UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004
( ) 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
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(Address of Principal Executive Offices)
(213) 627-8878
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and formal 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 ( )
As of June 30, 2004, Meridian Holdings, Inc., Registrant had 14,370,200
shares of its $0.001 par value common stock outstanding, with a total
market value of $1,437,020
Page 1 of 14 sequentially numbered pages
Form 10-Q
Second Quarter 2004
MERIDIAN HOLDINGS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 Controls and Procedures 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
2
MERIDIAN HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
As of June 30, December
2004 2003
========== ==========
Current assets
Cash and cash equivalents $ 2,778 $ 1,218
Restricted cash 182,233 281,010
Judgment receivable (7) 31,152,883 -
Accounts receivable, net of allowance for
doubtful accounts of $179,812 and $179,812 1,631,243 1,499,482
Other current assets 8,302 8,302
------------ --------------
Total current assets 32,977,439 1,790,012
Fixed assets, net of accumulated depreciation 43,268 43,258
Investments 3,448,564 3,448,564
----------- -----------
Total assets $ 36,469,271 $ 5,281,834
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 403,652 $ 233,301
Reserve for incurred but not reported claims 201,311 227,820
Accrued interest
Line of credit 50,212 48,912
------------ ----------
Total current liabilities 655,175 510,033
Long Term liabilities
Loan from majority stockholder/officer 31,098 -
Long-term debt 227,504 189,479
--------- ----------
Total liabilities 913,777 699,512
--------- ----------
Commitments and contingencies
Stockholders' equity
Preferred stock (20,000,000 shares authorized,
par value $0.001; no shares issued and outstanding) - -
Common stock (100,000,000 shares authorized, par value
$0.001; 14,370,200 shares issued and outstanding at
June 30, 2004 and 9,370,648 as at June 30, 2003) 14,370 9,370
Additional paid-in capital 5,526,760 5,031,760
Accumulated deficit 30,014,364 (458,808)
------------- -------------
Total stockholders' equity 35,555,494 4,582,322
------------- ------------
Total liabilities and stockholders' equity $ 36,469,271 $ 5,281,834
============ ============
See accompanying notes to Condensed consolidated financial statements
3
MERIDIAN HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
===== ==== ==== ====
Revenues
Capitation $ 321,638 $ 458,342 700,821 955,033
Risk Pool 148,792 (1,433) 316,833 387,359
Fee For Service 1,365 624 1,806 1,102
- -
--------- ----------- ------------- ----------
471,795 457,533 1,019,460 1,343,494
Cost of revenues
Capitation (187,078) (202,533) (392,374) (497,140)
--------- ------- ----------- -----------
Gross margin 284,717 255,000 627,086 846,354
--------- ------- ------------ -----------
Operating expenses
General and administrative (429,506) (159,118) (801,733) (734,116)
- - -
--------- ------- ------------ ----------
(Loss)Income from
Operations (144,789) 95,882 (174,647) 112,238
---------- ------- ------------ -----------
Other income and expense
Judgment Award 30,687,926 - 30,687,926 -
Interest on Judgment 465,318 - 465,318 -
Stock option issued (500,000) - (500,000) -
Other expenses (3,161) (26,297) (5,425) (64,926)
------------ ----------- ------------ ------------
Total other income
/expense 30,650,083 (26,297) 30,647,819 (64,926)
Net Income 30,505,294 69,585 30,473,172 47,312
=========== =========== =========== ==========
Net income per share $ 2.12 $ 0.01 $ 2.57 $ 0.01
Weighted average
shares outstanding 14,370,200 9,383,149 11,870,200 9,383,149
See accompanying notes to Condensed consolidated financial statements
4
MERIDIAN HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
Six Months Ended June 30,
2004 2003
===== ======
Cash flows from operating activities
Net income $ 30,473,172 47,311
Adjustments to reconcile net Loss/income to net
cash used in operating activities:
Stock Option issued 500,000 -
Depreciation and amortization 8,908 7,292
Equity interest in earnings of investments -
(Increase) decrease in:
Restricted cash 98,777 70,860
Judgment receivable (31,152,883) -
Accounts receivable (131,761) (160,506)
Other current assets - 163,715
Accounts payable 170,351 98,328
Accrued payroll and other - (836,467)
Incurred but not reported reserve (26,509) -
--------- ---------
Net cash used in operating activities (59,945) (609,468)
Cash flow from investing activities
Acquisition of fixed assets (8,918) (2,524)
Investment in InterCare - 278,841
Disposition Of fixed assets - 315,002
---------- ---------
Net cash used in investing activities (8,918) 591,319
---------- ---------
Cash flow from financing activities
Borrowings from majority stockholder/officer (158,381) -
Borrowings on long-term debt 227,504 -
Borrowings on line of credit 1,300 -
-------- ---------
Net cash (used in) provided by financing activities 70,423 -
--------- ---------
Increase/(Decrease) in cash and cash equivalents 1,560 (18,149)
Cash and cash equivalents, beginning of period 1,218 23,040
---------- ----------
Cash and cash equivalents, end of period $ 2,778 4,891
========== ==========
Supplemental Disclosure of non-cash investing and financing activities
See accompanying notes to Condensed consolidated financial statements
5
MERIDIAN HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
1. General
Basis of Reporting
The interim accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal, recurring
accruals) considered necessary for a fair presentation have been included.
For further information, management suggests that the reader refer to the
audited financial statements for the year ended December 31, 2003 included in
its Annual Report on Form 10-KSB. Operating results for the six-month
period ended June 30, 2004 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 2004.
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.
The Company also provides medical services management to its' Capnet IPA health
care provider network. 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
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.
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 31st year end.
6
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.
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
or at the California Medi-cal fee for service 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.
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").
2. Investments
InterCare
On September 18, 1999, the Company acquired 51% of all the outstanding Common
Stock of InterCare in exchange for services and assumption of certain debts of
InterCare. During fiscal year 2000, additional stock issued by InterCare
combined with a dividend distribution by the Company of InterCare stock
resulted in a net decrease in the Company's ownership percentage to 32% as at
December 31, 2000. A dividend of approximately $160,800 was recorded reflecting
the relative net book value of the Company's investment in InterCare that was
distributed to Meridian Holdings, Inc., shareholders as at that time.
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 $3,880,000 as of December 31, 2000 and 1999. 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 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 June 30, 2004.
7
3. Fixed Assets
Fixed assets consist of the following:
As of
June 30, 2004 December 31,2003
Computer equipment $ 111,155 $ 102,237
Leasehold improvements 6,500 6,500
Office furniture, fixtures and equipment 61,915 61,916
Software 25,803 25,803
Medical equipment 6,654 6,654
-------- -------
212,027 203,110
Less accumulated depreciation (168,759) (159,852)
--------- --------
$ 43,268 $ 43,258
========= ==========
4. Line of Credit
The Company has a $50,000 line of credit with a financial institution. Related
advances bear interest at 11%, and interest is payable monthly. The line of
credit expires March 21, 2005.
5. 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.
6. 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 Incurred But Not Reported ("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
("IBNR") reserve have been accounted for.
These revenues and expenses have been reflected in the accompanying Consolidated
statements of operations for the quarters ended June 30, 2004 and 2003
respectively.
The Company has also reflected the monies in the escrow account as of June 30,
2004 and 2003, respectively as restricted cash in the accompanying consolidated
balance sheets.
Related party Transaction
On April 26, 2004 the registrant issued 5,000,000 shares of common stock
with a fair market value of 0.10 cents per share as of June 30, 2004, to
consultant and employees of the registrant, under the 2003 qualified and
non-qualified stock option plan, following an S8 registration statement
filing with the SEC.
7. Judgment Receivable
On January 8, 2004, a default judgment was entered in favor of the registrant,
by the Los Angeles County Superior Court in a case titled Meridian Holdings,
Inc. versus Sirius Technologies of America, a Delaware Corporation Case Number
BC256860. The amount of the judgment including damages, court cost and punitive
damages are $30,687,926, with a pre-judgment interest at the annual rate of 10%.
This amount has been reflected in the balance sheet and the income statement as
a judgment receivable. Management is pursuing all collections options regarding
this judgment.
8
MERIDIAN HOLDINGS, INC.
THE COMPANY
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 greater of Los Angeles County.
The Company became fully reporting under Securities & Exchange Commission
guidelines on March 31, 1999. The Company's common stock started trading on
the OTCBB on August 26, 1999. 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 opportunity.
The Company also provides medical services management to its Capnet IPA health
care provider network. 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.
We believe our expertise allows us to provide a service and manage the risk that
health insurance companies cannot provide on an efficient and economic level.
Health insurance companies are typically structured as marketing entities
to sell their products on a broad scale. 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.
SELECTED FINANCIAL DATA
The Company had net working capital of $32,322,264 as at June 30, 2004
compared to $ 1,279,978 at December 31, 2003. This represents an increase in
working capital of 2,425%. This increase in working capital is attributed
primarily to a judgment award (judgment receivable) against Sirius Technologies
of America, a Delaware Corporation
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.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 premium
increases and improvements in the benefit structure of HMO contracts.
However, there can be no assurances that these sources of funds will be
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.
If we need additional capital to fund our operations, 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 effect on
our operations.
RESULTS OF OPERATIONS
THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF MERIDIAN
HOLDINGS FOR THE THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 2004 AS
COMPARED TO THE THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 2003.
REVENUE
Medical services revenues decreased by 30% from $ 458,342 for the three
months ended June 30, 2003 to $ 321,638 for the three months ended
June 30, 2004, and by 27% from $ 955,033 for the six months ended June 30,
2003 to $ 700,821 for the six months ended June 30, 2004.
We provided managed care services for approximately 28,000 and 30,000 member
months (members per month multiplied by the months for which services were
available) during the six months ended June 30, 2004 and 2003, respectively.
The decrease in member months was due to disenrollment of Medi-Cal members
following the ongoing State of California Department of Health Services Medi-Cal
membership redetermination efforts.
Revenue generated by our managed care entities under our contracts with
HMOs as a percentage of medical services revenue was approximately 99% and 96%,
respectively, during the six months ended June 30, 2004 and 2003. Revenue
generated by the Los Angeles County Community Health Plan ("CHP") contracts was
99% of medical services revenue for the six months ended June 30, 2004 and 2003,
respectively.
Management is the process of launching the International Preferred Provider
Network program, through the Meridian Health Systems division, which will be
official launched during the fourth quarter of 2004, which we believe will
significantly enhance our revenue generation.
10
EXPENSES
Medical claims paid, which includes capitation payments to our contracted
primary care IPA physicians and medical claims paid revenue after giving
account to IBNR reserves, for the three month period ended June 30,2004 were
$ 187,633 or 40% of medical services revenue, compared to $ 94,417 or 21% of
medical services revenue for the three month period ended June 30, 2003. Medical
services expenses, for the six month period ended June 30,2004 were
$ 283,154 or 28% of medical services revenue, compared to $351,249 or 26% of
medical services revenue for the six month period ended June 30, 2003. The
increase in medical services expense for the three and six months ended June 30,
2004 was due to increased volumes of claims paid to contracted providers for
services rendered.
Medical claims represent the costs of medical services provided by 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 claim 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.
For the three months ended June 30, 2004 and 2003, payroll and employee benefits
for administrative personnel was $128,113, or 27% of total revenues, compared to
$121,227 or 26% of revenue, respectively. Payroll and employee benefits for
administrative personnel was $271,610 for the six months ended June 30, 2004, or
27% of total revenues, compared to $238,617 or 18% of revenue for the six months
ended June 30, 2003. The increase in employee payroll expenses for the six
months ended June 30, 2004 was due to hiring of additional support staff.
Management anticipates that general operating expenses will increase, as it
pursues, vigorously, its acquisition of new business opportunities and the
integration of the existing ones.
INCOME/LOSS FROM OPERATIONS
The registrant recorded a loss from operations for the three months ended
June 30, 2004 of $144,789, or 31% of total revenues, compared to income of
$95,882, or 21% of total revenues, for the three months ended June 30, 2003.
During the six months ended June 30, 2004, the registrant recorded a loss
from operations of $174,647, or 17% of total revenues compared to an income
from operations of $112,238 or 8.3% of total revenues for the six months ended
June 30, 2003. The decrease in net income from operations is due to decrease
in member months as a result of disenrollment of Medi-Cal members following the
ongoing State of California Department of Health Services Medi-Cal membership
redetermination efforts described above.
NET INCOME (LOSS)
The net income for the three months ended June 30, 2004 was $30,505,294 compared
to net income for the three months June 30, 2003 of $69,585. The Net income for
six months ended June 30, 2004 and June 30, 2003 was $30,473,172 and $47,312
respectively. The increase in net income was as a result of the award of a
judgment in favor of Meridian Holdings, Inc. against Sirius Technologies, a
Delaware Corporation by Los Angeles County Superior Court. Management is
pursuing vigorously, all the available collections efforts.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB 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
11
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.
PLAN OF OPERATIONS
The Company intends to embark on more aggressive marketing campaign to increase
its enrollment of membership into its Capnet IPA Healthy Family Program contract
with the County of Los Angeles Community Health Plan.
Negotiations are in the preliminary stages to expand our provider network into
the rural communities of California, under our telemedicine consultation
program.
The Company through it's CGI Communications, Services, Inc., has embarked on a
global telemedicine initiative, which we believe will expand our operational
network to key strategic countries all over the world, and will increase our
operational capacity and revenues.
On June 1st, 2004, we issued a press release announcing that its' CGI
Communications Services, Inc.(CGI) subsidiary, has entered into a teaming
and joint marketing agreement with Telemedicine Reference Center, Ltd,(TRCL)
located in Dhaka, Bangladesh.
Management is the process of launching the International Preferred Provider
Network program, through the Meridian Health Systems division, which will be
official launched during the fourth quarter of 2004, which we believe will
significantly enhance our revenue generation.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act" ), the Company carried out an evaluation under the
Supervision and with the participation of the Company's management, including
the Chief Executive Officer and President and the Principal Financial Officer,
of the effectiveness of the Company's disclosure controls and procedures as of
September 30, 2004. In designing and evaluating the Company's disclosure
controls and procedures, the Company and its management recognize that there are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective
12
disclosure controls and procedures can only provide reasonable assurance of
achieving their desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, the Company's management was
required to apply its reasonable judgment. Based upon the required evaluation,
the Management concluded that as of June 30, 2004, the Company's disclosure
controls and procedures were effective (at the "reasonable assurance" level
mentioned above) to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
From time to time, the Company and its management have conducted and will
continue to conduct further reviews and, from time to time put in place
additional documentation, of the Company's disclosure controls and procedures,
as well as its internal control over financial reporting. The Company may from
time to time make changes aimed at enhancing their effectiveness, as well as
changes aimed at ensuring that the Company's systems evolve with, and meet the
needs of, the Company's business. These changes may include changes necessary or
desirable to address recommendations of the Company's management, its counsel
and/or its independent auditors, including any recommendations of its
independent auditors arising out of their audits and reviews of the Company's
financial statements. These changes may include changes to the Company's own
systems, as well as to the systems of businesses that the Company has acquired
or that the Company may acquire in the future and will, if made, be intended to
enhance the effectiveness of the Company's controls and procedures. The Company
is also continually striving to improve its management and operational
efficiency and the Company expects that its efforts in that regard will from
time to time directly or indirectly affect the Company's disclosure controls
and procedures, as well as the Company's internal control over financial
reporting.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the evaluation.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
On January 8, 2004, a default judgment was entered in favor of the registrant,
by the Los Angeles County Superior Court in a case titled Meridian Holdings,
Inc. Versus Sirius Technologies of America a Delaware Corporation Case number
BC256860. The amount of the judgment including damages, court cost and
punitive damages is $30,687,926, with a pre-judgment interest at the annual
rate of 10%. This amount has been reflected in both the balance sheet and
income statement of the registrant as a judgment receivable. Management is
pursuing all collections options regarding this judgment.
On June 28, 2004, the registrant had a court hearing 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 well as an act of sabotage against the registrant,
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 intends to defend itself vigorously. The
registrant is still awaiting the Israeli courts' decision regarding 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
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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 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
32.1 Certification pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
of Anthony C. Dike
SIGNATURE
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.
Date: February 25, 2005 By: /s/ Anthony C. Dike
____________________________________Signature
Anthony C. Dike
Chief Executive officer
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