UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB/A
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Period Ended December 31, 2003
( ) 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: 0-30018
MERIDIAN HOLDINGS,INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 52-2133742
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
900 WILSHIRE BOULEVARD, SUITE 500, LOS ANGELES, CALIFORNIA 90017
(Address of Principal Executive Offices)
(213) 627-8878
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 and, (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
The Registrant's revenues for the year ended December 31, 2003 were $2,624,135
As of December 31, 2003, the Registrant had 9,370,646 shares of its $0.001
par value common stock outstanding. Based upon the closing price at such date,
aggregate market value was $1,405,597
Page 1 of 28 sequentially numbered pages
Form 10-KSB/A
Annual Report For The Fiscal Year Ended December 31, 2003
1
TABLE OF CONTENTS
Page Number
PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . .12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders Our . . . ... . . 13
PART II
Item 5. Market for Common Equity and Related Stockholder matters . . . . . .. 14
Item 6. Management's Discussion and Analysis . . . . . . . . . . . . . . . . .15
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .18
Item 8. Changes In and Disagreements With Accountants on Accounting and .. . .18
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons . . . . .18
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .21
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . 22
Item 12. Certain Relationships and Related Transaction . . . . . . . . . . .. 22
Item 13. Exhibits and Reports on Form 8-k . . . . . . . . . . . . . . . . . .23
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
The following section contains forward-looking statements that involve risks and
uncertainties, including those referring to the period of time the Company's
existing capital resources will meet the Company's future capital needs, the
Company's future operating results, the market acceptance of the services of the
Company, the Company's efforts to establish and the development of new services,
and the Company's planned investment in the marketing of its current services
and research and development with regard to future endeavors. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including: domestic
and global economic patterns and trends.
Meridian Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on October 13, 1998. The Company is located in the City of
Los Angeles, California, U.S.A. and provides management services to its'
Affiliated group of Companies.
Meridian Holdings, Inc., assigns a dedicated team to each affiliated company and
actively assists in their management, operations and finances. The Company
seeks to maximize shareholder value by actively providing operational assistance
and expertise to help its partner companies grow and develop and by giving
its shareholders the opportunity to participate in the initial public offerings
of its partner companies while retaining a significant ownership interest after
the initial public offering.
Its network of partner companies creates an environment through which companies
can leverage one another's information technology, operational experience,
business contacts and industry expertise.
We plan to hire additional senior management personnel to lend expert
guidance in further development of our business plan. Also, we will actively
seek opportunities for strategic transactions intended to raise capital to
develop our emerging business strategy, potentially including issuance of
additional equity or debt instruments. In addition, we will continue to
evaluate and may enter into strategic transactions, including mergers and
acquisitions.
BUSINESS UNITS AND AFFILIATED PARTNERS
The Company has under management the following business units:
1. Capnet IPA
2. InterCare DX, Inc.
3. CGI Communications Services, Inc.
CAPNET IPA
Capnet IPA ("Independent Physician Association"), with over 300 physicians, 15
community hospitals, 4 teaching Hospitals and other ancillary service companies
contracted within its network, is the core component of Meridian Holdings, Inc.
healthcare management division business. The linkage of these entities is
imminent as the convergence of technology brings to bear the burden of
information overload, currently one of the most critical problems in the
healthcare industry. The Company believes that by using currently available
Software technology, most of the healthcare industry information processing
could be handled more efficiently. To be competitive, the Company must license
leading technologies, enhance its existing services and content, develop new
technologies that address the increasingly sophisticated and varied needs of
healthcare professionals and healthcare consumers and respond to technological
advances and emerging industry standards and practices on a timely and
cost-effective basis.
3
AFFILIATION STRATEGY
Central to the new dynamic delivery model of management services is an economic
alignment between Capnet IPA and:
1. Physicians and providers of healthcare services as partners and
Shareholders who have demonstrated established practice patterns resulting in
optimal utilization of healthcare services and disciplined cost control.
2. Tertiary care and community hospitals with shared interest in managing
risk contracts in a highly capitated managed care environment
3. Health plans and third-party payors whose members are assigned to Capnet
IPA for provision of healthcare services.
To this end, the Company is in the process of acquiring additional
healthcare-related companies whose business purpose and technology will further
enhance the Company's ability to achieve its business goals and objectives in
the healthcare industry.
The key components of management services to be provided to Capnet's affiliated
healthcare providers and organizations include:
1. Cost efficiency and quality outcome analysis.
2. R&D product substitution compliance.
3. Drug utilization data analysis.
4. Care utilization data analysis.
5. Care provider network and referral pattern analysis.
6. Quality management incentive compliance.
7. Dynamic and comprehensive clinical pathways.
8. Health risk and needs assessments of the patient population served
9. Electronic medical record system.
10. Clinical laboratory and diagnostic database repositories.
11. Contract negotiations, mergers and acquisition.
12. Strategic healthcare planning, marketing and implementation utilizing
CAPNET will create compensation formulas which are designed to attract and
retain good practitioners and maintain long-term harmony and productivity. A
sound compensation formula can help avoid many of the problems in a "medical
group." Practitioner incentives are designed to engage the practitioners in the
pursuit of CAPNET's mission. CAPNET will use member meetings as a tool to
nourish the benefits of synergy.
CAPNET will pursue the application and continuous enhancement of technology to
support efficient and effective clinical and business operations. This includes
"bottom up" and "top down" analysis, so as not to unduly interfere with current
clinical and business operations.
When practical, local area networks in practices and administrative offices
will be connected to CAPNET's wide area network to eliminate duplication and
allow efficient interchange of information at a minimal cost.
CAPNET will develop a proper mix of physician specialties, mid-level providers
and medical facilities in order to insure the success of the above strategy.
CAPNET will develop a business approach to contracting with HMOs, PPOs and other
managed care carriers and entities Contracts among the various elements of the
health care delivery business should be fair to all parties, provide for
reasonable administration and allow a fair profit.
CAPNET plans to use the business approach to assess contracting opportunities,
negotiate mutually beneficial agreements and then, monitor the cost and profit
of each agreement.
CAPNET will conduct periodic operations analyses and reviews to evaluate
practice operations in the context of the patient, practitioners, staff,
community and business environment in which the practice operates. The result of
the analyses are specific recommendations for improvement along with a plan for
4
implementation.
CAPNET provides expertise to member practices in the area of clinical and
business operations. Expertise is provided through standard operational
techniques and procedures, as well as through an internal and contracted staff
with expertise in a wide variety of fields. Support includes:
1. Marketing
2. Development and implementation of clinical protocol
3. Development and negotiation of risk contracts
CAPNET will select providers based on credentials and ethical standards. A
system of screening potential members is used to assure that problem
practitioners are not invited to join. Providers will be selected based on the
following criteria:
1. Exceptional clinical standards
2. High ethical standards
3. A demonstrated history of providing quality and cost-effective medical
care.
The Company also provides medical services management to its' Capnet IPA health
care provider network within the greater Los Angles County area.
We provide the following services:
- disease management -- a method to manage the costs and care of high risk
patients and produce better patient care
- quality management -- a review of overall patient care measured against
best medical practice patterns
- utilization management -- a daily review of statistical data created by
encounters, referrals, hospital, admissions and nursing home information
- claims adjudication and payment
Under our model, the primary care physicians maintain their independence
but are aligned with a professional staff to assist in providing cost effective
medicine. Each primary care physician provides direct patient services as a
primary care doctor including referrals to specialists, hospital admissions and
referrals to diagnostic services. These physicians are compensated on a per
member per month capitation basis.
Due to mounting pressures from the industry, managed care organizations have
altered their strategy, returning to the traditional model of selling
insurance and transferring the risk to a provider service network such as us.
Under such arrangements, managed care organizations receive premiums from the
Center for Medicare and Medicaid Services, State Medicaid programs and other
commercial groups and pass a significant percentage of the premium on to a third
party such as us, to provide covered benefits to patients, including sometimes
pharmacy and other enhanced services. After all medical expenses are paid, any
surplus or deficit remains with the provider service network. When managed
properly, accepting this risk can create significant surpluses.
CHANGES IN THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS
The $1 trillion health care industry is currently going through a period of
tremendous change. Nowhere is this more evident than the patient care delivery
network where the three main components--physician groups, insurers and
hospitals - are scrambling for market share, volume and control.
The health care industry is also subject to changing political, economic, and
Regulatory influences. These factors affect the purchasing practices and
operations of health care organizations. Changes in current health care
financing and reimbursement systems could cause us to make unplanned
enhancements of applications or services, or result in delays or cancellations
of orders, or in the revocation of endorsement of our applications and services
by health care participants. Federal and state legislatures have periodically
5
considered programs to reform or amend the U.S. health care system at both the
federal and state level. Such programs may increase governmental involvement in
health care, lower reimbursement rates, or otherwise change the environment in
which health care industry participants operate. Health care industry
participants may respond by reducing their investments or postponing investment
decisions, including investments in our applications and services.
Many health care industry participants are consolidating to create
integrated health care delivery systems with greater market power. As the health
care industry consolidates, competition to provide products and services to
industry participants will become even more intense, as will the importance of
establishing a relationship with each industry participant These industry
participants may try to use their market power to negotiate price reductions for
our products and services. If we were forced to reduce our prices, our operating
results could suffer as a result if we cannot achieve corresponding reductions
in our expenses.
GOVERNMENT REGULATION OF THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS.
We are subject to extensive regulation relating to the confidentiality and
release of patient records. Additional legislation governing the distribution of
medical records has been proposed at both the state and federal level. It may be
expensive to implement security or other measures designed to comply with new
legislation. Moreover, we may be restricted or prevented from delivering patient
records electronically. For example, until recently, the Health Care Financing
Administration guidelines prohibited transmission of Medicare eligibility
information over the Internet.
Legislation currently being considered at the federal level could affect
our business. For example, the Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions, standard identifiers,
security, and other provisions by April 14 2003. We are designing our platform
and applications to comply with these proposed regulations; however, until these
regulations become final, they could change, which could cause us to use
additional resources and lead to delays as we revise our platform and
applications. In addition, our success depends on other health care participants
complying with these regulations.
InterCare DX, Inc.
InterCare DX, Inc. formerly known as Inter-Care Diagnostics, Inc., is
organized in the State of California. The company is an innovative software
products and services company specializing in providing healthcare management
and information system solutions. The Company recently completed the
development of ICE(tm) software, which comprises of three primary layers:
Healthcare Enterprise Layer
-----------------------------
This layer implements the entire capabilities of ICE(tm) which includes the
Medical knowledge base, Clinical decision support; Microsoft speech recognition
and Voice command technologies; Human anatomical navigation using a
three-dimensional virtual reality technology.
Terminal Services Platform
-------------------------------
This layer enables care providers which are not members of the healthcare
enterprise to have access to an internet Version of ICE(tm) with some stripped
down functionality such Voice Command; Speech recognition, utilizing either
standard or biometric authentication.
Consumers
---------
This layer, based on standard browser access, enables full integration of the
patient/consumer in the entire care process. This layer places the convenience
and the satisfaction of each consumer/patient (i.e. health plan member) at its
prime target. It supports the following major components: Request and allocation
6
of care services per the consumer's personal preferences, provider-patient
communication and consumer-centric medical content.
ICE(tm) Internet capabilities will facilitate the proactive participation of the
consumer in the entire care delivery process. As such, InterCare will have
ICE(tm) positioned to become a significant player in the growing market of
Internet-based, e-healthcare community solutions. This will significantly
expand the scope of available healthcare solutions.
The strength of ICE(tm) application is derived from differentiated core
technologies consisting of: Mainstream SQL Database with full open architecture
;human anatomy and graphical user interfaces that simplify documentation
and information access; data mining and data query tools; end-user tool sets;
and interface capabilities to facilitate peaceful coexistence with other
systems. Over 10 years of research and development have been spent in the
development of ICE(tm) software.
Benefits of ICE(tm) Products to Healthcare Payors and Providers:
Point of Care Documentation
Applications enabling all care providers (e.g. physicians, nurses, PA's,
technologists, therapists, dieticians, etc.) to document objective and
subjective patient data at the point-of-care in a manner that enhances
compliance, reduces time, enhances communications, controls resource
utilization and enhances revenue generation.
In order to comply with HCFA, HIPAA and other tightening Federal and State
regulations, a typical mid-sized IHDN / hospital (300 beds) needs to invest a
direct capital investment of $4M - $6M in an EMR/CDR solution over a 5 year
period. This huge capital investment includes the purchase of hardware and
software licenses, professional implementation / process re-engineering services
and on-going critical support services, all comprising a turn-key EMR/CDR
enterprise solution. The majority of this capital investment occurs during year
1 of the project, while ROI (Return-On-Investment) is expected to be realized
only in much later stages. Thus, the scope of both internal and external
investment mandated by selecting any specific EMR/CDR solution, exposes decision
makers to significant personal risk in case of future failure. This is one of
the prime reasons why EMR/CDR solutions' evaluation processes take for ever, and
frequently end up with no decision purchase at all.
The U.S. healthcare market is undergoing a transition from fee-for-service to
managed care. This transition involves increased exposure to financial risks for
healthcare providers, requiring improved control over outcomes and cost
generation throughout the entire continuum-of-care. The U.S. Government, through
new HCFA and HIPAA regulations accepted since 1996, will tighten its on-going
inspection of medical records documentation quality. US physicians who fail to
maintain necessary levels of clinical documentation are expected to suffer
substantial fines. In a recently held survey, 65% of 1,200 hospital CIOs (Chief
Information officers) interviewed had indicated that clinician oriented
Computerized Patient Record (CPR) or Central Data Repository (CDR) solutions are
their primary purchase priority (Hewlett Packard at the HIMSS trade show, 1997),
averaging $4M-$6M per contract
Only a handful of the leading U.S. healthcare legacy systems vendors are in
practice coping with the magnitude of the enterprise-wide, distributed CPR/CDR
challenge.
Order entry and results reporting
Simplified multi-disciplinary communication of orders, referrals, consultations,
notes and retrieval of results including Laboratory, Radiology, Pharmacy,
Respiratory Therapy, Dietary, Physiotherapy, Nursing and the like.
Imaging and general archiving
On-line viewing, manipulation and annotation of digital images and documents
such as X-rays, CAT Scans, MRIs, Ultrasounds, digitized images, scanned paper
7
documents, etc. This is particularly important in emergency and urgent care
settings where speed and provider viewing and interpretation is needed to
enhance care delivery. This is the foundation for an integrated healthcare
delivery system, using both Local and Wide area networks.
Multi-disciplinary Clinical decision support
Provision of advanced clinical functionality including protocols, pathways, care
plans, order sets, alerts, advanced directives, costing, staffing, time
standards and templates that facilitate care management, resources control and
outcome management.
Clinical workflow and productivity management
Personal desktop that organizes individual user tasks, simplifies follow up and
documentation requirements, improves workflow, facilitates quality assurance and
management intervention in order to make better use of time.
Care provider communication management
On-line, simplified message routing and communication that interfaces to e-mail,
voice mail and like systems to enhance coordination and follow up among care
providers.
Central Data Repository
Aggregation of all patient-centric data in the enterprise from all legacy and
newer information systems, including Registration, ADT, lab, radiology, pharmacy
PACS, departmental systems and ICE(tm).
Medical knowledge base / lexicon
Multiple third-party knowledge bases and lexicons can be readily incorporated
into ICE(tm) including ICD9, CPT4, DSM-4, application objects, lexicon
objects, security objects and individual user preferences, in addition to
Intercares' proprietary knowledge base engine known as ICOL(tm)
Bi-directional legacy integration middleware
Data exchange in real-time between ICE(tm) and legacy systems to facilitate
data merging, data normalization and information consolidation.
Real-time Electrophysiological and Clinical Data Acquisition
InterCare has obtained a developers license from QRS Diagnostics, Inc., to
integrate their Medic Software application into ICE(tm), thus making it possible
to add such medical diagnostic data as ECG, Temperature, Weight Spirometry and
Pulse-oximetry into ICE(tm) database real-time.
Data discovery, mining and analysis
Suite of ad-hoc, programming free tools, enabling novice users experimental
"cruising" of all enterprise data in real-time.
InterCare's ICE(tm) software operates over a customizable and highly adaptable
operating environment. ICE(tm) is designed to concurrently serve all care
providers throughout the continuum-of-care from acute and long-term care to
ambulatory and home health care:
- The various medical professions (i.e. physician, nurse, therapists,
technologists, dietician, etc.)
- The various medical specialties (i.e. Primary care, OB/Gyn, Pediatrics,
Surgery, etc.)
- The various facility types (i.e. acute care, ambulatory care, long term
care and home care)
ICE(tm) can seamlessly integrate with legacy systems (utilizing any
off- the- shelf interface engine) through both HL7 and proprietary legacy
interfaces. A 12-tier security paradigm offers industry leading confidentiality
8
and control of information. Security "behavior" rules are fully configurable by
privileged system administrator(s), without programming, through the underlying
knowledge bases. ICE(tm)'s embedded security will be fully HIPAA (Health
Insurance Portability and Accountability Act of 1996) compliant when the final
rulings are released, and supports data compartmentalization down to the
level of specific value in any data field.
BENEFITS OF THE COMPANY'S MODEL
PHYSICIAN'S INTERACTIVE. The Company intends to offer an interactive web-forum
------------------------
for physicians to discuss various issues regarding their pharmaceutical usage
and experience. This product will enable pharmaceutical manufacturers and
managed care organizations to deliver drug education and detailing to physicians
more efficiently and cost-effectively via the Internet, without the face-to-face
interaction currently required. In future, as the technology evolves, the
Company will offer interactive video conferencing to participating physicians
and the pharmaceutical representatives to discuss their experience and
pharmaceutical needs.
INTELLIGENT REMINDER. The Company intends to offer a service to track patient
---------------------
compliance with prescribed treatment and to send reminders to patients,
physicians and managed care organizations. By increasing compliance, the Company
expects to improve patient care and reduce unnecessary office visits, benefiting
patients, physicians and managed care organizations.
PATIENT EDUCATION. Through Capnet IPA and other healthcare entities the Company
------------------
intends to acquire, they will provide information to patients, enabling them to
take a more active role in managing and improving the quality and cost of their
healthcare. Specific information regarding health state, managed care and
medications will be made available on the Web site and via e-mail.
CGI COMMUNICATIONS SERVICES, INC.
CGI Communications Services, Inc., a start-up company, delivers broadband
communications solutions including high-speed Internet access, data, voice and
video services over a revolutionary national network to a wide spectrum of
business customers. CGI Communications Services is also a specialized Vertical
Market Applications Services Provider (VMASP) subsidiary of Meridian Holdings,
Inc. The Company's fully integrated, cost-effective solution approach gives
businesses little reason to search elsewhere for the same solution that would be
delivered by 2 to 3 different companies, each specializing in one facet to the
whole solution. Because our network is smarter than the competition and we have
extensive experience in deploying multi-faceted Internet solutions, our plan is
to brand CGI COMMUNICATIONS SERVICES as the clear market leader in delivering
solid, complete and cost-effective network solutions to businesses that need to
integrate the utility of the Internet into their operations.
By combining enabling technology with industry leading companies supplying
telecommunications, medical products and services, CGI is poised to make
InterCare.com-dx, Inc.'s ICE(tm) Suite of clinical applications, the global
leader in providing comprehensive telemedicine and telecare solutions. CGI
will now begin a Pilot-testing of this technology among over 300 healthcare
providers affiliated with CAPNET IPA, an integrated healthcare delivery
system, located in Los Angeles, California, managed by Meridian Holdings,
Inc., the ASP version of ICE(tm) when released.
BUSINESS STRATEGY
CGI Communications Services, Inc., intends to capitalize on the enormous public
attention focused on the Internet and the need for increased bandwidth by
increasing its' telemarketing sales and technical support staff, targeting its
advertising to its core audience, and by providing the most efficient,
lowest-cost high speed Internet service in its service corridor. CGI is focusing
its marketing efforts to specialty and small business entities.
9
CORPORATE INFORMATION
CGI Communications Services, Inc., was incorporated under Delaware law on April
12, 1997. Its executive offices are at 900 Wilshire Blvd., Suite 500, Los
Angeles, California 90017. Its telephone number is (213) 627-8878. Its fax
number is (213) 627-9183. On December 10, 1999, Meridian Holdings, Inc.,
acquired 20% equity interest in the Company, in exchange for an aggregate of
$12,000,000 equity investment over 5 years.
MANAGEMENT OF POTENTIAL GROWTH
The Company has rapidly and significantly expanded its operations and
anticipates that further expansion will be required to address potential growth
in its customer base, to expand its product and service offerings and its
international operations and to pursue other market opportunities. The projected
expansion of the Company's operations and employee base will place a significant
strain on the Company's management, operational and financial resources.
To manage the expected growth of its operations and personnel, the Company
will be required to improve existing and implement new transaction-processing,
operational and financial systems, procedures and controls and to expand,
train and manage its growing employee base. There can be no assurance that the
Company's current and planned personnel, systems, procedures and controls
will be adequate to support the Company's future operations, that management
will be able to hire, train, retain, motivate and manage required personnel or
that Company management will be able to successfully identify, manage
and exploit existing and potential market opportunities. If the Company
is unable to manage growth effectively, such inability could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
NEW BUSINESS AREAS
The Company intends to expand its operations by promoting new or complementary
products or sales formats and by expanding the breadth and depth of its product
or service offerings. Expansion of the Company's operations in this manner would
require significant additional expenses, development, operations and editorial
resources and would strain the Company's management, financial and operational
resources. Furthermore, the Company may not benefit from the first-mover
advantage that it will experience in the online high technology market and gross
margins attributable to new business areas may be lower than those associated
with the Company's existing business activities prior to the introduction of new
products or line of business. There can be no assurance that the Company will be
able to expand its operations in a cost-effective or timely manner. Furthermore,
any new business launched by the Company that is not favorably received by
consumers could damage the Company's reputation or the Bolingo.com brand. The
lack of market acceptance of such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products to offset their
cost could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
INTERNATIONAL EXPANSION
The Company intends to expand its presence in foreign markets. To date, the
Company has only limited experience in sourcing, marketing and distributing
products on an international basis and in developing localized versions of its
Web site and other systems. The Company expects to incur significant costs in
establishing international facilities and operations, in promoting its brand
internationally, in developing localized versions of its Web site and other
systems and in sourcing, marketing and distributing products in foreign markets.
There can be no assurance that the Company's international efforts will be
successful. If the revenues resulting from international activities are
inadequate to offset the expense of establishing and maintaining foreign
operations, such inadequacy could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations. In
addition, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export and import
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, political instability,
10
fluctuations in currency exchange rates, seasonal reductions in business
activity in other parts of the world and potentially adverse tax consequences,
any of which could adversely impact the success of the Company's international
operations. There can be no assurance that one or more of such factors will not
have a material adverse impact on the Company's future international operations
and, consequently, on the Company's business, prospects, financial condition and
results of operations.
BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES
The Company may choose to expand its operations or market presence by entering
into business combinations, investments, joint ventures or other strategic
alliances with third parties. Any such transaction would be accompanied by the
risks commonly encountered in such transactions. These include, among others,
the difficulty of assimilating the operations, technology and personnel of the
combined companies, the potential disruption of the Company's ongoing business,
the inability to retain key technical and managerial personnel, the inability of
management to maximize the financial and strategic position of the Company
through the successful integration of acquired businesses, additional expenses
associated with amortization of acquired intangible assets, the maintenance of
uniform standards, controls and policies and the impairment of relationships
with existing employees and customers. There can be no assurance that the
Company would be successful in overcoming these risks or any other problems
encountered in connection with such business combinations, investments, joint
ventures or other strategic alliances, or that such transactions will not have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of the its Internet websites. The
Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new technologies and
the emergence of new industry standards and practices that could render the
Company's existing Web site and proprietary technology and systems obsolete. The
Company's success will depend, in part, on its ability to license leading
technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied
needs of its prospective customers and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
The development of Web site and other proprietary technology entails significant
technical, financial and business risks. There can be no assurance that the
Company will successfully implement new technologies or adapt its Web site,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. If the Company is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, such inability
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. The Company's future success also
depends on its ability to identify, attract, hire, train, retain and motivate
other highly skilled technical, managerial, editorial, merchandising, marketing
and customer service personnel. Competition for such personnel is intense and
there can be no assurance that the Company will successfully attract, assimilate
or retain sufficiently qualified personnel. In particular, the Company has
encountered difficulties in attracting a sufficient number of qualified software
developers for its Web site and transaction-processing systems and there can be
no assurance that the Company will retain and attract such developers. The
failure to retain and attract the necessary technical, managerial, editorial,
merchandising, marketing and customer service personnel could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
ACQUISITIONS
If appropriate opportunities present themselves, the Company intends to acquire
businesses, technologies, services or products that the Company believes are
11
strategic. The Company currently has no understandings, commitments or
agreements with respect to any other material acquisition and no other material
acquisition is currently being pursued. There can be no assurance that the
Company will identify, negotiate or finance future acquisitions successfully, or
to integrate such acquisitions with its current business.
ONLINE COMMERCE SECURITY
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card numbers.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, other events or developments will not
result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
reputation, business, prospects, financial condition and results of operations.
A party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of the Internet and other
online transactions and the privacy of users may also inhibit the growth of the
Internet and other online services generally and the Web in particular,
especially as a means of conducting commercial transactions. To the extent that
activities of the Company or third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose the Company to a risk
of loss or litigation and possible liability. There can be no assurance that the
Company's security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
EMPLOYEES
As of December 31, 2003, the Company had approximately 18 full-time employees.
Of the total,15 were employed at the Company's executive offices. No employee of
the Company is covered by a collective bargaining agreement or is represented by
a labor union. The Company considers its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate offices are located at 900 Wilshire Boulevard, Suite
500, Los Angeles, California 90017. The Company is required to pay $5,791.00 per
month rental. The Company was required to make a lease deposit of $5,186.00. The
lease expires on February 28, 2004. The telephone number is (213) 627-8878. The
Company has additional office space located at 1601 Centinela Avenue, Inglewood,
California 90302. The Company is required to pay $1,560.00 per month rental. The
Company was not required to make a lease deposit. This lease is on a month to
month basis.
ITEM 3. LEGAL PROCEEDINGS
On May 6, 2003, the registrant was served with a summons for a lawsuit filed
in the District Court of Jerusalem, Case No A3359/01(BSA 1646/03) titled "Dr.
Danny Basel vs Corsys Group LTD; Meridian Holdings, Inc., and Anthony C.
Dike." The plaintiff is seeking amongst other things: enforcement of
contract, compensation, negligent misrepresentation, cause in breach of
contract and equitable relief.The registrant has been advised that Dr. Basel's
employment was terminated for cause by Corsys Group LTD, due to intentional
interference with contract and other economic relationship; and negligent
interference with economic relationship; breach of fiduciary duty and other
complicity in the Sirius/MedMaster matter as disclosed previously with SEC,
which resulted in significant loss of income and future business opportunities.
The registrant has filed a responsive pleading, believes that the allegations
against it are without merit, and
12
intends to defend itself vigorously. The case is now in the discovery phase.
On July 19, 2001, Ventures & Solutions, LLC, filed a lawsuit against the
company, styled Ventures & Solutions, LLC, Plaintiff v. Meridian Holdings, Inc.,
Defendant, Circuit Court of Alexandria, Virginia, Case No. C10517. The company
was served with a copy of the Complaint on August 6, 2001. Plaintiff has
alleged that the company owes it approximately $29,000.00, pre and post judgment
interest, and attorneys' fees and costs. The Virginia court ruled in favor
of the plaintiff, for the actual amount claimed owed in April 2003.
On June 5, 2003, the registrant filed a petition and a supporting declaration
of Moses O. Onyejekwe, Esq., with the Superior Court of the State of California
for the County of Los Angeles, case number BS083660, styled "Meridian Holdings,
Inc.(Petitioner) vs. Dale Church, and DOES 1 through 50, inclusive" requesting
that the Court grant an order permitting the registrant to file a complaint
against the named defendant to alleged Attorney-Client Conspiracy. The case is
still pending.
On July 8, 2003, the registrant filed a petition for review with the State of
California Supreme Court, case number S117457, styled "Sirius Computerized
Technologies, LTD (Petitioner) vs Superior Court of the State of California
For the County of Los Angeles (Respondent), Meridian Holdings, Inc.
(Real Party in Interest), " after a decision by the Court of Appeal, Appellate
District, Division Seven Case No. B166285, which overturned the earlier
decision of the Superior Court of California with respect to the issue of
jurisdiction, as disclosed in the previous quarterly filing with SEC. The,
registrant was requesting that the California Supreme Court grant the
registrant's request for review on the basis that there is a need for the law
to impose harsh punishments on parties who are guilty of fraud in connection
with their contractual dealings and yet expect to benefit from their choice of
forum. The request was denied. The Company is currently reviewing all its
available options options under the law with respect to this matter.
From time to time, we may be engaged in litigation in the ordinary course of
our business or in respect of which we are insured or the cumulative effect of
which litigation our management does not believe may reasonably be expected to
be materially adverse. With respect to existing claims or litigation, our
management does not believe that they will have a material adverse effect on
our consolidated financial condition, results of operations, or future
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 6, 2004 the shareholders voted to re-appoint Mr. Andrew Smith CPA, as
the Company's independent accountant for the fiscal year ended December 31,
2003. Also, the shareholders re-approved the Registrants' 2001 stock option
plan for 2004, as well as the election of the following directors for another
one year term:
Mr. James Truher
Mr. Michael Muldavin
Mr. Randy Simpson
Mrs Marcelina Offoha
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTER
The Common Stock is currently quoted on the OTC Bulletin Board, maintained by
the National Association of Security Dealers, Inc. under the Symbol: MRDH, and
there is presently only a very limited market for the Common Stock. Historically
the spread between the bid and asked price of the Company's Common Stock has
been large, reflecting limited trading in the stock. The price range of the
Company's Common Stock has varied significantly in the past months, ranging from
a high bid of $0.60 and a low bid of $0.08 per share. The trading price for the
Common Stock has fluctuated widely in the recent past. The above prices
represent inter-dealer quotations without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
13
The following information with respect to the high and low bid price of our
shares was obtained from the National Quotation Bureau.
High Low
Calendar 2003
Quarter ended March 31 0.02 0.02
Quarter ended June 30 0.07 0.07
Quarter ended September 30 0.08 0.08
Year ended December 31, 2003 0.15 0.15
High Low
Calendar 2002
Quarter ended March 31 0.08 0.02
Quarter ended June 30 0.07 0.02
Quarter ended September 30 0.04 0.02
Year ended December 31, 2002 0.02 0.02
At December 31, 2003, the company had approximately 700 shareholders of record
for its common stock. Our preferred shares have never been offered to the
public, therefore have never been publicly traded.
SELECTED FINANCIAL DATA
The Company had net working capital of $1,279,979 as at December 31 2003
compared to $507,664 at December 31, 2002. This represents an increase in
working capital of 152%. This increase in working capital is attributed to
the liquidation of certain debts owed by the registrant by pledging of certain
assets, as well as forgiveness of certain debts by the Chairman and CEO of the
registrant during the period ended December 31, 2003.
The selected financial data set forth above should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following section contains forward-looking statements that involve risks and
uncertainties, including those referring to the period of time the Company's
existing capital resources will meet the Company's future capital needs, the
Company's future operating results, the market acceptance of the services of the
Company, the Company's efforts to develop new products and services, and the
Company's planned investment in the marketing of its current services and
research and development with regard to future endeavors. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including: domestic
and global economic patterns and trends.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY.
We believe that we will be able to fund our capital commitments, operating cash
requirements and satisfy our obligations as they become due from a combination
of cash on hand, expected operating cash flow improvements through HMO
capitation payments.
However, there can be no assurances that these sources of funds will be
14
sufficient to fund our operations and satisfy our obligations as they become
due.
Long-term cash requirements, other than normal operating expenses, are
anticipated for the continued development of the Company's business plans. The
Company will need to raise additional funds from investors in order to complete
these business plans. There can be no assurance that such additional capital
can be obtained or, if obtained, that it will be on terms acceptable to us. The
incurring or assumption of additional indebtedness could result in the issuance
of additional equity and/or debt which could have a dilutive effect on current
shareholders and a significant impact on our operations.
RESULTS OF OPERATIONS
THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF MERIDIAN
HOLDINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AS COMPARED TO THE
TWELVE MONTHS ENDED DECEMBER 31, 2002.
REVENUE
Medical services revenues increased by 0.2% from $2,618,894 for the twelve
months ended December 31, 2002 to $2,624,135 for the twelve months ended
December 31, 2003. The slight increase in medical services revenue is attributed
to the conversion of some out members from the primary care only to our full
risk contract. The later having more per member per month capitation rate from
the health plan. No revenue was generated from software licensing fees
royalties during the last two consecutive years.
Revenue generated from our managed care contracts with HMOs as a percentage
of medical services revenue was approximately 100% and 99%, respectively, during
the twelve months ended December 31, 2003 and 2002. Revenue generated by the
Los Angeles County Community Health Plan ("CHP") contracts was 99% and 98% of
medical services revenue for the twelve months ended December 31, 2003 and 2002,
respectively. Revenue generated by LACARE Health Plan ("LACARE") contract was
less than 1% of medical services revenue for the comparable period.
Cost of Revenues
The cost of revenue for twelve months ended December 31, 2003 is $900,203,
compared to $1,358,566 for twelve months ended December 31, 2002. This
represents a 34% decrease in cost of revenue. The decrease in cost of revenue
is attributed to movement of some of our contracted members from our primary
care only contract to our full risk contract, with overall increase in per
member per month fee re-imbursement from the HMO under this arrangement, coupled
with loss of membership during the period.
Direct medical costs includes all costs associated with providing services for
CAPNET IPA contracted members, including direct medical payment to physician
providers, hospitals and ancillary services on capitated and fee for service
basis. For the year ended December 31, 2003, these cost represents 59% of total
revenue compared to 51% for the year ended December 31, 2002. This is referred
to as Medical Loss Ratio (MLR). The increase in Medical Loss Ratio is due to
increase in volume of claims paid to contracted providers and hospitals
for services rendered. Medical claims represent the costs of medical services
provided by other healthcare providers other than our contracted primary
care providers, but which are to be paid by us for individuals covered
by our capitated risk contracts with HMOs. Our Medical Loss Ratio varies
from quarter to quarter due to fluctuations in utilization, the timing of
claims paid by the HMOs on our behalf, as well as increases in medical costs
without counterbalancing increases in capitation revenues.
EXPENSES
General and administrative expenses were $1,515,505 or 43 % of total revenues
for the twelve months ended December 31, 2003, compared to $1,371,574 or 49%
of total revenues for twelve months ended December 31, 2002. The decrease in
general and administrative expense is due laying off of some employees, as well
the implementation of additional cost reduction measures during the twelve
15
months ended December 31, 2003.
Of the $1,515,505 administrative expense for the period ended December 31, 2003,
$549,301 was for employee salaries and wages, $86,533 was for rent and lease
payments, $71,082 was for insurance including stop-loss, D&O liability, general
and liability, Medical Mal-practice, Workermans' Compensation, employees health
and dental insurance, $51,438 was for payment of outside consultants and rest
was for other corporate purposes.
INCOME/LOSS FROM OPERATIONS
The registrant recorded a net income from operations for the twelve months
ended December 31, 2003 of $138,566, compared to a net loss of $43,803
during comparable period in 2002. The increase in net income from operations is
due to the increase in revenue following the conversion of some of our members
from primary care only contract to the full risk contract which has a higher
per member per month re-imbursement. Management believes that trend will
continue for 2004, due to the activation of new HMO contracts and royalties
from ICE(tm) software license sales.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-KSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this Form 10-Q, the words
"believe," "anticipate," "think," "intend," "plan," "will be," and similar
expressions, identify such forward-looking statements. Such statements regarding
future events and/or the future financial performance of our Company are subject
to certain risks and uncertainties, which could cause actual events or our
actual future results to differ materially from any forward-looking statement.
Certain factors that might cause such a difference are set forth in our Form
10-K for the period ended December 31, 2003, including the following: our
success or failure in implementing our current business and operational
strategies; the availability, terms and access to capital and customary trade
credit; general economic and business conditions; competition; changes in our
business strategy; availability, location and terms of new business development;
availability and terms of necessary or desirable financing or refinancing; labor
relations; the outcome of pending or yet-to-be instituted legal proceedings;
and labor and employee benefit costs.
Medical claims payable include estimates of medical claims expenses incurred
by our members but not yet reported to us. These estimates are based on a number
of factors, including our prior claims experience and pre-authorizations
of treatment. Adjustments, if necessary, are made to medical claims expenses in
the period the actual claims costs are ultimately determined. We cannot assure
that actual medical claims costs in future periods will not exceed our
estimates. If these costs exceed our estimates, our profitability in future
periods will be adversely affected.
Pursuant to the Medicaid program, the federal government supplements
funds provided by the various states for medical assistance to the medically
indigent. Payment for such medical and health services is made to providers in
an amount determined in accordance with procedures and standards established by
state law under federal guidelines. Significant changes have been and may
continue to be made in the Medicaid program which could have an adverse effect
on our financial condition, results of operations and cash flows.
During certain fiscal years, the amounts appropriated by state legislatures
for payment of Medicaid claims have not been sufficient to reimburse providers
for services rendered to Medicaid patients. Failure of a state to pay Medicaid
claims on a timely basis may have an adverse effect on our cash flow, results
of operations and financial condition.
The state of California has stopped all marketing activities for the Healthy
Family Program, and this will impact our revenue from this line of business
due to membership attrition. Also, on December 31, 2003, Capnet IPA terminated
the Healthy Family agrrement with LACARE due to a low membership enrollment.
16
PLAN OF OPERATIONS
On March 27, 2003, the registrant issued a press release announcing the
appointment of Mr. Randy Simpson, CPA, as the new member of the board
of directors, as well as the resignation of Dr. James Kyle,11 from the
board of directors of the registrant.
On July 30, 2003, the Company through its' CAPNET IPA physician Network
Renewed its' Medical Services contract for another two years term with
the Los Angeles County Community Health Plan.
On September 19, 2003, the registrant issued a press release announcing signing
of a Medical Services Agreement between Capnet IPA and UHP healthcare
Under the terms of this one year automatically renewable agreement, Capnet IPA
will provide covered medical services to assigned members of UHP Healthcare, in
a culturally sensitive manner, through Capnet's network of affiliated
physicians, hospitals and other ancillary services providers within Los Angeles,
Orange and San Bernardino counties of California.
The company projects that this agreement with UHP Healthcare which includes the
following product-lines: Medicare, Medi-Cal, Commercial, Healthy Family and
Access for Infants and Mothers (AIM) program, will provide revenue based on
member enrollments.
RECENT EVENTS
On March 6 2004, the following board members were re-elected to serve as
Directors of the company until the next annual meeting or until their successors
are elected and qualified :
1. Michael Muldavin
2. James Truher
3. Randy Simpson
4. Marcellina Offoha
Additionally, shareholders ratified the reappointment of Andrew Smith, CPA,
as the independent auditor for the fiscal year ending December 31, 2003 and
re-approved the Company's 2001 Joint Incentive and Non-Qualified Stock Option
Plan for fiscal year 2004.
RISKS ASSOCIATED WITH MANAGING GROWTH
The Company's anticipated level of growth, should it occur, will challenge the
Company's management and its sales and marketing, customer support, research and
development and finance and administrative operations. The Company's future
performance will depend in part on its ability to manage any such growth, should
it occur, and to adapt its operational and financial control systems, if
necessary, to respond to changes resulting from any such growth. There can be no
assurance that the Company will be able to successfully manage any future growth
or to adapt its systems to manage such growth, if any, and its failure to do so
would have a material adverse effect on the Company's business, financial
condition and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's securities may be deemed "penny stock" as defined in Rule 3a51-1
of the Securities and Exchange Act of 1934, as amended, since the average bid
price has remained consistently below $2. Such a designation could have a
material adverse effect on the development of the public market for shares of
the Company's common stock or, if such a market develops, its continuation,
since broker-dealers are required to personally determine whether an investment
in such securities is suitable for customers prior to any solicitation of any
offer to purchase these securities. Compliance with procedures relating to sale
by broker-dealers of "penny stock" may make it more difficult for purchasers of
the Company's common stock to resell their shares to third parties or to
otherwise dispose of such shares.
17
ITEM 7. FINANCIAL STATEMENTS
Please refer to Exhibit 99.1 for the Independent Auditors' Reports and
Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Board of Directors, which consists of five directors, four of which are
outside members and one of which is an officer of the Company, establishes the
general compensation policies of the Company and the compensation plans and
specific compensation levels for executive officers. The Company does not have a
separate Compensation Committee of its Board of Directors. The Company's
objective is to ensure that executive compensation be directly linked to ongoing
improvement in corporate performance and increasing shareholder value. The
following objectives are guidelines for compensation decisions: Job
Classification. The Company assigns a job grade to each salaried position, and
each job grade has a salary range, which is based on national salary surveys.
These salary ranges are reviewed annually to determine parity with national
compensation trends, and to ensure that the Company maintains a competitive
compensation structure. Competitive Salary Base. Actual salaries are based on
individual performance contributions within a competitive salary range for each
position established through job evaluation and market comparisons. The salary
of each corporate officer is reviewed annually by the Board of Directors. Stock
Option Programs. The purposes of the Company's ESOP and SOP are to provide
additional incentives to employees to work to maximize shareholder value. The
ESOP is open to all full-time employees of the Company and the SOP is open to
participation by key employees and other persons as determined by the Board,
based upon a subjective evaluation of the key employee's ability to influence
the Company's long-term growth and profitability. Stock options under the ESOP
may be granted at the current market price at the time of the grant or under the
SOP at prices as determined by the Board. With specific reference to the Chief
Executive Officer, the Board attempts to exercise great latitude in setting
salary and bonus levels and granting stock options. Philosophically, the Board
attempts to relate executive compensation to those variables over which the
individual executive generally has control. The Chief Executive officer has the
primary responsibility for improving shareholder value for the whole Company.
The Board believes that its objectives of linking executive compensation to
corporate performance results in alignment of compensation with corporate goals
and shareholder interest. When performance goals are met or exceeded,
shareholder value is increased and executives are rewarded commensurately. The
Board believes that compensation levels during 2001/2002 adequately reflect the
Company's compensation goals and policies. In 1993, the Internal Revenue Code
was amended to add section 162(m), which generally disallows a tax deduction for
compensation paid to a company's senior executive officers in excess of $1
million per person in any year. Excluded from the $1 million limitation is
compensation which meets pre-established performance criteria or results from
the exercise of stock options which meet certain criteria. While the Company
generally intends to qualify payment of compensation under section 162(m), the
Company reserves the right to pay compensation to its executives from time to
time that may not be tax deductible.
The Company will compensate the members of the Board of Directors for each
meeting he/she attends, in the amount of $250 cash or equivalent in the form of
the Company's Common Stock at the fair market value.
TERM AND CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors has determined that there will be two Classes of
Directors (Class A and Class B). Class A Directors are also officers of the
Company. Class B Directors are outside directors. The full Board shall consist
18
of five directors. Directors are elected each year for one-year term, except for
Class "A" directors, who are elected for a period of three years. The
stockholders will elect five directors for the coming year.
The business of the Company is managed under the direction of the Board. The
Board members will serve until their successors are elected at the Annual
Shareholder meeting, unless they earlier resign or are removed as provided in
the Bylaws.
The following is the list of members of the board of directors elected during
the annual shareholders meeting held on March 6, 2003.
James W. Truher
-----------------
Mr. Truher, aged 69, has been a Director of the Company since August 19, 1999.
Mr. Truher has over 40 years management and engineering experience in the
telecommunications industry. He is currently, the Chairman and Chief Executive
officer of Superwire.Com, an Internet services and content provider company.
Mr. Truher owns Columbia Management Corp., a telecommunications services
and investment company. In 1988, Mr. Truher founded and served as Chairman of
the Board and Chief Executive officer of SelecTel Corporation, which prior to
a merger with a public company, was an AT&T Co-Marketing Partner and
system integration company. Mr. Truher then served as Chairman and Chief
Executive officer of two publicly traded NASDAQ telecom companies and has
worked extensively with foreign PTT telephone companies. In 1981, Mr. Truher
founded and was the Chief Executive officer of Polaris Intelcom, the first
shared tenant service company in California.
Marcellina Offoha, Ph.D.
--------------------------
Ms. Offoha, age 49, a director of the Company in October 1999, Ms. Offoha
has extensive experience in teaching and counseling. Ms. Offoha has
taught at several universities such as Shaw University, Ithaca College,
State University of New York, Philadelphia College of Pharmacy & Science,
Temple University, and Morgan State University. Ms. Offoha holds a Ph.D.
in Sociology from Temple University, Philadelphia, Pennsylvania.
Michael Muldavin, J.D.
---------------------
Mr. Michael Muldavin, age 81 is the Chairman of Sandock Fund, Sandock
Investment Trust and Benchmark Company Group.
He was formerly the associate dean and clinical professor of medicine at
The University of California, Irvine, College of Medicine. He was also a
Medical Economist for California State Department of Public Health, and
assisted in the drafting of Medi-Cal legislation in 1967-1968 period.
Earlier in his career as a WWII veteran, he served as the Chief of
Labor Administration in Japan, under General MacArthur.
Mr. Muldavin holds a Bachelors of Science degree in Mathematics and
Engineering, Masters of Science degree in Economics and Public Health, Juris
Doctorate degree with specialization in administrative law, all degrees from
Harvard University. He also holds a Masters in Public Health degree from
UCLA School of Public Health.
Randy Simpson
------------
Mr. Randy Simpson, age 48, a Certified Public Accountant with nearly 30
years' experience, began his career with Ernst & Young's Salt Lake City office.
He has served in a variety of finance and accounting capacities, including
chief financial officer for Rocky Mountain Helicopters (medical helicopters)
and controller (Gulf Energy). In conjunction with his independent accounting
practice, he has provided registration work and financial advisory assistance
to a number of North American public companies. He received a BS in marketing
and an MS in accounting from Utah State University.
There are no family relationships between any directors or executive officers.
19
The election of the nominees requires the affirmative vote of a majority of the
shares of Common Stock represented at the Annual Meeting and entitled to vote
thereon.
COMMITTEES OF THE BOARD OF DIRECTORS
FUNCTIONS OF COMMITTEES
AUDIT AND ETHICS COMMITTEE:
- Has general powers relating to accounting disclosure and auditing
matters;
- Recommends the selection and monitors the independence of our
independent auditors;
- Reviews the scope and timing of the independent auditors' work;
- Reviews the financial accounting and reporting policies and principles
appropriate for the Corporation, and recommendations to improve
existing practices;
- Reviews the financial statements to be included in the Corporation's
Annual Report on Form 10-KSB
- Reviews accounting and financial reporting issues, including the
adequacy of disclosures;
- Monitors compliance with the Code of Ethics and Standards of Conduct;
- Reviews and resolves all matters presented to it by our Ethics office;
- Reviews and monitors the adequacy of our policies and procedures, and
the organizational structure for ensuring general compliance with
environmental, health and safety laws and regulations;
- Reviews with the General Counsel the status of pending claims,
litigation and other legal matters;
- Meets separately and independently with the Chief Financial officer,
Internal
Audit and our independent auditors.
It is composed of Messrs. Simpson, Truher, Muldavin and Ms. Offoha
EXECUTIVE COMMITTEE:
The Executive Committee may exercise the power of the Board of
Directors in the management of the business and affairs of the Corporation at
any time when the Board of Directors is not in session. The Executive
Committee shall, however, be subject to the specific direction of the Board of
Directors and all actions must be by unanimous vote. It is composed of Messrs.
Dike, Truher, and Robert L. Smith.
Meetings of the Board of Directors
During the fiscal year ended December 31, 2003, the Company's Board of
Directors acted five times by a unanimous written consent in lieu of a
meeting. Each member of the Board participated in each action of the Board.
AUDIT AND ETHICS COMMITTEE REPORT
Management has the primary responsibility for the financial reporting process
and the audited consolidated financial statements, including the systems of
internal controls. The Corporation's independent auditors, Mr. Andrew
Smith CPA, is responsible for expressing an opinion on the quality
and conformity of consolidated financial statements with accounting
principles generally accepted in the United States. In our capacity as
members of the Audit and Ethics Committee and on behalf of the Board of
Directors, we oversee the Corporation's financial reporting process and
monitor compliance with its Code of Ethics and Business Conduct. The Audit
Committee has not adopted a written charter, which has been approved by the
Board of Directors
The members of the Audit and Ethics Committee are independent as defined by
the listing standards of the National Association of Securities Dealers(NASD)
20
In connection with our oversight responsibilities, we have:
- discussed with the internal and independent auditors the overall scope
and plans for their audits;
- reviewed and discussed the audited consolidated financial statements
included in Meridian Holdings 2003 Annual Report with management and
the independent auditors;
- discussed with the independent auditors the matters (including the
quality of the financial statements and clarity of disclosures)
required to be discussed under the American Institute of Certified
Public Accountants' Statement on Auditing Standards No. 61,
Communications with Audit Committees, which generally requires that
certain matters related to the performance of an audit be communicated
to the audit committee;
- received from the independent auditors and reviewed the written
disclosures and the letter required from the independent auditors
required by the Independence Standards Board, and have discussed with
them their independence from management and the Corporation;
- considered the nature of the nonaudit services performed by the
independent auditors and the compatibility of those services with
their independence; and
- met with the internal and independent auditors, with and without
management present, to discuss the results of their examinations,
their evaluations of the Corporation's internal controls, and the
overall quality of the Corporation's financial reporting.
Based on the reviews and discussions referred to above, we recommended to the
Board of Directors (and the Board has approved) the inclusion of the audited
Consolidated financial statements referred to above in the Corporation's
Annual Report on Form 10-KSB for the year ended December 31, 2003 and 2002,
for filing with the Securities and Exchange Commission.
Members of the Audit and Ethics Committee:
James Truher Michael Muldavin
Randy Simpson Marcellina Offoha
Management Team
Capnet IPA Physician Network
Anthony C. Dike, M.D. Chairman/CEO
Wesley Bradford, M.D., M.P.H.,M.B.A, Chief Medical Officer
Robert Smith, MPA, Interim President and Chief Operations Officer
Elizabeth Campos, Vice President IPA Operations
Foday Conteh, BSc.(Accounting) Vice President Finance
ITEM 10. EXECUTIVE COMPENSATION
The table below shows information concerning the annual and long-term
compensation for services in all capacities to the Company for the Chief
Executive officer:
Annual Compensation
Name Year Salary Bonus Stock Option Amount Exercised as of
Anthony C. Dike 2003 $144,000(F1) 0 250,000 0
F1: As of December 31, 2003, payment of salary has been deferred until such time as
21
the Company has sufficient capital to commence such payment.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten (10%)
percent of the outstanding Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership on Form 3 and
reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons
are required by SEC regulation to furnish the Company with copies of all such
reports they file.
Based solely on its review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater than (10%) percent beneficial owners were
complied with during the twelve months ended December 31, 2003.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2003 to the extent known to
the Company, certain information regarding the ownership of the Company's
Common Stock by (i) each person who is known by the Company to own of record or
beneficially more than five percent of the Company's Common Stock, (ii) each
of the Company's directors and executive officers and (iii) all directors and
executive officers as a group. Except as otherwise indicated, the shareholders
listed in the table have sole voting and investment powers with respect to
the shares indicated.
Name and Address of Amount and Nature of
Beneficial Owner Title Beneficial Ownership Status Percent of Class
------------------------- -------- -------------------- -------- -----------------
Anthony C. Dike, M.D. (1,2) Director 7,515,255 Active 71.4%
Michael Muldavin (2) Director 25,000 Active 0.2%
James W. Truher (2) Director 65,900 Active 0.6%
Randy Simpson (2) Director 25,000 Active 0.2%
Marcellina Offoha, Ph.D (2) Director 57,190 Active 0.5%
All directors and Officers as
a group (five persons) 7,687,455 72.9%
Other Beneficial Owners
CGI Communications Services, Inc. 1,111,501 10.6%
MMG Investments, Inc. (3) 200,000 1.9%
Other public shareholders 1,525,242 14.6%
Total Number of Shares Outstanding 10,524,188 100%
1. Includes 330,000 shares pledged to secure the asset purchased by the
registrant from the Israeli Bankruptcy court. The said asset has been abandoned,
every efforts are being made to recover these shares from the Israeli receiver.
Meanwhile, a stop transfer order has been place on these securities pending
the outcome of the litigation.
2. The numbers shown include the shares of our Common Stock actually owned
as of December 31, 2003 and the underlying options and warrants representing
shares person has the right or will have the right to acquire based on the 2001
stock option plan table.
3. Anthony C. Dike, is the sole Director of MMG Investments, Inc, and an indirect
beneficial owner of 200,000 shares of Common stock held by MMG Investments, Inc.
22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
None
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
Item Description
Exhibit 99.1 Independent Auditors' Report and Consolidated Financial Statements
ADDITIONAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K
31.1 Certification pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
of Anthony C. Dike
31.2 Certification pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
of Foday Sorsor Conteh
32.1 Certification pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
of Anthony C. Dike and Foday Sorsor Conteh
Signatures
Pursuant to the requirements of Section 12 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.
Meridian Holdings, Inc.
Date: March 31, 2004 By: /s/ Anthony C. Dike
____________________________________Signature
Anthony C. Dike
Chief Executive officer
22
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony C. Dike, certify that:
1. I have reviewed this annual report on Form 10-KSB of Meridian Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 31, 2004
By: /s/ Anthony C. Dike
Anthony C. Dike
Chairman and CEO (Principal Executive Officer)
23
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Foday Sorsor Conteh, certify that:
1. I have reviewed this annual report on Form 10-KSB of Meridian Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
c) disclosed in this quarterly report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 31, 2004
By: /s/ Foday Sorsor Conteh
Foday Sorsor Conteh
Vice President Finance
24
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Meridian Holdings, Inc. (the
"Company") on Form 10-KSB for the period ending December 30, 2003 as filed
with the Securities and Exchange Commission on the date hereof
(the "Report"), we, Anthony C. Dike, the Chief Executive Officer, and Mr.
Foday Sorsor Conteh, Vice President Finance, of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906,
or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to Meridian
Holdings, Inc., and will be retained by Meridian Holdings, Inc., and
furnished to the Securities and Exchange Commission or its staff upon request.
DATE: March 31, 2004 By: /s/ Anthony C. Dike
-------------------
Anthony C. Dike
Chairman and CEO
By: /s/ Foday Sorsor Conteh
-------------------
Foday Sorsor Conteh
Vice President Finance
25
EXHIBIT 99.1
Financial Statements
and Independent Auditors' Reports
MERIDIAN HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 2003 AND 2002
i
MERIDIAN HOLDINGS, INC.
TABLE OF CONTENTS
Item Page Number
INDEPENDENT AUDITORS' REPORTS F-1
AUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
To the Board of Directors
Meridian Holdings, Inc.
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
------------------------------------------------
We have audited the accompanying balance sheet of Meridian Holdings, Inc. as of
December 31, 2003 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Meridian Holdings, Inc., as of December 31, 2002 and for the year
then ended were audited by another auditor who has ceased operations with
respect to public companies. That auditor expressed an unqualified opinion on
those financial statements in his audit report dated March 27, 2003.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meridian Holdings,
Inc., as of December 31, 2003, and the results of its operations and cash flows
for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Madsen and Associates CPA's, Inc.
Salt Lake City, Utah
January 10, 2005
F-2
Meridian Holdings, Inc.
Balance Sheets
ASSETS
As of December 31,
----------------------
2003 2002
======= ========
Current assets
Cash and cash equivalents $ 1,218 $ 23,040
Restricted cash (Note 8) 281,010 400,993
Accounts receivable, net of allowance for doubtful accounts
of $179,813 and $146,151, respectively 1,497,982 1,155,971
Other current assets 8,302 8,302
Total current assets 1,790,011 1,588,305
Fixed assets, net of accumulated depreciation (Note 4) 43,258 45,693
Intellectual property, net of accumulated amortization of
$34,998 as of (Note 3) - 315,002
Investments (Notes 3 and 12) 3,448,564 3,911,211
Total assets $ 5,281,834 $ 5,860,212
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 233,301 $ 282,726
Accrued payroll and other - 391,697
Reserve for incurred but not reported claims (Note 8) 227,820 265,958
Accrued interest (Note 11) -
Line of credit (Note 5) 48,912 43,885
Current portion of long-term debt (Note 7) - 96,375
Total current liabilities 510,033 1,080,641
Loan from majority stockholder/officer (Note 11) - -
Long-term debt, net of current portion (Note 7) 189,479 335,530
Total liabilities 699,512 1,416,171
Commitments and contingencies (Notes 5,6,9,10,11 and 14)
Stockholders' equity (Notes 2, 3, 10 and 14)
Common stock (100,000,000 shares authorized, par value
$0.001; 9,370,649 and 93,956,485 shares issued and
outstanding at December 31, 2003 and 2002, respectively) 9,370 93,706
Additional paid-in capital $ 5,031,760 $ 4,947,424
Accumulated deficit (458,808) (597,089)
Total stockholders' equity $ 4,582,322 $ 4,444,041
Total liabilities and stockholders' equity $ 5,281,835 $ 5,860,212
See accompanying notes to consolidated financial statements.
F-3
Meridian Holdings, Inc.
Consolidated Statements of Operations
YEARS ENDED DECEMBER 31,
---------------------------
2003 2002
======= =========
Revenues
Capitation $ 2,624,135 $ 2,618,984
Related party fees (Note 3) - -
Other sale of software (Note 10) - -
--------- ----------
2,624,135 2,618,984
Cost of revenues 900,203 1,358,566
--------- -------
Gross margin 1,723,932 1,260,418
--------- ---------
Operating expenses
Research and development (Note 3) - -
General and administrative 1,515,505 1,371,574
--------- -------
1,515,505 1,371,574
--------- -------
Income (loss) from operations 208,427 (111,156)
--------- -------
Other income and (expense)
Equity interest in earnings of investment (45,316) 107,520
Other, net (24,545) (41,292)
------- --------
(69,861) 66,228
------- ---------
Net income (loss) 138,566 $ (44,928)
========= ==========
Net income (loss) per share:
Basic and diluted $ 0.015 $ (0.0005)
========= ==========
Weighted average shares outstanding 9,383,146 9,383,146
=========== ==========
See accompanying notes to consolidated financial statements.
F-4
Meridian Holdings, Inc.
Statements of Stockholders' Equity
For the Years Ended December 31,
2003 and 2002
Common Accumulated
Common Stock Paid-in Stock Earnings
Shares Amount Capital Subscribe (Deficit) Total
========= ====== ======== ========== ======== ======
Balances, January 1, 1999 1,950,000 $ 1,950 $ 13,574 $(12,000) $ - $ 3,524
Common stock issued
for cash and services 562,500 563 18,187 - - 18,750
Subscribed common
stock issued 360,000 360 (360) 12,000 - 12,000
Common stock issued to
Stockholder 75,000,000 75,000 451,922 - - 526,922
acquisition
Common stock issued to
an employee 600,000 600 24,400 - - 25,000
Common stock issued to
liquidate debt 3,000,000 3,000 497,000 - - 500,000
Common stock issued
for equity investment 12,000,000 12,000 3,868,000 - - 3,880,000
Net loss for the year - - - - 215,863) (215,863)
---------- ------ ---------- --------- -------- --------
Balances, December 31, 1999 93,472,500 93,473 4,872,723 - (215,863) 4,750,333
Stock options exercised 406,000 406 67,994 - - 68,400
Common stock issued
for services 77,985 78 6,420 - - 6,498
Dividends paid and
declared (Notes 2 and 3) - - - - (428,578) (428,578)
Net income for the year - - - - 102,555 102,555
----------- --------- --------- --------- -------- ----------
Balances, December 31, 2000 93,956,485 $ 93,957 $ 4,947,137 $ - $(541,886) $4,499,208
Net Income/(Loss) (11,254) (11,254)
Shares Re-acquired (250,000) (250) 287 37
----------- --------- --------- --------- -------- ----------
Balances, December 31, 2001 93,706,485 $ 93,707 $ 4,947,424 $ - $(553,140) $4,487,990
Net Income/(Loss) (43,803) (43,803)
----------- --------- --------- --------- -------- ----------
Balance December 31, 2002 93,706,485 $ 93,707 $ 4,947,424 $ - $(597,089) $4,444,187
Net Income/(Loss) 138,566 138,566
Stock split reversal (83,335,000) (84,336) 84,336 694 694
----------- --------- --------- --------- -------- ----------
Balance December 31, 2003 9,370,485 $ 9,371 $ 5,031,760 $ - $(458,808) $4,582,322
========== ========= =========== ========= ========= ==========
See accompanying notes to consolidated financial statements.
F-5
Meridian Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
========================
2003 2002
======== =========
Cash flows from operating activities
Net income (loss) $ 138,281 $ (43,803)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 33,030 47,178
Allowance for doubtful accounts -
Equity interest in earnings of investments - (107,520)
(Increase) decrease in
Restricted cash 119,983 (69,761)
Accounts receivable (343,511) 329,559
Other current assets - 9,579
Increase(Decrease) in:
Accounts payable (49,425 79,976
Accrued payroll and other (391,697) 108,075
Incurred but not reported reserve (38,138) 121,933
Current portion of Long-Term Debt (96,375) -
Accrued interest - (2,393)
-------- -------
Net cash used in operating activities (627,852) 427,823
--------- -------
Cash flow from investing activities
Acquisition of fixed assets (30,595) (350,000)
Disposition of fixed assets 315,002 (20,002)
Investments in InterCare - -
Investment in CGI 462,647 -
Organization costs - -
--------- ---------
Net cash used in investing activities 747,054 (370,002)
---------- ---------
Cash flow from financing activities
Common Stock -
Borrowings from majority stockholder / officer -
Repayment of debt (146,050) (87,000)
Borrowings on line of credit 5,027 -
---------- -----------
Net cash provided by financing activities (141,023) (87,000)
---------- -----------
Decrease (increase)in cash and cash equivalents (21,821) 15,821
Cash and cash equivalents, beginning of period 23,040 7,219
---------- ----------
Cash and cash equivalents, end of period $ 1,218 $ 23,040
========== ==========
See accompanying notes to consolidated financial statements.
F-6
MERIDIAN HOLDINGS, INC.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Operations
Meridian Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on October 13, 1998. The Company is located in the City of
Los Angeles, California, U.S.A. and contracts with physicians to provide health
care services primarily within the area of Los Angeles County.
The Company is an acquisition-oriented holding company focused on building,
operating, and managing a portfolio of business-to-business companies. It seeks
to acquire majority or controlling interests in companies engaged in e-commerce,
e-communication, and e-business services, which will allow the holding company
to actively participate in management, operations, and finances. The Company's
network of affiliated companies is designed to encourage maximum leverage of
information technology, operational excellence, industry expertise, and
synergistic business opportunities.
Cash And Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents ( e.g. restricted cash). From time
to time, the Company maintains cash balances with financial institutions in
excess of federally insured limits.
Equity Method
Investments in certain companies whereby the Company owns 20 percent or more
interest are carried at cost, adjusted for the Company's proportionate share of
their undistributed earnings or losses, because the Company exercises
significant influence over their operating and financial activities. Such
investee entities include InterCare DX, Inc. ("InterCare") and CGI
Communications Services, Inc. ("CGI").
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the 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.
Fiscal Year
The Company operates on a December 31 year end.
Revenue Recognition
The Company prepares its financial statements and federal income taxes on the
accrual basis of accounting. The Company recognizes capitation revenue on a
monthly basis from managed care plans that contract with the Company for the
delivery of health care services. This capitation revenue is at the
contractually agreed-upon per-member, per-month rates. For the year ended
December 31, 2002, approximately 99% of capitation revenues are derived from
two Los Angeles county managed care plans. For the year ended December 31,
2001, approximately 95% of capitation revenues are derived from same Los
Angeles county managed care plans.
F-7
Costs of Revenues
The Company recognizes costs of revenues paid to physicians on a monthly basis
who contract with the Company for the delivery of health care services. These
costs are at the contractually agreed-upon per-member, per-month rates.
Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying amounts of cash, receivables, accounts payables and accrued
liabilities approximate fair value because of the immediate or short-term
maturity of these financial statements.
Fixed Assets and Depreciation
Property and equipment are stated at cost. Acquisitions having a useful life in
excess of one year are capitalized and depreciated over their estimated useful,
1 Summary of Significant Accounting Policies (continued)
life using the straight line method (normally 5-7 years). Repairs and
maintenance are expensed in the year incurred.
The Company provides for depreciation over estimated useful lives ranging from
three to five years, using the straight-line method. Leaseholds are amortized
over the life of the related, noncancelable lease, or the related asset's useful
life, whichever is shorter. Repair and maintenance expenditures that do not
significantly add to the value of the property, or prolong its life, are charged
to expense, as incurred. Gains and losses on dispositions of property and
equipment are included in the related period's statement of operations.
Research and Development Costs
Costs incurred in the Software research and development are expensed as
incurred
Long-Lived Assets
The Company reviews the carrying amount of its long-lived assets and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value, less
costs to sell.
Earnings Per Share
Earnings per share is calculated pursuant to Statement of Financial Accounting
Standards No. 128, "Earnings per Share." Basic earnings per share ("EPS")
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the Company.
Accounting for Stock-based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-based Compensation,"
which establishes financial accounting and reporting standards for stock-based
compensation. SFAS No. 123 generally suggests, but does not require,
stock-based employee compensation transactions be accounted for based on the
fair value of the consideration received, or the fair value of the equity
instruments issued, whichever is more reliably measurable. Companies that do
not elect to change their accounting for employee stock-based compensation are
required to disclose the effect on net income as if the provisions of SFAS No.
123 were followed. The Company has decided to retain the provisions of APB
Opinion No. 25, and related interpretations thereof, for recognizing stock-based
F-8
compensation expense for employees, which includes members of the board of
directors. Non-employee stock compensation is recorded at fair value in
accordance with SFAS No. 123. There was no such compensation recorded during
the periods ended December 31, 2003 and 2002 respectively.
Income Taxes
The Company utilizes the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are recognized based on the
differences between financial statement and income tax bases of assets and
liabilities using the enacted statutory rates in effect for the year in which
the differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized. The provision for income taxes represents the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
2. Capitalization
The Company has established one class of preferred stock, one class of common
stock and has established two classes of warrants. 1,000,000 Class "A"
Redeemable Common Stock Purchase Warrants have been established, exercising into
Common Shares at an exercise price of $3.00 per share. 1,000,000 Class "B"
Redeemable Common Stock Purchase Warrants have been established, exercising into
Common Shares at an exercise price of $4.50 per share. There were no such
warrants outstanding as of December 31, 2003 and 2002.
In April 2000, the board of directors approved the authorization of 20,000,000
shares of $0.001 par value preferred stock. The preferred stock may be issued
from time to time in one or more series, and the board of directors, without
further approval of the stockholders, is authorized to fix the dividend rates
and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges, and
restriction applicable to each series of preferred stock. There are no shares
of preferred stock outstanding, and no series of shares have yet been designated
as of December 31, 2003.
3. Investments and Intellectual Property:
During the second quarter of 2002, the Company purchased the intellectual
property rights to the source-code of ICE software from InterCare DX, Inc.
In the amount of $350,000.
Capnet
The Company completed the acquisition of the Capnet Group of Companies
("Capnet") on May 25, 1999 through the issuance of 25,000,000 pre-split shares
of common stock to the Company's majority stockholder/officer with an estimated
fair value of approximately $527,000. During 1999, the Company incurred a
write-off of approximately $518,000 due to the impairment of certain assets
acquired. Capnet currently operates as a division of the Company.
CGI
On December 10, 1999, the Company agreed to acquire a 20% equity interest in CGI
for common stock. On December 20, 1999, the board of directors authorized the
issuance of 4,000,000 pre-split (adjusted to 12,000,000 post-split) shares of
common stock in consideration for the 20% of the interest in CGI. At the date
of the transaction, the Company's shares opened at a price of $3 per share.
Between September 1, 1999 and the acquisition date, the Company's stock sold
within a range of $.25 to $3.25 per share (an average of $.97 per share).
Because of the limited trading history of the Company, the six-month average was
deemed to be a fair valuation of the transaction, resulting in a total
investment balance of $3,911,511 and $3,880,000 as of December 31, 2002
and 2001 respectively. The shareholders of CGI were also issued warrants
to purchase an additional 1,000,000 pre-split (adjusted to 3,000,000 post-split)
shares of common stock at $2 pre-split share (or approximately $0.67 on a
post-split basis) over a five-year period as a hedge against any fluctuation of
F-9
the share price of the common stock in the immediate future. These warrants
will expire on December 30, 2004, and none have been exercised as of
December 31, 2003.
4. Property Plant & Equipments Fixed
Property plant and equipment are stated at cost. Acquisitions having a useful
life in excess of one (1) year are capitalized. Repairs and maintenance
are expensed in the year incurred. Capital assets are depreciated by the
straight-line method over estimated useful lives of the related assets,
normally five (5) to seven (7)years.
Property and equipment consists of the following as of December 31, 2003 and
2002 respectively and is summarized as follows:
2003 2002
====== ======
Computer equipment $ 102,237 $ 73,130
Leasehold improvements 6,500 6,500
Office furniture and fixtures 36,603 36,603
Office equipment 25,313 36,325
Software 25,803 22,803
Medical equipment 6,654 6,653
------- --------
203,110 190,014
Less accumulated depreciation (159,852) (144,321)
$ 43,258 $ 45,693
5. Line of Credit
During 2003 and 2002, the Company had a $50,000 line of credit with a financial
institution. Approximately $48,912 and $43,885 was outstanding under this
facility as of December 31, 2003 and 2002, respectively. Related advances bear
interest at 11%, and interest is payable monthly. The line of credit expired
March 21, 2004, and has been subsequently renewed through March 21, 2005.
6. Lease Obligations
The Company's corporate offices are located at 900 Wilshire Boulevard, Suite 500
Los Angeles, California 90017. The lease expires in May 2003 and provides the
option to renew for one three-year term. Monthly rents range from $4,761 to
$5,186 per month.
In addition, the Company leases office space on a month-to-month basis. The
Company also entered into a five-year vehicle lease agreement in September
2002. Monthly rents on these leases are $1,560 and $1,050, respectively.
The following is a schedule of future minimum lease payments required under the
leases described above:
Years Ending
December 31, Amount
2003 25,930
----------
$ 25,930
==========
F-10
7. Long-term Debt
The Company has various loans with financial institutions with interest rates
ranging from 4% to 15% and maturity dates ranging from 2015 to 2024.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes
The Company's income tax provision for the years ended December 31, 2003 and
2002 are not significant to the Company's operations and have been included
within the general and administrative expenses in the accompanying statements
of operations.
At December 31, 2003, a 100% valuation allowance had been provided on the net
deferred income tax assets, since the Company can not determine that it is
"more likely than not" to be realized.
The loss for the current year of 2003 will expire in 2024. As of December
2003 the company has no federal and state loss carry forward for federal and
state Income tax purposes.
9. Risk Pool Agreement
The Company is a party to a Risk Pool Agreement (the "Agreement") with Tenet
HealthSystem Hospitals, Inc. ("Tenet"). Pursuant to the Agreement, 50% of the
monthly capitation revenue is received directly by the Company, and the
remaining 50% is deposited into an escrow account from which Cap-Management
Systems, Inc., a subsidiary of Tenet pays all claims expenses, reinsurance
expenses, make allowance for IBNR reserve, and retains a management fee.
The Company is responsible for 50% of Profit (loss) after all institutional
claims reinsurance and management fees are paid, and Incurred But Not Reported
("IBNR") reserve have been accounted for.
The Company has also reflected the monies in the escrow account as of December
31, 2003 and 2002 as restricted cash in the accompanying consolidated balance
sheets. Additionally Cap-Management System provides the Company with an
estimate as to the incurred but not reported claims, which has been recorded
as such potential claims against restricted cash in the accompanying
consolidated balance sheets.
10. Stock Option Plan
In January 2001, the stockholders of the Company approved a stock option plan
for the directors of the Company (the "Plan"). The Plan provides for issuance
of up to 5,000,000 shares of its common stock. Options to directors are granted
based on attendance at board meetings. At December 31, 2003, 1,250,000 shares
were available for grant under the terms of this plan.
The purchase price per share (the "Option Price") of the shares of Common Stock
underlying each Option shall be not less than the fair market value of such
shares on the date of granting of the Option. Such fair market value shall be
determined by the Option Committee on the basis of reported closing sales price
on such date or, in the absence of reported sales price on such date, on the
basis of the average of reported closing bid and asked prices on such date. In
the absence of either reported sales price or reported bid and asked prices, the
Option Committee shall determine such market value on the basis of the best
available evidence.
Each Option shall be exercisable for the full number of shares of Common Stock
subject thereto, or any part thereof, in such installments and at such intervals
as the Option Committee may determine in granting such Option, provided that (i)
each Option shall become fully exercisable no later than five years from the
date the Option is granted, (ii) the number of shares of Common Stock subject to
each Option shall become exercisable at the rate of at least 20% per year each
F-11
year until the Option is fully exercisable, and (iii) no option may be
exercisable subsequent to its termination date. Each Option shall terminate and
expire, and shall no longer be subject to exercise, as the Option Committee May
determine in granting such Option, but in no event, later than ten years after
the date of grant thereof.
A summary of the status of the Plan and changes during the years ended December
31 2003 and 2002 is as follows:
2003 2002
===== =====
Fixed Options Fixed Options
Shares Weighted Shares Weighted
Average Average
Price Price
======== ======== ======= ========
Outstanding at beginning of Year 1,500,000 $ 1.45 1,500,000 $ 1.45
Granted 1,500,000 0.46 1,500,000 $ 0.46
Exercised (406,000) 0.17 (406,000) 0.17
Forfeitures/Cancelled (1,500,000) (1.45) (1,500,000) (1.45)
---------- ------ --------- ------
Outstanding at end of the year 1,094,000 $ 0.57 1,094,000 $ 0.57
========== ====== ========= =======
Exercisable at end of year 1,094,000 $ 0.57 1,094,000 $ 0.57
========== ====== ========= =======
Weighted average fair value per Options
Granted during the year $ 1.95 $ 1.95
Grants under the Company's stock option plan are accounted for under the
provisions of APB Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized for grants under the plan.
No stock option was exercised in 2003.
The fair value of each grant is estimated at the grant date using the following
assumptions: no dividends for all years; risk-free interest rates of 5.1% in
2003 and 2002; and expected lives of five years for all grants.
11. Related Party Transactions
Under the terms of a Reseller Agreement entered into with InterCare in 2000, the
Company receives a 60% royalty on the software sales generated by InterCare.
No royalties was received by the Company during the fiscal year ended December
31, 2003.
12. Equity Method Investments
Summary financial information for CGI as of and for the two years ended December
31, 2003 and 2002 respectively is presented in the following table.
2003 2002
(unaudited) (unaudited)
Long-term assets $ 5,273,128 $ 5,273,128
Total assets 5,273,128 5,273,128
Current liabilities 1,857,097 1,394,450
Total liabilities 1,857,097 1,394,450
Revenues - -
Gross margin - -
Net income (loss) (462,647) (12,000)
F-12
The differences in the underlying net equity of the above-described investees
and the investment balances recorded at December 31, 2003 and 2002 respectively
are a result of the initial acquisition accounting of the Company's percentage
interests.
13 Legal Proceedings
On May 6, 2003, the registrant was served with a summons for a lawsuit filed
in the District Court of Jerusalem, Case No A3359/01(BSA 1646/03) titled "Dr.
Danny Basel vs Corsys Group LTD; Meridian Holdings, Inc., and Anthony C.
Dike." The plaintiff is seeking amongst other things: enforcement of
contract, compensation, negligent misrepresentation, cause in breach of
contract and equitable relief.The registrant has been advised that Dr. Basel's
employment was terminated for cause by Corsys Group LTD, due to intentional
interference with contract and other economic relationship; and negligent
interference with economic relationship; breach of fiduciary duty and other
complicity in the Sirius/MedMaster matter Management has informed me that
the registrant has filed a responsive pleading, believes that the allegations
against it are without merit, and intends to defend itself vigorously.
On July 19, 2001, Ventures & Solutions, LLC, filed a lawsuit against the
company, styled Ventures & Solutions, LLC, Plaintiff v. Meridian Holdings, Inc.,
Defendant, Circuit Court of Alexandria, Virginia, Case No. C10517. The company
was served with a copy of the Complaint on August 6, 2001. Plaintiff has
alleged that the company owes it approximately $29,000.00, pre and post judgment
interest, and attorneys' fees and costs. The Virginia court ruled in favor
of the plaintiff, for the actual amount claimed owed.
On June 5, 2003, the registrant filed a petition and a supporting declaration
ofMoses O. Onyejekwe, Esq., with the Superior Court of the State of California
for the County of Los Angeles, case number BS083660, styled "Meridian Holdings,
Inc.(Petitioner) vs. Dale Church, and DOES 1 through 50, inclusive" requesting
that the Court grant an order permitting the registrant to file a complaint
against the named defendant to alleged Attorney-Client Conspiracy. The case is
still pending.
On July 8, 2003, the registrant filed a petition for review with the State of
California Supreme Court, case number S117457, styled "Sirius Computerized
Technologies, LTD (Petitioner) vs Superior Court of the State of California
For the County of Los Angeles (Respondent), Meridian Holdings, Inc.
(Real Party in Interest), " after a decision by the Court of Appeal, Appellate
District, Division Seven Case No. B166285, which overturned the earlier
decision of the Superior Court of California with respect to the issue of
jurisdiction, as disclosed in the previous quarterly filing with SEC. The,
registrant is requesting that the California Supreme Court grant the
registrant's request for review on the basis that there is a need for the
law to impose harsh punishments on parties who are guilty of fraud in connection
with their contractual dealings and yet expect to benefit from their choice of
forum. The request was denied. Management has informed me that the Company
is currently reviewing all its available options options under the law with
respect to this matter.
Note 14 Subsequent Events
On January 8, 2004, a default judgment was entered in favor of the Company, by
the Los Angeles Superior Court in a case titled Meridian Holdings, Inc., vs
Sirius Technologies of America, a Delaware Corporation. The amount of the
Judgement including damages, court cost, and punitive damages is $30,687,926,
with a pre-judgment interest rate accruing at the rate of 10%. Management is
actively pursuing all collection options with regards to this judgment.
In accordance with Financial Accounting Standards No. 121 (Impairment of Long
Term Assets), management will test this asset for impairment and charge the
value of the impaired asset to operations in the year ended December 31, 2004.
F-13