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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
 
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                                                to

 
Commission File Number: 000-50502
 
PREMIER ALLIANCE GROUP, INC
(Exact Name of registrant as Specified in Its Charter)
 
Nevada
20-0443575
(State of other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

4521 Sharon Road
Suite 300
Charlotte, North Carolina 28211
(Address of principal executive offices)

(704) 521-8077
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Name of Each Exchange On Which Registered
N/A
N/A

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes   [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
[ ] Yes   [X] No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
 

 
 

 


 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]                                                                Accelerated filer [ ]
 
Non-accelerated filer   [ ]                                                                Smaller reporting company [X]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No

State issuer’s revenues for its most recent fiscal year (ended December 31, 2009): $9,347,993

The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second quarter was.     N/A

The total number of shares of Common Stock of the Registrant outstanding as of the latest practicable date, March 16, 2010 were 6,226,835.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
 
Certain sections of the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission (SEC) within 120 days of the end of the Company’s fiscal year ended December 31, 2008, are incorporated by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the SEC as part of this annual report on Form 10-K.
 
 
 

 
 

 

 
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
 
TABLE OF CONTENTS
 

 
 
Page
   
 
   
 
EXHIBITS
   
 

 
 

 


 
PART I
 
 
 
GENERAL INFORMATION
 
Corporate Information
 
Premier Alliance Group, Inc. was incorporated on January 5, 2000, as Continuum Group C Inc. under the laws of the State of Nevada in accordance with a joint plan of reorganization (the “Plan”) for The Continuum Group, Inc. (“CGI”) in bankruptcy case 95-B-44222 (Chapter 11) in the U.S. Bankruptcy Court, Southern District of New York. The bankruptcy court entered an order on September 15, 1999 approving the Plan.  We, along with three other companies, Continuum Group A Inc., Continuum Group B Inc. and Continuum Group D Inc., were specifically formed as public shells to effect the terms of the Plan (the “Continuum Shells”).

The Plan provided for the formation of the Continuum Shells and (a) the issuance of shares of each of the Continuum Shells’ common stock to Hanover Capital Corporation, which funded the Plan; (b) the issuance of shares of the Continuum Shells’ common stock to holders of CGI’s allowed unsecured claims; and (c) the issuance of shares of Continuum Shells’ common stock to CGI’s pre-bankruptcy stockholders.

Prior to November 5, 2004 and since inception, we had not engaged in any business operations other than organizational activities; and other than issuing shares to our stockholders, we never commenced operational activities.  On that date, we consummated the share exchange agreement dated as of October 12, 2004, among the Company, Premier Alliance Group, Inc., a North Carolina corporation (“North Carolina Premier”), and the shareholders of North Carolina Premier.  As a result, North Carolina Premier became our wholly-owned subsidiary, and we changed our name to Premier Alliance Group, Inc.  Prior to this merger, management operated the Company as a separate organization.  Our financial statements included in this prospectus for periods prior to the merger are those of North Carolina Premier.

On December 16, 2004, we effected a 7:1 reverse split of our outstanding common stock resulting in 5,811,093 common shares outstanding.  All share and per share amounts in this prospectus are restated retroactively for the split.

As part of this transaction, we issued 5,811,093 shares of our common stock and 617,598 shares of our Class A convertible preferred stock to the shareholders of North Carolina Premier in exchange for all of North Carolina Premier’s outstanding shares of common stock and preferred stock.   The shares of common stock issued to the shareholders of North Carolina Premier constitute approximately 88% of our currently outstanding shares of common stock. The shares of our common stock and Class A preferred stock issued to the shareholders of North Carolina Premier represent approximately 90% of the voting power of our capital stock, on a fully diluted basis.

For accounting purposes, this transaction was accounted for as a reverse merger, since the shareholders of North Carolina Premier now own a majority of the issued and outstanding shares of our common stock and our current directors and executive officers were nominated by North Carolina Premier and were appointed effective the closing of the share exchange.

Overview
 
From 1995 until it merged with us, North Carolina Premier was a provider of information technology consulting services to businesses, primarily throughout the Southeast. The customer base includes businesses in the education, financial, healthcare, insurance, manufacturing, professional service, retail, textile, transportation, and utility industries, as well as governmental agencies. Upon consummation of our share exchange with the shareholders of North Carolina Premier, we acquired North Carolina Premier’s business by acquiring North Carolina Premier itself; on merging North Carolina Premier into our company, we started conducting that business directly. Throughout the rest of “Description of Business,” the words “us,” “we,” and “our” refer to North Carolina Premier with respect to the period prior to the share exchange and refer to our company with respect to the subsequent period.
 


Our business consists of providing business consulting services to our customers. Our services began a transformation in 2005 from a pure technology focus to a business consulting focus which can encompass technology impact and effort.  Our consulting team provides deep business knowledge which helps our customers drive key initiatives forward.  Much of our expertise is focused on core areas of business processes used throughout the corporate world including: project management, business analysis, business consulting, and strategic consulting.  Typical initiatives in which we provide expertise include compliance and regulatory, merger and acquisition, and business process reengineering efforts.  With technology being such an integral part of business, many of our consultants possess solid knowledge and experience that encompasses technology and are typically well versed in the IT business-solution software development life cycle.  The IT business-solution software development life cycle refers to industry standard steps typically followed in developing or creating software (the blueprint methodology), including phases for planning, developing, implementing, and managing the solution.
 
 A typical customer is an organization with complex business processes, large amounts of data to manage, and changing business requirements.  We promote our services through our two delivery channels, Business Consulting and Business Solution – Information Technology divisions.  These divisions operate as one from an accounting and overall management perspective; however they are differentiated from a marketing and customer presentation perspective only.  Management reviews and oversees the divisions as one combined entity, utilizes resources across both areas, and makes operational assessments and plans together.  In light of this,Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 131 “Business segments” does not require separate financial reporting and the two channels are consolidated in all financial report presentations.  
 
Business Consulting Division. This division provides consulting expertise across a broad range of knowledge, skills and expertise. We recruit, retain, manage, and provide to our clients skilled business and technical expertise to help lead and train our customers or supplement their knowledge requirements. Our core areas of expertise in this group revolve around efforts in 1) Governance, Risk Management, and Compliance (GRC), 2) Organizational effectiveness and 3) Mergers and Acquisitions.  In these engagements we typically bill our customers on a time-and-materials basis for all work performed. We are focused on providing Knowledge Based Expertise (KBE) and because of the expertise involved and the complexity of a typical initiative, customers seeking such services from us typically commit to long-term engagements that are usually a minimum of 9 months in which our consultants work on site at customer facilities under the daily direction of the customer management.  It is very common that we obtain contract extensions with our customers for our consulting resources.
 
Business Solutions – Information Technology Division. This division handles advanced technologies and solutions and provides expertise in project management, architecture, and information management or business intelligence. Its focus is to service customers on a time and material, project or deliverable basis. The work can be performed at customer facilities or at our facilities.  Services provided by this group include helping customers assess their business needs and identifying the right technology solution, helping manage or implement methodologies, designing, architecting and constructing new systems and integrating them with the customer’s existing technology.  Our core expertise has been creating customized applications or systems that are web enabled and transaction based systems.  In a Solution based contract, we typically have complete control and accountability over the effort and delivery from a day to day perspective by picking resources, managing and directing them.
 
Recent Acquisitions. In October 2009, the Company completed an asset purchase of Peoplesource Inc, a Winston Salem, NC based organization.  This transaction contributed to a broader customer base, better geographic coverage, and more capabilities on the business development and fulfillment ends.  Back office operations were successfully integrated in October with the rest of processes and roles integrated successfully by the end of December.  We are continually seeking to expand our base and coverage, and accordingly, may seek out future acquisitions and/or mergers to pursue this strategy.
 
 

Summary
 
Our focus is to provide subject matter expertise through our consulting team in a variety of ways that continue to help our clients navigate the changing business climate they must deal with.   Our approach is built 100% around our people - it is about knowledge, expertise and execution.   We have a focus on building our knowledge practices with talent in core areas we feel offer opportunity: compliance/regulatory, merger and acquisition, and business process reengineering/analysis.  Our recruiting and sales organization work with customers closely - a consultative approach - to understand the business direction, initiatives or issues they are dealing with.  It is our focus to then provide subject matter experts that can bring the expertise and knowledge to the client to allow for successful efforts.  If, as we expect, we continue to grow and attract specialized expertise in our focused areas of discipline, we will continue to be recognized as a value add partner for existing customers, add new customers, and will identify opportunities to provide additional value add services to our customers.
 
Our typical customers are Fortune 500 companies (including AIG, Lincoln Financial Group, Duke Power, Bank of America, and Wells Fargo), and they continually seek expertise and knowledge in areas such as project management, business consulting, and business analysis.
 
In delivering our services, Premier Alliance Group has 4 key functional areas or groups that ensure delivery:
 
(a)  Recruiting - sources and identifies the consulting staff we hire;
(b)  Sales - works with our customers in a consultative approach to identify opportunities for our services;
(c)  Operations - provides the day to day support of the consulting staff in the field as well as all back office functions (HR, finance);
(d)  Consultants – these are our knowledge based experts that deliver the service our customers need.

Recruiting
Our success depends on our ability to hire and retain qualified employees. Our recruiting team contacts prospective employment candidates by telephone, through postings on the internet, and by means of our internal recruiting software and databases. For internet postings, we maintain our own web page at www.premieralliance.com and use other internet job-posting bulletin board services as well as professional and social networking sites. We use a sophisticated computer application as our central repository to track applicants’ information, manage skills verification, background checks, etc. and then match them with potential customer opportunities. We only hire candidates after they have gone through a rigorous qualification process involving multiple interviews and repeated screening.

Sales
Our sales team is our primary interface with the customer.  They develop and maintain business relationships by building knowledge on our client businesses, technical environments and strategic direction.  Our sales team uses the same central repository system as recruiting, this links recruiter information with customer information to manage our process efficiently and effectively.

Operations
Our operations team encompasses several core functions within the company (Human resources and Finance).  Encompassed in HR is our employee relations function, this provides primary support and service for our consultants on a daily basis, which is critical.  This support ensures regular interaction and information sharing leading to quality services, better retention, and successful delivery to our client.  Within HR we also have the standard human resource functions (benefit administration, payroll, background processing).  Finance provides all financial processing - billing, AP, AR, and SEC reporting.


Competition
The market for professional services is highly competitive. It is also highly fragmented, with many providers and no single competitor maintaining clear market leadership. Our competition varies by location, type of service provided, and the customer to whom services are provided. Our competitors fall into four categories: large national or international vendors; software vendors and suppliers of packaged software systems; small regional consulting firms, and internal technology staff at our customers and potential customers. As a professional service firm with a focus on providing business expertise and talent our customers can group us with IT staffing firms for procurement purposes.  We believe that to compete successfully, we must differentiate ourselves from the glut of technology “staffing” firms by providing expertise that encompass business and process knowledge first and technology capabilities second.  This approach is truly recognized as providing expertise and value to the customer and can have a very positive impact on our relationship with the customers as well as alter the procurement process (in a positive manner) that we engage with to service our customers.
 
When servicing our customers today, Premier typically signs master contracts for a one to three year period.  The contracts typically set rules of engagement and can include pricing guidelines.  The contracts manage the relationship and are not indicators of guaranteed work.  Individual contracts are put in place (under the master agreement) for each consultant assigned to the client site and cover logistics of length of contract and bill rate per hour for the particular assignment.  In most cases contracts can be terminated with a notice of 10 to 30 days.
 
 
ITEM 1A.                      RISK FACTORS
 
We are subject to various risks that may materially harm our business, financial condition and results of operations. If any of these risks or uncertainties actually occurs, the trading price of our common stock could decline and you could lose all or part of your investment.
 
 Risks Related to Our Business and Industry
 
A decline in the price of, or demand for, any of our business consulting and solution services, would seriously harm our revenues and operating margins.
 
Our business consulting and business solutions accounted for substantially all of our revenues in 2009. We anticipate that revenues from our business consulting and solution services will continue to constitute substantially all of our revenues for the foreseeable future. Consequently, a decline in the price of, or demand for, business consulting and solution services would seriously harm our business.
 
Our revenues depend on a small number of large sales.  If any of these customers decide they will no longer use our services, our revenues will decrease and our financial performance will be severely impacted.
 
To date, we have received a significant portion of our revenues from large sales to a small number of customers. During 2009, our six largest customers, Wells Fargo, Charlotte Mecklenburg Schools, GMAC Financial Services, Mecklenburg County, Bank of America, and Duke Energy together comprised approximately 85% of our total annual revenues.  Our operating results may be harmed if we are not able to complete one or more substantial sales to any large customers or we are unable to collect accounts receivable from any of our large customers in any future period.
 
Intense competition in our target market could impair our ability to grow and to achieve profitability.  If we do not grow, our competitive ability will be severely restricted, which would decrease our profitability.
 
Our competitors vary in size and in the scope and breadth of the products and services they offer. Our competitors include Deloitte, Comsys, North Highland, Accenture, CIBER as well as other national firms and a number of smaller regional firms. Many of our competitors have longer operating histories, substantially greater financial, technical, marketing, or other resources, or greater name recognition than we do. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Increased competition is likely to result in price reductions, reduced gross margins, and loss of market share, any one of which could seriously harm our business.
 

Our lengthy sales cycle could cause delays in revenue growth, which could make it more difficult to achieve our growth objectives.
 
The period between our initial contact with a potential customer and that customer’s purchase of our services is often long.  A customer’s decision to purchase our services involves a significant allocation of resources on our part, is influenced by a customer’s budgetary cycles, and in many instances involves a preferred-vendor process. To successfully sell our services, generally we must educate our potential customers regarding the uses and benefits of our services, which can require significant time and resources. Many of our potential customers are large enterprises that generally take longer to designate preferred vendors; our typical sales cycle in connection with becoming an approved vendor has been approximately six to 12 months. Delay or failure to complete sales in a particular quarter could reduce our revenues in that quarter, as well as subsequent quarters over which revenues for the sale would likely be recognized. If our sales cycle unexpectedly lengthens in general or for one or more large orders, it would adversely affect the timing of our revenues and our revenue growth. If we were to experience a delay of several weeks on a large order, it could harm our ability to meet our forecasts for a given quarter.
 
If we provide services containing errors, our business and reputation would be harmed.
 
Services as complex as ours often contain unknown and undetected errors or performance problems. Many serious defects are frequently found during the period immediately following introduction. Although we attempt to resolve all errors that we believe would be considered serious by our customers, our products and services are not error-free. Any errors that remain could, if they are serious, result in lost revenues or delays in customer acceptance and would be detrimental to our business and reputation.
 
We may not be able to secure necessary funding in the future and may be forced to curtail our planned growth, which would slow or stop our ability to grow, increase revenues, and achieve profitability.
 
For our business to grow, we will require substantial working capital. We believe that our existing capital resources will be sufficient to meet our capital requirements for the next twelve months, but if our capital requirements increase materially from those currently planned, we may require additional financing sooner than anticipated. If we raise additional funds by issuing equity securities, the percentage of our company owned by our current shareholders would be reduced, and those equity securities may have rights that are senior to those of the holders of our currently outstanding securities. Additional financing may not be available when needed on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may be forced to curtail our planned growth, and we may be unable to develop or enhance our products and services, take advantage of future opportunities, or respond to competitive pressures.
 
Our executive officers and directors will be able to exert control over us to the detriment of minority shareholders, which will limit our shareholders’ ability to influence the outcome of key decisions.
 
Our executive officers and directors collectively control approximately 61% of the shareholder vote of our company. As a result, if they act together they will be able to control our management and affairs and all matters requiring shareholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing any change in control of our company and might affect the market price of our common stock.
 

Risks Related to Our Stock
 
Because we have less than 300 record holders of our common stock, we may elect at any time to terminate our reporting obligations under the Securities Exchange Act.  If we choose to do so, our stock price would likely decline.
 
Since we have less 300 record holders of our common stock, we can suspend our reporting obligations under the Securities Exchange Act at any time by filing a Form 15 with the SEC.  If we were to terminate our reporting obligations, we would no longer be required to file periodic reports, including financial information, proxy solicitation materials, or other information with the SEC.   This action would cause our common stock to be de-listed from the OTC Bulletin Board, which would likely cause our stock price to decline.  If we choose not to periodically report, our ability to raise additional financing would likely be negatively impacted due to a lack of publicly available information about the Company.
 
No market currently exists for our securities and we cannot assure you that such a market will ever develop.  If an active market is not developed, you may not be able to sell your shares.
 
Although we are listed on the OTC Bulletin Board, there is currently no trading market for our securities. Consequently, holders of shares of our common stock may not be able to liquidate their investment in our shares, and shares of our common stock will not be readily acceptable as collateral for loans.  Furthermore, even if a trading market in our shares is established, it may not be sustained, and it may not be sufficiently liquid to enable holders of shares of our common stock to liquidate their investment in our company.
 
Our common stock may be considered a “penny stock."
 
The SEC has adopted regulations that generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions.  This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors hereunder to sell their shares.  In addition, since our common stock is traded on the OTC Bulletin Board, investors may find it difficult to obtain accurate quotations of the stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.
 
There are risks associated with our stock trading on the OTC Bulletin Board rather than a national exchange.
 
There are significant consequences associated with our stock trading on the OTC Bulletin Board rather than a national exchange. The effects of not being able to list our securities on a national exchange include:
 
·  
Limited release of the market prices of our securities;
·  
Limited news coverage of us;
·  
Limited interest by investors in our securities;
·  
Volatility of our stock price due to low trading volume;
·  
Increased difficulty in selling our securities in certain states due to “blue sky” restrictions;
·  
Limited ability to issue additional securities or to secure financing.
 
 
 
Our practice is to lease commercial office space for all of our offices. Our headquarters are located in a modern four-story building in Charlotte, North Carolina. We lease approximately 5200 square feet of space at that location, under a lease that will expire in August 2012.  In addition we have an office in Winston Salem, North Carolina.  We lease approximately 2000 square feet at that location, under a lease that will expire in December 2010.
 
Any other locations utilized would be leased facilities. Most of these facilities serve as sales and support offices and vary in size, generally from approximately 200 to 1200 square feet, depending on the number of people employed at that office. Our lease terms vary from periods of less than a year to three years and generally have flexible renewal options. We believe that our existing facilities are adequate to meet our current needs.
 
 
As of December 31, 2009, and as of the date of this filing, we are not a party to any pending or threatened legal proceeding.
 
 
None.
 


 
PART II
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common stock commenced trading on the OTC Bulletin Board (“OTCBB”) on February 5, 2007 under the symbol PIMO.OB.  As of March 10, 2010, no significant trading market has developed.  On March 10, 2010 the closing price of the common stock as reported on OTCBB was $0.71, although, as stated above, the stock is thinly traded.  On March 20, 2010 there were approximately 164 record holders of our common stock, excluding those holders whose stock is held in street name.
 
 
We have not declared or paid a cash dividend on our common stock since our incorporation, and have no intention to do so in the future.
 
 
Equity Compensation Plan
 
 
Plan Category
A
Number of securities to be issued upon exercise of outstanding options, warrants and rights
B
Weighted-average exercise price of outstanding options, warrants and rights
C
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
0
0
0
Equity compensation plans not approved by security holders
600,000 (1)
$.075
9,400,000
Total
600,000
$.075
9,400,000

 
 
(1)
The Board of Directors approved the 2008 Stock Incentive Plan in May 2008. The plan reserves 10,000,000 shares of common stock for issuance, and allows the board to issue Incentive Stock Options, non-statutory Stock Options, and Restricted Stock Awards, whichever the Board or the Committee shall determine, subject to the terms and conditions contained in the plan document.  The purpose of the plan is to provide a method whereby selected key employees, selected key consultants, professionals and non-employee directors of Premier Alliance Group, Inc. may have the opportunity to invest in shares of the Company's common stock, thereby giving them a proprietary and vested interest in the growth and performance of the Company, and in general, generating an increased incentive to contribute to the Company's future success and prosperity, thus enhancing the value of the Company for the benefit of shareholders.  Further, the Plan is designed to enhance the Company's ability to attract and retain individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth, and profitability of the Company depends.
 



 
 
 The Board did approve a grant of non-statutory stock options under the 2008 Stock Incentive Plan to the following members of the executive management team as follows:
·  
Mark Elliott with options to purchase 200,000 shares of the Company’s common stock at a purchase price of $0 .75. The option expires on May 16, 2018.
·  
Kevin Hasenfus with options to purchase 200,000 shares of the Company’s common stock at a purchase price of $0.75. The option expires on May 16, 2018.
·  
Robert Yearwood with options to purchase 200,000 shares of the Company’s common stock at a purchase price of $0.75. The option expires on May 16, 2018.

 
ITEM 6.                      SELECTED FINANCIAL DATA
 
As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 6.
 

 



 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS  OF OPERATIONS
 
Certain information contained in this Form 10-K includes forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Certain factors, such as unanticipated technological difficulties, changes in domestic and foreign economic, market and regulatory conditions, the inherent uncertainty of financial estimates and projections, and other considerations described as “Risk Factors” in this Form 10-K could cause actual results to differ materially from those in the forward-looking statements. We assume no obligation to update the matters discussed in this prospectus.

The following discussion should be read in conjunction with our financial statements and the related notes included in this Form 10-K.
 
Results of Operations
 
2009 As Compared to 2008
 
In 2009, we recorded revenue of $9.3 million, an increase of 3.4% when compared to 2008 revenue of $9.0 million. We attribute this slight increase to 2 items, 1) the addition of revenue from the PeopleSource acquisition completed in October and 2) progress made in transitioning to more business consulting initiatives versus pure technology focused efforts.  The business consulting work we have focused on includes compliance/regulatory, M&A, and business process/engineering efforts.  This work has been less impacted from economic downturn allowing us to avoid the significant drops in revenue that affected pure technology consulting companies.
 
Cost of goods, defined as all costs for billable staff, were $6.9 million or 74.2% of revenue in 2009 as compared to $6.5 million or 72.2% of revenue in 2008. Major components making up Cost of goods are wages, subcontract labor, payroll taxes, and benefit costs.
 
General and administrative (G&A) expenses were $2.1 million or 22.6% of revenue in 2009 as compared to $2.3 million or 25.6% of revenue in 2008. We were able to effectively manage the overall key G&A expense items to offset any increases; such as overhead benefit costs, legal, accounting, other professional services, rent, travel, business insurance and network/phone expenses.  The decrease in dollars for G&A is attributed to two main cost categories from 2008, we had higher overhead wages as we had more overhead personnel in 2008 as well as we had a non cash charge of $50,700 for stock option grants in 2008.
 
Operating income was $295,006 or 3.1% of revenue in 2009 as compared to $223,662 or 2.5% of revenue in 2008.
 
Other income and expense consisted of net income of $71,757 in 2009 compared to a net expense of $1,490,821in 2008. The net expense in 2008 is primarily attributable to three items, 1) a one time impairment of goodwill relating to the merger in 1999 of SDS of $1,179,464, 2) decline in value of life insurance policies based on market fluctuation of $276,787 and 3) interest expense of $35,411.
 
Income taxes for 2009 resulted in an effective tax rate of 31.4%, compared to 5.9% in 2008.
 
In 2009 our Net income was $251,588, or $.04 per diluted share as compared to 2008 with a net loss of $1,341,653, or ($.23) per diluted share.  This Net loss includes a one time charge of $1,179,464 for goodwill impairment.
 
2008 As Compared to 2007
 
In 2008, we recorded revenue of $9.0 million, an increase of 18.4% when compared to 2007 revenue of $7.6 million. We attribute this increase in revenue to progress made in transitioning to more business consulting initiatives versus pure technology focused efforts.  The business consulting work we have focused on includes compliance/regulatory, M&A, and business process/engineering efforts.  This type of work has allowed for better bill rates and margins specifically based on the knowledge and expertise required.  In addition this work is less impacted from the ups and downs in business flows that have typically had large impacts on technology based consulting.
 
 
Cost of goods, defined as all costs for billable staff, were $6.5 million or 72.2% of revenue in 2008 as compared to $5.47 million or 72.0% of revenue in 2007. Major components making up Cost of goods are wages, subcontract labor, payroll taxes, and benefit costs.
 
General and administrative (G&A) expenses were $2.3 million or 25.6% of revenue in 2008 as compared to $2.07 million or 27.2% of revenue in 2007. We were able to effectively manage the overall key G&A expense items; such as overhead benefit costs, legal, accounting, other professional services, rent, travel, business insurance and network/phone expenses.  The increase in dollars for G&A is attributed to two main cost categories, we had higher overhead wages as we had more personnel in 2008 in sales and recruiting as well as we had a non cash charge of $50,700 for stock option grants
 
Operating income was $223,662 or 2.6% of revenue in 2008 as compared to $100,092 or 1.3% of revenue in 2007.
 
Other income and expense consisted of net expense of $1,490,821 in 2008 compared to net expense of $40,176 in 2007. The net expense in 2008 is primarily attributable to three items, 1) a one time impairment of goodwill relating to the merger in 1999 of SDS of $1,179,464, 2) decline in value of life insurance policies based on market fluctuation of $276,787 and 3) interest expense of $35,411.
 
Income taxes for 2008 resulted in an effective tax rate of 5.9%, compared to 14.9% in 2007.
 
In 2008 our Net loss was $1,341,653, or ($.23) per diluted share as compared to 2007 with net income of $68,860, or $.00 per diluted share.  This Net loss includes a one time charge of $1,179,464 for goodwill impairment.
 
Critical Accounting Policies
 
Revenue Recognition
 
The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition.  In general, the Company records revenue when persuasive evidence of any agreement exists, services have been rendered, and collectibility is reasonably assured, therefore, revenue is recognized when the Company invoices customers for completed services at contracted rates and terms.
 
Other Income
 
The most significant changes in other income were in the following areas.
 
In 2001 North Carolina Premier purchased variable life insurance policies for its shareholders. In 2009 no premiums were paid, income of $76,274 was recorded as a result of the cash surrender value exceeding premiums, the cash surrender value equaled $370,032 on December 31, 2009.  In 2008 no premiums were paid, a loss of $276,787 was recorded as a result of the decrease in cash surrender value, the cash surrender value equaled $293,758.
 
Net interest expense decreased $25,287 from $35,411 in 2008 to $10,124 in 2009.
 
Marketable securities are accounted for as trading securities and are stated at market value with unrealized gains and losses accounted for in net income before income taxes.  In 2009 marketable securities were a gain of $12,522, as compared to a gain of $6,015 in 2008.
 
Income Taxes
 
Income taxes for 2009 resulted in an effective tax rate of 31.4%, compared to 5.9% in 2008.
 
Property and Equipment
 
Furniture, fixtures, and equipment are stated at cost. We provide for depreciation on a straight-line basis over estimated useful life of five years (for computer equipment) and seven years (for furniture and fixtures).
 


Business Combinations and Goodwill
 
In 1999 the company merged Software Data Services into North Carolina Premier. The client base represented the most substantial asset acquired during the merger.  An annual analysis of clients acquired and the annual billing are factors used to determine goodwill and impairment. The percentage of retained client billings (which remains significant) to the overall billing of the company and then compared to the value factor of the company.  The value factor was calculated using the most recent share price as quoted on the OTC and the percentage of ownership represented by those shares to extrapolate a fair market value for the company as a whole.  Based on these calculations, the value of the client base acquired and retained to that of the company as a whole are significantly higher then the value reported on the books and therefore no impairment has been recorded.

Purchased goodwill in the amount of $2,718,385 was being amortized over 15 years until December 31, 2001. Accumulated amortization at December 31, 2001 was $487,101. North Carolina Premier adopted SFAS No. 142 effective January 1, 2002. SFAS No. 142 requires that all goodwill and indefinite life intangibles no longer be amortized. Goodwill must be evaluated for impairment on an annual basis. In accordance with SFAS No. 142, an annual impairment test is performed under which the estimated fair value of goodwill is compared with its carrying value. On December 31, 2008 we recorded a non-cash goodwill impairment charge in the amount of $1,179,464.  This included a tax benefit of $27,000 for the impairment of tax deductible goodwill of $72,000.  We have completed our annual impairment evaluation for the year ended December 31, 2009, and have concluded that there is no goodwill impairment loss to be recognized.  As of December 31, 2009 and December 31, 2008 we have goodwill of $1,051,820.

In September 2004, North Carolina Premier invested in Critical Analytics Inc, a company that is developing a unique trading platform for analysts, traders, and investors. The venture combines our software development and support strengths with the architectural and industry specific business knowledge of Critical Analytics. We own 350,000 shares of stock representing approximately a 33% ownership interest in Critical Analytics. We use the equity method for recording earnings and losses. We recorded a loss on this investment of $9,607 for 2009 as compared to a loss of $11,071 for 2008.
 
In October 2009, Premier completed an Asset Purchase of Peoplesource Inc.   The client base and goodwill represented the most substantial assets acquired during the purchase.  An annual analysis of clients acquired and the annual billing are factors used to determine goodwill and impairment. No impairment has been recorded.
.
We own one unit of ownership (representing 3% of the entire ownership interest) in Sharon Road Properties LLC, the entity that owns the property where our offices are located. We purchased that unit for $100,000. We recognize income as we receive distributions.
 
Executive Compensation Agreements
 
We have executive compensation agreements with key executives. We own three separate life insurance policies (Flexible Premium Multifunded Life), each with a face amount of $3,000,000. We pay all scheduled monthly premiums and retain all interests in each policy. If an insured employee were to die, we would pay the employee’s designated beneficiary an annual survivor’s benefit of $300,000 per year for 10 consecutive years after the employee’s death.
 
Stock Option Plan
 
We account for stock-based compensation using the provisions of SFAS 123(R).  SFAS 123(R) requires companies to recognize the fair value of stock-based compensation expense in the financial statements based on the grant date fair value of the options. We have only awarded stock options since May 2008. We measure the fair value of restricted shares based upon the closing market price of our common stock on the date of grant. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. The fair value of our stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model.
 



 
The Black-Scholes valuation calculation requires us to estimate key assumptions such as future stock price volatility, expected terms, risk-free rates and dividend yield. Due to the limited trading history of our common stock, expected stock price volatility for stock option grants prior to 2008 is based on an analysis of the actual realized historical volatility of our common stock. The expected volatility assumption for stock option grants or modifications during 2008 was based on actual historical volatility of our common stock from the period after our initial trading date on January 31, 2007 through May 2008.  The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. We have never paid cash dividends, and do not currently intend to pay cash dividends, and thus have assumed a 0% dividend yield. If our actual experience differs significantly from the assumptions used to compute our stock-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little stock-based compensation cost.
 
On May 16, 2008, 600,000 non-statutory stock options were granted to three officers and directors and no vesting was involved.  The options have an exercise price of $0.75 per share and expire on May 16, 2018.  The estimated fair value of the options of $50,700 was calculated using the Black-Scholes option valuation method with the following assumptions: a risk free interest rate of 4.57 percent, an estimated volatility of 5.32 percent and no dividend yield.
 
Employee Benefit Plan
 
We have a 401(k) plan that covers substantially all employees. Plan participants can make voluntary contributions of up to 15% of compensation, subject to certain limitations, and we match a portion of employee contributions. Total contributions to the plan for the years ended December 31, 2009 and 2008 were approximately $10,253 and $29,700 respectively, not including forfeitures that are applied to the contributions by the company.
 
Financial Condition and Liquidity
 
As of December 31, 2009, we had no cash and cash equivalents, no change from the prior year.  We continue to use our revolving Line of Credit to fund operations and have decreased our end of year balance by $37,000 over the prior year balance.  Net working capital at December 31, 2009, was $122,065, representing a decrease of $50,814.  We had long term debt of $114,606 for the purchase of PeopleSource.  Shareholders’ equity as of December 31, 2009, was $2,262,128, which represented 65% of total assets.
 
During the year ended December 31, 2009, the net cash provided by operating activities was $177,000 and was primarily attributable to increases in issuance of stock options for services rendered of $25,500, increases in accounts payable of $71,465 and accrued expenses of $23,387 and decreases in prepaid expenses of $2,808, net deferred tax assets of $5,000 and equity in loss of equity-method investee of $9,607,offset by increases in accounts receivable of $86,357, marketable securities of $12,523 and cash surrender value of officers’ life insurance of $76,274 and decreases in income tax payable of $47,118. Cash flows from investing activities used $$140,000 for the purchase of PeopleSource.
 
Financing activities used $237,078 of cash in 2009.  Of that decrease, $237,078 was due to advances on our revolving line of credit. We borrow or repay the revolving debt as needed based upon our working capital obligation.
 
We believe that internally generated funds, current cash on hand, and available borrowings under our revolving credit line will be adequate to meet foreseeable liquidity needs for the next 12 months.
 
Because of the nature of our business, we are able to monitor variable expenses tied to our revenue generation and we are able to manage and adjust our fixed costs based on overall profitability.
 


The following table represents the company’s most liquid assets:
 
   
2009
   
2008
 
Cash and cash equivalents
  $ 0     $ 0  
Marketable securities
    30,918       18,395  
Officers life insurance cash surrender value
    370,032       293,758  
Investment in cost method investee
    100,000       100,000  
      500,950       411,790  

The company manages cash and liquid investments in order to internally fund operating needs.  The company plans to use its available resources including any borrowing under its line of credit to invest in its operations.
 
The company has entered into a loan agreement for a line of credit with a financial institution which provides credit to 75% of accounts receivable aged less than 90 days up to $900,000. Borrowings under the agreement bear interest at the LIBOR rate plus 3 percent (3.23094 percent at December 31, 2009), payable monthly.  Management believes cash flows generated from operations, along with current cash and investments as well as borrowing capacity under the line of credit should be sufficient to finance capital requirements required by operations.  No additional requirements are anticipated. If new business opportunities do arise additional outside funding may be required.
 
Outlook
 
Major trends that we must deal with involve the following:  1) consolidation of customer’s primary vendor lists and standardized pricing and 2) surge in off-shore and outsourced development work for technology resources.   These trends have altered the competitive landscape and viability of a domestic focused technology consulting firm, which has caused us to shift our focus.
 
Customers are consolidating their primary vendor lists to much smaller numbers and/or primary vendors with a subset of sub vendors that are approved to provide technology based work for the client.  In addition the surge to off-shore work has shifted the competitive landscape for technology based resources to more of a commodity driven process.  These trends have altered the industry and opportunity level hence affecting the viability of a domestic focused technology consulting firm, which has caused us to shift our focus.  Premier Alliance Group is addressing this shift from 2 perspectives.  First we have laid the foundation and made a shift of our core services from a pure technology focus to a complete business consulting focus.  This shift will move us away from a commodity to a value add focus.  Secondly we are working to diversify and enhance our business model geographically as well as in our service offerings.
 
By providing key business consulting skills and establishing internal “practice areas of knowledge and expertise” we can expand into other geographic markets easier, diversify our customer base and increase our overall presence as a knowledge based consulting firm.  To accomplish this we are looking at organic growth as well as merger and acquisition strategies.  We have retooled our sales and recruiting efforts to increase our focus on higher end business consulting services.  This is a growing area of need amongst clients as they place more and more value on business knowledge and business process capability.  Key initiatives have been to attract specific talent to our consulting team and to target efforts that require (1) more specialized process skills: project management, business analysis, and process reengineering and (2) specialized business skills: regulatory and compliance, merger knowledge, and financial expertise.  We see these areas as growth areas in the future. These types of customer based initiatives will allow us to separate ourselves from the “general” vendor perspective and allow us to be a value added partner, increasing opportunity and long term viability.
 


Our top priority is to broaden the range of services we offer by building “areas of business expertise and knowledge” and at the same time build a more geographically diverse client base. We believe that achieving this goal will require a combination of merger activity and organic growth. This will in part depend on continued improvement in the U.S. business market.
 
In October, the Company completed an asset purchase of Peoplesource Inc, a Winston Salem, NC based organization.  This transaction contributed to a broader customer base, better geographic coverage, and more capabilities on the business development and fulfillment ends.  Back office operations were successfully integrated 100% in October with the rest of processes and roles integrated successfully by the end of December.
 
Contractual Obligations
 
As of December 31, 2009, our contractual obligations consisted of the following lease and contractual obligations:
 
2010
$162,737
 
2011
$140,413
 
2012
$87,457
 
 
The leases cover office premises and leased vehicles.  Of these leases a total of $24,360 is allocated for vehicle leases and $363,747 is for office premises. Non-cancellable contracts with job search firms account for $2,500 of the obligations.
 
We have a loan agreement for a line of credit with a financial institution that provides us with a maximum credit line of $900,000. The line of credit is due on demand. We may only borrow up to 75% of accounts receivable aged at 90 days or less. Borrowings under the agreement bear interest at the LIBOR rate plus 3.7%, payable monthly.  In addition, the loan is collateralized by substantially all our assets and personal guarantees by the executive management team. Outstanding borrowings under the loan agreement were $211,000 and $248,000 at December 31, 2009 and 2008, respectively.
 
Off-Balance-Sheet Arrangements
 
The Class A Preferred Stock accrues 8 percent per annum dividends on a stated “dividend value”.  “Dividend value” is the amount equal to $0.98 per share for each share of Class A Preferred Stock outstanding.  The dividends began accruing June 1, 2004, and are cumulative.  No additional dividends were paid in 2008 as the obligation for this dividend ended July 1, 2007.
 
As of December 31, 2009, and during the prior year then ended, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party under which we (1) had any direct or contingent obligation under a guarantee contract, derivative instrument, or variable interest in the unconsolidated entity, or (2) had a retained or contingent interest in assets transferred to the unconsolidated entity.
 
Preferred Stock
 
On June 7, 2004, North Carolina Premier issued 597,500 shares of Class A preferred stock in a private placement. The holders of shares of preferred stock were entitled to receive an 8% annual dividend until the earlier of (1) the third anniversary of the date of issuance or (2) automatic conversion of shares of Class A preferred stock into shares of common stock. No such dividend has yet been declared. Attached with each preferred share was a warrant entitling the holder to purchase one share of common stock at an exercise price of $2.00. The warrants were immediately exercisable and had a term of three years.
 
On consummation of the share exchange, holders of these shares of preferred stock were issued in exchange shares of our Class A preferred stock having substantially identical terms, as well as warrants with substantially identical terms, except that the exercise price of the warrants was adjusted to $1.96.
 


Material Consulting Agreements
 
In October 2003, we engaged Cyndel & Co., Inc. as consultants and financial advisors to furnish advice with respect to operations, financing, and potential business combinations. We paid Cyndel consulting fees of $5,000 per month during portions of 2008. We terminated the agreement in relation to the monthly fee and are structuring a performance based agreement regarding potential business combinations.  In November 2004, we granted Patrick M. Kolenik and Steven J. Bayern, the principals of Cyndel, jointly an option to purchase a number of shares of our common stock equal to 4.5% of the number of shares of our common stock outstanding on the 90th day following commencement of trading of shares of our common stock (the “Option Price Date”).  On March 7, 2006, the parties agreed to modify the option to provide for the purchase of a fixed number of shares of Common Stock.  As a result, the option provides for the purchase of 289,291 shares of common stock at an exercise price equal to the average market price of a share of our Common Stock during the ten trading days immediately preceding the Option Price Date.  This option expired in May 2009.
 

 
ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Our financial statements, including notes and the report of our independent accountants, can be found at page F-1 of this annual report.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 



 
 
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to this company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.
 
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States, and includes those policies and procedures that:
 
1
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
2.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and,
 
3.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
 
The Company has in place controls for financial process and reporting that encompass the following: (a) use of an automated financial system with built in controls and balance points, (b) fully documented compliance and audit processes for the operations team, (c) segregation of duties, (d) daily and monthly reconciliation/balance and audit points, (e) established review points with external accounting / auditors and SEC counsel, (f) review points by management for all unique or key financial transactions/activity, and (g) a Code of Ethics guiding activity of all employees.
 
Despite these controls, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies, like us, face additional limitations. Smaller reporting companies employ fewer individuals and can find it difficult to properly segregate all duties. Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
 


Our management, with the participation of the President, evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2009.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on this evaluation, our management, with the participation of the President, concluded that as of December 31, 2009 our internal control over financial reporting was effective and provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles
 
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
 
During the fiscal year ended December 31, 2009, there were no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
LIMITATIONS ON CONTROLS
 
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the Company's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in such controls and procedures, including the fact that human judgment in decision making can be faulty and that breakdowns in internal controls can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 
ITEM 9B.                      OTHER INFORMATION
 
None.
 



 
 
PART III
 
ITEM 10.                      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
The information required by Item 10 is incorporated by reference to our definitive proxy statement relating to our 2009 annual meeting of shareholders. In accordance with Regulation 14A, we will be filing that proxy statement no later than 120 days after the end of the last fiscal year.
 
ITEM 11.                      EXECUTIVE COMPENSATION
 
The information required by Item 11 is incorporated by reference to our definitive proxy statement relating to our 2009 annual meeting of shareholders. In accordance with Regulation 14A, we will be filing that proxy statement no later than 120 days after the end of the last fiscal year.
 
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The information required by Item 12 is incorporated by reference to our definitive proxy statement relating to our 2009 annual meeting of shareholders. In accordance with Regulation 14A, we will be filing that proxy statement no later than 120 days after the end of the last fiscal year.
 
ITEM 13.                      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
The information required by Item 13 is incorporated by reference to our definitive proxy statement relating to our 2009 annual meeting of shareholders. In accordance with Regulation 14A, we will be filing that proxy statement no later than 120 days after the end of the last fiscal year.
 
ITEM 14.                      PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
The information required by Item 14 is incorporated by reference to our definitive proxy statement relating to our 2009 annual meeting of shareholders. In accordance with Regulation 14A, we will be filing that proxy statement no later than 120 days after the end of the last fiscal year.
 


ITEM 15.                      EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
 
The following exhibits are filed as a part of, or incorporated by reference into, this report.
 
No.
Description
 
3.1
Articles of incorporation (incorporated by reference to exhibit 3.1 to Form 10-SB of the registrant filed with the Commission on December 12, 2003).
 
3.2
Certificate of designations, powers, preferences and other rights and qualifications of the Class A convertible preferred stock (incorporated by reference to exhibit 3.1 to current report on Form 8-K of the registrant filed with the Commission on November 19, 2004).
 
3.2
Bylaws (incorporated by reference to exhibit 3.2 to Form 10-SB of the registrant filed with the Commission on December 12, 2003).
 
10.1
Share exchange agreement dated as of October 12, 2004, between the registrant, Premier Alliance Group, Inc., and the individual shareholders of Premier Alliance Group, Inc. (incorporated by reference to exhibit 10.1 to current report on Form 8-K of the registrant filed with the Commission on October 18, 2004)
 
10.2
Merger agreement dated as of October 29, 2004, between the registrant and Premier Alliance Group, Inc. (incorporated by reference to exhibit 10.1 to current report on Form 8-K of the registrant filed with the Commission on November 12, 2004).
 
10.3
Form of warrant issued to holders of shares of Class A convertible preferred stock (incorporated by reference to exhibit 10.3 to Form 10-KSB of the registrant filed with the Commission on March 31, 2005).
 
10.4
Lease Agreement between Bissell Porter Siskey, LLC and the Company  (incorporated by reference to exhibit 10.4 to Form 10-KSB/A of the registrant filed with the Commission on April 27, 2006).
 
14.1
Code of ethics (incorporated by reference to exhibit 14.1 to Form 10-KSB of the registrant filed with the Commission on March 31, 2005
 
31.1
Certification of Principal Executive and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350).  (filed herewith).
 
32.1
Written Statement of Chief Executive and Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (filed herewith).
 


 
 
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PREMIER ALLIANCE GROUP, INC.
 
Date: March 28, 2010
By:
/s/ Mark S. Elliott
 
   
Mark S. Elliott, President
 

 
In accordance with the requirements of the Exchange Act, this report is signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
 
Date: March 28, 2010
By:
/s/ Mark S. Elliott
 
   
Mark S. Elliott, President
 

Date: March 28, 2010
By:
/s/ Kevin J. Hasenfus
 
   
Kevin J. Hasenfus, Director
 

Date: March 28, 2010
By:
/s/ Gregory C. Morris
 
   
Gregory C. Morris, Director
 

Date: March 28, 2010
By:
/s/ Robert N. Yearwood
 
   
Robert N. Yearwood, Director
 




                                        Scharf Pera & Co., PLLC
Certified Public Accountants
4600 Park Road
Suite 112
Charlotte, North Carolina 28209
704-372-1167
Fax:  704-377-3259

 

 
Audit Committee
Premier Alliance Group, Inc.
Charlotte, North Carolina

 
INDEPENDENT AUDITORS’ REPORT
 
 
We have audited the accompanying balance sheets of Premier Alliance Group, Inc. as of December 31, 2009 and 2008, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
 
We conducted our audits in accordance with the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Premier Alliance Group, Inc. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 

 
Scharf Pera & Co., PLLC
 

 


March 16, 2010
Charlotte, North Carolina

(F1)
 
 
 

 

PREMIER ALLIANCE GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
 

 
             
ASSETS
           
   
2009
   
2008
 
CURRENT ASSETS:
           
Cash
  $ -     $ -  
Accounts receivable
    1,121,186       1,034,829  
Marketable securities
    30,918       18,395  
Deferred tax asset - current portion
    15,000       18,000  
Prepaid expenses and
               
other current assets
    37,216       40,025  
                 
       Total current assets
    1,204,320       1,111,249  
                 
PROPERTY AND EQUIPMENT - at
               
cost less accumulated depreciation
    11,728       12,227  
                 
OTHER ASSETS:
               
Goodwill
    1,450,578       1,051,820  
Intangible assets – net
    79,800          
Investment in equity-method investee
    190,432       200,039  
Investment in cost-method investee
    100,000       100,000  
Cash surrender value of officers' life insurance
    370,032       293,758  
Deferred tax asset
    46,000       48,000  
Deposits and other assets
    6,100       6,318  
                 
      2,242,942       1,699,935  
                 
    $ 3,458,990     $ 2,823,411  
                 

See Notes to Financial Statements
 
(F2)
 
 
 

 

             
LIABILITIES AND STOCKHOLDERS' EQUITY
           
             
CURRENT LIABILITIES:
           
Note payable
  $ 211,000     $ 248,000  
Current portion of long-term debt
    133,152          
Accounts payable
    320,027       248,562  
Accrued expenses
    384,990       361,604  
Income taxes payable
    33,086       80,204  
                 
                 
      Total current liabilities
    1,082,255       938,370  
                 
LONG-TERM DEBT
    114,606       -  
                 
COMMITMENTS AND CONTINGENCIES
    -       -  
                 
STOCKHOLDERS' EQUITY:
               
  Class A convertible preferred stock,
               
liquidation preference of $0.05 per share,
               
$.001 par value, 5,000,000 shares authorized,
               
560,746 shares issued and outstanding
    561       561  
Common stock, $.001 par value, 45,000,000
               
shares authorized, 6,071,791 shares
               
issued and outstanding
    6,072       5,868  
Additional paid-in capital
    3,414,635       3,289,339  
Accumulated deficit
    (1,159,139 )     (1,410,727 )
                 
      2,262,129       1,885,041  
                 
    $ 3,458,990     $ 2,823,411  
                 

 

See Notes to Financial Statements
 
(F3)
 
 
 

 


PREMIER ALLIANCE GROUP, INC.
 
STATEMENTS OF OPERATIONS
 
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
             
   
2009
   
2008
 
             
NET REVENUES
  $ 9,347,993     $ 9,038,197  
                 
OPERATING EXPENSES:
               
Cost of revenues
    6,926,166       6,501,996  
Selling, general and administrative
    2,117,122       2,299,790  
Depreciation and amortization
    9,699       12,749  
                 
      9,052,987       8,814,535  
                 
INCOME FROM OPERATIONS
    295,006       223,662  
                 
OTHER INCOME (EXPENSE):
               
Interest expense, net
    (12,232 )     (35,411 )
Goodwill impairment loss
            (1,179,464 )
Gain/(Loss) on marketable securities
    12,522       6,015  
Officers' life insurance income(expense)
    76,274       (276,787 )
Equity in net loss of equity-method investee
    (9,607 )     (11,071 )
Other income
    4,800       5,897  
                 
      71,757       (1,490,821 )
                 
NET INCOME (LOSS)BEFORE INCOME TAXES
    366,763       (1,267,159 )
                 
INCOME TAX (EXPENSE) BENEFIT
    (115,175 )     (74,494 )
                 
NET INCOME (LOSS)
    251,588       (1,341,653 )
PREFERRED STOCK DIVIDEND
    -       -  
NET INCOME (LOSS)AVAILABLE FOR
               
COMMON STOCKHOLDERS
  $ 251,588     $ (1,341,653 )
Net income (loss) per share:  
               
   Basic
  $ 0.04     $ (0.23 )
   Diluted
  $ 0.03     $ (0.23 )
Weighted average number of shares, basic and diluted: 
               
   Basic
    5,926,438       5,867,945  
 Diluted
    6,487,184       5,867,945  

See Notes to Financial Statements
 
(F4)
 
 
 

 

PREMIER ALLIANCE GROUP, INC.
 
STATEMENT OF STOCKHOLDERS' EQUITY
 
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
                                 
Retained
       
   
Class A
               
Additional
   
Earnings
   
Total
 
   
Preferred Stock
   
Common Stock
   
Paid-In
   
(Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit)
   
Equity
 
                                           
Balance at
                                         
December 31, 2007
    560,746       561       5,867,945     $ 5,868     $ 3,238,639     $ (69,074 )   $ 3,175,994  
Stock options issued for
                                                       
services rendered
                                    50,700               50,700  
Net loss
                                            (1,341,653 )     (1,341,653 )
Balance at
                                                       
December 31, 2008
    560,746       561       5,867,945       5,868       3,289,339       (1,410,727 )     1,885,041  
Stock options issued for
                                                       
services rendered
                    50,000       50       25,450               25,500  
Stock issued for acquisition
                    153,846       154       99,846               100,000  
Net income
                                            251,588       251,588  
Balance at
                                                       
December 31, 2009
    560,746     $ 561       6,071,791     $ 6,072     $ 3,414,635       (1,159,139 )   $ 2,262,129  

 

See Notes to Financial Statements
 
(F5)
 
 
 

 

PREMIER ALLIANCE GROUP, INC.
 
STATEMENTS OF CASH FLOWS
 
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
             
             
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ 251,588     $ (1,341,653 )
Adjustments to reconcile net income to
               
net cash provided by operating activities:
               
Depreciation expense
    9,699       12,749  
(Increase)decrease in cash surrender value of
               
 officers' life insurance
    (76,274 )     276,787  
Stock options issued for services rendered
    25,500       50,700  
Decrease (increase) in net deferred tax assets
    5,000       (25,000 )
Equity in loss of equity-method investee
    9,607       11,071  
Goodwill impairment loss
            1,179,464  
Changes in operating assets and liabilities:
               
Increase in accounts receivable
    (86,357 )     (103,180 )
Increase in marketable securities
    (12,523 )     (6,015 )
Decrease (increase) in prepaid expenses
    2,808       (1,423 )
Decrease (Increase) in deposits and other assets
    218       (2,318 )
Increase (Decrease) in accounts payable
    71,465       (40,061 )
Increase in accrued expenses
    23,387       50,057  
(Decrease) increase in income taxes payable
    (47,118 )     75,732  
Net cash provided by
               
 operating activities
    177,000       136,910  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisitions
    (140,000 )        
Purchases of property and equipment
    -       (4,383 )
                 
Net cash used in investing activities
    (140,000 )     (4,383 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
                 
Net payments / proceeds from line of credit
    (37,000 )     (237,078 )
Net cash used in
               
financing activities
    (37,000 )     (237,078 )
                 
Net increase (decrease) in cash
    -       (104,551 )
                 
Cash - beginning of year
    -       104,551  
                 
Cash - end of year
  $ -     $ -  
                 

 

See Notes to Financial Statements
 
(F6)
 
 
 

 

PREMIER ALLIANCE GROUP, INC.
 
STATEMENTS OF CASH FLOWS
 
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
(continued)
 
             
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
             
             
   
2009
   
2008
 
             
Cash payments for:
           
Interest
  $ 9,444     $ 36,159  
                 
Income taxes
  $ 157,293     $ 23,636  
                 
                 
Cash received for:
               
Interest
  $ -     $ 747  
                 
                 
Summary of non-cash operating activities:
               
Stock issued for services rendered
  $ 25,500     $    
Stock options issued for services rendered
  $ -     $ 50,700  
                 

 
    
 

See Notes to Financial Statements
 
(F7)
 
 
 

 

PREMIER ALLIANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
Note 1 - Organization and Business:
 
 
Premier Alliance Group, Inc. (“Old Premier”) was organized under the laws of North Carolina in June 1995.  Old Premier provided information technology solution and consulting services to customers operating in a variety of industries throughout the United States.
 
 
On November 5, 2004, Old Premier and its shareholders consummated a share exchange agreement with the Company.  The Company was an inactive public company that was organized in Nevada in January 2000.  Pursuant to the exchange agreement, shareholders of Old Premier were issued 36,176,863 shares of common stock and 4,323,157 shares of Class A convertible preferred stock in exchange for all of their outstanding common stock and preferred stock in Old Premier.  As a result of the share exchange agreement, the shareholders of Old Premier acquired a majority (90%) of the issued and outstanding common and preferred stock of the merged company.  For accounting purposes, the transaction was accounted for as a reverse merger.  Old Premier was merged into the Company and immediately after the merger the Company was renamed Premier Alliance Group, Inc. The Company accounted for the share exchange using the purchase method of accounting as prescribed by Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations”.  The Company did not record any amount for goodwill on the share exchange.
 
 
Acquisition:
 
 
On October 1, 2009, the Company purchased substantially all of the assets of Peoplesource, Inc., a North Carolina corporation pursuant to an Asset Purchase Agreement dated September 18, 2009.  In consideration of the Purchased Assets, including service contracts and office equipment, the Company agreed to pay 153,846 shares of common stock, equal to $100,000 at the closing date and an estimated $400,000 in cash over two years ($140,000 after closing, $120,000 thirteen months from closing, and the balance 24 months from closing).  The total consideration, including value of stock, is calculated as the gross revenue from Peoplesource, Inc.’s unit during the first year after acquisition multiplied by 25%.  The potential payout under this calculation is unlimited. The Company accounted for this acquisition under the acquisition method as described in Accounting Standards Codification (“ASC”) 805 – “Business Combinations”.
 
 
The following table summarizes the estimated fair values of the assets acquired at October 1, 2009:
 

 
Current assets
$           -
 
Property and equipment
      5,000
 
Intangible assets – customer relationships
    84,000
 
Goodwill
  398,758
 
Total assets acquired
  487,758
 
Current liabilities assumed
            -
 
Net assets acquired
$ 487,758

Goodwill acquired in this acquisition of $398,758 is expected to be deductible for income tax purposes.
 
The business acquisition provided broader geographic coverage, added additional strength in sales and fulfillment as well as broadened the customer base for the Company.
 

 
 
 
(F8)

 

 
Note 2 - Summary of Significant Accounting Policies:
 
 
Cash and cash equivalents:
 
 
The Company considers all highly liquid investments having an original maturity of three months or less to be cash equivalents.  Amounts invested may exceed federally insured limits at any given time.  As a result of the Company’s cash management system, checks issued but not presented to the banks for payment may create negative book cash balances.  Such negative balances are included in trade accounts payable and totaled $61,481 and $114,147 at December 31, 2009 and 2008, respectively.
 
 
Accounts receivable:
 
 
The Company considers accounts receivable to be fully collectible. If amounts become uncollectible, they are charged to operations when that determination is made.
 
 
Marketable securities:
 
 
Marketable equity securities are accounted for as trading securities and are stated at market value with unrealized gains and losses accounted for in current income from operations.
 
 
Property and equipment:
 
 
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from three to seven years.  Maintenance and repair costs are expensed as incurred.  Gains or losses on dispositions are reflected in income.
 
 
Goodwill and intangible assets:
 
 
Purchased goodwill in the amount of $2,718,385 was being amortized over 15 years until December 31, 2001.  Accumulated amortization at December 31, 2001 was $487,101.  Effective January 1, 2002, the Company ceased amortization of goodwill in accordance with FASB SFAS No. 142, “Goodwill and Other Intangible Assets”.  The Company assesses goodwill for impairment annually.
 
 
Acquired intangible assets consist of customer relationships.  The fair market value of the customer relationships was determined by discounting the expected future cash flows from the acquired customers.  The $84,000 of customer relationships acquired are being amortized over the estimated useful life of five years.  At December 31, 2009 accumulated amortization totaled $4,200.  The amortization expense of $4,200 for the year ended December 31, 2009 is included under depreciation and amortization on the statement of operations.
 
Amortization expense related to customer lists are expected to be as follows for the years ended:
 
 
December 31, 2010
$16,800
 
December 31, 2011
  16,800
 
December 31, 2012
  16,800
 
December 31, 2013
  16,800
 
December 31, 2014
  16,800
   
$79,800


 
(F9)

 
 
Revenue recognition:
 
The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition.  In general, the Company records revenue when persuasive evidence of any agreement exists, services have been rendered, and collectibility is reasonably assured, therefore, revenue is recognized when the Company invoices customers for completed services at contracted rates and terms.
 
 
Income taxes:
 
Effective with the conversion to a C Corporation, the Company accounts for income taxes under FASB ASC Topic 740 “Income Taxes”.  Under FASB ASC 740-10-30, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled (See Note 12).
 
The Company accounts for income taxes in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 740. FASB ASC 740-10 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the balance sheet. It also provides guidance on derecognition, measurement and classification of amounts related to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim period disclosures and transition relating to the adoption of new accounting standards. Under FASB ASC 740-10, the recognition for uncertain tax positions should be based on a more-likely-than-not threshold that the tax position will be sustained upon audit. The tax position is measured as the largest amount of benefit that has a greater than fifty percent probability of being realized upon settlement.
 
 
Use of accounting estimates:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures.  Accordingly, the actual amounts could differ from those estimates.  Any adjustments applied to estimated amounts are recognized in the year in which such adjustments are determined.
 
 
Fair value of financial instruments:
 
The Company’s financial instruments include cash, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and credit facilities.
 
The Company did not have any outstanding financial derivative instruments.
 
 
Reclassifications:
 
Certain reclassifications have been made in the prior year financial statements to conform to classifications used in the current year.
 
Subsequent events:
 
                The Company evaluated all events and transactions through March 15, 2010, the date we issued these financial statements. During this period we did not have any material recognizable or non-recognizable subsequent events.  Subsequent to December 31, 2009, the Company entered into a letter of intent to purchase the assets of Intronics Solutions, LLC, a privately held, Kansas-based technology consulting and staffing company.  The acquisition is subject to certain requirements including due diligences and is targeted to be completed by April 30, 2010.  This acquisition is a type 2 subsequent event and no adjustments were made in these financial statements as a result of this transaction.
 
 
(F10)

 

Note 2 - Summary of Significant Accounting Policies (continued):
 
 
Recent pronouncements:
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. SFAS 168, now included within FASB ASC 105, is effective for interim and annual periods ending after September 15, 2009. The adoption of FASB ASC 105 did not have an impact on the Company’s results of operations and financial position, but changes the referencing system for accounting standards.
 
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), now included in FASB ASC 810. FASB ASC 810 amends the evaluation criteria to identify the primary beneficiary of a variable interest entity and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the variable interest entity. FASB ASC 810 is effective for fiscal years beginning after November 15, 2009, and interim periods within those years. The Company does not expect the adoption of FASB ASC 810 to have a material impact on its results of operations and financial position.
 
 
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140” (“SFAS 166”), now included in FASB ASC 860. FASB ASC 860 amends the derecognition guidance in FASB Statement No. 140 and eliminates the exemption from consolidation for qualifying special-purpose entities. FASB ASC 860 is effective for fiscal years beginning after November 15, 2009, and interim periods within those years. The Company does not expect the adoption of FASB ASC 860 to have a material impact on its results of operations and financial position.
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), now referred to as FASB ASC 855 “Subsequent Events” (“FASB ASC 855”). FASB ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. FASB ASC 855 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure is intended to alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. FASB ASC 855 is effective on a prospective basis for interim or annual periods ending after June 15, 2009. The adoption of FASB ASC 855 did not have an impact on the Company’s results of operations and financial position.
 
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, now included within FASB ASC 815. FASB ASC 815 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB ASC 815 and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. FASB ASC 815 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of this statement did not have an impact on the Company’s results of operations or financial position.
 
 


 
 
 
(F11)

 

Note 2 - Summary of Significant Accounting Policies (continued):
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, now included within FASB ASC 810 “Consolidation” (“FASB ASC 810”). FASB ASC 810 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. FASB ASC 810 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The adoption of this statement did not have an impact on the Company’s results of operations or financial position.
 
 
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, now included within FASB ASC 805 “Business Combinations” (“FASB ASC 805”). FASB ASC 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. FASB ASC 805 also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. This standard is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The adoption of this statement did not have an impact on the Company’s results of operations or financial position.
 


 
 
 
(F12)

 


Note 3 - Property and Equipment:
 
 
The principal categories and estimated useful lives of property and equipment are as follows:
 
  
             
Estimated
   
2009
   
2008
 
Useful Lives
Office Equipment
  $ 293,846     $ 288,846  
5 years
Furniture and Fixtures
    55,175       55,174  
7 years
Computer Software
     17,100        17,100  
3 years
      366,121       361,120    
Less: accumulated depreciation
    (354,393 )     (348,893 )  
    $ 11,728     $ 12,227    

 
Note 4 - Marketable Securities Classified as Trading Securities:
 
 
Under FASB ASC Topic 320-10-25 “Investments-Debt and Equity Securities”, securities that are bought and held principally for the purpose of selling them in the near term (thus held only for a short time) are classified as trading securities.  Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.  The unrealized holding loss as of December 31, 2009, is as follows:

   
Fair Market
 
 
Cost
Value
Holding Loss
Equity Investments
$     46,092
$    30,918
$   15,174
 
The unrealized holding loss as of December 31, 2008, is as follows:
 
   
Fair Market
 
 
Cost
Value
Holding Loss
Equity Investments
$     33,135
$    18,395
$   14,740



 
 
 
(F13)

 


Note 5 - Investment in Equity-Method Investee:
 
In 2004, the Company invested $250,000 for a 33 percent ownership of Critical Analytics, Inc.  Critical Analytics, Inc. is in the business of software development and financial consulting services.  In 2009 Premier received revenue of $10,000 from Critical Analytics, Inc. for consulting services provided during the year.  
 
In January 2007, the Company’s ownership percentage increased to 35 percent.  The Company accounts for this investment using the equity method.  The Company records its proportionate share of income or loss from Critical Analytics, Inc.’s results of operations; correspondingly, the carrying amount of the investment is increased by equity in earnings and reduced by equity in losses.  During 2009 and 2008, the Company recorded losses of $9,607 and $11,071 as its equity in Critical Analytics, Inc., respectively.  Summarized financial information of Critical Analytics, Inc. at December 31, 2009 and 2008 is as follows:

   
2009
   
2008
 
Assets:
           
  Current assets
  $ 220,003     $ 247,597  
  Property and equipment – net
    55,796       56,764  
                 
    $ 275,799     $ 304,361  
                 
Liabilities and stockholders’ equity:
               
   Current liabilities
  $ 1,160     $ 902  
   Stockholders’ equity
    274,639       303,459  
    $ 275,799     $ 304,361  
                 
   Gross revenue
  $ -     $ -  
   Other income / (loss)
    20,718       (16,948 )
   Operating expenses
    (49,538 )     (16,265 )
   Net loss
  $ (28,820 )   $ (33,213 )
 
Note 6 - Investment in Limited Liability Company:
 
 
The Company has an investment in a limited liability company, which owns approximately 33 percent of the office building that the Company leases office space from in Charlotte, North Carolina.  The Company’s investment represents an approximate 3 percent share of ownership in the limited liability company.  Because the limited liability company interest does not have a readily determinable fair value, the Company accounts for its investment using the cost method. Accordingly, the carrying value of $100,000 is equal to the capital contribution the Company has made.  Income is recognized when capital distributions are received by the Company and totaled $4,800 and $4,800 for the years ended December 31, 2009 and 2008, respectively.
 
 
Note 7- Goodwill Impairment:
 
The Company completed an annual impairment evaluation for the year ended December 31, 2009 and recorded no additional impairment.   In 2008, the Company recorded a non-cash goodwill impairment charge in the amount of $1,179,464, which is related primarily to net operating income that the Company now believes will not be realized.  This includes a tax benefit of $27,000 for the impairment of tax deductible goodwill of $72,000.  In determining the impairment charge, the Company used a computation involving current revenue stream from the acquired organization in comparison to the total revenue stream of the Company and applied this to a current market valuation of the overall company, based on share price.  The balance recorded as goodwill as of December 31, 2009 and 2008 is $1,450,578 and $1,051,820, respectively, net of accumulated impairment of $1,179,464.
 


 
 
 
(F14)

 


Note 8 - Accrued Expenses:
 
 
Accrued expenses consisted of the following at December 31, 2009 and 2008:
 
     
   
2009
   
2008
 
Accrued payroll
  $ 298,675     $ 266,548  
Accrued vacation
    29,979       42,131  
Other accrued liabilities
    56,336       52,925  
                 
    $ 384,990     $ 361,604  

 
Note 9 - Notes Payable:
 
 
The Company has entered into a loan agreement for a line of credit with a financial institution, providing the Company with a maximum credit line of $900,000.  The line of credit is due on demand.  The line of credit is secured by all accounts receivable and the assignment of two life insurance policies with a cash surrender value of $248,665 and $199,625 at December 31, 2009 and 2008.  Borrowings under the agreement bear interest at LIBOR plus 3 percent (3.2 and 3.4 percent at December 31, 2009 and 2008, respectively), payable monthly.  Outstanding borrowings under the loan agreement were $211,000 and $248,000 at December 31, 2009 and 2008, respectively.
 
 
Note 10 – Long-Term Debt
 
 
Long-term debt consists of a note payable to the owner of Peoplesource, Inc. related to the acquisition on October 1, 2009 (See Note 1).  The Company estimates the annual revenue amount from Peoplesource, Inc.’s unit to be $2,000,000 and therefore estimates the total cash payout to be $400,000.  A payment of $140,000 was made in October 2009.  A second payment of $140,000 is to be paid on November 1, 2010 and the final payment is to be made on October 1, 2011.  The note was non-interest bearing and therefore interest was imputed at the Company’s borrowing rate of 3.23 percent.  At December 31, 2009, $1,974 of accrued interest is recorded in accrued expenses.  Principal balance outstanding at December 31, 2009 is $247,758, of which $133,152 is included in current liabilities.  
 
 
Note 11 - Stockholders’ Equity:
 
Common Stock:
 
 
On November 5, 2004, the Company issued 36,176,863 shares to the stockholders of Old Premier in exchange for all the outstanding common stock of Old Premier.  The total number of shares outstanding post-merger was 40,676,863 including, 4,500,000 shares held by the former stockholders of Old Premier.  On December 16, 2004, the Company effected a 7:1 reverse split of its outstanding common stock resulting in 5,811,093 common shares outstanding.  Additionally, the company issued 56,852 shares of common stock upon conversion of an equal number of preferred shares during the year ended December 31, 2007.
 
 
During 2009, the Company issued 50,000 shares of common stock in exchange for consulting services.  Consulting expenses related to this issuance of $25,500 was recorded in operating expenses.
 
 
On October 1, 2009, the Company issued 153,846 shares of common stock related to the acquisition of Peoplesource, Inc. See Note 1 for further details.
 

 
 
 
(F15)

 


 
Class A Convertible Preferred Stock:
 
 
On November 5, 2004, the Company issued 4,323,137 Class A Preferred shares to the stockholders of Old Premier in exchange for all the outstanding preferred stock of Old Premier.  Old Premier had issued preferred stock on June 6, 2004, for $576,208, net of issue costs.  On December 16, 2004, the Company effected a 7:1 reverse split of its outstanding preferred shares resulting in 617,598 preferred shares outstanding.  During the year ended December 31, 2007, 56,852 shares of preferred stock were converted to an equal number of common shares.  No additional shares were converted in 2009.  The total number of preferred shares outstanding on December 31, 2009 is 560,746.
 
 
The Class A Preferred Stock is convertible, at the holder’s option, into common stock on a one to one basis at any time.  The Class A Preferred Stock will automatically convert into common shares on the first day the Company’s common stock price exceeds $2.03 per share.  
 
 
In the event of voluntary or involuntary liquidation, the Class A Preferred Shareholders are entitled to receive on a per share basis an amount equal to the amount they would have received had all Class A Preferred Stock been converted into common shares prior to such liquidation.
 
 
Stock Options:
 
 
In 2004, the Company issued options to a consultant to the Company.  The options are for 289,291 common shares on the “option price date” at an exercise price equal to the average market price of the Company’s common stock during the 10 trading days immediately prior to the “option price date”.  The   “option price date” is defined as the 90th day after the commencement of the trading of shares of the Company’s common stock.  At the option price date of May 1, 2007, the options were for 289,291 common shares with an exercise price of $2.75 per share.  The options expired May 1, 2009 without being exercised.
 
 
In May 2008, the Company adopted a stock incentive plan, entitled the 2008 Stock Incentive Plan, authorizing the Company to grant stock options of up to 10,000,000 common shares for employees and key consultants.
 
 
On May 16, 2008, 600,000 non-statutory stock options were granted to three officers and directors.  The options have an exercise price of $0.75 per share and expire on May 16, 2018.  The Company accounted for the issuance of the options in accordance with SFAS 123(R) "Share Based Payment" that requires the recognition of compensation expense in the financial statements based on the grant date fair value of the options.  The estimated fair value of the options of $50,700 was calculated using the Black-Scholes option valuation method with the following assumptions: a risk free interest rate of 4.57 percent, an estimated volatility of 5.32 percent and no dividend yield.  
 


 
 
 
(F16)

 


 
Note 12 - Income Taxes:
 
 
Significant components of the income tax provision are summarized as follows:  
 
   
2009
   
2008
 
Current provision:
           
     Federal
  $ 90,457     $ 81,687  
     State
    19,718       17,807  
Deferred provision:
               
     Federal
    4,000       (20,000 )
     State
    1,000       (5,000 )
    $ 115,175     $ 74,494  


A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on income before income taxes for the years ended December 31, 2009 and 2008 follows:


   
2009
   
2008
 
Federal statutory rate
    34.0 %     34.0 %
State income taxes, net of  federal income tax benefit
    4.5       4.5  
Permanent difference
    (7.1 )     (32.6 )
      31.4 %     5.9 %








 
 
 
(F17)

 


 
Note 12 - Income Taxes (continued):
 

The Company provides for income taxes using the liability method in accordance with FASB ASC Topic 740 “Income Taxes”.  Deferred income taxes arise from the differences in the recognition of income and expenses for tax purposes.  Deferred tax assets and liabilities are comprised of the following at December 31, 2009 and 2008:
 

 
   
2009
   
2008
 
Deferred income tax assets:
 
           
     Accrued compensation federal
  $ 9,000     $ 13,000  
     Trading securities
    6,000       6,000  
      Intangible assets
    28,000       33,000  
     Investment in equity-method investee
    23,000       19,000  
     
    66,000       71,000  
Less:  valuation allowance
    -       -  
Deferred income tax assets
  $ 66,000     $ 71,000  
                 
Deferred income tax liabilities:
               
     Property and equipment
  $ (5,000 )   $ (5,000 )
Total deferred tax liabilities
  $ (5,000 )   $ (5,000 )
Net deferred income tax assets:
               
     Current
  $ 15,000     $ 18,000  
     Non-current
    46,000       48,000  
    $ 61,000     $ 66,000  


 
 
 
(F18)

 


 
Note 13 - Net (Loss) Income Per Share:
 
 
In accordance with FASB ASC Topic 260-1-50, “Earnings per Share”, and SEC Staff Accounting Bulletin No. 98, basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted - average number of common shares outstanding during the period.  Under FASB ASC 260-10-50, diluted income or loss per share is computed by dividing net income or loss for the period by the weighted - average number of common and common equivalent shares, such as stock options, warrants and convertible securities outstanding during the period.  Such common equivalent shares have not been included in the Company’s computation of net income (loss) per share in 2008, as their effect would have been anti-dilutive based on the strike price as compared to the average trading price.
 
   
2009
   
2008
 
             
Basic:
           
Numerator – net income(loss) available to common stockholders
  $ 251,588     $ (1,341,653 )
Denominator – weighted – average shares outstanding
  $ 5,926,438     $ 5,867,945  
Net income (loss) per share – Basic
  $ 0.04     $ (0.23 )
                 
Diluted:
               
Numerator – net income (loss) available to all stockholders
  $ 251,588     $ (1,341,653 )
Denominator - weighted – average shares outstanding
 
  $ 5,926,438     $ 5,867,945  
Assumed conversion of converted preferred stock
    560,746          
      6,487,184          
Net income (loss) per share – Diluted
  $ 0.04     $ (0.23 )
                 
 Incremental common shares (not included due to their anti-dilutive nature)
               
   Stock options
    600,000       889,291  
   Convertible preferred stock
    -       560,746  
      600,000       1,450,037  


 
 
 
(F19)

 


 
Note 14 - Commitments and Contingencies:
 
 
The Company is obligated under various operating leases for office space and automobiles and is obligated under non-cancelable contracts with job search firms.
 
 
The future minimum payments under non-cancelable operating leases and non-cancelable contracts with initial remaining terms in excess of one year (including the related party lease), as of December 31, 2009, are as follows:
 
Year Ending December 31,
 
Required Payments
 
2010
  $ 162,737  
2011
    140,413  
2012
    87,457  
2013
    -  
Thereafter
     -  
    $ 390,607  

Expenses for operating leases during 2009 and 2008 were approximately $171,174 and $199,009, respectively.
 
 
The Company has a three percent ownership interest in a limited liability company that owns approximately 33 percent of the building the Company leases office space from in Charlotte, North Carolina.  Additionally, an individual stockholder of the Company owns approximately 30 percent of the same limited liability company.  Rent expense pertaining to this operating lease during 2009 and 2008 was approximately $151,088 and $187,290, respectively.
 

Note 15 - Employee Benefit Plan:
 
 
The Company has a 401(k) plan which covers substantially all employees.  Plan participants can make voluntary contributions of up to 15 percent of compensation, subject to certain limitations.  Under this plan, the Company matches a portion of employee deferrals.  Total company contributions to the plan for the years ended December 31, 2009 and 2008 were approximately $10,254 and $36,534, respectively.  
 
 
Note 16 - Advertising:
 
 
The Company expenses advertising costs as incurred.  Advertising expenses for the years ended December 31, 2009 and 2008 were $4,615 and $3,888, respectively.
 
 
Note 17 - Major Customers:
 
 
Approximately 71 and 69 percent of total revenues were earned from three customers for the years ended December 31, 2009 and 2008, respectively.     
 


 
 
 
(F20)

 


 
Note 18 – Pro-Forma Financial Information:
 
 
The following unaudited pro-forma data summarizes the results of operations for the years ended December 31, 2009 and 2008, as if the purchase of Peopleource, Inc. had been completed January 1, 2008.  The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2008 and January 1, 2009 or of results that may occur in the future.
 
   
December 31, 2009
   
December 31, 2008
 
Net revenues
  $ 10,975,159     $ 12,310,520  
Operating income (loss)
    269,613       (1,313,594 )
Net income (loss) per share – basic
    0.04       (0.22 )
Net income (loss) per share- diluted
    0.04       (0.22 )   
 

 
 
Revenues contributed from October 1, 2009 thru December 31, 2009 from the Peoplesource, Inc. acquisition accounted for $511,071 with earnings of $67,404.
 
 

 


 
 
 
(F21)