and Fixtures
|
55,175 | 55,174 |
7
years
|
||||||
Computer
Software
|
17,100 | 17,100 |
3
years
|
||||||
366,121 | 361,120 | ||||||||
Less:
accumulated depreciation
|
(354,393 | ) | (348,893 | ) | |||||
$ | 11,728 | $ | 12,227 |
Note 4 - Marketable
Securities Classified as Trading Securities:
Under
FASB ASC Topic 320-10-25 “Investments-Debt and Equity Securities”, securities
that are bought and held principally for the purpose of selling them in the near
term (thus held only for a short time) are classified as trading
securities. Trading generally reflects active and frequent buying and
selling, and trading securities are generally used with the objective of
generating profits on short-term differences in price. The unrealized
holding loss as of December 31, 2009, is as follows:
Fair
Market
|
|||
Cost
|
Value
|
Holding Loss
|
|
Equity
Investments
|
$ 46,092
|
$ 30,918
|
$ 15,174
|
The
unrealized holding loss as of December 31, 2008, is as follows:
Fair
Market
|
|||
Cost
|
Value
|
Holding Loss
|
|
Equity
Investments
|
$ 33,135
|
$ 18,395
|
$ 14,740
|
(F13)
Note 5 - Investment in
Equity-Method Investee:
In 2004,
the Company invested $250,000 for a 33 percent ownership of Critical Analytics,
Inc. Critical Analytics, Inc. is in the business of software
development and financial consulting services. In 2009 Premier
received revenue of $10,000 from Critical Analytics, Inc. for consulting
services provided during the year.
In
January 2007, the Company’s ownership percentage increased to 35
percent. The Company accounts for this investment using the equity
method. The Company records its proportionate share of income or loss
from Critical Analytics, Inc.’s results of operations; correspondingly, the
carrying amount of the investment is increased by equity in earnings and reduced
by equity in losses. During 2009 and 2008, the Company recorded
losses of $9,607 and $11,071 as its equity in Critical Analytics, Inc.,
respectively. Summarized financial information of Critical Analytics,
Inc. at December 31, 2009 and 2008 is as follows:
2009
|
2008
|
|||||||
Assets:
|
||||||||
Current
assets
|
$ | 220,003 | $ | 247,597 | ||||
Property
and equipment – net
|
55,796 | 56,764 | ||||||
$ | 275,799 | $ | 304,361 | |||||
Liabilities
and stockholders’ equity:
|
||||||||
Current
liabilities
|
$ | 1,160 | $ | 902 | ||||
Stockholders’
equity
|
274,639 | 303,459 | ||||||
$ | 275,799 | $ | 304,361 | |||||
Gross
revenue
|
$ | - | $ | - | ||||
Other
income / (loss)
|
20,718 | (16,948 | ) | |||||
Operating
expenses
|
(49,538 | ) | (16,265 | ) | ||||
Net
loss
|
$ | (28,820 | ) | $ | (33,213 | ) |
Note 6 - Investment in
Limited Liability Company:
The
Company has an investment in a limited liability company, which owns
approximately 33 percent of the office building that the Company leases office
space from in Charlotte, North Carolina. The Company’s investment
represents an approximate 3 percent share of ownership in the limited liability
company. Because the limited liability company interest does not have
a readily determinable fair value, the Company accounts for its investment using
the cost method. Accordingly, the carrying value of $100,000 is equal to the
capital contribution the Company has made. Income is recognized when
capital distributions are received by the Company and totaled $4,800 and $4,800
for the years ended December 31, 2009 and 2008, respectively.
Note 7- Goodwill
Impairment:
The
Company completed an annual impairment evaluation for the year ended
December 31, 2009 and recorded no additional
impairment. In 2008, the Company recorded a non-cash goodwill
impairment charge in the amount of $1,179,464, which is related primarily to net
operating income that the Company now believes will not be
realized. This includes a tax benefit of $27,000 for the impairment
of tax deductible goodwill of $72,000. In determining the impairment
charge, the Company used a computation involving current revenue stream from the
acquired organization in comparison to the total revenue stream of the Company
and applied this to a current market valuation of the overall company, based on
share price. The balance
recorded as goodwill as of December 31, 2009 and 2008 is $1,450,578 and
$1,051,820, respectively, net of accumulated impairment of
$1,179,464.
(F14)
Note 8 - Accrued
Expenses:
Accrued
expenses consisted of the following at December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Accrued
payroll
|
$ | 298,675 | $ | 266,548 | ||||
Accrued
vacation
|
29,979 | 42,131 | ||||||
Other
accrued liabilities
|
56,336 | 52,925 | ||||||
$ | 384,990 | $ | 361,604 |
Note 9 - Notes
Payable:
The
Company has entered into a loan agreement for a line of credit with a financial
institution, providing the Company with a maximum credit line of
$900,000. The line of credit is due on demand. The line of
credit is secured by all accounts receivable and the assignment of two life
insurance policies with a cash surrender value of $248,665 and $199,625 at
December 31, 2009 and 2008. Borrowings under the agreement bear
interest at LIBOR plus 3 percent (3.2 and 3.4 percent at December 31, 2009 and
2008, respectively), payable monthly. Outstanding borrowings under
the loan agreement were $211,000 and $248,000 at December 31, 2009 and 2008,
respectively.
Note 10 – Long-Term
Debt
Long-term debt consists of a note
payable to the owner of Peoplesource, Inc. related to the acquisition on October
1, 2009 (See Note 1). The Company estimates the annual revenue amount
from Peoplesource, Inc.’s unit to be $2,000,000 and therefore estimates the
total cash payout to be $400,000. A payment of $140,000 was made in
October 2009. A second payment of $140,000 is to be paid on November
1, 2010 and the final payment is to be made on October 1, 2011. The
note was non-interest bearing and therefore interest was imputed at the
Company’s borrowing rate of 3.23 percent. At December 31, 2009,
$1,974 of accrued interest is recorded in accrued expenses. Principal
balance outstanding at December 31, 2009 is $247,758, of which $133,152 is
included in current liabilities.
Note 11 - Stockholders’
Equity:
Common
Stock:
On
November 5, 2004, the Company issued 36,176,863 shares to the stockholders of
Old Premier in exchange for all the outstanding common stock of Old
Premier. The total number of shares outstanding post-merger was
40,676,863 including, 4,500,000 shares held by the former stockholders of Old
Premier. On December 16, 2004, the Company effected a 7:1 reverse
split of its outstanding common stock resulting in 5,811,093 common shares
outstanding. Additionally, the company issued 56,852 shares of common
stock upon conversion of an equal number of preferred shares during the year
ended December 31, 2007.
During
2009, the Company issued 50,000 shares of common stock in exchange for
consulting services. Consulting expenses related to this issuance of
$25,500 was recorded in operating expenses.
On
October 1, 2009, the Company issued 153,846 shares of common stock related to
the acquisition of Peoplesource, Inc. See Note 1 for further
details.
(F15)
Class
A Convertible Preferred Stock:
On
November 5, 2004, the Company issued 4,323,137 Class A Preferred shares to the
stockholders of Old Premier in exchange for all the outstanding preferred stock
of Old Premier. Old Premier had issued preferred stock on June 6,
2004, for $576,208, net of issue costs. On December 16, 2004, the
Company effected a 7:1 reverse split of its outstanding preferred shares
resulting in 617,598 preferred shares outstanding. During the year
ended December 31, 2007, 56,852 shares of preferred stock were converted to an
equal number of common shares. No additional shares were converted in
2009. The total number of preferred shares outstanding on December
31, 2009 is 560,746.
The Class
A Preferred Stock is convertible, at the holder’s option, into common stock on a
one to one basis at any time. The Class A Preferred Stock will
automatically convert into common shares on the first day the Company’s common
stock price exceeds $2.03 per share.
In the
event of voluntary or involuntary liquidation, the Class A Preferred
Shareholders are entitled to receive on a per share basis an amount equal to the
amount they would have received had all Class A Preferred Stock been converted
into common shares prior to such liquidation.
Stock
Options:
In 2004,
the Company issued options to a consultant to the Company. The
options are for 289,291 common shares on the “option price date” at an exercise
price equal to the average market price of the Company’s common stock during the
10 trading days immediately prior to the “option price
date”. The “option price date” is defined as the
90th day
after the commencement of the trading of shares of the Company’s common
stock. At the option price date of May 1, 2007, the options were for
289,291 common shares with an exercise price of $2.75 per share. The
options expired May 1, 2009 without being exercised.
In May
2008, the Company adopted a stock incentive plan, entitled the 2008 Stock
Incentive Plan, authorizing the Company to grant stock options of up to
10,000,000 common shares for employees and key consultants.
On May
16, 2008, 600,000 non-statutory stock options were granted to three officers and
directors. The options have an exercise price of $0.75 per share and
expire on May 16, 2018. The Company accounted for the issuance of the
options in accordance with SFAS 123(R) "Share Based Payment" that requires the
recognition of compensation expense in the financial statements based on the
grant date fair value of the options. The estimated fair value of the
options of $50,700 was calculated using the Black-Scholes option valuation
method with the following assumptions: a risk free interest rate of 4.57
percent, an estimated volatility of 5.32 percent and no dividend
yield.
(F16)
Note 12 - Income
Taxes:
Significant
components of the income tax provision are summarized as
follows:
2009
|
2008
|
|||||||
Current
provision:
|
||||||||
Federal
|
$ | 90,457 | $ | 81,687 | ||||
State
|
19,718 | 17,807 | ||||||
Deferred
provision:
|
||||||||
Federal
|
4,000 | (20,000 | ) | |||||
State
|
1,000 | (5,000 | ) | |||||
$ | 115,175 | $ | 74,494 |
A
reconciliation of the statutory federal income tax rate to the Company’s
effective income tax rate on income before income taxes for the years ended
December 31, 2009 and 2008 follows:
2009
|
2008
|
|||||||
Federal
statutory rate
|
34.0 | % | 34.0 | % | ||||
State
income taxes, net of federal income tax benefit
|
4.5 | 4.5 | ||||||
Permanent
difference
|
(7.1 | ) | (32.6 | ) | ||||
31.4 | % | 5.9 | % |
(F17)
Note 12 - Income Taxes
(continued):
The
Company provides for income taxes using the liability method in accordance with
FASB ASC Topic 740 “Income Taxes”. Deferred income taxes arise from
the differences in the recognition of income and expenses for tax
purposes. Deferred tax assets and liabilities are comprised of the
following at December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Deferred
income tax assets:
|
||||||||
Accrued
compensation federal
|
$ | 9,000 | $ | 13,000 | ||||
Trading
securities
|
6,000 | 6,000 | ||||||
Intangible
assets
|
28,000 | 33,000 | ||||||
Investment
in equity-method investee
|
23,000 | 19,000 | ||||||
|
66,000 | 71,000 | ||||||
Less: valuation
allowance
|
- | - | ||||||
Deferred
income tax assets
|
$ | 66,000 | $ | 71,000 | ||||
Deferred
income tax liabilities:
|
||||||||
Property
and equipment
|
$ | (5,000 | ) | $ | (5,000 | ) | ||
Total
deferred tax liabilities
|
$ | (5,000 | ) | $ | (5,000 | ) | ||
Net
deferred income tax assets:
|
||||||||
Current
|
$ | 15,000 | $ | 18,000 | ||||
Non-current
|
46,000 | 48,000 | ||||||
$ | 61,000 | $ | 66,000 |
(F18)
Note 13 - Net (Loss) Income
Per Share:
In
accordance with FASB ASC Topic 260-1-50, “Earnings per Share”, and SEC Staff
Accounting Bulletin No. 98, basic net income or loss per common share is
computed by dividing net income or loss for the period by the weighted - average
number of common shares outstanding during the period. Under FASB ASC
260-10-50, diluted income or loss per share is computed by dividing net income
or loss for the period by the weighted - average number of common and common
equivalent shares, such as stock options, warrants and convertible securities
outstanding during the period. Such common equivalent shares have not
been included in the Company’s computation of net income (loss) per share in
2008, as their effect would have been anti-dilutive based on the strike price as
compared to the average trading price.
2009
|
2008
|
|||||||
Basic:
|
||||||||
Numerator
– net income(loss) available to common stockholders
|
$ | 251,588 | $ | (1,341,653 | ) | |||
Denominator
– weighted – average shares outstanding
|
$ | 5,926,438 | $ | 5,867,945 | ||||
Net
income (loss) per share – Basic
|
$ | 0.04 | $ | (0.23 | ) | |||
Diluted:
|
||||||||
Numerator
– net income (loss) available to all stockholders
|
$ | 251,588 | $ | (1,341,653 | ) | |||
Denominator
- weighted – average shares outstanding
|
$ | 5,926,438 | $ | 5,867,945 | ||||
Assumed
conversion of converted preferred stock
|
560,746 | |||||||
6,487,184 | ||||||||
Net
income (loss) per share – Diluted
|
$ | 0.04 | $ | (0.23 | ) | |||
Incremental
common shares (not included due to their anti-dilutive
nature)
|
||||||||
Stock
options
|
600,000 | 889,291 | ||||||
Convertible
preferred stock
|
- | 560,746 | ||||||
600,000 | 1,450,037 |
(F19)
Note 14 - Commitments and
Contingencies:
The
Company is obligated under various operating leases for office space and
automobiles and is obligated under non-cancelable contracts with job search
firms.
The
future minimum payments under non-cancelable operating leases and non-cancelable
contracts with initial remaining terms in excess of one year (including the
related party lease), as of December 31, 2009, are as follows:
Year
Ending December 31,
|
Required Payments
|
|||
2010
|
$ | 162,737 | ||
2011
|
140,413 | |||
2012
|
87,457 | |||
2013
|
- | |||
Thereafter
|
- | |||
$ | 390,607 |
Expenses
for operating leases during 2009 and 2008 were approximately $171,174 and
$199,009, respectively.
The
Company has a three percent ownership interest in a limited liability company
that owns approximately 33 percent of the building the Company leases office
space from in Charlotte, North Carolina. Additionally, an individual
stockholder of the Company owns approximately 30 percent of the same limited
liability company. Rent expense pertaining to this operating lease
during 2009 and 2008 was approximately $151,088 and $187,290,
respectively.
Note 15 - Employee Benefit
Plan:
The
Company has a 401(k) plan which covers substantially all
employees. Plan participants can make voluntary contributions of up
to 15 percent of compensation, subject to certain limitations. Under
this plan, the Company matches a portion of employee deferrals. Total
company contributions to the plan for the years ended December 31, 2009 and 2008
were approximately $10,254 and $36,534, respectively.
Note 16 -
Advertising:
The
Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 2009 and 2008 were $4,615 and $3,888,
respectively.
Note 17 - Major
Customers:
Approximately
71 and 69 percent of total revenues were earned from three customers for the
years ended December 31, 2009 and 2008,
respectively.
(F20)
Note 18 – Pro-Forma
Financial Information:
The
following unaudited pro-forma data summarizes the results of operations for the
years ended December 31, 2009 and 2008, as if the purchase of Peopleource, Inc.
had been completed January 1, 2008. The pro-forma financial
information is presented for informational purposes only and is not indicative
of the results of operations that would have been achieved if the acquisition
had taken place on January 1, 2008 and January 1, 2009 or of results that may
occur in the future.
December 31, 2009
|
December 31, 2008
|
|||||||
Net
revenues
|
$ | 10,975,159 | $ | 12,310,520 | ||||
Operating
income (loss)
|
269,613 | (1,313,594 | ) | |||||
Net
income (loss) per share – basic
|
0.04 | (0.22 | ) | |||||
Net
income (loss) per share- diluted
|
0.04 | (0.22 | ) |
Revenues
contributed from October 1, 2009 thru December 31, 2009 from the Peoplesource,
Inc. acquisition accounted for $511,071 with earnings of $67,404.
(F21)