Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[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
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 000-52712
PEER REVIEW MEDIATION AND ARBITRATION, INC.
(Exact name of registrant as specified in its charter)
Florida 65-1126951
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization)
1450 S. Dixie Highway, Suite 230
Boca Raton, Florida 33432
(Address of principal executive offices)
(561) 347-1178
(Registrant's telephone number including area code)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes [_] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Securities Act.
Yes [_] No [X]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (section 232.406 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [x] No [ ]
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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. [_]
2
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 definition of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [x]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes [_] No [X]
State the aggregate market value of the 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 fiscal quarter. The market
value of the registrant's voting $.0001 par value common stock held by
non-affiliates of the registrant was approximately $0.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The number
of shares outstanding of the registrant's only class of common stock,
as of March 15, 2010 was 8,397,688 shares of its $.0001 par value
common stock.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 5
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 16
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 18
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters and Issuer
Purchases of Equity Securities 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements on Accounting
and Financial Disclosure 43
Item 9A. Controls and Procedures 43
Item 9B. Other Information 44
PART III
Item 10. Directors, Executive Officers and Corporate
Governance 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matters 45
Item 13. Certain Relationships and Related Transactions,
and Director Independence 45
Item 14. Principal Accounting Fees and Services 45
PART IV
Item 15. Exhibits, Financial Statement Schedules 46
SIGNATURES 48
4
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. The statements regarding
Peer Review Mediation and Arbitration, Inc. and its subsidiaries
contained in this Report that are not historical in nature,
particularly those that utilize terminology such as "may," "will,"
"should," "likely," "expects," "anticipates," "estimates," "believes"
or "plans," or comparable terminology, are forward-looking statements
based on current expectations and assumptions, and entail various risks
and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements.
Important factors known to us that could cause such material
differences are identified in this Report. We undertake no obligation
to correct or update any forward-looking statements, whether as a
result of new information, future events or otherwise. You are advised,
however, to consult any future disclosures we make on related subjects
in future reports to the SEC.
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PART I
ITEM 1. BUSINESS
CORPORATE HISTORY
-----------------
We were incorporated under the laws of the State of Florida on April
16, 2001. We have been conducting business operations ever since,
primarily focused on the creation and continual development of our
proprietary Private Network Application which allows direct access to
our Peer Review Data Archival resource via our peerreviewboard.com
Internet web site. Our subsidiary, Independent Review, Inc., a Texas
corporation, is engaged in providing medical case reviews to the Texas
Insurance Commission, pursuant to a license from the State of Texas.
We recently formed ProMed Alliance, Inc., a Florida corporation, as
another wholly owned subsidiary. ProMed will provide member benefits
related to revenue, expense, and support services to physicians that
are currently in our network of Physician Experts.
In February 2005, we acquired all of the outstanding common shares of
IRI in exchange for 75,000 unregistered shares of our common stock.
IRI is engaged in providing medical case reviews to the Texas Insurance
Commission, pursuant to a license from the State of Texas.
In October 2008, we filed a registration statement on Form S-1 with the
Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, registering those shares underlying the Purchase
Options that we issued in our recent private offering. On April 2, our
registration statement became effective. As of December 31, 2009, we
had not been cleared by DTC and our shares were not trading. We have
since completed all regulatory requirements, and the shares became
available to trade on the OTC bulletin board market, under the ticker
symbol PRVW, on January 29, 2010.
GLOSSARY
--------
Chart Review: The review of patient's chart notes and other medical
reports which are used to help render objective evaluation of medical
necessity or opinions to peer review processes.
Litigation Support: Litigation Support provides the attorney with
the information needed to thoroughly understand a medical case and also
supplies the attorney with medical expertise to litigate a case.
Medical Peer Review: The process by which a committee of physicians
investigates the medical care rendered in order to determine whether
accepted standards of care have been met. A Medical Peer Review is
meant to provide independent medical opinions conducted by an objective
group of physicians and relevant medical staff that quickly resolve
complex problems that hospitals, physicians and insurance carriers
face. They are often used to help solve systems problems endemic to
healthcare institutions and thereby reduce legal liability associated
with them. The review of chart notes and other medical reports are
used to help render objective written opinions.
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Patient's Bill of Rights: A statement of the rights to which
patients deserve as recipients of medical care. Typically, a statement
articulates the positive rights which doctors and hospitals ought to
provide patients, thereby providing information, offering fair
treatment, and granting them autonomy over medical decisions -- the
eight areas of consumer rights and responsibilities adopted by the
President's Advisory Commission on Consumer Protection and Quality in
the Health Care Industry in 1998 [1].
Peer Review: A process used for checking the work performed by one's
equals (peers) to ensure it meets specific criteria. Peer Review is
used in working groups for many professional occupations because it is
thought that peers can identify each other's errors quickly and easily,
speeding up the time that it takes for mistakes to be identified and
corrected.
Peer Evaluation: A team is a small group of people with
complementary skills who are committed to a common purpose, performance
goals, and an approach for which they hold themselves mutually
accountable.
Quality Review Programs: A quality assurance process that a
healthcare provider or payor may institute to insure compliance to
standards or standard procedure.
Utilization Review: Utilization Review is the review of how certain
medical services are requested and performed. The review typically
involves pre-review, or pre-authorization; concurrent review, or
inpatient evaluation of care and needs; and retrospective review, or
the larger historical picture of how physicians, labs, or hospitals
handle their patient populations. Most HMOs have written standards for
what items are reviewed, and what might be considered appropriate for
amount, time, and sources of evaluation and treatment. An independent
review organization will also perform utilization review functions.
Utilization Review may be performed by the HMO or insurer itself, or it
may be contracted out to either a third party review specialist or to
the hospital/lab/etc. providing the service. Most frequently, nurses
are employed to conduct the actual review. In all cases, the review
examines medical records to see if the patient was given an economical
level of care consistent with their needs and the past needs of
similarly-afflicted patients.
CURRENT BUSINESS
----------------
Over the past three years, our development has included direct
marketing to increase our panel of professionals. Using physician
databases that we purchase, we are able to screen physicians throughout
the country. From this large pool, we further filter through
parameters of location, licensure, and medical specialty. These
criteria will yield a short list of candidates. To this list we will
send formal invitations to join our panel. Candidates, who respond to
our direct marketing, begin a process of information and knowledge
exchange. After our initial conversation, if the candidate is
interested in joining our list of medical experts they make application
and accept our terms and conditions to employment via our secure web
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portal. After our review of the application, the physician is given a
user login to their personal space and account. This personal space is
used to consolidate communication and work with our Company. At this
point they are ready to upload, enter, email or fax their complete
curriculum vita to use in the system.
Our business plan is structured around:
- Our subscriber clients being able to use this information for
finding the best qualified physician for work assignments.
- Developing our marketing plan that includes sales techniques,
procedures and materials. We have spent a great deal of our time
researching the market for our services. We have been developing our
sales presentations tailored to specific industry and employee needs.
This has included client contact materials such as brochures and
pamphlets.
- Continued Software and technology development. Our second
largest endeavor over the past three years has been our enterprise
software development. This enterprise system and its sub assemblies
(other software) aggregates all of our business process, employees,
physician consultants, shareholders, clients, web portals and all
required documents and tools to one ever-evolving desk top. This desk
top view is determined by the user's or individual's need and
authority. In our opinion, this is a cutting edge development using
the latest software tools and techniques.
- Hiring and training new employees.
- Seeking acquisition candidates.
- Completing the acquisition of IRI. The acquisition of IRI has
given us practical experience and is directing the development of our
case management system. It is also why our customer base has expanded
and become more diverse. We have had no appreciable revenues excluding
a few "test" attorneys' clients. This acquisition took almost two
years to complete, reorganize, and get running properly. Currently, we
have had limited revenues and are operating at a deficit.
Principal Service and Markets
-----------------------------
Our service enables subscribers, including attorneys, insurance claims
agents, healthcare providers and consumers, the ability to efficiently
search and engage medical experts for a variety of medical consulting
projects. We maintain a network of independent physicians as members
of our Peer Review Board, who are available to assist in areas such as:
- Expert medical opinions and testimony
- Legal case evaluation and strategy
- Assessment of damages
- Case valuation
- Medical peer review and chart review
- Independent medical review
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- Quality and utilization review
- Medical case management
- Medical second opinion
Federal and State mandates are directing managed care providers and
insurance companies to dramatically step up their quality review
programs. Insurance companies, attorneys, doctors and other health
care providers are seeking ways to minimize their risk by increasing
protection of their business interests, assets and clients. Add to
this equation claims paid by casualty insurance carriers and it is
obvious that an enormous demand exists for quality peer review
assistance and medical litigation support from reputable medical
experts.
We intend to focus our attention on defense and plaintiff's attorneys,
insurance companies, managed care organizations, hospitals and nursing
homes as our primary subscribers. For personal injury attorneys,
increased profitability means more efficient caseload management. With
the litigation support we can provide, attorneys can achieve their
goals of quickly eliminating non-meritorious cases (those cases that,
because they have very little probability of receiving a positive
verdict, the attorney will NOT be compensated) and expediting
settlement of meritorious cases. By settling a case as soon as
possible, an attorney saves time and money while creating the
opportunity to handle a larger caseload. An effective and efficient
search for medical experts that specifically matches the unique needs
of the case will also strengthen the case for the attorney's client.
Plaintiff's attorneys routinely obtain medical expert reviews as
quickly as possible when taking on a new case to determine the validity
of a case and to allow a successful disposition in the shortest time
possible.
Lawyers representing plaintiffs or defendants rely upon litigation
support of medical expert testimony for medical cases. We provide such
litigation support through having medical experts available to review
medical records, analyze and evaluate medical and administrative
events, identify causation, address standard of care, evaluate case
strengths and weaknesses, develop deposition strategy and questions,
and provide testimony to articulate issues to a judge or jury.
Insurance companies can rely on our services in an increasingly diverse
manner including quality and utilization review, quality oversight,
medical case management and peer evaluation. In matters pertaining to
treatment decisions being evaluated by the Peer Review Organization
(PRO), the insurance company or health care provider will be able to
easily obtain impartial, objective third-party support and expert
medical testimony from members of our Peer Review Board. We will
provide our clients with valid, reliable and credible defense assisting
them in reaching their desired outcome. In the ever-increasing
litigious environment surrounding the healthcare and insurance
industries, we believe we can offer an essential resource for
attorneys, insurance companies and other health professionals.
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State Licensing
---------------
In the state of Texas, our subsidiary IRI has been registered by the
Texas Department of Insurance since 1999 to the present for statutory
work for review of medical necessity denials by private insurance
carriers for the state (registration #05055). We may make applications
to other states sometime at a later date.
Fee Structure
-------------
Our business model anticipates the following fee structure as indicated
as estimates only. Actual fees for service are determined on a case-
by-case basis.
- Attorney Subscriber Fees: Base Technology Fee $1,200.00 a year,
which can be divided in monthly payments of $100 as a minimum fee,
allowing the subscriber two cases per month.
- Legal Reviews: Professional fees are estimated at $1,000.00
minimum per case.
- Insurance Case Fees: Flat Rate Technology fee of $175.00 per
case.
- Medical Quality Reviews: Professional fees are estimated at
$850.00 minimum per case.
- Statutory Reviews: $650.00 per case or as set by law.
Over the next twelve months we intend to proceed with the
implementation of our business plan. We will strive to launch all
aspects of our operations. However, our ability to successfully
implement our business plan is contingent upon our ability to obtain
additional capital. While no assurances can be provided, we expect
that we will be able to obtain these funds once our registration
statement becomes effective and the purchase options previously issued
as part of our private offerings are exercised.
Private Offerings
-----------------
Since December 2006, we have successfully closed three (3) separate
private offerings of units, each unit consisting of one share of our
common stock and one purchase option exercisable to purchase one share
of our common stock at a price of $5.00 per unit. In December 2006, we
closed our initial private offering of units wherein we sold 113,290
units to 114 accredited investors, as that term is defined under the
Securities Act of 1933, as amended, and received gross proceeds of
approximately $566,450. In December 2007, we closed a private offering
of units, selling 71,453 units to 49 accredited investors, as that term
is defined under the Securities Act for gross proceeds of $357,265. In
June 2008, we closed a private offering of Units wherein we sold 89,197
units to 33 accredited investors for gross proceeds of $445,985. In
May 2008, we also issued 50,000 Units in consideration for services
valued at $250,000 in favor of 5 persons. We relied upon the
exemptions from registration provided by Section 4(2) and Regulation D
promulgated under the 33 Act to issue these Units.
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Also in December 2007, we issued 6,676 shares of common stock in
exchange for cash in the amount of $33,380 to eight accredited
investors at a price of $5.00 per share. In December 2007, we also
issued 3,957 shares of common stock as compensation for services.
Letters of Intent
----------------
Mediation Training Institute International
On May 3, 2008, we signed a letter of intent to acquire Mediation
Training Institute International, a non-affiliated company, for
$225,000 in cash, 30,000 shares of restricted common shares and a
convertible promissory note in the amount of $225,000, convertible into
shares of our common stock at a conversion price equal to 70% of the
average trading price over the 90 days prior to such conversion, plus
infusing an additional $150,000 in growth capital. Our management and
MTII have verbally agreed to extend the closing date pending the
beginning of public trading of the company's stock and subsequent
exercise of our purchase options. There are no assurances that a
sufficient number of the purchase options will be exercised in order to
allow us to complete this or any other acquisition.
MTII has trained and certified professionals to become certified Work
Place Mediators all over the country. Its founder, Daniel Dana, has
written two books on mediation and mediation training that are often
used by other organizations when training mediators. Mediation can be
described as an assisted negotiation. The mediator is neutral and has
no bias for or against any of the parties or their positions. He/she
is the facilitator who assists the parties in reaching an agreement
that is acceptable. The agreement is not imposed upon the parties; it
is reached through the facilitated negotiation process typical of a
mediation proceeding. Judges and arbitrators make decisions that are
imposed on the parties. Mediators may be requested during the course
of a mediation to provide their evaluation of the probable outcomes of
a dispute were it to be litigated or arbitrated. If there is such an
evaluation, it is done at the request of the parties but is not binding
upon them unless they request and agree to it. The formal procedures
found in court or in arbitration proceedings are not present in
mediation proceedings. There are limited rules of evidence or set
procedures for the presentation of facts or positions. Before
mediation commences, the parties and the mediator agree upon the
procedures that will be followed. It is the parties proceeding; they
can fashion it in any way that makes sense to them and the mediator.
This absence of formality provides for open discussion of the issues
and allows the free interchange of ideas. Thus, it becomes easier to
determine the interests of the parties and to fashion a solution that
satisfies those interests.
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AmeriMed Corporation
On July 11, 2008, we signed a letter of intent to purchase AmeriMed
Corporation for $250,000 in cash and 250,000 shares of our common
stock. The parties have verbally agreed to extend closing pending the
beginning of public trading of our common stock and subsequent exercise
of our purchase options. There are no assurances that a sufficient
number of the purchase options will be exercised in order to allow us
to complete this or any other acquisition.
AmeriMed is a national wholesale medical supply company that has been
in business over ten years. According to the National Society of
Healthcare Consultants, medical supplies used in the everyday practice
of medicine accounts for about six percent to ten percent of total
practice revenue, depending on the. The supply chain for medical
products is manufacturer, distributor, and dealer, each with their own
respective mark-up. Physician's offices generally buy through local
dealers. Local medical suppliers mark up their products above their
costs from their distributor. Manufacturers or distributors generally
do not sell directly to private practice physicians. This creates the
opportunity to aggregate the private practice physician purchases into
our Group Purchasing Organization.
Medical Mediation Training Program
On July 16, 2008, we began developing a Florida Supreme Court Approved
Medical Mediation Training Program. If this program is approved, we
will seek approval in all states that have such requirements. It is
our plan to use MTII to facilitate our Medical Mediation Program. We
believe this may be the first available Medical Mediation Certified
Training Program. We seek to have certified medical mediators
available to assist civil courts in personal injury tort litigation.
We believe many cases could be mediated and settled without lengthy
court proceeding to the parties' satisfaction.
Distribution of Products and Services-Market Segmentation
---------------------------------------------------------
Our market breaks down in three different areas and with three revenue
components:
(a) Medical Review Support and Litigation Support Consultation,
Case strategy, Expert Opinion and Testimony which further breaks down
to two of our services, namely providing services to Personal Injury
Plaintiffs and Defense of Liability Payors;
(b) Medical Review Support to Healthcare Payors (Healthcare
Insurance Companies, Hospitals, Nursing Homes, etc.); and
(c) Statuary Review for state governments.
(a) Legal Consulting
With numerous law firms across the United States specializing in
personal injury, we believe there is a significant market segment of
the legal industry ideal for our business. When a personal injury case
is brought to an attorney, that attorney must evaluate liability and
causation. He or she must assess damages, place a value on the case,
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determine the case strategy and obtain expert medical reports. The
attorney must also review and organize medical records, interrogatories
and depositions, as well as any necessary medical research. Medical
experts are used for legal support by both the plaintiff and the
defense. When there is a group of attorneys acting on the behalf of
the plaintiff, one will find a like group, acting in a similar manner
on behalf of the defense. This means that we offer a valuable service
necessary and applicable to both sides in a litigation case maximizing
our market potential within the legal community. Casualty insurance
companies provide coverage that pays the medical and hospital bills as
well as whatever a court might award (up to the limits of the coverage)
for someone injured in a situation that a court might regard as
negligent in nature by their client. In these instances, the insurance
company would have needs similar to defense attorneys.
An attorney for the plaintiff in many states must file an "affidavit of
merit" attesting that the attorney has obtained a written opinion of a
physician who finds the plaintiff's claim to have merit. We seek to
provide a subscriber with thousands of qualified medical experts to
serve and expedite this process. Medical experts, in assessing damages
and valuing cases, ensure that the attorneys from both sides approach
negotiations with a true understanding of the case's settlement value.
Experienced experts know what influences insurance companies to settle
and, through case evaluation, can help develop case strategy,
presentations and materials designed to produce a quick settlement.
After in-house survey with our medical experts, we believe medical
physicians and expert will often charge from $300 to $700 per hour for
case evaluations, to review all the records and render an opinion.
Another informal survey of attorneys has indicated that they may have
to interview as many as twenty-five experts before finding two or three
willing to testify for their position. Complex cases often require
several expert witnesses. We enable subscribers to avoid the typical
hit or miss process of locating appropriate and credible medical
experts to evaluate and ultimately testify for their case. These
surveyed attorneys also desire greater efficiencies in this process to
achieve their overall financial goals. We assist our subscribers to
reduce the time and effort necessary in these types of cases, creating
a far more cost-effective process. We also facilitate an advanced
search methodology allowing attorneys to rapidly identify a number of
potential medical experts from the Peer Review Board with wide ranging
specialties, backgrounds and expertise. For a law firm specializing in
personal injury, more efficient caseload management means increased
profitability. For other law firms representing clients typically on
the defense, a deeper reservoir of medical experts should reduce their
liabilities and payouts.
(b) Medical Review
In another informal survey of providers, insurance companies, managed
care organizations, such as HMOs and PPOs, hospitals, nursing homes and
other health care providers have indicated that they are becoming
increasingly dependent on objective third-party support for medical
decision-making, peer evaluation, quality assurance, utilization
review, case management, and quality oversight, as well as in
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litigation cases requiring case valuations and expert testimony. We
assist insurers and health care companies in achieving their goal of
assuring their members, patients and the public of delivering proper
and necessary health care without quality compromise. This has become
a critical foundation for continued business for all health care
providers, but especially for HMOs and insurers as legislation
supporting a Patients' Bill of Rights is passed in various states, and
soon to be enacted at the national level.
Peer Review board members are ideal for developing and monitoring
quality assurance programs for a variety of health care entities.
Standards for quality review for health plans and Medicare providers
intensify every year, necessitating the assistance of independent,
objective specialists external to the organization. We believe we are
especially beneficial to managed care organizations, hospitals and
nursing homes undergoing utilization review and case evaluations
brought before the Peer Review Organization. The Peer Review
Organization program is administered by the Health Care Financing
Administration, the branch of the federal government that administers
Medicare and Medicaid, HCFA is designed to monitor and improve
utilization and quality of health care for Medicare beneficiaries.
Their mission is to ensure the quality, effectiveness, efficiency, and
economy of health care services provided. The PRO responds to quality
of care complaints from consumers and appeals filed if an insurance
company denies a service, or terminates, or refuses to pay for a
service that the insured believes should be covered.
For example, when an HMO is being investigated for quality of care
concerns or is defending a medical decision, the HMO can obtain
documentation, develop supportive defense and locate appropriate
medical expert witnesses, independent from the organization, to back up
their cases. The appeal process allows insurance companies to
demonstrate why a treatment may not be medically necessary or
appropriate. We believe we can play an invaluable role by extending
third party, objective corroboration. Another one of PRO's many
objectives is to improve the quality of healthcare services to ensure
routine delivery of high-quality medical care. With this being a
prominent objective, we can also be tapped by health care providers to
assist in development of quality improvement programs. Publicizing
their achievements in quality improvements and their association with
us, we believe health care providers gain enhanced credibility, public
support and patient confidence, leading to improved sales and customer
loyalty, so critical to long-term viability in the market place. We
believe we offer a unique opportunity for hospitals, insurance
companies and other health care providers to differentiate themselves
in their respective markets while achieving greater cost efficiencies
and positively impacting corporate goals.
The process by which independent physicians become members of our Peer
Review Board consist of an invitation sent to select medical
professionals by direct mail, e-mail or fax with information about the
industry, advantages of participating in our panel of specialists and
potential income opportunities. As they reply to the invitation by
calling us, one of our coordinators explains further how the process
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works and acquires necessary information to initiate the intake
process. The medical professional is then instructed to complete an
application. Once his application has been reviewed and accepted, he
or she is then asked to send their curriculum vitae to us by means of
fax, e-mail or submission through our website. Once the curriculum is
received, it is promptly input into our platform and then verified and
confirmed by the medical professional who sent it by accessing his
private space on our website. Once confirmed, the curriculum becomes
available in our search system so subscribers can find it. The whole
process is managed by our proprietary enterprise software, which
determines the status of each applicant and controls the workflow,
guiding actions to be taken by coordinators and the system. These
actions include automated response and reminders by fax or e-mail,
schedule of phone calls, among others.
Our Growth Strategy
-------------------
Given the challenges facing physicians, successful practices must take
proactive steps to combat negative trends and improve their overall
financial performance. Our Member Benefits Programs will be designed
to improve practice operations and processes can be streamlined to
reduce costs and increase revenue.
There are two broad classifications of Members' Benefits opportunities.
They are Revenue and Expense Cycle Management. Our Revenue Cycle
Management relates to all of the processes, sub-processes and enabling
technologies associated with the initial contact through the collection
of inbound revenue. Solutions may include new practice protocols,
contract negotiations, net collections improvements and new revenue
opportunities.
Our Expense Cycle Management Solutions will include forming a Group
Purchasing Organization. This GPO will be supported by acquisition of
related expense side suppliers. This approach will leverage a single
physician member purchasing power by the combined volumes of all
participating members.
This Member Benefit as a cost reduction strategy will focus on reducing
the internal costs and maintain tighter control over supplies and
related spending. In summary, we believe our national network of
Member Physicians gives us substantial market position, negotiating and
purchasing power. We expect that the Member Benefits, Revenue and
Expense Cycle Management solutions previously discussed will continue
to develop long-term financial relationships with physicians and their
practices. However, there can be no assurances that we will obtain
substantial market position, negotiating and purchasing power in the
foreseeable future.
Employees
---------
As of the date of this Report, we employ twelve (12) people on a full-
time basis, including 3 persons in management, six in operations and
three in physician recruitment and member benefits. If we receive
proceeds from the purchase options, or otherwise obtain other
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additional financing, we expect to hire up to 25 new employees over the
next few years in the areas of sales and marketing, public relations,
physician education, technology and customer support. We anticipate
that we will hire several members to our sales, marketing, research and
development, regulatory and administrative staff during the course of
2010. However, there are no assurances that we will obtain any
additional funds in the future. We are in the process of recruiting
additional employees of high skill, and our success will depend in part
upon our ability to retain such employees and attract new qualified
employees who are in great demand. None of our employees are members
of a union. We consider our employee labor relations to be good.
Government Regulations
----------------------
Any entity can state that they are an independent review organization.
However, registration or certification is required in order to be
eligible for assignment of statutory or regulatory work from government
agencies, i.e. state departments of insurance. Licensing is only
required for companies who wish to work for the State Department of
Insurance. There is no licensing requirements to do commercial, for
attorneys or insurance companies, or private, individual consumers,
payer work for medical review. We are registered or a certified IRO in
the states in which we conduct business.
In the state of Texas, our subsidiary IRI has been registered by the
Texas Department of Insurance since 1999 to the present for statutory
work for review of medical necessity denials by private insurance
carriers for the state (registration #05055). We may make applications
to other states sometime at a later date.
There are no other existing government regulations, nor are we aware of
any regulations being contemplated that would adversely affect our
ability to operate. To date, governmental regulations have not
materially restricted the use or development of our business. However,
new laws may have an impact on our ability to market our services in
accordance with our business plan.
Competition
-----------
Many companies within the medical expert industry are larger, more
established and better capitalized. We have marginal sales, net losses
and limited funds for marketing. Our competitors fall into three
different categories:
(a) Directories of Experts. Directories are maintained by several
organizations and service companies, e.g. West Law, Lexus Nexus, Seek,
America Medical Association, and other online providers.
(b) Referral Services. Almost any employment agency can handle
search and recruitment of a part time medical consultant. There are
numerous companies specializing in the medical placement field.
16
(c) Sole Service Providers. These companies are similar to Peer
Review's IRI division, in that they maintain their own panel of
providers or employees and they decide who to assign required work. A
search in Dunn and Bradstreet will reveal about 350 different
companies.
We believe our platform and business plan will offer a competitive
advantage over these competitors in the future. Our plan is to meld
together the advantages of the several types of competitors, and
infusing it with a new collaborate technology. Like directories, we
have a vast panel representing many medical specialties and geographic
locations. But unlike Directories, we maintain vast amount of
information about our physicians, with a searchable Data Archive of
their complete curriculum vita. The disadvantage of Directory or
Referral Services is that the client must expend a lot of effort to
screen through physicians and contact the physician directly. Our
customer relations process handles the communication and determines
which of the chosen professionals are interested in the work
assignment. Our methods allow the Client to search, review and chose a
"short" list of qualified physicians and send a request for proposal to
the list. Physicians can review case details and if interested,
responds with a quote for services. To our knowledge and unlike all
the competitors in the industry, we expect to offer an advantageous
case management system where the client can identify case parties,
documents, authorities to upload and/or view documents, and request
documents from others.
Trademarks/Tradenames/Intellectual Property
-------------------------------------------
We have no patents pending but maintain strong intellectual property
controls. All employees are subject to a Non-Disclosure and
Intellectual Property and Ownership Agreement.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
At the present time, we do not own any real estate. Currently we rent
approximately 8,000 sq. ft. of prime office space in Boca Raton,
Florida, from 5th Avenue Real Estate Development, Inc., a corporation
controlled by our CEO. The lease expires in 2011, is non-cancelable,
and carries no additional renewal option. The required monthly payment
is $14,000 plus costs of approximately $5,158 per month. Rent expense
incurred under the lease for the fiscal years ending December 31, 2008
and December 31, 2009, was $239,839 and $238,296, respectively.
17
Subsequent to December 31, 2007, future minimum payments under the
lease are approximately $930,000 including $238,296 per year from 2008
through 2010, and $218,438 in 2011. We believe that the general
physical condition of our executive offices is adequate to satisfy our
current needs. It is not our policy to acquire properties for capital
gain or rental income. We believe that the annual rental cost of
$168,000 is comparable for similar space in the area, and has been
arrived at in an arms-length process of comparing cost per square foot
of comparable office space in the geographical area. As such, the
board of directors has found renting office space from an entity owned
by our CEO not to be a conflict of interest.
We also lease space for IRI's offsite storage at Stor-A-Way, 550 S H35
Round Rock, TX 78681. IRI pays $69.00 per month, on a month to month
lease.
ITEM 3. LEGAL PROCEEDINGS
In July 2006, we entered into a Consent Order with the State of
Georgia, which, acting on a complaint by a shareholder, asserted that
Merge Media/Ebiznet, Inc., a non-operating affiliate of our Company,
and we offered and sold securities in Georgia in violation of the
securities laws of that State. One accredited investor purchased
shares of Merge Media in 2000. The shareholder did not purchase our
securities but received shares as part of the distribution of Merge
Media's shares to its shareholders. Due to our failure to timely
respond to the State of Georgia, the Georgia Secretary of State
obtained a default judgment. In order to settle the matter without
incurring further costs and expenses, we negotiated a Consent Agreement
and Order with the Georgia Secretary of State. Without our admitting
or denying the allegations, we offered a full rescission to the
shareholder of her original $15,000 investment, which she accepted and
payment in full was made to her. We also made payment of the fine
imposed to cover the State of Georgia's costs. The State of Georgia
agreed to vacate the Judgment against us.
In October 2005, we commenced legal action in the District Court of the
62nd Judicial District, Hopkins County, Texas against a former officer
of our subsidiary, Independent Review, Inc., alleging, among other
things, that the former officer had breached his fiduciary duties owed
to us and was attempting to operate IRI without proper authority. In
September 2006, the District Court of the 345th Judicial District,
Travis County, Texas, where the case had been moved, ruled that we did
own 100% of IRI.
A law firm which represented us temporarily during the aforesaid legal
proceedings did, in March 2006, assert that we owed the firm
approximately $31,500 in legal fees. We responded to this demand by
denying the allegation, alleging that the fees submitted for payment
were unearned. We have not been served with a complaint, or otherwise
heard further since providing our response.
18
The registrant is a named party in a legal action filed by a mortgage
lender against an entity related to the Company by common control, to
foreclose on and take possession of the building in which the
registrant has its business headquarters.
To our knowledge, there are no other legal proceedings by or against
us, either pending or contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 5(a)
a) Market Information. As of the date of this report there is no
market for our common stock. We intend to take certain steps to cause
a licensed market maker to file an application with FINRA to list our
common stock for trading on the OTCBB, or another national exchange.
There can be no assurances that our common stock will be approved for
listing on the OTCBB, or any other existing US trading market.
b) Holders. As of the date of this Report, we had 756 holders of
record for our common shares, and 201 holders of purchase options.
c) Dividends. We have not paid any dividends since our incorporation
and do not anticipate the payment of dividends in the foreseeable
future. At present, our policy is to retain earnings, if any, to
develop and market our products. The payment of dividends in the
future will depend upon, among other factors, our earnings, capital
requirements, and operating financial conditions.
d) Securities authorized for issuance under equity compensation plans.
No securities are authorized for issuance by the registrant under
equity compensation plans.
e) Performance graph. Not applicable.
f) Sale of unregistered securities. None.
Item 5(b) Use of Proceeds. Not applicable.
Item 5(c) Purchases of Equity Securities by the issuer and
affiliated purchasers.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
-------
We were incorporated under the laws of the State of Florida on April
16, 2001. We have been conducting business operations ever since,
primarily focused on the creation and continual development of our
proprietary Private Network Application which allows direct access to
our Peer Review Data Archival resource via our peerreviewboard.com
20
Internet web site. Our wholly owned subsidiary, Independent Review,
Inc., is engaged in providing medical case reviews to the Texas
Insurance Commission pursuant to a license from the State of Texas.
Our service enables subscribers, attorneys, insurance claims agents,
healthcare providers and consumers the ability to efficiently search
and engage medical experts for a variety of medical consulting
projects. PRMA maintains a network of independent physicians as
members of its Peer Review Board, available to assist in areas such as:
expert medical opinions and testimony, legal case evaluation and
strategy, assessment of damages, case valuation, medical peer review
and chart review, independent medical review, quality and utilization
review, medical case management, and medical second opinion.
Results Of Operations
---------------------
Comparison of Results of Operations for the Fiscal Years Ended December
31, 2009 and 2008
Sales were $59,251 for the fiscal year ended December 31, 2009, as
compared to sales of $64,965 for the fiscal year ended December 31,
2008, a decrease of $5,714 (8.8%). These revenues were generated by
our subsidiary, IRI, which handles medical denied insurance cases for
the Texas Department of Insurance. Our decrease in revenues during our
fiscal year ended December 31, 2009 was attributable to the increased
number of independent medical review providers in the State of Texas.
Management intends to deal with this development in two ways. The
business in Texas is independent medical review, and we intend to use
the same network of physicians to provide other types of services,
including case management, expert witness, peer review and quality
review. These additional types of service are expected to access
demand that we currently are not accessing, and allow us to use our
network of physicians to create additional revenue. We also plan to
expand geographically, so as not to be limited to the opportunity
in the Texas market. Selling regionally and nationally is expected to
allow us to generate increased revenue. There can be no assurances
that we will be able to expand, or that such expansion will result in
increased revenues.
Cost of sales was $21,811 for the fiscal year ended December 31, 2009,
as compared to cost of sales of $28,722 for the comparable period in
2008, a decrease of $6,911 (24.1%). Cost of sales decreased due to a
decrease in revenues and increased efficiency in the providing of
service.
For the fiscal year ended December 31, 2009, we incurred operating
expenses of $1,302,497, which included selling, general and
administrative expenses of $1,295,020, compared to operating expense of
$1,399,021 during the fiscal year ended December 31, 2008, which
included selling, general and administrative expenses of $1,388,509 for
the same period last year, or a 6.7% decrease in selling, general and
administrative expense, principally because of reduced business
activity. Selling, general and administrative expenses during the
fiscal year ended December 31, 2009, consisted of $163,010 in physician
21
recruitment, $108,674 in administrative expense, $90,561 in operational
expense, $190,797 in IT maintenance, $238,296 in rent, $240,000 in
officers and directors compensation, $104,098 in consulting fees,
$11,074 in telephone, $85,210 in legal and & professional fees, $4,352
in utilities and maintenance, $30,355 in office supplies, $1,339 in
licenses/permits, $12,782 in promotion and advertising, and $6,995 in
miscellaneous fees. Depreciation and amortization expense decreased to
$7,477 during the fiscal year ended December 31, 2009, compared with
that of $10,512 for the same period in 2008. The decrease in
depreciation and amortization expense was primarily due to the change
in the percentage of depreciated assets in 2008.
As a result, we incurred a loss of ($1,402,750) during fiscal year
ended December 31, 2009, or ($0.17) per share, compared with a loss of
($1,406,405) during the fiscal year ended December 31, 2008, or ($0.17)
per share.
Liquidity and Capital Resources
-------------------------------
At December 31, 2009, we had $27,392 in cash and $162 in marketable
securities, compared to $53,995 in cash and $82 in marketable
securities for the fiscal year ended December 31, 2008. Working
capital at December 31, 2009 decreased from December 31, 2008 primarily
as a result of operating losses. At December 31, 2009, we had total
assets of $47,511 and total liabilities of $2,595,596.
Going Concern
-------------
Our consolidated financial statements have been prepared assuming that
we will continue as a going concern. The factors described above raise
substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements do not include any adjustments
that might result from this uncertainty. Our independent registered
public accounting firm has included an explanatory paragraph expressing
doubt about our ability to continue as a going concern in their audit
report for the fiscal year ended December 31, 2008 and 2009.
Management's plan for our continued existence includes selling
additional stock through private placements to pay overhead expenses.
Our future success is dependent upon our ability to achieve profitable
operations, generate cash from operating activities and obtain
additional financing. There is no assurance that we will be able to
generate sufficient cash from operations, sell additional shares of
Common Stock or borrow additional funds. Our inability to obtain
additional cash could have a material adverse effect on our financial
position, results of operations and our ability to continue as a going
concern.
Equity Financing
----------------
Since December 2006, we have successfully closed three (3) separate
private offerings of units, each unit consisting of one share of our
common stock and one purchase option exercisable to purchase one share
of our common stock at a price of $5.00 per unit. In December 2006, we
closed our initial private offering of units wherein we sold 113,290
22
units to 114 accredited investors and received gross proceeds of
approximately $566,450 therefrom. In December 2007, we closed a
private offering of units, selling 71,453 units to 49 accredited
investors for gross proceeds of $357,265. In June 2008, we closed a
private offering of units wherein we sold 89,197 units to 33 accredited
investors for gross proceeds of $445,985. In May 2008, we also issued
50,000 units in consideration for services valued at $250,000 in favor
of five persons. Also in December 2007, we issued 6,676 shares of
common stock in exchange for cash in the amount of $33,380 to eight
accredited investors at a price of $5.00 per share. In December 2007,
we also issued 3,957 shares of common stock as compensation for
services.
The net cash used in operating activities for the year ended December
31, 2009, was $1,092,665. The net cash provided from financing
activities for the year ended December 31, 2009, was $1,074,520. We
had $34,514 in cash and cash equivalents as of December 31, 2009,
compared to $59,087 in cash and cash equivalents as of December 31,
2008. This decrease was primarily due to the payment of additional
expenditures to enhance and expand our panel of medical experts,
technology platform, and overall business operations. We had $6,960 in
account receivables as of December 31, 2009, as compared to $5,010 at
December 31, 2008.
Willis Hale, our chairman, CEO, president and principal shareholder, is
owed various sums as of the date of this report. The amounts are
accrued yearly pursuant to Mr. Hale's employment agreement with us. As
of December 31, 2009, the balance due was $1,267,800. No interest has
been accrued to this balance.
Dave Larry, our director and minority shareholder, is owed $26,510
pursuant to a loan agreement. This loan has monthly payments of
$3,125, is unsecured, accrues interest at the rate of 9.75% per annum
and has a three year term, with a balloon payment of all unpaid
principal and interest due on expiration in December 2011.
Plan of Operations
------------------
Any additional growth may require additional cash infusions. We may
face expenses or other circumstances such that we will have additional
financing requirements. In such event, the amount of additional
capital we may need to raise will depend on a number of factors. These
factors primarily include the extent to which we can achieve revenue
growth, the profitability of such revenues, operating expenses,
research and development expenses, and capital expenditures. Given the
number of programs that we have ongoing and not complete, it is not
possible to predict the extent or cost of these additional financing
requirements. The failure to secure any necessary outside funding
would have an adverse affect on our development and results therefrom
and a corresponding negative impact on shareholder liquidity.
23
If we need to raise additional funds in the future, it is likely we
will seek to issue additional equity securities. If we issue
additional equity securities to raise funds, the ownership percentage
of our existing stockholders would be reduced. New investors may
demand rights, preferences or privileges senior to those of existing
holders of common stock. If we cannot raise any needed funds, we might
be forced to make substantial reductions in our operating expenses,
which could adversely affect our ability to implement our current
business plan and ultimately our viability as a company.
We believe we will require an aggregate of $4 million over the next
twelve (12) months, including approximately $3 million to consummate
proposed acquisitions and at least $1 million in operating capital,
unless we are able to generate profits from operation, of which there
is no assurance. As such, we do not have sufficient funds on hand to
meet our planned expenditures over the next 12 months. However, if the
Purchase Options are exercised, we believe that we will have sufficient
funds to implement our business plan described herein. If the purchase
options are not exercised we will need to seek additional financing to
meet our planned expenditures, or limit our acquisitions. Obtaining
additional financing would be subject to a number of factors, including
development of our business plan and interest in the registrant. These
factors may make the timing, amount, terms or conditions of additional
financing unavailable to us.
Our ability to continue to grow our revenues is subject to significant
risks including, without limitation, our limited marketing budget, the
limited track record for our products and the difficulties encountered
in trying to enter new markets with newly developed products and
technologies, the potentially long sales and qualification process
required for our products and the risk that our competitors will
develop products that diminish or eliminate any technological
advantages of our products.
Critical Accounting Policies and Estimates
------------------------------------------
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated
financial statements requires us to make estimates and judgments that
affect the amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-
going basis, we evaluate our estimates based on historical experience
and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The
following represents a summary of our critical accounting policies,
defined as those policies that we believe are the most important to the
portrayal of our financial condition and results of operations and that
24
require management's most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of
matters that are inherently uncertain.
Leases - We follow the guidance in SFAS No. 13 "Accounting for Leases,"
as amended, which requires us to evaluate the lease agreements we enter
into to determine whether they represent operating or capital leases at
the inception of the lease.
Stock-based compensation - Effective January 1, 2006, we adopted
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standard (SFAS) No. 123R, "Share Based Payment." SFAS 123R
requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost is recognized on a
straight-line basis over the employee service period (usually the
vesting period). That cost is measured based on the fair value of the
equity or liability instruments issued using the Black-Scholes option
pricing model.
Recent accounting pronouncements - In September 2006, the FASB issued
SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and requires
enhanced disclosures about fair value measurements. SFAS No. 157
requires companies to disclose the fair value of their financial
instruments according to a fair value hierarchy as defined in the
standard. Additionally, companies are required to provide enhanced
disclosure regarding financial instruments in one of the categories
(level 3), including a reconciliation of the beginning and ending
balances separately for each major category of assets and liabilities.
SFAS No. 157 is effective for our consolidated financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The adoption of SFAS No. 157 is not
expected to have a material impact on our consolidated financial
statements or results of operations.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans." SFAS No.
158 requires the recognition of the funded status of a defined benefit
plan in the balance sheet; the recognition in other comprehensive
income of gains or losses and prior service costs or credits arising
during the period but which are not included as components of periodic
benefit cost; the measurement of defined benefit plan assets and
obligations as of the balance sheet date; and disclosure of additional
information about the effects on periodic benefit cost for the
following fiscal year arising from delayed recognition in the current
period. In addition, SFAS No. 158 amends SFAS No. 87, "Employers'
Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," to include guidance
regarding selection of assumed discount rates for use in measuring the
benefit obligation. The recognition and disclosure requirements of
SFAS No. 158 are effective for our year ended December 31, 2006. The
25
measurement requirements are effective for fiscal years ending December
31, 2009. We do not believe the adoption of SFAS 158 will have a
material impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities". Under the provisions
of SFAS No. 159, companies may choose to account for eligible financial
instruments, warranties and insurance contracts at fair value on a
contract-by-contract basis. Changes in fair value will be recognized
in earnings each reporting period. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. We are
required to adopt the provisions of SFAS No. 159 effective January 1,
2008. We are currently assessing the impact of the adoption of SFAS
No. 159.
In December 2007, the FASB issued a revised standard, SFAS 141R,
"Business Combinations" on accounting for business combinations. The
major changes to accounting for business combinations are summarized as
follows:
- SFAS 141R requires that most identifiable assets, liabilities,
noncontrolling interests and goodwill acquired in a business
combination be recorded at "full fair value"
- Most acquisition-related costs would be recognized as expenses as
incurred.
- Obligations for contingent consideration would be measured and
recognized at fair value at the acquisition date.
- Liabilities associated with restructuring or exit activities are
recognized only if they meet the recognition criteria in SFAS 146,
"Accounting for Costs Associated with Exit or Disposal Activities," as
of the acquisition date.
- An acquisition date gain is reflected for a "bargain purchase."
- For step acquisitions, the acquirer re-measures its
noncontrolling equity investment in the acquiree at fair value as of
the date control is obtained and recognizes any gain or loss in income.
- A number of other significant changes from the previous standard
including related to taxes and contingencies.
The statement is effective for business combinations occurring in the
first annual reporting period beginning on or after December 15, 2008.
The adoption of SFAS No. 141R is not expected to have a material impact
on our consolidated financial statements or results of operations.
In December 2007, the FASB issued a revised standard SFAS 160, "Non-
controlling Interests in Consolidated Financial Statements," on
accounting for non-controlling interests and transactions with non-
controlling interest holders in consolidated financial statements.
This statement specifies that non-controlling interests are to be
treated as a separate component of equity, not as a liability or other
item outside of equity. Because non-controlling interests are an
element of equity, increases and decreases in the parent's ownership
interest that leave control intact are accounted for as capital
26
transactions rather than as a step acquisition or dilution gains or
losses. The carrying amount of the non-controlling interests is
adjusted to reflect the change in ownership interests, and any
difference between the amount by which the non-controlling interests
are adjusted and the fair value of the consideration paid or received
is recognized directly in equity attributable to the controlling
interest. This standard requires net income and comprehensive income
to be displayed for both the controlling and the non-controlling
interests. Additional required disclosures and reconciliations include
a separate schedule that shows the effects of any transactions with the
non-controlling interests on the equity attributable to the controlling
interest. The statement is effective for periods beginning on or after
December 15, 2008. SFAS 160 will be applied prospectively to all non-
controlling interests, including any that arose before the effective
date. The adoption of SFAS No. 160 is not expected to have a material
impact on our consolidated financial statements or results of
operations.
Inflation
---------
Although our operations are influenced by general economic conditions,
we do not believe that inflation had a material effect on our results
of operations during 2008.
Off-Balance Sheet Arrangements
------------------------------
We have not entered into any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources and would be considered material to investors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PEER REVIEW MEDIATION AND ARBITRATION, INC.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm 28
Consolidated Balance Sheets as of December 31,
2009 and 2008 29
Consolidated Statements of Operations For the
Years Ended December 31, 2009 and 2008 30
Consolidated Statements of Stockholders' Equity
(Deficit) For the Years Ended December 31, 2009 and 2008 31
Consolidated Statements of Cash Flows For the Years
Ended December 31, 20098 and 20087 33
Notes to Consolidated Financial Statements 34
28
RONALD R. CHADWICK, P.C.
Certified Public Accountant
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
Telephone (303)306-1967
Fax (303)306-1944
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Peer Review Mediation And Arbitration, Inc.
Boca Raton, Florida
I have audited the accompanying consolidated balance sheets of Peer
Review Mediation And Arbitration, Inc. as of December 31, 2009 and
2008, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that I 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. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Peer Review Mediation And Arbitration, Inc. as of December
31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 7 to the financial statements, the Company has
suffered recurring losses from operations and has a working capital
deficit and stockholders' deficit. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 7. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Aurora, Colorado /s/Ronald R. Chadwick, P.C.
March 31, 2010 ---------------------------
RONALD R. CHADWICK, P.C.
29
PEER REVIEW MEDIATION AND ARBITRATION, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2008 2009
----------- -----------
ASSETS
Current assets
Cash $ 53,995 $ 27,392
Accounts receivable 5,010 6,960
Marketable securities 82 162
----------- -----------
Total current assets 59,087 34,514
----------- -----------
Fixed assets 65,621 74,079
Less accumulated depreciation (54,255) (61,582)
Other assets 500 500
----------- -----------
11,866 12,997
----------- -----------
Total Assets $ 70,953 $ 47,511
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued payables $ 130,309 $ 177,683
Related party payables 1,976,761 2,362,657
Notes payable related party
- current portion 17,475 53,020
Notes payable 8,271 -
Related party loans 977,797 2,236
----------- -----------
Total current liabilities 3,110,613 2,595,596
----------- -----------
Notes payable - related party 175,071 -
----------- -----------
Total Liabilities 3,285,684 2,595,596
----------- -----------
Stockholders' Equity
Preferred stock, Series II, $.001
par value; 1,000,000 shares authorized;
convertible; 1,000,000 issued and
outstanding 1,000 1,000
Common stock, $.001 par value;
45,000,000 shares authorized;
8,118,126 (2009), and 8,264,126(2008)
shares issued and outstanding 8,264 8,386
Additional paid in capital 6,985,082 9,054,356
Accumulated deficit (10,195,406) (11,598,237)
Accumulated other comprehensive
income (loss) (13,671) (13,590)
----------- -----------
30
Total Stockholders' Equity (3,214,731) (2,548,085)
----------- -----------
Total Liabilities and Stockholders'
Equity $ 70,953 $ 47,511
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
31
PEER REVIEW MEDIATION AND ARBITRATION, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year Ended Year Ended
December 31, December 31,
2008 2009
----------- -----------
Revenue $ 64,965 $ 59,251
Cost of sales 28,722 21,811
----------- -----------
36,243 37,440
Expenses:
Depreciation 10,512 7,477
Selling, general and administrative 1,388,509 1,295,020
----------- -----------
1,399,021 1,302,497
----------- -----------
Loss from operations (1,362,778) (1,265,057)
----------- -----------
Other income (expense)
Interest Income 25 180
Interest (expense) (42,450) (137,954)
Realized gain (loss) on securities 1,201 -
----------- -----------
(41,224) (137,774)
----------- -----------
Income (loss) before provision for
income taxes (1,404,002) (1,402,831)
Provision for income tax - -
----------- -----------
Net income (loss) $(1,404,002) $(1,402,831)
Other comprehensive income (loss)
- net of tax
Unrealized gain (loss) on securities (2,403) 81
----------- -----------
Comprehensive income (loss) $(1,406,405) $(1,402,750)
=========== ===========
Net income (loss) per share
(Basic and fully diluted) $ (0.17) $ (0.17)
=========== ===========
Weighted average number of common
shares outstanding 8,217,001 8,319,882
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
32
PEER REVIEW MEDIATION AND ARBITRATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred
Preferred Stock Stock
Common Stock Series I Series II
------------ --------------- ---------
Amount Amount
$.001 $.001
Shares par Shares par Shares
------ ------ ------ ------ ------
Balances at December 31, 2007 8,118,126 $ 8,118 - $ - 1,000,000
Sales of common stock - cash 96,000 96 - - -
Sales of common stock- cash ($50)
and services (184,950) 50,000 50 - - -
Sales of common stock options-cash - - - - -
Sales of common stock options-services - - - - -
Unrealized gain (loss) on securities - - - - -
--------- ------- ------- -------- ----------
Income (loss) for the period - - - - -
Balances at December 31, 2008 8,264,126 $ 8,264 - $ - 1,000,000
Compensatory stock issuances 5,505 5 - - -
Warrant exercises - cash 66,686 67 - - -
Warrant exercises - paid by debt
conversion 50,000 50 - - -
Unrealized gain (loss) on securities
Income (loss) for the period
--------- ------- ------- -------- ----------
Balance at December 31, 2009 8,386,317 $8,386 - $ - 1,000,000
33
PEER REVIEW MEDIATION AND ARBITRATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Continued
Preferred
Stock
Series II Compre- Stock-
--------- Paid In Accumulated hensive holders'
Amount Capital Deficit Income(loss) Equity
------ ------- ------- ------ ------
Balances at December 31, 2007 $1,000 $6,367,728 $(8,791,404) $(11,268) $(2,425,826)
Sales of common stock - cash - 425,104 - - 425,200
Sales of common stock- cash ($50)
and services ($184,950) - 184,950 - - 185,000
Sales of common stock options
-cash - 4,800 - - 4,800
Sales of common stock options
-services - 2,500 - - 2,500
Unrealized gain (loss) on
securities - - - (2,403) (2,403)
------ ---------- ----------- -------- -----------
Income (loss) for the period - - (1,404,002) - (1,404,002)
Balances at December 31, 2008 $1,000 $6,985,082 $(10,195,406) $(13,671) $(3,214,731)
Compensatory stock issuances 27,520 27,525
Warrant exercises - cash 1,166,804 1,166,871
Warrant exercises - paid by debt
conversion 874,950 875,000
Unrealized gain (loss) on securities 81 81
Income (loss) for the period (1,402,831) (1,402,831)
------ ---------- ------------ -------- -----------
Balance at December 31, 2009 $1,000 $9,054,356 $(11,598,237) $(13,590) $(2,548,085)
====== ========== ============ ======== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
34
PEER REVIEW MEDIATION AND ARBITRATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, December 31,
2008 2009
----------- -----------
Cash Flows From Operating Activities:
Net income (loss) $(1,404,002) $(1,402,831)
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities:
Depreciation 10,512 7,327
Accounts receivable (5,010) (1,950)
Accrued payables 56,050 (108,632)
Related party payables 347,646 385,896
Compensatory equity issuances 187,450 27,525
Realized (gain) loss on sale of securities (1,201) -
----------- -----------
Net cash provided by (used for)
operating activities (808,555) (1,092,665)
----------- -----------
Cash Flows From Investing Activities:
Fixed assets - (8,458)
Sales of marketable securities 2,348 -
----------- -----------
Net cash provided by (used for)
investing activities 2,348 (8,458)
----------- -----------
(Continued on Following Page)
The accompanying notes are an integral part
of the consolidated financial statements.
35
PEER REVIEW MEDIATION AND ARBITRATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued From Previous Page)
Year Ended Year Ended
December 31, December 31,
2008 2009
----------- -----------
Cash Flows From Financing Activities:
Notes payable - borrowings 40,000
Notes payable - payments (27,593) (68,976)
Related party loans 259,489 (63,375)
Sales of common stock 425,250
Sales of options 4,800
Option Exercises 1,166,871
----------- -----------
Net cash provided by (used for)
financing activities 661,946 1,074,520
----------- -----------
Net Increase (Decrease) in Cash (144,261) (26,603)
Cash At The Beginning Of The Period 198,256 53,995
----------- -----------
Cash at the End of the Period $ 53,995 $ 27,392
=========== ===========
Schedule of Non-Cash Investing and Financing Activities
-------------------------------------------------------
In 2008 the Company sold 50,000 common shares for $50 in cash and
$184,950 in services, and 50,000 common stock options for $2,500 in
services. In 2009 related parties converted $719,749 of payables into
notes payable, then contributed $875,000 in principal and accrued note
interest to capital as payment for 50,000 exercised options.
Supplemental Disclosure
Cash paid for interest $ 19,959 $ 20,482
Cash paid for income taxes $ - $ -
The accompanying notes are an integral part
of the consolidated financial statements.
36
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2009
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Peer Review Mediation And Arbitration, Inc. ("PRMA", the "Company"),
was incorporated in the State of Florida on April 16, 2001. The Company
provides peer review services and expertise to law firms, medical
practitioners, insurance companies, hospitals and other organizations
in regard to personal injury, professional liability and quality
review.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of PRMA and its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
Income tax
----------
The Company accounts for income taxes pursuant to ASC 740. Under ASC
740 deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
At December 31, 2008 and 2009 the Company had net operating loss
carryforwards of approximately $10,200,000 and $11,600,000 which begin
to expire in 2021. The deferred tax asset of approximately $4,000,000
and $4,500,000 in 2008 and 2009 created by the net operating losses
have been offset by a 100% valuation allowance. The change in the
valuation allowance in 2008 and 2009 was $547,561 and $547,104.
37
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007 and 2008
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
Net income (loss) per share
---------------------------
The net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of shares of common outstanding.
Warrants, stock options, and common stock issuable upon the conversion
of the Company's preferred stock (if any), are not included in the
computation if the effect would be anti-dilutive and would increase the
earnings or decrease loss per share.
Property and equipment
----------------------
Property and equipment are recorded at cost and depreciated under the
straight line method over each item's estimated useful life. At
December 31, 2008 and 2009 the Company had an office equipment balance
of $65,621 and $74,079 with corresponding accumulated depreciation of
$54,255, and $61,582. Depreciation expense for 2008 and 2009 was
$10,512, and $7,477.
Revenue recognition
-------------------
Revenue is recognized on an accrual basis after services have been
performed under contract terms, the service price to the client is
fixed or determinable, and collectibility is reasonably assured. The
Company's revenues to date have been earned primarily from consulting
fees for arranging medical expert insurance case review.
Financial Instruments
---------------------
The carrying value of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, and
due to related parties, as reported in the accompanying balance sheets,
approximates fair value.
Long-Lived Assets
-----------------
In accordance with ASC 350, the Company regularly reviews the carrying
value of intangible and other long-lived assets for the existence of
facts or circumstances, both internally and externally, that may
suggest impairment. If impairment testing indicates a lack of
recoverability, an impairment loss is recognized by the Company if the
carrying amount of a long-lived asset exceeds its fair value.
38
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2009
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
Products and services, geographic areas and major customers
-----------------------------------------------------------
The Company derives revenue from fees paid by users and subscribers for
access to and use of the Company's database of consulting
professionals, and for quality review of insurance cases, although it
does not separate these activities into operating segments. The
Company's sales are external and domestic.
Marketable Securities
---------------------
The Company's marketable securities are classified as available-for-
sale, are presented in the balance sheets at fair market value, and
consist entirely of equity securities. Gains and losses are determined
using the specific identification method. The change in unrealized
gains and losses in 2008 and 2009 was $(2,403), and $81.
Comprehensive income (loss)
--------------------------
The Company accounts for comprehensive income (loss) under ASC 220,
which establishes standards for reporting and display of comprehensive
income and its components. Unrealized gains (losses) from marketable
securities are reported as other comprehensive income (loss) in the
consolidated statements of income and comprehensive income and as
accumulated other comprehensive income (loss) in stockholders' equity.
Stock based compensation
------------------------
The Company accounts for employee and non-employee stock awards under
ASC 718, whereby equity instruments issued to employees for services
are recorded based on the fair value of the instrument issued and those
issued to non-employees are recorded based on the fair value of the
consideration received or the fair value of the equity instrument,
whichever is more reliably measurable.
NOTE 2. RELATED PARTY TRANSACTIONS
As of December 31, 2008 and 2009 the Company owed related parties
$1,976,761 and $2,362,657 for operating payables. The Company also owed
related parties at each date $977,797 and $2,236 for working capital
loans.
During the year ended December 31, 2008 the Company issued 10,000
common shares and 10,000 warrants to a related party for $50 in cash
and $37,450 in services. In 2009 related parties converted $719,749 of
39
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2009
NOTE 2. RELATED PARTY TRANSACTIONS continued
payables into notes payable, then contributed $875,000 in principal and
accrued interest to capital as payment of 50,000 options exercised at
$17.50 per share.
NOTE 3. LEASE COMMITMENTS
-------------------------
The Company rents space under an office lease from a corporation
controlled by an officer. The lease expires in 2011, is noncancellable,
and carries no additional renewal option. The required monthly payment
is $14,000 plus costs of approximately $5,158 per month. Rent expense
incurred under the lease in 2008 and 2009 was approximately $238,000
each year. Subsequent to December 31, 2009 future minimum payments
under the lease are approximately $460,000 including $238,296 in 2010
and $218,438 in 2011. The Company also carries various equipment leases
which run through November 2010, requiring monthly payments of $757 per
month plus costs. The equipment leases are classified as operating
leases. Rent expense incurred under the leases in 2008 and 2009 was
approximately $11,000 each year. Subsequent to December 31, 2009 future
minimum payments under the equipment leases are approximately $7,445 in
2010.
NOTE 4. NOTES PAYABLE
At December 31, 2008 the Company had a note payable to a bank of $8,271
which was retired in 2009. Interest expense under the note for the
years ended December 31, 2008 and 2009 was $1,027 and $149
respectively. Accrued interest related to the note payable was $33 at
December 31, 2008.
At December 31, 2008 and 2009 the Company had a note payable to a
related party of $192,546 and $26,510. The note bears interest at
approximately 10%, is unsecured, requires monthly principal and
interest payments of $3,125, and is due in full in December 2010.
Interest expense under the note for the years ended December 31, 2008
and 2009 was $22,190 and $20,260. During 2009 the note holder converted
$152,189 in principal and interest to capital as part of an $875,000
option exercise amount. Accrued interest related to the note payable
was $3,398 at December 31, 2008, and none at December 31, 2009. Future
required principal payments under the note by year are: 2010 $26,510.
In 2009 related parties lent the Company $40,000 and converted $719,749
in operating payables due them into notes payable, unsecured, due on
demand and bearing interest at 9.5% per annum. The notes accrued
interest of $33,072. During 2009 the related parties received principal
40
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2009
NOTE 4. NOTES PAYABLE continued
payments of $43,500 and converted $722,811 in principal and interest to
capital as part of an $875,000 option exercise amount, leaving a year
end principal balance of $26,510.
NOTE 5. STOCKHOLDERS' EQUITY
Common stock
------------
The Company as of December 31, 2008 and 2009 had 45,000,000 shares of
authorized common stock, $.001 par value, with 8,264,126 and 8,386,317
shares issued and outstanding.
Preferred stock
---------------
The Company as of December 31, 2008 and 2009 had 5,000,000 shares of
authorized preferred stock, out of which 1,000,000 shares have been
designated as Series I convertible preferred stock ("Series I"). The
Series I has a par value $.001, is convertible into nine shares of the
Company's common stock with no further consideration, and is issuable
upon terms and conditions as may be designated by the Board of
Directors at or prior to issuance. No Series I shares were outstanding
as of December 31, 2008 and 2009. A further 1,000,000 shares have been
designated as Series II convertible preferred stock ("Series II"). The
Series II has a par value $.001, and is convertible into one share of
the Company's common stock one year after the first public market
trading date of PRMA's common stock with no further consideration.
1,000,000 Series II shares were outstanding as of December 31, 2008 and
2009. In addition, the Company has designated 1,000,000 shares as
Series III convertible preferred stock ("Series III"). The Series III
has a par value of $.001, and is convertible into one share of the
Company's common stock at any time with no further consideration, and
automatically converts to common stock on the third anniversary of the
issue date. No Series III shares were outstanding as of December 31,
2008 and 2009.
Stock options
-------------
At December 31, 2008 and 2009 the Company had stock options outstanding
as described below.
Non-employee stock options
--------------------------
The Company accounts for non-employee stock options under ASC 718,
whereby option costs are recorded based on the fair value of the
consideration received or the fair value of the equity instruments
41
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2009
NOTE 5. STOCKHOLDERS' EQUITY (Continued):
issued, whichever is more reliably measurable. Unless otherwise
provided for, the Company covers option exercises by issuing new
shares.
During the year ended December 31, 2008 the Company issued 146,000
common stock purchase options for $4,800 in cash and $2,500 in
services, allowing the holder to purchase one share of common stock per
option, exercisable within 90 days of an effective registration
statement at the initial public offering price. No options were
exercised or expired, and 6,803 options were canceled, leaving a
December 31, 2008 balance of 323,940 non-employee stock options
outstanding.
During the year ended December 31, 2009, option holders exercised
66,686 options at $17.50 per share (the initial public offering price
of the Company's common stock) for cash of $1,166,871, and exercised a
further 50,000 options at $17.50 a share for contributed capital on
debt relief by related parties of $875,000. No options expired or were
canceled, leaving a December 31, 2009 balance of 207,254 non-employee
stock options outstanding. The option expiration term on all the
options was changed in 2009 to be at the discretion of the Board, and
thus the options currently have no expiration date.
Employee stock options
The Company accounts for employee stock options under ASC 718. Unless
otherwise provided for, the Company covers option exercises by issuing
new shares. There were no employee stock options issued or outstanding
in 2008 and 2009.
Stock option plan
As part of an overall Company compensation program, the Company in May
2001 adopted a stock option plan called "The Peer Review Mediation And
Arbitration, Inc. 2001 Stock Option Plan ("the Plan"). The Plan
provides a means whereby directors and officers, employees,
consultants, contractors and others may be granted incentive stock
options and/or nonqualified stock options to purchase shares of the
Company's common stock, in order to attract and retain the services of
such persons. The number of shares subject to option under this Plan
cannot exceed 1,500,000. The conditions of each option grant, including
exercise price and length of term, shall be set by the Plan
administrator. In no event shall the term of any incentive stock option
under the Plan exceed ten years, or five years if granted to an
optionee owning 10% or more of the stock of the Company. As of December
31, 2008 and 2009 no options had been granted under the Plan.
42
PEER REVIEW MEDIATION AND ARBITRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2009
NOTE 6. LEGAL PROCEEDINGS
In October 2005 the Company commenced legal action in the District
Court of the 62nd Judicial District, Hopkins County, Texas against a
former officer of the Company's subsidiary Independent Review, Inc.,
alleging, among other things, that the former officer had breached his
fiduciary duties to the Company and was attempting to operate IRI
without proper authority. A control dispute ensued between the parties,
until in September 2006 the District Court of the 345th Judicial
District, Travis County, Texas, where the case had been moved, ruled
that PRMA owned 100% of IRI. A law firm which represented the Company
temporarily during the proceedings, has asserted that the Company owes
the firm approximately $31,500 in legal fees, which the Company
disputes as unearned.
The Company is a named party in a legal action filed by a mortgage
lender against an entity related to the Company by common control, to
foreclose on and take possession of the building in which the Company
has its business headquarters.
NOTE 7. GOING CONCERN
The Company has suffered recurring losses from operations and has a
working capital deficit and stockholders' deficit, and in all
likelihood will be required to make significant future expenditures in
connection with continuing marketing efforts along with general
administrative expenses. These conditions raise substantial doubt about
the Company's ability to continue as a going concern.
The Company may raise additional capital through the sale of its equity
securities, through an offering of debt securities, or through
borrowings from financial institutions. By doing so, the Company hopes
through increased marketing efforts to generate greater revenues from
sales of its web based peer review, consulting, and quality review
services to the medical and legal professions and to insurance
companies. Management believes that actions presently being taken to
obtain additional funding provide the opportunity for the Company to
continue as a going concern.
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures
----------------------------------
Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of the end of the period covered
by this Form 10-K. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange
Act)), as of the end of such period, are effective to ensure that
information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.
There have been no significant changes in our internal controls over
financial reporting during the fiscal year ended December 31, 2009 that
have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
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.
Management 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)
or 15d-15(f) promulgated under the Exchange Act. Those rules define
internal control over financial reporting as 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 generally accepted accounting principles
and includes those policies and procedures that:
- Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the company;
- Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and the receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the Company; and
44
- Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisitions, use or disposition of the
company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal controls over financial
reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this assessment,
our management used the criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on an assessment carried out during the period December 21-22,
2009, management believes that, as of December 31, 2009, our internal
control over financial reporting was effective.
ITEM 9B. OTHER INFORMATION
None.
45
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors and officers is incorporated by
reference to our Definitive Proxy Statement on Schedule 14A to be filed
with the Securities and Exchange Commission within 120 days after the
end of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive and director compensation is
incorporated by reference to our Definitive Proxy Statement on Schedule
14A to be filed with the Securities and Exchange Commission within 120
days after the end of our fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information concerning security ownership of each person known by us to
own beneficially more than 5% of the outstanding shares of our Common
Stock, of each of our directors and all officers and directors as a
group and of our equity compensation plans is incorporated by reference
to our Definitive Proxy Statement on Schedule 14A to be filed with the
Securities and Exchange commission within 120 days after the end of our
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information concerning certain relationships and related transactions
and director independence is incorporated by reference to our
Definitive Proxy Statement on Schedule 14A to be filed with the
Securities and Exchange Commission within 120 days after the end of our
fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information concerning principal accountant fees and services is
incorporated by reference to our Definitive Proxy Statement on Schedule
14A to be filed with the Securities and Exchange Commission within 120
days after the end of our fiscal year.
46
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are included herewith:
Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
Following are a list of exhibits which we previously filed in other
reports which we filed with the SEC, including the Exhibit No.,
description of the exhibit and the identity of the report where the
exhibit was filed.
Exhibit
Number Description
------- -----------
3.1 Articles of Incorporation(1)
3.1.1 Amendment to Articles of Incorporation(1)
3.2 Restated By-Laws adopted April 2006(1)
3.3 Specimen stock Certificate(1)
10.1 Agreement for Exchange of Shares Between Registration and
Independent Review, Inc. dated February 11, 2005(1)
10.2 Employment Agreement Between the Registrant and Willis
Hale dated January 1, 2007(2)
10.3 Form of Priority Stock Option Agreement(3)
10.4 Form of Subscriber/Member Agreement(4)
10.5 Form of Advisory Board Member Agreement(5)
10.6 Commercial Lease dated December 1, 2001 Between the
Registrant and 5th Avenue Real Estate Development, Inc.
and Renewals Thereof(6)
10.7 Form of Lock Up Agreement (included in Registrant's
Subscription Agreement & Investment Letter)(10)
21.1 List of Subsidiaries(10)
99 Privacy Policy of Registrant(7)
99.1 Letter of Intent between the Registrant and Dana Mediation
Institute, Inc. dated May 2 2008 to acquire Mediation
Training Institute International(8)
99.2 Letter of Intent between the Registrant and AmeriMed
Corporation dated July 11, 2008 to acquire AmeriMed
Corporation by ProMed Alliance, Inc., subsidiary of the
Registrant(8)
99.3 Letter of Intent between the Registrant and Max Systems,
Inc. dated April 24, 2008 to acquire Max Systems, Inc.(8)
99.4 Consent Order Issued August 14, 2006 by the Georgia
Commissioner of Securities in Case Number ENSCF-00033(9)
--------------
(1) Incorporated by reference to Form 10-SB Registration Statement filed July
2, 2007.
(2) Incorporated by reference to amendment to Form 10-SB Registration
Statement filed October 11, 2007 filed as Exhibit 10.1 therein.
(3) Incorporated by reference to amendment to Form 10-SB Registration
Statement filed October 11, 2007, filed as Exhibit 10.4 therein.
(4) Incorporated by reference to amendment to Form 10-SB Registration
Statement filed October 11, 2007, filed as Exhibit 10.8 therein.
(5) Incorporated by reference to amendment to Form 10-SB Registration
Statement filed October 11, 2007, filed as Exhibit 10.9 therein.
(6) Incorporated by reference to amendment to Form 10-SB Registration
Statement filed October 11, 2007, filed as Exhibit 10.10 therein.
(7) Incorporated by reference to amendment to Form 10-SB Registration
Statement filed October 11, 2007.
(8) Incorporated by reference to Form 10-Q for Quarter Ended June 30, 2008
filed August 12, 2008, filed as Exhibits 99.1, 99.2 and 99.4, respectively,
therein.
(9) Incorporated by reference to Form 10-SB Registration Statement filed July
2, 2007, filed as Exhibit 10.5 therein.
(10) Incorporated by reference to Form S-1 Registration Statement filed
October 31, 2008
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunder duly authorized.
Date: April 1, 2010
PEER REVIEW MEDIATION AND ARBITRATION, INC.
By: /s/ Willis Hale
---------------
Willis Hale, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Willis Hale Chief Executive Officer, April 1, 2010
-------------------- President, and Director
Willis Hale
/s/Marc E. Combs Chief Financial Officer, April 1, 2010
-------------------- Principal Accounting Officer
Marc E. Combs Director
