Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
778 South Military Trail
Deerfield Beach, FL 33442
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(Address of principal executive offices)
(954) 570-7023
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(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 [_]
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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.
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TABLE OF CONTENTS
PAGE
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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
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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
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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.
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Glossary
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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.
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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
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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.
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- 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
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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.
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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
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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
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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.
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Private Offerings
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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
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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.
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Key Vista Associates, Inc.
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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
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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
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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.
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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.
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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.
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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.
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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
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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