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EX-31.2 - 302 CFO CERTIFICATION - PEER REVIEW MEDIATION & ARBITRATION INCpeerreview10k10ex31-2.txt
EX-32.2 - 906 CFO CERTIFICATION - PEER REVIEW MEDIATION & ARBITRATION INCpeerreview10k10ex32-2.txt
EX-32.1 - 906 CEO CERTIFICATION - PEER REVIEW MEDIATION & ARBITRATION INCpeerreview10k10ex32-1.txt
EX-31.1 - 302 CEO CERTIFICATION - PEER REVIEW MEDIATION & ARBITRATION INCpeerreview10k10ex31-1.txt

              U.S. SECURITIES AND EXCHANGE COMMISSION
                       WASHINGTON, D.C. 20549
                        --------------------

                             FORM 10-K
                        --------------------

(Mark one)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934
  For the transition period from _______________ to _________________

                      Commission File Number 000-52712

                 PEER REVIEW MEDIATION AND ARBITRATION, INC.
          (Exact name of registrant as specified in its charter)

               Florida                        65-1126951
               -------                        ----------
(State or other jurisdiction of    (I.R.S. Employer Identification No.)
Incorporation or organization)

                        778 South Military Trail
                       Deerfield Beach, FL  33442
               ---------------------------------------
               (Address of principal executive offices)

                             (954) 570-7023
                             --------------
          (Registrant's telephone number including area code)

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

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

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (section 232.406 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  Yes [ ]  No [ ]

Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.  Yes [X]  No [_]



2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [_] No [X] The market value of the registrant's voting $.0001 par value common stock held by non-affiliates of the registrant at __________________, 2010 was approximately $0. The number of shares outstanding of the registrant's only class of common stock, as of June 22, 2011 was 9,206,871 shares of its $.0001 par value common stock.
3 TABLE OF CONTENTS PAGE ---- Facing Page Index PART I Item 1. Business 4 Item 1A. Unresolved Staff Comments 15 Item 2. Properties 15 Item 3. Legal Proceedings 15 Item 4. (Removed and Reserved) 15 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters And Issuer Purchases of Equity Securities 16 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24 Item 8. Financial Statements and Supplementary Data 25 Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 42 Item 9A. Controls and Procedures 42 Item 9B. Other Information 43 PART III Item 10. Directors, Executive Officers and Corporate Governance 43 Item 11. Executive Compensation 43 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 43 Item 13. Certain Relationships and Related Transactions, and Director Independence 44 Item 14. Principal Accounting Fees and Services 44 PART IV Item 15. Exhibits, Financial Statement Schedules 45 SIGNATURES 46
4 FORWARD LOOKING STATEMENTS This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. The statements regarding Peer Review Mediation and Arbitration, Inc. and its subsidiaries contained in this Report that are not historical in nature, particularly those that utilize terminology such as "may," "will," "should," "likely," "expects," "anticipates," "estimates," "believes" or "plans," or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to us that could cause such material differences are identified in this Report. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the SEC. PART I ITEM 1. BUSINESS Corporate History ----------------- We were incorporated under the laws of the state of Florida on April 16, 2001. We have been conducting business operations ever since, primarily focused on the creation and continual development of our proprietary Private Network Application which allows direct access to our Peer Review Data Archival resource via our peerreviewboard.com Internet web site. Our subsidiary, Independent Review, Inc., a Texas corporation, is engaged in providing medical case reviews to the Texas Insurance Commission, pursuant to a license from the state of Texas. We recently formed ProMed Alliance, Inc., a Florida corporation, as another wholly owned subsidiary. ProMed will provide member benefits related to revenue, expense, and support services to physicians that are currently in our network of Physician Experts. In February 2005, we acquired all of the outstanding common shares of IRI in exchange for 75,000 unregistered shares of our common stock. IRI is engaged in providing medical case reviews to the Texas Insurance Commission, pursuant to a license from the State of Texas. In October 2008, we filed a registration statement on Form S-1 with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, registering those shares underlying the Purchase Options that we issued in our recent private offering. On April 2, 2009 our registration statement became effective. We have since completed all regulatory requirements, and the shares became available to trade on the OTC bulletin board market, under the ticker symbol PRVW, on January 29, 2010.
5 Glossary -------- Chart Review: The review of patient's chart notes and other medical reports that are used to help render objective evaluation of medical necessity or opinions to peer review processes. Litigation Support: Litigation Support provides the attorney with the information needed to thoroughly understand a medical case and also supplies the attorney with medical expertise to litigate a case. Medical Peer Review: The process by which a committee of physicians investigates the medical care rendered in order to determine whether accepted standards of care have been met. A Medical Peer Review is meant to provide independent medical opinions conducted by an objective group of physicians and relevant medical staff that quickly resolve complex problems that hospitals, physicians and insurance carriers face. They are often used to help solve systems problems endemic to healthcare institutions and thereby reduce legal liability associated with them. The review of chart notes and other medical reports are used to help render objective written opinions. Patient's Bill of Rights: A statement of the rights to which patients deserve as recipients of medical care. Typically, a statement articulates the positive rights which doctors and hospitals ought to provide patients, thereby providing information, offering fair treatment, and granting them autonomy over medical decisions -- the eight areas of consumer rights and responsibilities adopted by the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry in 1998 [1]. Peer Review: A process used for checking the work performed by one's equals (peers) to ensure it meets specific criteria. Peer Review is used in working groups for many professional occupations because it is thought that peers can identify each other's errors quickly and easily, speeding up the time that it takes for mistakes to be identified and corrected. Peer Evaluation: A team is a small group of people with complementary skills who are committed to a common purpose, performance goals, and an approach for which they hold themselves mutually accountable. Quality Review Programs: A quality assurance process that a healthcare provider or payor may institute to insure compliance to standards or standard procedure. Utilization Review: Utilization Review is the review of how certain medical services are requested and performed. The review typically involves pre-review, or pre-authorization; concurrent review, or inpatient evaluation of care and needs; and retrospective review, or the larger historical picture of how physicians, labs, or hospitals handle their patient populations. Most HMOs have written standards for what items are reviewed, and what might be considered appropriate for amount, time, and sources of evaluation and treatment. An independent review organization will also perform utilization review functions. Utilization Review may be performed by the HMO or insurer itself, or it may be contracted out to either a third party review specialist or to the hospital/lab/etc. providing the service.
6 Most frequently, nurses are employed to conduct the actual review. In all cases, the review examines medical records to see if the patient was given an economical level of care consistent with their needs and the past needs of similarly-afflicted patients. Current Business ---------------- Over the past three years, our development has included direct marketing to increase our panel of professionals. Using physician databases that we purchase, we are able to screen physicians throughout the country. From this large pool, we further filter through parameters of location, licensure, and medical specialty. These criteria will yield a short list of candidates. To this list we will send formal invitations to join our panel. Candidates, who respond to our direct marketing, begin a process of information and knowledge exchange. After our initial conversation, if the candidate is interested in joining our list of medical experts they make application and accept our terms and conditions to employment via our secure web portal. After our review of the application, the physician is given a user login to their personal space and account. This personal space is used to consolidate communication and work with our Company. At this point they are ready to upload, enter, email or fax their complete curriculum vita to use in the system. Our business plan is structured around: - Our subscriber clients being able to use this information for finding the best qualified physician for work assignments. - Developing our marketing plan that includes sales techniques, procedures and materials. We have spent a great deal of our time researching the market for our services. We have been developing our sales presentations tailored to specific industry and employee needs. This has included client contact materials such as brochures and pamphlets. - Continued Software and technology development. Our second largest endeavor over the past three years has been our enterprise software development. This enterprise system and it's sub assemblies (other software) aggregates all of our business process, employees, physician consultants, shareholders, clients, web portals and all required documents and tools to one ever-evolving desk top. This "desk top" view is determined by the user's or individual's need and authority. In our opinion, this is a cutting edge development using the latest software tools and techniques. - Hiring and training new employees. - Seeking acquisition candidates.
7 - Completing the acquisition of IRI. The acquisition of IRI has given us practical experience and is directing the development of our case management system. It is also why our customer base has expanded and become more diverse. We have had no appreciable revenues excluding a few "test" attorneys' clients. This acquisition took almost two years to complete, reorganize, and get running properly. Currently, we have had limited revenues and are operating at a deficit. Principal Service and Markets ----------------------------- Our service enables subscribers, including attorneys, insurance claims agents, healthcare providers and consumers, the ability to efficiently search and engage medical experts for a variety of medical consulting projects. We maintain a network of independent physicians as members of our Peer Review Board, who are available to assist in areas such as: - Expert medical opinions and testimony - Legal case evaluation and strategy - Assessment of damages - Case valuation - Medical peer review and chart review - Independent medical review - Quality and utilization review - Medical case management - Medical second opinion Federal and State mandates are directing managed care providers and insurance companies to dramatically step up their quality review programs. Insurance companies, attorneys, doctors and other health care providers are seeking ways to minimize their risk by increasing protection of their business interests, assets and clients. Add to this equation claims paid by casualty insurance carriers and it is obvious that an enormous demand exists for quality peer review assistance and medical litigation support from reputable medical experts. We intend to focus our attention on defense and plaintiff's attorneys, insurance companies, managed care organizations, hospitals and nursing homes as our primary subscribers. For personal injury attorneys, increased profitability means more efficient caseload management. With the litigation support we can provide, attorneys can achieve their goals of quickly eliminating non-meritorious cases (those cases that, because they have very little probability of receiving a positive verdict, the attorney will NOT be compensated) and expediting settlement of meritorious cases. By settling a case as soon as possible, an attorney saves time and money while creating the opportunity to handle a larger caseload. An effective and efficient search for medical experts that specifically matches the unique needs of the case will also strengthen the case for the attorney's client. Plaintiff's attorneys routinely obtain medical expert reviews as quickly as possible when taking on a new case to determine the validity of a case and to allow a successful disposition in the shortest time possible.
8 Lawyers representing plaintiffs or defendants rely upon litigation support of medical expert testimony for medical cases. We provide such litigation support through having medical experts available to review medical records, analyze and evaluate medical and administrative events, identify causation, address standard of care, evaluate case strengths and weaknesses, develop deposition strategy and questions, and provide testimony to articulate issues to a judge or jury. Insurance companies can rely on our services in an increasingly diverse manner including quality and utilization review, quality oversight, medical case management and peer evaluation. In matters pertaining to treatment decisions being evaluated by the Peer Review Organization (PRO), the insurance company or health care provider will be able to easily obtain impartial, objective third-party support and expert medical testimony from members of our Peer Review Board. We will provide our clients with valid, reliable and credible defense assisting them in reaching their desired outcome. In the ever-increasing litigious environment surrounding the healthcare and insurance industries, we believe we can offer an essential resource for attorneys, insurance companies and other health professionals. State Licensing --------------- In the state of Texas, our subsidiary IRI has been registered by the Texas Department of Insurance since 1999 to the present for statutory work for review of medical necessity denials by private insurance carriers for the state (registration #05055). We may make applications to other states sometime at a later date. Fee Structure ------------- Our business model anticipates the following fee structure as indicated as estimates only. Actual fees for service are determined on a case- by-case basis. - Attorney Subscriber Fees: Base Technology Fee $1,200.00 a year, which can be divided in monthly payments of $100 as a minimum fee, allowing the subscriber two cases per month. - Legal Reviews: Professional fees are estimated at $1,000.00 minimum per case. - Insurance Case Fees: Flat Rate Technology fee of $175.00 per case. - Medical Quality Reviews: Professional fees are estimated at $850.00 minimum per case. - Statutory Reviews: $650.00 per case or as set by law. Over the next twelve months we intend to proceed with the implementation of our business plan. We will strive to launch all aspects of our operations. However, our ability to successfully implement our business plan is contingent upon our ability to obtain additional capital. While no assurances can be provided, we expect that we will be able to obtain these funds once our registration statement becomes effective and the purchase options previously issued as part of our private offerings are exercised.
9 Private Offerings ----------------- Since December 2006, we have pursued three (3) separate private offerings of units. Each unit consists of one share of our common stock and one purchase option exercisable to purchase one share of our common stock at a price of $5.00 per unit. In December 2006, we closed our initial private offering of units wherein we sold 113,290 units to 114 accredited investors, as that term is defined under the Securities Act of 1933, as amended, and received gross proceeds of approximately $566,450 therefrom. In December 2007, we closed a private offering of units, selling 71,453 units for gross proceeds of $357,265. In June 2008, we closed a private offering of Units wherein we sold 89,197 units for gross proceeds of $445,985. In May 2008, we also issued 50,000 units in consideration for services valued at $250,000. We relied upon the exemptions from registration provided by Section 4(2) and Regulation D promulgated under the 33 Act to issue these Units. Also in December 2007, we issued 6,676 shares of common stock in exchange for cash in the amount of $33,380 to 8 accredited investors at a price of $5.00 per share. In December 2007, we also issued 3,957 shares of common stock as compensation for services. ProMed Alliance --------------- In addition to our principle service and markets, the Company has also begun several initiatives in our wholly owned subsidiary, ProMed Alliance International, Inc. We are developing ProMed to be the first physician practice partnership and medical consulting firm with the ability to service healthcare organizations from one central source. We will be providing partnership support and services to our member physicians and their organizations and, as a logical extension, to the medical community that they serve. In order to facilitate our plan for rapid growth of these services, ProMed has initiated an aggressive acquisition strategy. The following is a brief discussion of completed and pending acquisitions as of the date of this report. Witkop Office Machines, Inc., and Docs In A Row, Inc. The Company completed the acquisition of Witkop Office Machines, Inc., and Docs In A Row, Inc. on May 4th, 2010. These companies were affiliated and had common ownership. Witkop provides dictation systems and related transcription services, and through their DIAR offering, they provide next generation software to facilitate digital medical transcription through an online interface.
10 Key Vista Associates, Inc. -------------------------- The Company completed the acquisition of Key Vista Associates, Inc. on November 1, 2010 to serve the staffing needs of our physician network. Key Vista provides fully integrated services to effectively manage critical human resource responsibilities and employer risks for clients systems and services. Key Vista facilitates our clients by ensuring statutory and regulatory compliance, and providing timely processing of HR-critical worker's compensation, tax, and risk management issues, alleviating these stresses on our clients. A-1 Environmental Services -------------------------- The Company completed this acquisition on January 3, 2011. A-1 Environmental Services provides storm and surface water retention services. We have the latest technology for structural pipe integrity analysis using laser with recorded video of virtually all pipe joints including length and width. This acquisition complements our other environmental initiatives, and facilitates the goal of breaking the infection cycle by providing a sustainable sanitary environment. Distribution of Products and Services-Market Segmentation --------------------------------------------------------- Our market breaks down in three different areas and with three revenue components: (a) Medical Review Support and Litigation Support Consultation, Case strategy, Expert Opinion and Testimony which further breaks down to two of our services, namely providing services to Personal Injury Plaintiffs and Defense of Liability Payors; (b) Medical Review Support to Healthcare Payors (Healthcare Insurance Companies, Hospitals, Nursing Homes, etc.); and (c) Statuary Review for state governments. (a) Legal Consulting With numerous law firms across the United States specializing in personal injury, we believe there is a significant market segment of the legal industry ideal for our business. When a personal injury case is brought to an attorney, that attorney must evaluate liability and causation. He or she must assess damages, place a value on the case, determine the case strategy and obtain expert medical reports. The attorney must also review and organize medical records, interrogatories and depositions, as well as any necessary medical research. Medical experts are used for legal support by both the plaintiff and the defense. When there is a group of attorneys acting on the behalf of the plaintiff, one will find a like group, acting in a similar manner on behalf of the defense. This means that we offer a valuable service necessary and applicable to both sides in a litigation case maximizing our market potential within the legal community. Casualty insurance companies provide coverage that pays the medical and hospital bills as well as whatever a court might award (up to the limits of the coverage) for someone injured in a situation that a court might regard as negligent in nature by their client. In these instances, the insurance company would have needs similar to defense attorneys.
11 An attorney for the plaintiff in many states must file an "affidavit of merit" attesting that the attorney has obtained a written opinion of a physician who finds the plaintiff's claim to have merit. We seek to provide a subscriber with thousands of qualified medical experts to serve and expedite this process. Medical experts, in assessing damages and valuing cases, ensure that the attorneys from both sides approach negotiations with a true understanding of the case's settlement value. Experienced experts know what influences insurance companies to settle and, through case evaluation, can help develop case strategy, presentations and materials designed to produce a quick settlement. After in-house survey with our medical experts, we believe medical physicians and expert will often charge from $300 to $700 per hour for case evaluations, to review all the records and render an opinion. Another informal survey of attorneys has indicated that they may have to interview as many as twenty-five experts before finding two or three willing to testify for their position. Complex cases often require several expert witnesses. We enable subscribers to avoid the typical hit or miss process of locating appropriate and credible medical experts to evaluate and ultimately testify for their case. These surveyed attorneys also desire greater efficiencies in this process to achieve their overall financial goals. We assist our subscribers to reduce the time and effort necessary in these types of cases, creating a far more cost-effective process. We also facilitate an advanced search methodology allowing attorneys to rapidly identify a number of potential medical experts from the Peer Review Board with wide ranging specialties, backgrounds and expertise. For a law firm specializing in personal injury, more efficient caseload management means increased profitability. For other law firms representing clients typically on the defense, a deeper reservoir of medical experts should reduce their liabilities and payouts. (b) Medical Review In another informal survey of providers, insurance companies, managed care organizations, such as HMOs and PPOs, hospitals, nursing homes and other health care providers have indicated that they are becoming increasingly dependent on objective third-party support for medical decision-making, peer evaluation, quality assurance, utilization review, case management, and quality oversight, as well as in litigation cases requiring case valuations and expert testimony. We assist insurers and health care companies in achieving their goal of assuring their members, patients and the public of delivering proper and necessary health care without quality compromise. This has become a critical foundation for continued business for all health care providers, but especially for HMOs and insurers as legislation supporting a Patients' Bill of Rights is passed in various states, and soon to be enacted at the national level.
12 The Company's board members are ideal for developing and monitoring quality assurance programs for a variety of health care entities. Standards for quality review for health plans and Medicare providers intensify every year, necessitating the assistance of independent, objective specialists external to the organization. We believe we are especially beneficial to managed care organizations, hospitals and nursing homes undergoing utilization review and case evaluations brought before the Peer Review Organization. The Peer Review Organization program is administered by the Health Care Financing Administration, the branch of the federal government that administers Medicare and Medicaid, HCFA is designed to monitor and improve utilization and quality of health care for Medicare beneficiaries. Their mission is to ensure the quality, effectiveness, efficiency, and economy of health care services provided. The PRO responds to quality of care complaints from consumers and appeals filed if an insurance company denies a service, or terminates, or refuses to pay for a service that the insured believes should be covered. For example, when an HMO is being investigated for quality of care concerns or is defending a medical decision, the HMO can obtain documentation, develop supportive defense and locate appropriate medical expert witnesses, independent from the organization, to back up their cases. The appeal process allows insurance companies to demonstrate why a treatment may not be medically necessary or appropriate. We believe we can play an invaluable role by extending third party, objective corroboration. Another one of PRO's many objectives is to improve the quality of healthcare services to ensure routine delivery of high-quality medical care. With this being a prominent objective, we can also be tapped by health care providers to assist in development of quality improvement programs. Publicizing their achievements in quality improvements and their association with us, we believe health care providers gain enhanced credibility, public support and patient confidence, leading to improved sales and customer loyalty, so critical to long-term viability in the market place. We believe we offer a unique opportunity for hospitals, insurance companies and other health care providers to differentiate themselves in their respective markets while achieving greater cost efficiencies and positively impacting corporate goals. The process by which independent physicians become members of our Peer Review board consist of an invitation sent to select medical professionals by direct mail, e-mail or fax with information about the industry, advantages of participating in our panel of specialists and potential income opportunities. As they reply to the invitation by calling us, one of our coordinators explains further how the process works and acquires necessary information to initiate the intake process. The medical professional is then instructed to complete an application. Once his application has been reviewed and accepted, he or she is then asked to send their curriculum vitae to us by means of fax, e-mail or submission through our website. Once the curriculum is received, it is promptly input into our platform and then verified and confirmed by the medical professional who sent it by accessing his private space on our website. Once confirmed, the curriculum becomes available in our search system so subscribers can find it. The whole process is managed by our proprietary enterprise software, which determines the status of each applicant and controls the workflow, guiding actions to be taken by coordinators and the system.
13 These actions include automated response and reminders by fax or e- mail, schedule of phone calls, among others. Our Growth Strategy ------------------- Given the challenges facing physicians, successful practices must take proactive steps to combat negative trends and improve their overall financial performance. Our Member Benefits Programs will be designed to improve practice operations and processes can be streamlined to reduce costs and increase revenue. There are two broad classifications of Members Benefits opportunities. They are Revenue and Expense Cycle Management. Our Revenue Cycle Management relates to all of the processes, sub-processes and enabling technologies associated with the initial contact through the collection of inbound revenue. Solutions may include new practice protocols, contract negotiations, net collections improvements and new revenue opportunities. Our Expense Cycle Management Solutions will include forming a Group Purchasing Organization. This GPO will be supported by acquisition of related expense side suppliers. This approach will leverage a single physician member purchasing power by the combined volumes of all participating members. This Member Benefit as a cost reduction strategy will focus on reducing the internal costs and maintain tighter control over supplies and related spending. In summary, we believe our national network of Member Physicians gives us substantial market position, negotiating and purchasing power. We expect that the Member Benefits, Revenue and Expense Cycle Management solutions previously discussed will continue to develop long-term financial relationships with physicians and their practices. However, there can be no assurances that we will obtain substantial market position, negotiating and purchasing power in the foreseeable future. Employees --------- As of June 22, 2011, we employ fifteen (15) people on a full-time basis and two on a part-time bases, including three persons in management, two in operations, three in IT, one in marketing five in corporate communications and three in physician recruitment and member benefits. If we receive proceeds from the Purchase Options, the ProMed private placement, or increased profit from operations, or otherwise obtain other additional financing, we expect to hire up to 25 new employees over the next few years in the areas of sales and marketing, public relations, physician education, technology and customer support. We anticipate that we will hire several members to our sales, marketing, research and development, regulatory and administrative staff during the course of 2010. However, there are no assurances that we will obtain any additional funds in the future. We are in the process of recruiting additional employees of high skill, and our success will depend in part upon our ability to retain such employees and attract new qualified employees who are in great demand. None of our employees are members of a union. We consider our employee labor relations to be good.
14 Government Regulations ---------------------- Any entity can state that they are an independent review organization. However, registration or certification is required in order to be eligible for assignment of statutory or regulatory work from government agencies, i.e. state departments of insurance. Licensing is only required for companies who wish to work for the State Department of Insurance. There is no licensing requirements to do commercial, for attorneys or insurance companies, or private, individual consumers, payer work for medical review. We are registered or a certified IRO in the states in which we conduct business. In the state of Texas, our subsidiary IRI has been registered by the Texas Department of Insurance since 1999 to the present for statutory work for review of medical necessity denials by private insurance carriers for the state (registration #05055). We may make applications to other states sometime at a later date. There are no other existing government regulations, nor are we aware of any regulations being contemplated that would adversely affect our ability to operate. To date, governmental regulations have not materially restricted the use or development of our business. However, new laws may have an impact on our ability to market our services in accordance with our business plan. Competition ----------- Many companies within the medical expert industry are larger, more established and better capitalized. We have marginal sales, net losses and limited funds for marketing. Our competitors fall into three different categories: (a) Directories of Experts. Directories are maintained by several organizations and service companies, e.g. West Law, Lexus Nexus, Seek, America Medical Association, and other online providers. (b) Referral Services. Almost any employment agency can handle search and recruitment of a part time medical consultant. There are numerous companies specializing in the medical placement field. (c) Sole Service Providers. These companies are similar to Peer Review's IRI division, in that they maintain their own panel of providers or employees and they decide who to assign required work. A search in Dunn and Bradstreet will reveal about 350 different companies. We believe our platform and business plan will offer a competitive advantage over these competitors in the future. Our plan is to meld together the advantages of the several types of competitors, and infusing it with a new collaborate technology. Like directories, we have a vast panel representing many medical specialties and geographic locations. But unlike Directories, we maintain vast amount of information about our physicians, with a searchable Data Archive of their complete curriculum vita. The disadvantage of Directory or Referral Services is that the client must expend a lot of effort to screen through physicians and contact the physician directly.
15 Our customer relations process handles the communication and determines which of the chosen professionals are interested in the work assignment. Our methods allow the Client to search, review and chose a "short" list of qualified physicians and send a request for proposal to the list. Physicians can review case details and if interested, responds with a quote for services. To our knowledge and unlike all the competitors in the industry, we expect to offer an advantageous case management system where the client can identify case parties, documents, authorities to upload and/or view documents, and request documents from others. Trademarks/Tradenames/Intellectual Property ------------------------------------------- We have no patents pending but maintain strong intellectual property controls. All employees are subject to a Non-Disclosure and Intellectual Property and Ownership Agreement. ITEM 1A. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES As of the date of this report, the Company does not own office property or other real property. In 2009 and through the first ten months of 2010, the Company rented space under an office lease from a corporation controlled by an officer. Rent expense incurred under the lease in 2009 and 2010 was approximately $238,000 and $200,000. In November 2010 the Company signed a two year office lease running through November 2012, noncancellable with no stated renewal option, with monthly payments over the life of the lease of approximately $3,100 - $3,300 plus costs. The Company carries an additional office lease with monthly payments of $1,470 plus costs extending through December 2011. Subsequent to December 31, 2010 future minimum payments under the office leases are approximately $85,000 including $52,000 in 2011 and $33,000 in 2012. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. REMOVED AND RESERVED
16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company completed all regulatory and reporting requirements in January of 2010, and the Company's common stock was available to trade on the OTCBB under the symbol PRVW on February 1, 2010 when the markets opened. Holders As of June 22, 2011, we had 763 holders of record for our common shares, and 194 holders of purchase options. Dividends We have not paid any dividends since our incorporation. Beginning in 2011, we will begin paying dividends to those investors who hold preferred shares in our subsidiary, ProMed. These preferred shares carry a 5% guaranteed annual dividend, and a 5% variable dividend, paid as a percentage of the purchase price of the preferred shares. The variable amount is calculated as 40% of operating profit or 5% of the purchase price of the preferred shares, whichever is greater. At present, our policy is to retain earnings, if any, to develop and market our products. The payment of dividends in the future will depend upon, among other factors, our earnings, capital requirements, and operating financial conditions. ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data should be read in conjunction with our financial statements and the related notes to those statements appearing elsewhere in this Report. The selected financial data has been derived from our audited financial statements. Statement of Operations: Year Ended December 31, 2009 2010 ---------- ---------- Revenues $ 59,251 $1,304,713 Total operating expenses 1,302,497 5,914,773 Loss from operations (1,265,057) (5,718,664) Other income (expense) (137,774) (309,889) Provision for income tax - - Net income (loss) (1,402,831) (6,028,553) Net income (loss) per share - basic and fully diluted (0.17) (0.71) ========== ========== Weighted common shares outstanding 8,319,882 8,461,865 ========== ==========
17 Balance Sheet: Year Ended Year Ended December 31, December 31, 2009 2010 ----------- ----------- Cash $ 53,995 $ 27,392 Current assets 59,087 6,960 Total assets 70,953 47,511 Current liabilities 3,110,613 2,595,596 Total liabilities 3,285,684 2,595,596 ----------- ----------- Total stockholders' equity $(3,214,731) $(2,548,085) ----------- ----------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We were incorporated under the laws of the state of Florida on April 16, 2001. We have been conducting business operations ever since, primarily focused on the creation and continual development of our proprietary Private Network Application which allows direct access to our Peer Review Data Archival resource via our peerreviewboard.com Internet web site. Our wholly owned subsidiary, Independent Review, Inc., is engaged in providing medical case reviews to the Texas Insurance Commission pursuant to a license from the State of Texas. Our service enables subscribers, attorneys, insurance claims agents, healthcare providers and consumers the ability to efficiently search and engage medical experts for a variety of medical consulting projects. PRMA maintains a network of independent physicians as members of its Peer Review Board, available to assist in areas such as: expert medical opinions and testimony, legal case evaluation and strategy, assessment of damages, case valuation, medical peer review and chart review, independent medical review, quality and utilization review, medical case management, and medical second opinion. Results Of Operations Comparison of Results of Operations for the Fiscal Years Ended December 31, 2010 and 2009 Sales were $1,304,713 for the fiscal year ended December 31, 2010, as compared to sales of $59,251 for the fiscal year ended December 31, 2009, an increase of $1,245,462 (2102.0%). These revenues were generated by the transcription division and staffing division of our subsidiary, ProMed, and by our subsidiary, IRI, which handles medical denied insurance cases for the Texas Department of Insurance.
18 Cost of sales was $1,108,604 for the fiscal year ended December 31, 2010, as compared to cost of sales of $21,811 for in the fiscal year ended December 31, 2009, an increase of $1,086,793 (4982.8%). Cost of sales increased due to the corresponding increase in revenues as a result of the revenue-generating acquisitions made through our subsidiary, ProMed in 2010. For the fiscal year ended December 31, 2010, we incurred operating expenses of $1,728,191, which included selling, general and administrative expenses of $1,690,109, compared to operating expense of $1,302,497 during the fiscal year ended December 31, 2009, which included selling, general and administrative expenses of $1,295,020 for the same period last year, or a 30.5% increase in selling, general and administrative expense. Selling, general and administrative expenses during the fiscal year ended December 31, 2010, consisted of $314,4451 in physician recruitment, $209,634 in administrative expense, $174,695 in operational expense, $131,022 in IT maintenance, $225,033 in rent, $2304,322 in officers and directors compensation, $90,957 in consulting fees, $30,739 in telephone and internet, $66,190 in legal, accounting and & professional fees, $18,814 in utilities and maintenance, $27,998 in office supplies, $3,171 in licenses/permits, $14,856 in promotion and advertising, and $19,116 in miscellaneous fees. Depreciation and amortization expense increased to $38,082 during the fiscal year ended December 31, 2010, compared with that of $7,477 for the same period in 2009. The increase in depreciation and amortization expense was primarily due to the increase in the percentage of depreciated assets in 2009 directly associated with acquisitions. We also incurred non-cash expenses of $24,543 in bad debt expense, $43,750 in beneficial conversion expense to account for options issued under the private placement of ProMed Alliance units, $266,149 in accrued interest expense, and $4,162,039 in writeoffs to account for goodwill expense associated with acquisitions. As a result, we incurred a loss of ($6,027,230) during fiscal year ended December 31, 2010, or ($0.71) per share, compared with a loss of ($1,402,750) during the fiscal year ended December 31, 2009, or ($0.17) per share. In 2010, the Company began generating revenues from two operating divisions of our wholly owned subsidiary, ProMed Alliance. The transcription division began operations on May 4, 2010, and the staffing division began operations on November 1, 2010. The combined revenue for these divisions for 2010 was $1,255,521, and the operating costs directly associated with these two divisions was $1,218,370, generating an operating profit of $37,152. Promed Alliance Operating Divisions Combined Revenues $1,255,521 Combined Expenses 1,218,370 ----------------- ---------- Operating Profit $ 37,152 ================= ==========
19 Liquidity and Capital Resources ------------------------------- At December 31, 2010, we had $155,655 in cash and $79 in marketable securities, compared to $27,392 in cash and $162 in marketable securities for the fiscal year ended December 31, 2009. At December 31, 2010, we had total assets of $451,134 and total liabilities of $3,639,651. Going Concern ------------- Our consolidated financial statements have been prepared assuming that we will continue as a going concern. The factors described above raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from this uncertainty. Our independent registered public accounting firm has included an explanatory paragraph expressing doubt about our ability to continue as a going concern in their audit report for the fiscal year ended December 31, 2010 and 2009. Management's plan for our continued existence is to continue to increase sales and operating profit from our existing operating divisions, complete revenue- and profit-generating acquisitions that are pending, and assumes the continued exercise of options by current PRMA option holders as well as the selling of additional securities through private placements to fund operations. Our future success is dependent upon our ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that we will be able to generate sufficient cash from operations, sell additional shares of Common Stock or borrow additional funds. Our inability to obtain additional cash could have a material adverse effect on our financial position, results of operations and our ability to continue as a going concern. Equity Financing ---------------- Since December 2006, we have successfully closed three (3) separate private offerings of Units, each Unit consisting of one share of our Common Stock and one Purchase Option exercisable to purchase one share of our Common Stock at a price of $5.00 per Unit. In December 2006, we closed our initial private offering of Units wherein we sold 113,290 Units to 114 accredited investors and received gross proceeds of approximately $566,450 therefrom. In December 2007, we closed a private offering of Units, selling 71,453 Units to 49 accredited investors for gross proceeds of $357,265. In June 2008 we closed a private offering of Units wherein we sold 89,197 Units to 33 accredited investors for gross proceeds of $445,985. In May 2008, we also issued 50,000 Units in consideration for services valued at $250,000 in favor of 5 persons. Also in December 2007 we issued 6,676 shares of Common Stock in exchange for cash in the amount of $33,380 to 8 accredited investors at a price of $5.00 per share. In December 2007, we also issued 3,957 shares of Common Stock as compensation for services. In October 2010, we initiated a Unit offering in our wholly owned subsidiary, ProMed Alliance, each unit consisting of 50 shares of ProMed Common Stock, 50 shares of ProMed Preferred Stock, and 50 Purchase Options exercisable to purchase one share of ProMed Common Stock, at $1,000 per unit (a "ProMed Unit"). ProMed Units were purchased in full, and in partial allocations, and the total proceeds from this offering for 2010 was $350,000.
20 The net cash used in operating activities for the year ended December 31, 2010, was $953,287. The net cash provided from financing activities for the year ended December 31, 2010, was $1,171,858. We had $155,734 in cash and cash equivalents as of December 31, 2010, compared to $27,554 in cash and cash equivalents as of December 31, 2009. We had $30,663 in account receivables as of December 31, 2010, as compared to $6,960 at December 31, 2009. Willis Hale, our chairman, CEO, president and principal shareholder, is owed various sums as of June 22, 2011. The amounts are accrued yearly pursuant to Mr. Hale's employment agreement with us. As of December 31, 2010, the principle balance due was $1,542,300. Dave Larry, our director and minority shareholder, is owed $9,076 pursuant to a loan agreement. This loan has monthly payments of $3,125, is unsecured, accrues interest at the rate of 9.75% per annum and has a 3 year term, with a balloon payment of all unpaid principal and interest due on expiration in December 2011. Plan of Operations ------------------ Any additional growth may require additional cash infusions. We may face expenses or other circumstances such that we will have additional financing requirements. In such event, the amount of additional capital we may need to raise will depend on a number of factors. These factors primarily include the extent to which we can achieve revenue growth, the profitability of such revenues, operating expenses, research and development expenses, and capital expenditures. Given the number of programs that we have ongoing and not complete, it is not possible to predict the extent or cost of these additional financing requirements. The failure to secure any necessary outside funding would have an adverse affect on our development and results therefrom and a corresponding negative impact on shareholder liquidity. If we need to raise additional funds in the future, it is likely we will seek to issue additional equity securities. If we issue additional equity securities to raise funds, the ownership percentage of our existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of Common Stock. If we cannot raise any needed funds, we might be forced to make substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company. We believe we will require an aggregate of $4 million over the next twelve (12) months, including approximately $3 million to consummate proposed acquisitions and at least $1 million in operating capital, unless we are able to continue to generate increasing profits from operation, of which there is no assurance. As such, we do not have sufficient funds on hand to meet our planned expenditures over the next 12 months. However, if the Purchase Options are exercised and we are able to effectively market and sell the ProMed Units, we believe that we will have sufficient funds to implement our business plan described herein. If the Purchase Options are not exercised we will need to seek additional financing to meet our planned expenditures, or limit our acquisitions.
21 Obtaining additional financing would be subject to a number of factors, including development of our business plan and interest in our Company. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. Our ability to continue to grow our revenues is subject to significant risks including, without limitation, our limited marketing budget, the limited track record for our products and the difficulties encountered in trying to enter new markets with newly developed products and technologies, the potentially long sales and qualification process required for our products and the risk that our competitors will develop products that diminish or eliminate any technological advantages of our products. Critical Accounting Policies and Estimates Critical Accounting Estimates ----------------------------- The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on- going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Leases - We follow the guidance in SFAS No. 13 "Accounting for Leases," as amended, which requires us to evaluate the lease agreements we enter into to determine whether they represent operating or capital leases at the inception of the lease. Stock-based compensation - Effective January 1, 2006, we adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 123R, "Share Based Payment." SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized on a straight-line basis over the employee service period (usually the vesting period). That cost is measured based on the fair value of the equity or liability instruments issued using the Black-Scholes option pricing model.
22 Recent accounting pronouncements - In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy as defined in the standard. Additionally, companies are required to provide enhanced disclosure regarding financial instruments in one of the categories (level 3), including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS No. 157 is effective for our consolidated financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on our consolidated financial statements or results of operations. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans." SFAS No. 158 requires the recognition of the funded status of a defined benefit plan in the balance sheet; the recognition in other comprehensive income of gains or losses and prior service costs or credits arising during the period but which are not included as components of periodic benefit cost; the measurement of defined benefit plan assets and obligations as of the balance sheet date; and disclosure of additional information about the effects on periodic benefit cost for the following fiscal year arising from delayed recognition in the current period. In addition, SFAS No. 158 amends SFAS No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions," to include guidance regarding selection of assumed discount rates for use in measuring the benefit obligation. The recognition and disclosure requirements of SFAS No. 158 are effective for our year ended December 31, 2006. The measurement requirements are effective for fiscal years ending December 31, 2010. We do not believe the adoption of SFAS 158 will have a material impact on our consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS No. 159). Under the provisions of SFAS No. 159, companies may choose to account for eligible financial instruments, warranties and insurance contracts at fair value on a contract-by-contract basis. Changes in fair value will be recognized in earnings each reporting period. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are required to adopt the provisions of SFAS No. 159 effective January 1, 2008. We are currently assessing the impact of the adoption of SFAS No. 159. In December 2007, the FASB issued a revised standard, SFAS 141R, "Business Combinations" on accounting for business combinations. The major changes to accounting for business combinations are summarized as follows: - SFAS 141R requires that most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination be recorded at "full fair value"
23 - Most acquisition-related costs would be recognized as expenses as incurred. - Obligations for contingent consideration would be measured and recognized at fair value at the acquisition date. - Liabilities associated with restructuring or exit activities are recognized only if they meet the recognition criteria in SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities," as of the acquisition date. - An acquisition date gain is reflected for a "bargain purchase." - For step acquisitions, the acquirer re-measures its noncontrolling equity investment in the acquiree at fair value as of the date control is obtained and recognizes any gain or loss in income. - A number of other significant changes from the previous standard including related to taxes and contingencies. The statement is effective for business combinations occurring in the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141R is not expected to have a material impact on our consolidated financial statements or results of operations. In December 2007, the FASB issued a revised standard SFAS 160, "Non- controlling Interests in Consolidated Financial Statements," on accounting for non-controlling interests and transactions with non- controlling interest holders in consolidated financial statements. This statement specifies that non-controlling interests are to be treated as a separate component of equity, not as a liability or other item outside of equity. Because non-controlling interests are an element of equity, increases and decreases in the parent's ownership interest that leave control intact are accounted for as capital transactions rather than as a step acquisition or dilution gains or losses. The carrying amount of the non-controlling interests is adjusted to reflect the change in ownership interests, and any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity attributable to the controlling interest. This standard requires net income and comprehensive income to be displayed for both the controlling and the non-controlling interests. Additional required disclosures and reconciliations include a separate schedule that shows the effects of any transactions with the non-controlling interests on the equity attributable to the controlling interest. The statement is effective for periods beginning on or after December 15, 2008. SFAS 160 will be applied prospectively to all non- controlling interests, including any that arose before the effective date. The adoption of SFAS No. 160 is not expected to have a material impact on our consolidated financial statements or results of operations. Inflation Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during 2010.
24 Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.
25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PEER REVIEW MEDIATION AND ARBITRATION, INC. Consolidated Financial Statements TABLE OF CONTENTS Page ---- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 26 CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets 27 Consolidated statements of income and comprehensive income 29 Consolidated statements of stockholders' equity 30 Consolidated statements of cash flow 31 Notes to consolidated financial statements 33
26 RONALD R. CHADWICK, P.C. Certified Public Accountant 2851 South Parker Road, Suite 720 Aurora, Colorado 80014 Telephone (303)306-1967 Fax (303)306-1944 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors Peer Review Mediation And Arbitration, Inc. Boca Raton, Florida I have audited the accompanying consolidated balance sheets of Peer Review Mediation And Arbitration, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Peer Review Mediation And Arbitration, Inc. as of December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficit and stockholders' deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 7. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Aurora, Colorado s/Ronald R. Chadwick, P.C. March 31, 2010 RONALD R. CHADWICK, P.C.
27 PEER REVIEW MEDIATION AND ARBITRATION, INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2009 2010 ----------- ----------- ASSETS Current Assets Cash $ 27,392 $ 155,655 Accounts receivable 6,960 30,663 Inventory - 22,294 Marketable securities 162 79 ----------- ----------- Total current assets 34,514 208,691 ----------- ----------- Fixed assets 74,079 328,522 Less accumulated depreciation (61,582) (99,663) Other assets 500 13,584 ----------- ----------- 12,997 242,443 ----------- ----------- Total Assets $47,511 $451,134 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accrued payables $ 177,683 $ 633,379 Related party payables 2,362,657 2,797,987 Notes payable related party - current portion 53,020 189,391 Related party loans 2,236 3,894 ----------- ----------- Total current liabilities 2,595,596 3,624,651 ----------- ----------- Notes payable - related party - 15,000 ----------- ----------- Total Liabilities 2,595,596 3,639,651 ----------- -----------
28 Stockholders' Equity Preferred stock, Series II, $.001 par value; 1,000,000 shares authorized; convertible; 1,000,000 issued and outstanding 1,000 1,000 Common stock, $.001 par value; 45,000,000 shares authorized; 8,386,317 (2009) and 9,140,683 (2010) shares issued and outstanding 8,386 9,140 Additional paid in capital 9,054,356 22,409,747 Stock Subscription Receivable - (7,968,750) Accumulated deficit (11,598,237) (11,598,237) Accumulated other comprehensive income (loss) (13,590) (13,590) ----------- ----------- Total PRMA Stockholders' Equity (2,548,085) (2,548,085) Non-controlling interest - (597) ----------- ----------- Total Stockholders' Equity (2,548,085) (3,188,517) ----------- ----------- Total Liabilities and Stockholders' Equity $ 47,511 $ 451,134 =========== =========== The accompanying notes are an integral part of the consolidated financial statements.
29 PEER REVIEW MEDIATION AND ARBITRATION, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year Ended Year Ended December 31, December 31, 2009 2010 ---------- ---------- Revenue $ 59,251 $1,304,713 Cost of sales 21,811 1,108,604 ---------- ---------- Gross Margin 37,440 196,109 Expenses: Depreciation 7,477 38,082 General and administrative 1,295,020 1,690,109 Bad debt expense - 24,543 Write offs - 4,162,039 ---------- ---------- 1,302,497 5,914,773 ---------- ---------- Loss from operations (1,265,057) (5,718,664) ---------- ---------- Other income (expense) Interest income 180 10 Interest (expense) (137,954) (266,149) Realized gain (loss) on securities - (43,750) ---------- ---------- (137,774) (309,889) ---------- ---------- Income (loss) before provision for income taxes (1,402,831) (6,028,553) Provision for income tax - - ---------- ---------- Net income (loss) (1,402,831) (6,028,553) Other comprehensive income (loss) - net of tax Unrealized gain (loss) on securities 81 (83) ---------- ---------- Comprehensive income (loss) (1,402,750) (6,028,636) Comprehensive (income) loss attributable to noncontrolling interest - 1,406 ---------- ---------- Comprehensive income (loss) - (6,027,230) ========== ========== Net income (loss) per share (basic and fully diluted) (0.17) (0.71) ========== ========== Weighted average number of common shares outstanding 8,319,882 8,461,865 ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
30 PEER REVIEW MEDIATION AND ARBITRATION, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Preferred Stock Preferred Stock Series I Series II ---------------- -------------- --------------- Amount Amount $.001 Paid in Shares $.001 Shares par Shares Amount Capital ------ ------ ------ ------ ------ ------ ------- Balances at December 31, 2008 8,264,126 $8,264 - $ - 1,000,000 $1,000 $6,985,082 Compensatory stock issuance 5,505 5 - - - - 27,520 Warrant exercises - cash 66,686 67 - - - - 1,166,804 Warrant exercises - paid by debt conversion 50,000 50 - - - - 874,950 Unrealized gain (loss) on securities - - - - - - - Income (loss) for the period - - - - - - - ---------- ------ ------ ------ --------- ------ ---------- Balance at December 31, 2009 8,386,317 $8,386 - $ - 1,000,000 $1,000 $9,054,356 Stock issuance for business acquisition 200,000 200 - - - - 3,299,800 Stock issuance for assets 32,250 32 - - - - 660,493 Warrant exercises - cash 53,366 53 - - - - 933,876 Paid-in capital - subsidiary equity sales - - - - - - 349,281 Paid-in capital - Subsidiary - - - - - - - Beneficial conversion feature - - - - - - 43,660 Shares issued and held by Company for pending transactions 468,750 469 - - - - 7,968,281 Unrealized gain (loss) on securities - - - - - - - Income (loss) for the period - - - - - - - ---------- ------ ------ ------ ---------- ------ ---------- Balances at December 31, 2010 9,140,683 $9,140 - $ - 1,000,000 - - ========== ====== ====== ====== ========== ====== ========== PEER REVIEW MEDIATION AND ARBITRATION, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) Accumulated Stock- Stock Other holders' Stock- Subscriptions Accumulated Comprehensive Equity Noncontrolling holders' Receivable Deficit Income (Loss) PRMA Interest Equity ------------- ----------- ------------- ------- -------------- ------- Balances at December 31, 2008 - $(10,195,406) $(13,671) - - $(3,214,731) Compensatory stock issuance - - - - - 27,525 Warrant exercises - cash - - - - - 1,166,871 Warrant exercises - paid by debt conversion - - - - - 875,000 Unrealized gain (loss) on securities - - 81 - - 81 Income (loss) for the period - (1,402,831) - - - (1,402,831) ----------- ------------ -------- ----------- --------- ----------- Balance at December 31, 2009 - $(11,598,237) $(13,590) - - $(2,548,085) Stock issuance for business acquisition - - - 3,400,000 - 3,400,000 Stock issuance for assets - - - 660,525 - 660,525 Warrant exercises - cash - - - 933,929 - 933,929 Paid-in capital - subsidiary equity sales - - - 349,281 719 350,000 Paid-in capital - Subsidiary - - - - - - Beneficial conversion feature - - - 43,660 90 43,750 Shares issued and held by Company for pending transactions (7,968,750) - - - - - Unrealized gain (loss) on securities - - (83) (83) - (83) Income (loss) for the period - (6,027,147) - (6,027,147) (1,406) (6,028,553) ----------- ------------ -------- ----------- --------- ----------- Balances at December 31, 2010 $(7,968,750) $(17,625,384) $(13,673) $(3,187,920) $ (597) $(3,188,517) =========== ============ ======== =========== ========= =========== The accompanying notes are an integral part of the consolidated financial statements.
32 PEER REVIEW MEDIATION AND ARBITRATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended Year Ended December 31, December 31, 2008 2010 ----------- ----------- Cash Flows From Operating Activities: Net income (loss) $(1,402,831) $(6,028,553) Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 7,327 38,082 Accounts receivable (1,950) (46,362) Accrued payables (108,632) 425,874 Related party payables 385,896 435,330 Compensatory equity issuances 27,525 - Other assets - (7,990) Bad debt expense - 24,543 Beneficial conversion feature - expense - 43,750 Writeoffs - 4,162,039 ----------- ----------- Net cash provided by (used for) operating activities (1,092,665) (953,287) ----------- ----------- Cash Flows From Investing Activities: Fixed assets (8,458) (1,212) Business acquisition - net - (89,096) ----------- ----------- Net cash provided by (used for) investing activities (8,458) (8,458) ----------- ----------- (Continued on Following Page) The accompanying notes are an integral part of the consolidated financial statements.
33 PEER REVIEW MEDIATION AND ARBITRATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued From Previous Page) Year Ended Year Ended December 31, December 31, 2009 2010 ---------- ------------ Cash Flows From Financing Activities: Notes payable - borrowings 40,000 - Notes payable - payments (68,976) (113,629) Related party loans (63,375) 1,558 Equity sales - subsidiary - 350,000 Option Exercises 1,166,871 933,929 ---------- ---------- Net cash provided by (used for) financing activities 1,074,520 1,171,858 ---------- ---------- Net Increase (Decrease) in Cash (26,603) 128,263 Cash at the Beginning of the Period 53,995 27,392 ---------- ---------- Cash at the End of the Period $ 27,392 $ 155,655 ========== ========== Schedule of Non-Cash Investing and Financing Activities In 2009 related parties converted $719,749 of payables into notes payable, then contributed $875,000 in principal and accrued note interest to capital as payment for 50,000 exercised options. In 2010 the Company purchased $22,294 in inventory, $252,231 in fixed assets, and $275,000 in intellectual property by issuing 17,250 common shares valued at $360,525 and $190,000 in notes payable. Further the Company purchased $300,000 in software assets by issuing 15,000 common shares valued at $300,000. Also in 2010, the Company in a business purchase acquired Key Vista Associates, Inc., paying cash of $100,000, issuing 200,000 common shares valued at $3,400,000 and a $75,000 note payable, in exchange for all the outstanding common shares of Key Vista Associates, Inc. with a negative net worth of $(11,199). Supplemental Disclosure ----------------------- Cash Paid for interest $19,959 $17,698 Cash paid for income taxes $ - $ - The accompanying notes are an integral part of the consolidated financial statements.
34 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Peer Review Mediation And Arbitration, Inc. ("PRMA", the "Company"), was incorporated in the State of Florida on April 16, 2001. The Company provides peer review services and expertise to law firms, medical practitioners, insurance companies, hospitals and other organizations in regard to personal injury, professional liability and quality review. Principles of consolidation The accompanying consolidated financial statements include the accounts of PRMA and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Minority Interest (Noncontrolling interest) A subsidiary of the Company has minority shareholders, representing ownership interests of .21% at December 31, 2010. The Company accounts for these minority, or noncontrolling interests pursuant to ASC 810-10- 65 whereby gains or losses in a subsidiary with a noncontrolling interest are allocated to the noncontrolling interest based on the ownership percentage of the noncontrolling interest, even if that allocation results in a deficit noncontrolling interest balance. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. Income tax The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
35 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): At December 31, 2009 and 2010 the Company had net operating loss carryforwards of approximately $11,600,000 and $13,500,000 which begin to expire in 2021. The deferred tax asset of approximately $4,500,000 and $5,300,000 in 2009 and 2010 created by the net operating losses have been offset by a 100% valuation allowance. The change in the valuation allowance in 2009 and 2010 was $547,104 and $727,720. Net income (loss) per share The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share. Property and equipment Property and equipment are recorded at cost and depreciated under the straight line method over each item's estimated useful life. At December 31, 2009 and 2010 the Company had a fixed asset balance, consisting of office and computer equipment, of $74,079 and $328,522 with corresponding accumulated depreciation of $61,582 and $99,663. Depreciation expense for 2009 and 2010 was $7,477 and $38,082. Revenue recognition Revenue is recognized on an accrual basis after services have been performed under contract terms, the service price to the client is fixed or determinable, and collectibility is reasonably assured. The Company's revenues to date have been earned primarily from consulting fees for arranging medical expert insurance case review. Financial Instruments The carrying value of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and due to related parties, as reported in the accompanying balance sheets, approximates fair value. Long-Lived Assets In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that may suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
36 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Marketable Securities The Company's marketable securities are classified as available-for- sale, are presented in the balance sheets at fair market value, and consist entirely of equity securities. Gains and losses are determined using the specific identification method. The change in unrealized gains and losses in 2008 and 2009 was $(2,403), and $81. Comprehensive income (loss) The Company accounts for comprehensive income (loss) under ASC 220, which establishes standards for reporting and display of comprehensive income and its components. Unrealized gains (losses) from marketable securities are reported as other comprehensive income (loss) in the consolidated statements of income and comprehensive income and as accumulated other comprehensive income (loss) in stockholders' equity. Stock based compensation The Company accounts for employee and non-employee stock awards under ASC 718, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. NOTE 2. RELATED PARTY TRANSACTIONS As of December 31, 2009 and 2010 the Company owed related parties $2,362,657 and $2,797,987 for operating payables. Beginning in the third quarter of 2009 the Company began accruing interest on the payables at 9.5% per annum. Accrued interest owed to related parties at December 31, 2009 and 2010 was $103,706 and $$348,836, with interest expense under the arrangement in 2009 and 2010 of $103,706 and $245,130. The Company also owed related parties at each date $2,236 and $3,894 for working capital loans. In 2009 related parties converted $719,749 of payables into notes payable, then contributed $875,000 in principal and accrued interest to capital as payment of 50,000 options exercised at $17.50 per share.
37 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 3. LEASE COMMITMENTS In 2009 and through the first ten months of 2010, the Company rented space under an office lease from a corporation controlled by an officer. Rent expense incurred under the lease in 2009 and 2010 was approximately $238,000 and $200,000. In November 2010 the Company signed a two year office lease running through November 2012, noncancellable with no stated renewal option, with monthly payments over the life of the lease of approximately $3,100 - $3,300 plus costs. The Company carries an additional office lease with monthly payments of $1,470 plus costs extending through December 2011. Subsequent to December 31, 2010 future minimum payments under the office leases are approximately $85,000 including $52,000 in 2011 and $33,000 in 2012. The Company also carries various equipment leases which run through July 2014, requiring monthly payments of approximately $1,300 plus costs. The equipment leases are classified as operating leases. Rent expense incurred under the leases in 2009 and 2010 was approximately $11,000 and $15,000 each year. Subsequent to December 31, 2010 future minimum payments under the equipment leases are approximately $55,000 including $15,000 in 2011 - 2013, and $10,000 in 2013. NOTE 4. BUSINESS ACQUISITION AND ASSET PURCHASES On November 1, 2010 the Company acquired all of the outstanding common shares of Key Vista Associates, Inc. ("Key Vista") in a transaction accounted for as a purchase. Key Vista's business of medical staffing compliments the Company's business of medical insurance case review and expert testimony, and medical billing. The Key Vista shares were acquired in exchange for 200,000 of the Company's common shares valued at market price of $17 per share, or $3,400,000, a note for $75,000, and $100,000 in cash, for a final settlement price of $3,575,000. The purchase value of Key Vista was recorded at the net deficit of Key Vista on the date of purchase of $(11,199), with allocations based on fair value, of $10,904 to cash, $7,818 to other current assets, and $29,921 to accounts payable. Goodwill was recognized on the transaction of $3,586,199, being the difference between the purchase price of $3,575,000 and Key Vista's net liabilities of $(11,199). The goodwill was immediately written off. Results of operations from the acquisition have been consolidated from November 1, 2010 forward. Pro forma revenues, net income (loss) and earnings per share of the Company, assuming that Key Vista was acquired at the beginning of 2009 and 2010, are illustrated below.
38 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 4. BUSINESS ACQUISITION AND ASSET PURCHASES (Continued) 2009 2010 ----------- ----------- Pro forma revenue $ 7,129,909 $ 5,214,196 =========== =========== Pro forma net income (loss) $(1,376,868) $(6,039,837) =========== =========== Pro forma net income (loss) per share $ (.16) $ (.70) =========== =========== Pro forma weighted average commonshares outstanding 8,519,882 8,628,531 =========== =========== In May 2010 the Company purchased the assets of Witkop Office Machines, Inc. consisting of inventory $22,294, fixed assets $253,231, and intellectual property and clients $275,000, in exchange for 17,250 common shares of the Company valued at $20.90 per share, or $360,525 total, and $190,000 in notes payable. The asset purchase allows the Company to provide clients with medical billing and dictation services. The Company wrote off the intellectual property of $275,000 after the purchase. In December 2010 the Company purchased the assets of Florida Office and Data Systems, Inc. consisting primarily of proprietary document scanning and filing technology. The Company paid 15,000 common shares of the Company valued at $20 per share, or $300,000 total, for the asset purchase, which was written off to expense. NOTE 5. NOTES PAYABLE At December 31, 2009 and 2010 the Company had a note payable to a related party of $26,510 and $9,076. The note bears interest at approximately 10%, is unsecured, requires monthly principal and interest payments of $3,125, and was due in full in December 2010. Interest expense under the note for the years ended December 31, 2009 and 2010 was $20,260 and $20,029. During 2009 the note holder converted $152,189 in principal and interest to capital as part of an $875,000 option exercise amount. Accrued interest related to the note payable was $0 at December 31, 2009, and $3,321 at December 31, 2010. Future required principal payments under the note by year are: 2011 $9,076. In 2009 related parties lent the Company $40,000 and converted $719,749 in operating payables due them into notes payable, unsecured, due on demand and bearing interest at 9.5% per annum. The notes accrued interest of $33,072. During 2009 the related parties received principal payments of $43,500 and converted $722,811 in principal and interest to capital as part of an $875,000 option exercise amount, leaving a year end principal balance of $26,510. This balance was retired in 2010.
39 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 5. NOTES PAYABLE (Continued) At December 31, 2010 the Company had notes payable due to related parties for asset purchases in the amount of $120,315, noninterest bearing, secured by assets, all currently past due. In addition, the Company owed a related party $75,000 for a note payable incurred as part of a business acquisition, noninterest bearing, secured by assets, with payments of $15,000 to begin quarterly in 2011. Future required principal payments under the note by year are: 2011 $60,000, 2012 $15,000. NOTE 6. STOCKHOLDERS' EQUITY Common stock The Company as of December 31, 2009 and 2010 had 45,000,000 shares of authorized common stock, $.001 par value, with 8,386,317 and 9,140,683 shares issued and outstanding. Preferred stock The Company as of December 31, 2009 and 2010 had 5,000,000 shares of authorized preferred stock, out of which 1,000,000 shares have been designated as Series I convertible preferred stock ("Series I"). The Series I has a par value $.001, is convertible into nine shares of the Company's common stock with no further consideration, and is issuable upon terms and conditions as may be designated by the Board of Directors at or prior to issuance. No Series I shares were outstanding as of December 31, 2009 and 2010. A further 1,000,000 shares have been designated as Series II convertible preferred stock ("Series II"). The Series II has a par value $.001, and is convertible into one share of the Company's common stock one year after the first public market trading date of PRMA's common stock with no further consideration. 1,000,000 Series II shares were outstanding as of December 31, 2009 and 2010. In addition, the Company has designated 1,000,000 shares as Series III convertible preferred stock ("Series III"). The Series III has a par value of $.001, and is convertible into one share of the Company's common stock at any time with no further consideration, and automatically converts to common stock on the third anniversary of the issue date. No Series III shares were outstanding as of December 31, 2009 and 2010. Stock options At December 31, 2009 and 2010 the Company had stock options outstanding as described below.
40 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 6. STOCKHOLDERS' EQUITY (Continued) Non-employee stock options The Company accounts for non-employee stock options under ASC 718, whereby option costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Unless otherwise provided for, the Company covers option exercises by issuing new shares. During the year ended December 31, 2009, option holders exercised 66,686 options at $17.50 per share (the initial public offering price of the Company's common stock) for cash of $1,166,871, and exercised a further 50,000 options at $17.50 a share for contributed capital on debt relief by related parties of $875,000. No options expired or were canceled, leaving a December 31, 2009 balance of 207,254 non-employee stock options outstanding. The option expiration term on all the options was changed in 2009 to be at the discretion of the Board, and thus the options currently have no expiration date. During the year ended December 31, 2010, option holders exercised 53,366 options at $17.50 per share (the initial public offering price of the Company's common stock) for cash of $933,929. No options expired or were canceled, leaving a December 31, 2010 balance of 153,888 non- employee stock options outstanding. Employee stock options The Company accounts for employee stock options under ASC 718. Unless otherwise provided for, the Company covers option exercises by issuing new shares. There were no employee stock options issued or outstanding in 2009 and 2010. Stock option plan As part of an overall Company compensation program, the Company in May 2001 adopted a stock option plan called "The Peer Review Mediation And Arbitration, Inc. 2001 Stock Option Plan ("the Plan"). The Plan provides a means whereby directors and officers, employees, consultants, contractors and others may be granted incentive stock options and/or nonqualified stock options to purchase shares of the Company's common stock, in order to attract and retain the services of such persons. The number of shares subject to option under this Plan cannot exceed 1,500,000. The conditions of each option grant, including exercise price and length of term, shall be set by the Plan administrator. In no event shall the term of any incentive stock option under the Plan exceed ten years, or five years if granted to an optionee owning 10% or more of the stock of the Company. As of December 31, 2009 and 2010 no options had been granted under the Plan.
41 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 6. STOCKHOLDERS' EQUITY (Continued) Subsidiary equity issuances In 2010 the Company sold units of a subsidiary, ProMed Alliance International, Inc. ("ProMed") in a private offering for total cash proceeds of $350,000. Each $1,000 unit consists of 50 shares of ProMed common stock, 50 Series II ProMed preferred shares, and 50 ProMed common stock purchase options allowing the holder to purchase one share of ProMed common stock for each option within 90 days from the effective date of an initial ProMed public offering, at the initial public offering price. The options are redeemable by the Company at $.05 per option anytime after commencement of the exercise period. The Preferred Series II shares of ProMed sold in the private offering convertible into ProMed common stock anytime on or after the first public trading date of ProMed's free trading common stock at 75% of the 30 day trade average, or one year after commencement of trading at 90% of the 30 day trade average. The Company in 2010 recorded a beneficial conversion feature expense related to the conversion feature of $43,750. The Preferred Series II shares are to pay the holder a 5% fixed return on investment per annum, and up to a 5% variable return per annum as determined by management, to be paid by designating up to 40% of ProMed's net operating profit toward payment of the variable return. Fixed and variable returns may be paid by the Company in either cash of stock. In 2010 the Company recorded an expense and year end payable of approximately $1,100 under Preferred Series II fixed return rates. The preferred shares are callable at a multiplier determined by management by payment in either cash or stock.
42 PEER REVIEW MEDIATION AND ARBITRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2010 NOTE 7. GOING CONCERN The Company has suffered recurring losses from operations and has a working capital deficit and stockholders' deficit, and in all likelihood will be required to make significant future expenditures in connection with continuing marketing efforts along with general administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions. By doing so, the Company hopes through increased marketing efforts to generate greater revenues from sales of its web based peer review, consulting, and quality review services to the medical and legal professions and to insurance companies, and through sales of its medical dictation, billing and staffing services. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern.
43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure controls and procedures Our management evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of such period, are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There have been no significant changes in our internal controls over financial reporting during the fiscal year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report. Management Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: - Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; - Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and
44 - Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, our management used the criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on an assessment carried out during the period December 29-30, 2010, management believes that, as of December 31, 2010, our internal control over financial reporting was effective. ITEM 9B. OTHER INFORMATION None.
45 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Name Age Position Term Willis Hale 56 Chief Executive Officer From June 2001 Director to present Marc Combs 37 Chief Financial Officer From April 2009 to present David Larry 77 Director From June 2001 to present Willis B. Hale, 56, is our founder and has been our chairman of the board, chief executive officer and president from inception (June 2001) to the present. He was the founder (2000) and has served in similar capacities with Merge Media, Inc., presently a non-operating company. From 1993 to 1998 Mr. Hale was a corporate development advisor creating a variety of business plans, medical treatment protocols, state licensing programs for mortgage brokerage, online merchant accounts and accounting systems, streaming video and a wide range of related technology activities. From 1998 to 2007, Mr. Hale served as CEO, and was control shareholder, of eBIZNet.com Inc., a publicly listed company that since changed its name to Biomedtex, Inc. From 1973 through 1976 he was a Maintenance Officer, Advanced Avionics systems for the U.S. Navy (at Pensacola, Florida) and from 1971 to 1973 he studied environmental engineering at the University of Tennessee. He also attended the University of West Florida, studying Business Administration. He devotes substantially all of his business time to our affairs. David W. Larry, 77, has been secretary and a director of the Company since our inception in 2001. Prior, he had been engaged as a product design and development consultant since 1985. Mr. Larry graduated from the University of Florida in 1960 with a degree in engineering. Over the course of his career as an employee of private defense contractors, he was involved in a variety of aerospace electronic design and development programs for NASA and the U.S. Air Force. Additionally, he has designed, developed and manufactured a variety of electronic equipment for the steel-coin operated game, security and emergency medical industries. He devotes substantially all of his business time to our affairs. Marc E. Combs, 37, has been the chief financial officer of the Company since April 2009. Prior, from August 2008 through December 2008, he was employed by Spherion, Inc., dba Mergis, Fort Lauderdale, FL, where he directed the sales and deployment of financial consultants to clients of that company. From December 2006 through April 2008 he was employed by Robert Half, Fort Lauderdale, FL, where he performed the same services as with Spherion. From September 2005 through November 2006 he was employed by Onstream Media, Inc., Pompano Beach, FL, a public company, as director and manager of Sarbanes Oxley compliance. From March 2000 through August 2005 he was Chief Operating Officer of Autofuse, Inc., Fort Lauderdale, FL. Mr. Combs received a Bachelor of
46 Science degree in finance and management from the University of Virginia, McIntire School of Commerce in 1996. He devotes substantially all of his business time to our Company. ITEM 11. EXECUTIVE COMPENSATION Willis Hale, an officer and director, received an annual salary in 2010 of $288,000. Mr. Hale voluntarily elected to receive $13,500 in payments and accrue the remaining $274,500 during 2010. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Name and Address Common Shares Percentage Willis Hale 5,245,000 57.4% 778 S. Military Trail Deerfield Beach, FL 33442 David Larry 200,000 2.25 778 S. Military Trail Deerfield Beach, FL 33442 Marc Combs 0 0.00 1930 NE 55th Street Fort Lauderdale, FL 33308 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Willis Hale is the chairman of the board of directors, and is also the CEO of the Company and the majority stockholder, with ownership of 5,245,000 shares representing 57.4% of the common stock. David Larry is the Company's only other director. He currently owns 200,000 shares of Company stock, and currently has a note payable with a balance of $9,076 as of December 31, 2010, the balance of which will be fully paid on or before December 31, 2011. He has no other relationship with the Company. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The Company's auditor for fiscal year 2009 and 2010 was Ronald Chadwick. All fees paid to Mr. Chadwick for accounting services were directly related to audit services for the Company's annual and quarterly reports. The total for these fees was $36,060 in 2009, and $17,525 in 2010.
47 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES The following exhibits are included herewith: Exhibit No. Description ----------- ----------- 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Following are a list of exhibits which we previously filed in other reports which we filed with the SEC, including the Exhibit No., description of the exhibit and the identity of the report where the exhibit was filed. Exhibit Number Description ------- ----------- 3.1 Articles of Incorporation(1) 3.1.1 Amendment to Articles of Incorporation(1) 3.2 Restated By-Laws adopted April 2006(1) 3.3 Specimen Stock Certificate(1) 10.1 Agreement for Exchange of Shares Between Registration and Independent Review, Inc. dated February 11, 2005(1) 10.2 Employment Agreement Between the Registrant and Willis Hale dated January 1, 2007(2) 10.3 Form of Priority Stock Option Agreement(3) 10.4 Form of Subscriber/Member Agreement(4) 10.5 Form of Advisory Board Member Agreement (5) 10.6 Commercial Lease dated December 1, 2001 Between the Registrant and 5th Avenue Real Estate Development, Inc. and Renewals Thereof(6) 10.7 Form of Lock Up Agreement (included in Registrant's Subscription Agreement and Investment Letter)(10) 21.1 List of Subsidiaries(10) 99 Privacy Policy of Registrant(7) 99.1 Letter of Intent between the Registrant and Dana Mediation Institute, Inc. dated May 2, 2008 to acquire Mediation Training Institute International(8) 99.2 Letter of Intent between the Registrant and AmeriMed Corporation dated July 11, 2008 to acquire AmeriMed Corporation by ProMed Alliance, Inc., subsidiary of the Registrant(8) 99.3 Letter of Intent between the Registrant and Max Systems, Inc. dated April 24, 2008 to acquire Max Systems, Inc.(8) 99.4 Consent Order Issued August 14, 2006 by the Georgia Commissioner of Securities in Case Number ENSCF-00033(9) ____________________
48 (1) Incorporated by reference to Form 10-SB Registration Statement filed July 2, 2007. (2) Incorporated by reference to amendment to Form 10-SB Registration Statement filed October 11, 2007 filed as Exhibit 10.1 therein. (3) Incorporated by reference to amendment to Form 10-SB Registration Statement filed October 11, 2007, filed as Exhibit 10.4 therein. (4) Incorporated by reference to amendment to Form 10-SB Registration Statement filed October 11, 2007, filed as Exhibit 10.8 therein. (5) Incorporated by reference to amendment to Form 10-SB Registration Statement filed October 11, 2007, filed as Exhibit 10.9 therein. (6) Incorporated by reference to amendment to Form 10-SB Registration Statement filed October 11, 2007, filed as Exhibit 10.10 therein. (7) Incorporated by reference to amendment to Form 10-SB Registration Statement filed October 11, 2007. (8) Incorporated by reference to Form 10-Q for Quarter Ended June 30, 2008 filed August 12, 2008, filed as Exhibits 99.1, 99.2 and 99.4, respectively, therein. (9) Incorporated by reference to Form 10-SB Registration Statement filed July 2, 2007, filed as Exhibit 10.5 therein. (10) Incorporated by reference to Form S-1 Registration Statement filed October 31, 2008 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunder duly authorized. Date: June 23, 2011 PEER REVIEW MEDIATION AND ARBITRATION, INC. By: /s Willis Hale ------------------------------------ Willis Hale, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------------- ----------- ------------- s/ Willis Hale Chief Executive Officer, President, June 23, 2011 --------------- and Director Willis Hale s/ Marc E. Combs Chief Financial Officer June 23, 2011 ---------------- Marc E. Comb