**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| (Mark One) |
|------------|

x**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly period ended **June 30, 2009**

 

o**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from ________________ to _________________

 

Commission File Number: 000-52712

 

**PEER REVIEW MEDIATION AND ARBITRATION**, **INC.** 

(Exact name of registrant as specified in its charter)

 

**Florida**

(State or other jurisdiction

of incorporation or organization)

 

**65-1126951**

(IRS Employer Identification No.)

 

**1450 S. Dixie Highway, Ste. 201**

**Boca Raton, Florida 33432**

(Address of principal executive offices)

**(561) 347-1178**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 xNo        o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

| Yes __X__ | No ____. |
|-----------|----------|

 

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

 

| Large accelerated filer o                                            | Accelerated filer o         |
|----------------------------------------------------------------------|-----------------------------|
| Non-accelerated filer o(Do not check if a smaller reporting company) | Smaller reporting company x |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x

 

As of August 14, 2009, there were 8,317,778 shares of Peer Review Mediation and Arbitration, Inc. Common Stock, $0.001 par value per share, issued and outstanding.

 

1

 

 

----

 

 

|       | **PART I.**                                                                                                                               | **Page** |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------|----------|
|       | **FINANCIAL INFORMATION**                                                                                                                 |     |
|       |                                                                                                                                      |     |
| Item 1.    | Financial Statements                                                                                                                      | 3        |
|       |                                                                                                                                      |     |
|       | Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008                                                         | 5        |
|       | Consolidated Statements of Income and Comprehensive Income for the Three Months and Six 

Months Ended June 30, 2009 and 2008 (unaudited) | 6        |
|       | Consolidated Statements of Cash Flows for the Six Month Periods Ended

June 30, 2009 and 2008 (unaudited)                                 | 7        |
|       | Notes to Consolidated Financial Statements (unaudited)                                                                                    | 9        |
|       |                                                                                                                                      |     |
| Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations.                                              | 11       |
|       |                                                                                                                                      |     |
| Item 3.    | Quantitative and Qualitative Disclosures About Market Risk.                                                                               | 14       |
|       |                                                                                                                                      |     |
| Item 4T.   | Controls and Procedures.                                                                                                                  | 14       |
|       |                                                                                                                                      |     |
|       | **PART II**                                                                                                                               |     |
|       | **OTHER INFORMATION**                                                                                                                     |     |
|       |                                                                                                                                      |     |
| Item 1.    | Legal Proceedings.                                                                                                                        | 15       |
|       |                                                                                                                                      |     |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                              | 15       |
|       |                                                                                                                                      |     |
| Item 3.    | Defaults Upon Senior Securities.                                                                                                          | 15       |
|       |                                                                                                                                      |     |
| Item 4.    | Submission of Matters to a Vote of Security Holders.                                                                                      | 15       |
|       |                                                                                                                                      |     |
| Item 5.    | Other Information.                                                                                                                        | 15       |
|       |                                                                                                                                      |     |
| Item 6.    | Exhibits.                                                                                                                                 | 15       |
|       |                                                                                                                                      |     |
| Signatures | 16                                                                                                                                        |
|       |                                                                                                                                      |     |

 

 

 

 

2

 

 

----

**PART I - FINANCIAL INFORMATION**

 

 

 

 

 

 

**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Quarter Ended June 30, 2009**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

----

 

**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

 

**Consolidated Financial Statements**

**(Unaudited)**

 

**TABLE OF CONTENTS**

 

|   | Page |
|--------|------|

 

| FINANCIAL STATEMENTS |
|----------------------|

 

|   | Consolidated balance sheets | F-1 |
|--------|-----------------------------|-----|

|   | Consolidated statements of operation | F-2 |
|--------|--------------------------------------|-----|

|   | Consolidated statements of cash flows | F-3 |
|--------|---------------------------------------|-----|

|   | Notes to consolidated financial statements | F-5 |
|--------|--------------------------------------------|-----|

 

 

4

 

 

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**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

**CONSOLIDATED BALANCE SHEETS**

 

|                                                                                                                                |   | **Dec. 31** |        |        |   | **June 30,** |        |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|--------|--------|--------------|-------------|
|                                                                                                                                |   | **2008**    |        |        |   | **2009**     |        |
|                                                                                                                                |   |        |             |   |        |         | (Unaudited) |   |
|                                                                                                                                |   |        |             |   |        |         |        |  |   |
| **ASSETS**                                                                                                                     |
| Current assets                                                                                                                 |   |        |             |   |        |         |        |  |   |
| Cash                                                                                                                           |   | $           | 53,995      |   |        |         | $           | 138,775 |   |
| Accounts receivable                                                                                                            |   |        | 5,010       |   |        |         |        | 5,850 |   |
| Marketable securities                                                                                                          |   |        | 82          |   |        |         |        | 172 |   |
| **Total current assets**                                                                                                       |   |        | 59,087      |   |        |         |        | 144,797 |   |
| Fixed assets                                                                                                                   |   |        | 65,621      |   |        |         |        | 67,606 |   |
| Less accumulated depreciation                                                                                                  |   |        | (54,255     | )      |        |         |        | (59,407 | ) |
| Other assets                                                                                                                   |   |        | 500         |   |        |         |        | 500 |   |
|                                                                                                                                |   |        | 11,866      |   |        |         |        | 8,699 |   |
| **Total Assets**                                                                                                               |   | $           | 70,953      |   |        |         | $           | 153,496 |   |
|                                                                                                                                |   |        |             |   |        |         |        |  |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                 |
| **Current liabilities**                                                                                                        |   |        |             |   |        |         |        |  |   |
| Accrued payables                                                                                                               |   | $           | 130,309     |   |        |         | $           | 170,451 |   |
| Related party payables                                                                                                         |   |        | 1,976,761   |   |        |         |        | 2,163,885 |   |
| Notes payable rel. pty. - current portion                                                                                      |   |        | 17,475      |   |        |         |        | 7,254 |   |
| Notes payable                                                                                                                  |   |        | 8,271       |   |        |         |        | 4,062 |   |
| Related party loans                                                                                                            |   |        | 977,797     |   |        |         |        | 772,330 |   |
| **Total current liabilities**                                                                                                  |   |        | 3,110,613   |   |        |         |        | 3,067,982 |   |
| Notes payable - related party                                                                                                  |   |        | 175,071     |   |        |         |        | 175,071 |   |
| **Total Liabilities**                                                                                                          |   |        | 3,285,684   |   |        |         |        | 3,243,053 |   |
|                                                                                                                                |   |        |             |   |        |         |        |  |   |
| **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;8,264,126 (2008) and 8,317,328 (2009) shares issued and outstanding |   |        | 8,264       |   |        |         |        | 8,317 |   |
| Additional paid in capital                                                                                                     |   |        | 6,985,082   |   |        |         |        | 7,827,479 |   |
| Accumulated deficit                                                                                                            |   |        | (10,195,406 | )      |        |         |        | (10,912,746 | ) |
| Accumulated other comprehensive income (loss)                                                                                  |   |        | (13,671     | )      |        |         |        | (13,607 | ) |
| **Total Stockholders’ Equity**                                                                                           |   |        | (3,214,731  | )      |        |         |        | (3,089,557 | ) |
|                                                                                                                                |   |        |             |   |        |         |        |  |   |
| **Total Liabilities and Stockholders’ Equity**                                                                           |   | $           | 70,953      |   |        |         | $           | 153,496 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

F-1

 

5

 

 

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**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

**CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**

**(Unaudited)**

 

|                                                                                           |   | **Three Months**  |      |        |   | **Three Months**  |   |           |   | **Six Months**    |   |        |      | **Six Months**    |   |
|-------------------------------------------------------------------------------------------|--------|-------------------|-----------|--------|--------|-------------------|--------|-----------|--------|-------------------|--------|--------|-----------|-------------------|--------|
|                                                                                           |   | **Ended**         |      |        |   | **Ended**         |   |           |   | **Ended**         |   |        |      | **Ended**         |   |
|                                                                                           |   | **June 30, 2008** |      |        |   | **June 30, 2009** |   |           |   | **June 30, 2008** |   |        |      | **June 30, 2009** |   |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Revenue                                                                                   |   | $                 | 15,030    |   |        |              | $      | 17,311    |   |                   |   | $      | 32,515    |              |        |   | $ | 29,471 |   |
| Cost of sales                                                                             |   |              | 5,675     |   |        |              |   | 7,148     |   |                   |   |   | 11,710    |              |        |   |   | 11,300 |   |
|                                                                                           |   |              | 9,355     |   |        |              |   | 10,163    |   |                   |   |   | 20,805    |              |        |   |   | 18,171 |   |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Expenses:                                                                                 |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Depreciation                                                                              |   |              | 2,624     |   |        |              |   | 2,541     |   |                   |   |   | 5,263     |              |        |   |   | 5,152 |   |
| Selling, general and administrative                                                       |   |              | 528,330   |   |        |              |   | 357,855   |   |                   |   |   | 854,448   |              |        |   |   | 657,546 |   |
|                                                                                           |   |              | 530,954   |   |        |              |   | 360,396   |   |                   |   |   | 859,711   |              |        |   |   | 662,698 |   |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Loss from operations                                                                      |   |              | (521,599  | )      |        |              |   | (350,233  | )      |                   |   |   | (838,906  | )                 |        |   |   | (644,527 | ) |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Other income (expense)                                                                    |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Interest income                                                                           |   |              | —   |   |        |              |   | —   |   |                   |   |   | —   |              |        |   |   | 134 |   |
| Interest (expense)                                                                        |   |              | (302      | )      |        |              |   | (45,403   | )      |                   |   |   | (796      | )                 |        |   |   | (72,947 | ) |
| Realized gain (loss) on securities                                                        |   |              | —   |   |        |              |   | —   |   |                   |   |   | —   |              |        |   |   | — |   |
|                                                                                           |   |              | (302      | )      |        |              |   | (45,403   | )      |                   |   |   | (796      | )                 |        |   |   | (72,813 | ) |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Income (loss) before provisionfor income taxes                                            |   |              | (521,901  | )      |        |              |   | (395,636  | )      |                   |   |   | (839,702  | )                 |        |   |   | (717,340 | ) |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Provision for income tax                                                                  |   |              | —   |   |        |              |   | —   |   |                   |   |   | —   |              |        |   |   | — |   |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| **Net income (loss)**                                                                     |   | $                 | (521,901  | )      |        |              | $      | (395,636  | )      |                   |   | $      | (839,702  | )                 |        |   | $ | (717,340 | ) |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| **Other comprehensive income (Loss) –**     **net of tax** |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Unrealized gain (loss) on securities                                                      |   |              | 293       |   |        |              |   | 64        |   |                   |   |   | (1,362    | )                 |        |   |   | 64 |   |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| **Comprehensive income (loss)**                                                           |   | $                 | (521,608  | )      |        |              | $      | (395,572  | )      |                   |   | $      | (841,064  | )                 |        |   | $ | (717,276 | ) |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| **Net income (loss) per share**(Basic and fully diluted)                                  |   | $                 | (0.06     | )      |        |              | $      | (0.05     | )      |                   |   | $      | (0.10     | )                 |        |   | $ | (0.09 | ) |
|                                                                                           |   |              |           |   |        |              |   |           |   |                   |   |   |           |              |        |   |   |  |   |
| Weighted average number ofcommon shares outstanding                                       |   |              | 8,169,876 |   |        |              |   | 8,317,328 |   |                   |   |   | 8,169,876 |              |        |   |   | 8,317,328 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-2

 

6

 

 

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**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 

 

|                                                                                            |   | **Six Months**    |     |        |   | **Six Months**    |   |
|--------------------------------------------------------------------------------------------|--------|-------------------|----------|--------|--------|-------------------|--------|
|                                                                                            |   | **Ended**         |     |        |   | **Ended**         |   |
|                                                                                            |   | **June 30, 2008** |     |        |   | **June 30, 2009** |   |
| **Cash Flows From Operating Activities:**                                                  |   |              |          |   |        |              |   |  |   |
| Net income (loss)                                                                          |   | $                 | (839,702 | )      |        |              | $      | (717,340 | ) |
|                                                                                            |   |              |          |   |        |              |   |  |   |
| Adjustments to reconcile net income toNet cash provided by (used for)operating activities: |   |              |          |   |        |              |   |  |   |
| Depreciation                                                                               |   |              | 5,263    |   |        |              |   | 5,152 |   |
| Accounts receivable                                                                        |   |              | (3,052   | )      |        |              |   | (840 | ) |
| Accrued payables                                                                           |   |              | 22,635   |   |        |              |   | 40,142 |   |
| Related party payables                                                                     |   |              | 145,148  |   |        |              |   | 187,124 |   |
| Compensatory Stock Issuances                                                               |   |              | —  |   |        |              |   | 25,275 |   |
| Realized (gain) loss on sale of securities                                                 |   |              | 187,450  |   |        |              |   | — |   |
| **Net cash provided by (used for)****operating activities**                                |   |              | (482,258 | )      |        |              |   | (460,487 | ) |
|                                                                                            |   |              |          |   |        |              |   |  |   |
| **Cash Flows From Investing Activities:**                                                  |   |              |          |   |        |              |   |  |   |
| Securities purchases                                                                       |   |              |          |   |        |              |   | (26 | ) |
| Fixed asset purchases                                                                      |   |              |          |   |        |              |   | (1,985 | ) |
| **Net cash provided by (used for)****investing activities**                                |   |              | —  |   |        |              |   | (2,011 | ) |

 

 

(Continued on Following Page)

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-3

 

7

 

 

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**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 

(Continued From Previous Page

 

 

|                                                             |   | **Six Months**    |     |        |   | **Six Months**    |   |
|-------------------------------------------------------------|--------|-------------------|----------|--------|--------|-------------------|--------|
|                                                             |   | **Ended**         |     |        |   | **Ended**         |   |
|                                                             |   | **June 30, 2008** |     |        |   | **June 30, 2009** |   |
| **Cash Flows From Financing Activities:**                   |   |              |          |   |        |              |   |  |   |
| Notes payable – payments                              |   |              | (6,823   | )      |        |              |   | (14,430 | ) |
| Related party loans – borrowings                      |   |              | (45,500  | )      |        |              |   | 624,838 |   |
| Related party loans – payments                        |   |              | —  |   |        |              |   | (63,130 | ) |
| Sales of common stock                                       |   |              | 425,250  |   |        |              |   | — |   |
| Sales of options                                            |   |              | 4,800    |   |        |              |   | — |   |
| **Net cash provided by (used for)****financing activities** |   |              | 377,727  |   |        |              |   | 547,278 |   |
|                                                             |   |              |          |   |        |              |   |  |   |
| **Net Increase (Decrease) In Cash**                         |   |              | (104,531 | )      |        |              |   | 84,780 |   |
| **Cash At The Beginning Of The Period**                     |   |              | 198,256  |   |        |              |   | 53,995 |   |
|                                                             |   |              |          |   |        |              |   |  |   |
| **Cash At The End Of The Period**                           |   | $                 | 93,725   |   |        |              | $      | 138,775 |   |
|                                                             |   |              |          |   |        |              |   |  |   |
|                                                             |   |              |          |   |        |              |   |  |   |
| Schedule of Non-Cash Investing and Financing Activities     |   |              |          |   |        |              |   |  |   |
|                                                             |   |              |          |   |        |              |   |  |   |
| None                                                        |   |              |          |   |        |              |   |  |   |
|                                                             |   |              |          |   |        |              |   |  |   |
| Supplemental Disclosure                                     |   |              |          |   |        |              |   |  |   |
|                                                             |   |              |          |   |        |              |   |  |   |
| Cash paid for interest                                      |   | $                 | 796      |   |        |              | $      | 12,010 |   |
| Cash paid for income taxes                                  |   | $                 | —  |   |        |              | $      | — |   |

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-4

 

8

 

 

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**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**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. 

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods        have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of operations for a full year.

Principles of consolidation

 

The accompanying consolidated financial statements include the accounts of Peer Review Mediation and Arbitration, Inc. and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

 

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.

 

Income tax

 

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (“SFAS 109”). Under SFAS 109 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.

 

F-5

 

9

 

 

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**PEER REVIEW MEDIATION AND ARBITRATION, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**

 

Net income (loss) per share

 

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.

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 collectability is reasonably assured. The Company's revenues to date have been earned primarily from consulting fees for arranging medical expert insurance case review.

 

Property and equipment

 

Property and equipment are recorded at cost and depreciated under the straight line method over each item's estimated useful life. 

Financial Instruments

 

The carrying value of the Company’s financial instruments, as reported in the accompanying balance sheet, approximates fair value. 

 

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. 

 

Comprehensive income (loss)

 

The Company accounts for comprehensive income (loss) under Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130 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 SFAS 123(r), 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.

 

 

10

 

 

F-6

 

 

 

 

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**ITEM 2.**        **MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

|   | **FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|--------|---------------------------------------------------|

 

This report 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.

 

**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 (“PNA”) which allows direct access to our Peer Review Data Archival resource via our Peer Reviewboard.com Internet web site. Our wholly owned subsidiary,        Independent Review, Inc. (“IRI”), 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. In addition, we offer a diverse program of technology and innovation services as member benefits to our member physicians through Pro-Med Alliance, our wholly-owned subsidiary.

 

**RESULTSOFOPERATIONS**

 

*Comparison of Results of Operations for the Three Months Ended June 30, 2009 and 2008*

 

Sales were $17,311 for the three months ended June 30, 2009, as compared to sales of $15,030 for the three months ended June 30, 2008, an increase of $2,811, or 15.2%. This increase in revenue for the three months ending June 30, 2009 is due to the cyclical nature of the assignment of cases to independent medical review providers in the state of Texas.

 

Cost of sales was $7,148 for the three months ended June 30, 2009, as compared to cost of sales of $5,675 for the comparable period in 2008, an increase of $1,473, or 26.0%. Cost of sales increased due to an increase of revenues and the associated cost of providing mediation services.

 

For the three months ended June 30, 2009, we incurred operating expenses of $360,396, which included selling, general and administrative expenses of $357,855, compared to operating expense of $530,954 during the three months ended June 30, 2008, which included selling, general and administrative expenses of $528,330 for the same period last year, or a 32.3% decrease in selling, general and administrative        expense. This decrease is due to increased business efficiency and a reduction of expenditures on software and technology development. Selling, general and administrative expenses during the three months ended June 30, 2009, consisted of $57,614 in physician recruitment, $38,410 in administrative expense, $32,008 in operational expense, $47,137 in IT maintenance, $61,081 in rent, $60,000 in officers and directors compensation, $20,540 in consulting fees, $61 in telephone, $19,500 in        legal and & professional fees, $1,144 in utilities and maintenance, $6,738 in office supplies, $9,924 in promotion and advertising, and $3,698 in miscellaneous fees. Depreciation and amortization expense decreased to $2,541 during the six months ended June 30, 2009, compared with that of $2,624 for the same period in 2008. The decrease in depreciation and amortization expense was primarily due to the change in the percentage of depreciated assets in 2009.

 

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As a result, we incurred a loss of ($395,636) during three months ended June 30, 2009, or ($0.05) per share, compared with a loss of ($521,901) during the three months ended June 30, 2008, or ($0.06) per share.

 

*Comparison of Results of Operations for the Six Months Ended June 30, 2009 and 2008*

 

Sales were $29,471 for the six months ended June 30, 2009, as compared to sales of $32,515 for the six months ended June 30, 2008, a decrease of $3,044 (9.4%). Our decrease in revenues during the six months ended June 30, 2009 was attributable to the increased number of independent medical review providers in the State of Texas. Management intends to deal with this development in two ways.  The        business in Texas is independent medical review, and we intend to use the same network of physicians to provide other types of services, including case management, expert witness, peer review and quality review.  These additional types of service are expected to access demand that we currently are not accessing, and allow us to use our network of physicians to create additional revenue. We also plan to expand geographically, so as not to be limited to the opportunity        in the Texas market.  Selling regionally and nationally is expected to allow us to generate increased revenue. There can be no assurances that we will be able to expand, or that such expansion will result in increased revenues.

 

Cost of sales was $11,300 for the six months ended June 30, 2009, as compared to cost of sales of $11,710 for the comparable period in 2008, a decrease of $410 (3.5%). Cost of sales decreased due to a decrease in revenues and increased efficiency in the providing of service.

 

For the six months ended June 30, 2009, we incurred operating expenses of $662,698, which included selling, general and administrative expenses of $657,546, compared to operating expense of $859,711 during the six months ended June 30, 2008, which included selling, general and administrative expenses of $854,448 for the same period last year, or a 22.4% decrease in selling, general and administrative        expense, principally because of reduced business activity. Selling, general and administrative expenses during the six months ended June 30, 2009, consisted of $90,454 in physician recruitment, $60,302 in administrative expense, $50,252 in operational expense, $78,203 in IT maintenance, $119,174 in rent, $120,000 in officers and directors compensation, $48,710 in consulting fees, $2,953 in telephone, $57,075 in legal and & professional fees, $1,248 in utilities and maintenance,        $13,911 in office supplies, $639 in licenses/permits, $12,782 in promotion and advertising, and $3,958 in miscellaneous fees. Depreciation and amortization expense decreased to $5,152 during the six months ended June 30, 2009, compared with that of $5,263 for the same period in 2008. The decrease in depreciation and amortization expense was primarily due to the change in the percentage of depreciated assets in 2009.

 

As a result, we incurred a loss of ($717,340) during six months ended June 30, 2009, or ($0.09) per share, compared with a loss of ($839,702) during the six months ended June 30, 2008, or ($0.10) per share.

 

**LIQUIDITYANDCAPITALRESOURCES**

 

At June 30, 2009, we had $138,947 in cash and marketable securities.

 

During the six months ending June 30, 2009, operations were funded through the exercise of our outstanding Common Stock Purchase Options. On April 2, 2009 our registration statement was deemed effective by the SEC wherein we registered 323,940 shares of our Common Stock that underlie previously issued purchase options. It is management’s intent to use the funds generated by the exercising of these        options to execute the business plan described in the “Business” section of our registration statement and to support continuing operations.

 

The net cash used in operating activities for the six months ended June 30, 2009 was $460,487. The net cash provided from financing activities for the six months ended June 30, 2009 was $547,278. We had $138,947 in cash and cash equivalents as of June 30, 2009, compared to $93,725 in cash and cash equivalents as of June 30, 2008. We had $5,850 in account receivables as of June 30, 2009, as compared to        $5,010 at June 30, 2008.

 

At June 30, 2009, we had a note payable to a bank of $4,062. The note bears interest at 4.5% per annum with possible periodic adjustments, is secured by certain of our assets, requires monthly principal and interest payments ranging from $1,250 down to $750 over the life of the loan, and is due in November 2009. The note is also due on 

 

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demand at the lender’s discretion. Interest expense under the note for the six months ended June 30, 2009, was $144. Accrued interest related to the note payable was $195 at June 30, 2009. 

 

**CRITICALACCOUNTINGPOLICIESANDESTIMATES**

 

***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. 

 

***Recent accounting pronouncements*****–**the FASB issued SFAS No. 141 (revised 2007), “*Business Combinations*,” (“SFAS 141R”). This statement replaces FAS No 141, *“Business        Combinations*,” which was effective July 1, 2001. The statement provides guidance for how the acquirer recognizes and measures the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree. SFAS 141R provides for how the acquirer recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. The statement provides for disclosures to enable users to be able to        evaluate the nature and financial effects of the business combination. The provisions of SFAS 141R became effective for the first annual reporting period beginning on or after December 15, 2008, and must be applied prospectively to business combinations completed after that date. Early adoption is prohibited. Management is currently evaluating the impact of adopting this statement.

 

**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 the six month period ended June 30, 2009.

 

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**OFF-BALANCESHEETARRANGEMENTS**

 

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 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.** |
|-------------|-----------------------------------------------------------------|

 

Not applicable.

 

| **ITEM** **4T.** | **CONTROLS AND PROCEDURES** |
|-----------------------|-----------------------------|

 

Disclosure Controls and Procedures.Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is 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 the period        covered by this report.

 

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and        CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the applicable Securities and        Exchange Commission rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 

 

We believe that our consolidated financial statements presented in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

 

Inherent Limitations -Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any        system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can        provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the first six months of 2009, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal        control over financial reporting.

 

 

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**PART II. OTHER INFORMATION**

 

| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

None

 

| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
|-------------|-----------------------------------------------------------------|

 

None

 

| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES** |
|-------------|-------------------------------------|

 

None

 

| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|---------------------------------------------------------|

 

On June 26, 2009, we held our annual meeting of shareholders at our corporate headquarters located in Boca Raton, FL. At this meeting Willis Hale and David W. Larry were re-elected as directors of our Company and the appointment of Ronald R. Chadwick, P.C. as our independent registered public accountant for our fiscal year ending December 31, 2009 was ratified.

 

| **ITEM 5.** | **OTHER INFORMATION** |
|-------------|-----------------------|

 

None

 

| **ITEM 6.** | **EXHIBITS** |
|-------------|--------------|

 

| **Exhibit No.** | **Description**                                                                                                                 |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------|
|            |                                                                                                                            |
| 31.1            | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                              |
|            |                                                                                                                            |
| 31.2            | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                              |
|            |                                                                                                                            |
| 32              | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

 

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**SIGNATURES**

 

          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

|   | **PEER REVIEW MEDIATION** |
|--------|---------------------------|

|   | **AND ARBITRATION**, **INC.** |
|--------|-------------------------------|

 

 

| Dated: August 14, 2009 | By:s/ Willis Hale______________________ |
|------------------------|-----------------------------------------|

|   | Willis Hale, Chief Executive Officer |
|--------|--------------------------------------|

 

 

|   | By:s/ Marc E. Combs__________________ |
|--------|---------------------------------------|

|   | Marc E. Combs, Chief Financial Officer |
|--------|----------------------------------------|

 

 

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