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 March 31, 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
----------------------------------------------------------------
(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 March 31, 2004, Meridian Holdings, Inc., Registrant had 9,370,000
shares of its $0.001 par value common stock outstanding.
Page 1 of 19 sequentially numbered pages
Form 10-Q
First Quarter 2004
MERIDIAN HOLDINGS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
The Company 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3 Controls and Procedures 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 17
2
MERIDIAN HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
As of
March 31, March 31,
2004 2003
========== ==========
Current assets
Cash and cash equivalents $ 753 $ 18,000
Restricted cash 252,635 567,760
Accounts receivable, net of allowance for
doubtful accounts of $ 179,812.92 1,587,655 1,258,096
Other current assets 8,302 8,302
---------- ----------
Total current assets 1,849,393 1,852,158
Fixed assets, net of accumulated depreciation 43,032 44,614
Investments 3,448,565 4,178,850
---------- ----------
Total assets $ 5,340,991 $ 6,075,621
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 356,219 $ 245,579
Accrued payroll and other 653 487,996
Reserve for incurred but not reported claims 201,311 303,361
Line of credit 47,872 203,490
Current portion of long-term debt - 96,375
---------- -----------
Total current liabilities 606,058 1,336,800
Long Term liabilities
Loan from majority stockholder/officer - 250,993
Long-term debt 191,504 72,333
--------- ---------
Total liabilities 797,559 1,660,127
--------- ---------
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; 9,370,649 shares issued and outstanding at
March 31, 2004 and 93,456,485 as at March 31, 2003 9,370 93,706
Additional paid-in capital 5,031,760 4,947,424
Accumulated deficit (498,298) (625,635)
----------- ----------
Total stockholders' equity 4,542,832 4,415,495
----------- -----------
Total liabilities and stockholders' equity $ 5,340,391 $ 6,075,621
============ ===========
See accompanying notes to consolidated financial statements
3
MERIDIAN HOLDINGS, INC.
Consolidated Statements of Operations
(UNAUDITED)
Three Months Ended March 31,
2004 2003
==== ====
Revenues
Capitation $ 379,183 $ 496,692
Risk Pool Revenue 168,041 388,792
Fee for Service Revenue 440 466
Royalties from Software License - -
Services related to software - -
======== =========
547,664 885,950
Cost of revenues
Cost of Service- Claims and Capitation payments (205,296) 499,822
--------- -------
Gross margin 342,368 386,127
--------- -------
Operating expenses
General and administrative 379,579 376,315
--------- ---------
(Loss)/Income from operations (37,211) 9,812
---------- ---------
Other income and (expense)
Equity interest in earnings (loss) of investment - (47,363)
Other, net (2,279) 9,005
---------- --------
(2,279) (38,358)
--------- ---------
Net Loss $ (39,490) $ (28,546)
=========== ===========
Net Loss per share:
Basic and diluted $ 0.000 $ 0.000
Weighted average shares outstanding 9,370,200 93,831,485
See accompanying notes to consolidated financial statements
4
MERIDIAN HOLDINGS, INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
Three Months Ended March 31,
2004 2003
===== ======
Cash flows from operating activities
Net Loss $ (39,490) $ (28,546)
Adjustments to reconcile net Loss to net
cash used in operating activities:
Depreciation and amortization 4,404 3,604
Equity interest in earnings of investments 47,363
(Increase) decrease in:
Restricted cash 28,375 (166,768)
Accounts receivable (87,622) (102,125)
Accounts payable 122,918 (37,147)
Accrued payroll and other 653 96,299
Incurred but not reported reserve (26,509) 37,403
Line of Credit (1,040) 159,605
-------- -------
Net cash provided by operating activities 1,689 9,688
-------- -------
Cash flow from investing activities
Acquisition of fixed assets (4,178) (2,525)
-------- --------
Net cash used in investing activities (4,178) (2,525)
--------- --------
Cash flow from financing activities
Repayment of debt - (12,204)
Borrowings on line of credit 2,025 -
-------- --------
Net cash provided by financing activities 2,025 (12,204)
-------- ---------
Increase/(Decrease) in cash and cash equivalents (464) (5,040)
Cash and cash equivalents, beginning of period 1,218 23,040
--------- --------
Cash and cash equivalents, end of period $ 754 $ 18,000
========== ==========
See accompanying notes to consolidated financial statements
5
MERIDIAN HOLDINGS, INC.
Notes to Consolidated Financial Statements
1. General
Basis of Reporting
The interim accompanying unaudited 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 three-month period ended March 31, 2004 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 2003.
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.
6
Fiscal Year
The Company operates on a December 31st 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.
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 entity is 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. The
company earlier in 2003 completely divested itself from InterCare DX, but
continues to provide management and administrative services for InterCare for
a fee.
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
7
common stock in the immediate future. These warrants will expire on December
30, 2004, and none have been exercised as of March 31, 2003.
3. Fixed Assets
Fixed assets consist of the following:
As of
March 31, 2004 March 31,2003
Computer equipment $106,415 $ 91,666
Leasehold improvements 6,500 6,500
Office furniture and fixtures 36,603 36,603
Office equipment 25,312 25,312
Software 25,803 25,803
Medical equipment 6,654 6,654
-------- -------
207,287 173,478
Less accumulated depreciation (164,256) (134,799)
--------- --------
$ 43,031 $ 38,679
========= ==========
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 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.
These revenues and expenses have been reflected in the accompanying Consolidated
statements of operations for the for the quarters ended March 31, 2004 and 2003.
The Company has also reflected the monies in the escrow account as of March 31,
2004 and March 31, 2003 as restricted cash in the accompanying consolidated
balance sheets. Additionally, Cap-Management Systems, Inc., provides the Company
with an estimate as to the incurred but not reported reserve, which has been
recorded as such in the accompanying consolidated balance sheets.
Recent Events
On April 26, the Company issued 5,000,000 shares of common stock at 0.20 cents
per share to its employee and consultants, under the 2003 qualified and
non-qualified stock option plan, following an S8 registration statement filing
with SEC.
8
MERIDIAN HOLDINGS, INC.
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 900 Wilshire
Blvd., Suite 500, 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.
9
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
10
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
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.
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:
11
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
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.
CGI COMMUNICATIONS SERVICES, INC.
CGI Communications Services, Inc., a state of Delaware Corporation, with place
Of business located at 900 Wilshire Blvd., Suite 500, Los Angeles, California,
Specializes in providing cost-effective turnkey support for implementation and
operation of Telemedicine and other information technology services in
healthcare and associated environments, including providers at all levels,
insurance carriers, pharmaceutical and clinical research.
By combining enabling technology with industry leading companies supplying
telecommunications, medical products and services, CGI is poised to make
InterCare 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 150 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 telemedicine and telecare especially in the rural and
underserved areas of the world, especially in the third world countries by
increasing its' sales and technical support staff, targeting its advertising to
its core audience, and by providing the most efficient, lowest-cost telemedicine
products and services. CGI is focusing its marketing efforts to specialty and
small business entities.
12
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. The stock transfer agent is corporate stock transfer
of Denver Colorado.
SELECTED FINANCIAL DATA
The Company has net working capital of $1,243,335 as at March 31, 2004 compared
to $515,358 at March 31, 2003. This represents an increase in working
capital of about 141%. This increase in working capital is attributed to the
decrease in long term liabilities of the company.
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.
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 impact on
our operations.
RESULTS OF OPERATIONS
THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF MERIDIAN
HOLDINGS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AS COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2003.
13
REVENUE
The Company generated revenues from operations of $547,664 during the first
quarter ended March 31, 2004, compared to the revenues from operations of
$885,950 during the comparable period in 2003. This represents a 38% decrease
in revenues. This decrease in revenue is as a result of decrease in capitation
and risk pool revenue for the comparable period.
The Company recorded a loss from operations of $37,211 during the three-month
period ended March 31, 2004, compared to income of $9,812 during the
comparable period in 2003. This is as a result of increased in cost of revenue
attributed to high volume of medical claims paid by the registrant during this
reporting period.
Revenue generated from our managed care contracts with HMOs as a percentage
of medical services revenue was approximately 99% and 96%, respectively, during
the three months ended March 31, 2004 and 2003. Revenue generated from the
Los Angeles County Community Health Plan ("CHP") contracts was 99% and 98% of
medical services revenue for the three months ended March 31, 2004 and 2003,
respectively. Revenue generated by LACARE Health Plan ("LACARE") contract was
less than 1% of medical services revenue for the comparable period.
COST OF REVENUE
The cost of revenue for three months ended March 31, 2004 is $205,296
compared to $499,822 for three months ended March 31, 2003. This represents
a 58% decrease in cost of revenue. The decrease in cost of revenue is due to the
reclassification of medical claims paid to our contracted specialist and
ancillary services providers.
EXPENSES
General and administrative expenses were $379,579 or 69 % of total revenues
for the three months ended March 31, 2004 compared to $376,315 or 42%
of total revenues for three months ended March 31, 2003.
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 quarter ended March 31, 2004, these costs represents 55% of total
revenue. This is referred to as Medical Loss Ratio (MLR). 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 counter-balancing increases in capitation revenues.
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.
Of the $587,154 total expenditure for the three months ended March 31, 2004,
$205,296 or 35% was paid to our capitated primary care providers, $166,028 or
28% was for payroll and employee benefits, $95,520 or 16% was for payment of
medical claims, and the rest was for consultant fees and other Corporate
purposes.
Payroll and employee benefits for administrative personnel was $166,028 for
the three months ended March 31, 2004, compared to $376,315 during comparable
period in 2003. This decrease in payroll expense is due to the continued
implementation of the 2001 restructuring program as well as downsizing of
operation with resultant lay-off of personnel.
Management anticipates that general operating expenses will increase, as the
IPA membership continues to grow and the company hires more personnel.
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INCOME/LOSS
The registrant recorded a net loss from operations for the three months ended
March 31, 2004 of $39,490 compared to net loss of $28,545 during comparable
period in 2003.
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-QSB, 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-KSB 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.
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. Capnet IPA, an entity managed by the Company is in partnership with
Charles R. Drew University of Medicine and Science department of Pediatrics, in
the "Virtual Healthcare Information Highway", under the Connecting Communities
Program, a program sponsored by ehealthinitiative Foundation.
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.
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RECENT EVENTS
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
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.
Subsequent Event
On April 26,2004 the Company issued 5,000,000 shares of common stock at 0.20
cents per share to its employee and consultants, under the 2003 qualified and
non-qualified stock option plan, following an S8 registration statement filing
with SEC.
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
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
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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
LEGAL PROCEEDINGS
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. (Please see the 2003 form 10KSB filed with SEC at www.sec.gov for
additional information.)
Exhibits
31.1 Certification pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
32.1 Certification pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
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: February 25, 2005 By: /s/ Anthony C. Dike
____________________________________Signature
Anthony C. Dike
Chief Executive officer
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