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, 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)
6201 Bristol Parkway, Culver City California 90230
(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, 2004 were $2,295,047
As of December 31, 2004, the Registrant had 14,370,649 shares of its $0.001
par value common stock outstanding with a market capitalization of $574,826
Page 1 of 28 sequentially numbered pages
Form 10-KSB
Annual Report For The Fiscal Year Ended December 31, 2004
1
TABLE OF CONTENTS
Page Number
PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders Our . . . ... . . 8
PART II
Item 5. Market for Common Equity and Related Stockholder matters . . . . . .. 8
Item 6. Management's Discussion and Analysis . . . . . . . . . . . . . . . . . 9
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .13
Item 8. Changes In and Disagreements With Accountants on Accounting and .. . .13
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons . . . . .13
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .17
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . 18
Item 12. Certain Relationships and Related Transaction . . . . . . . . . . .. 19
Item 13. Exhibits and Reports on Form 8-k . . . . . . . . . . . . . . . . . .19
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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.
4. Meridian Energy Corporation
5. Meridian Health Systems
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
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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.
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:
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:
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
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.
CGI COMMUNICATIONS SERVICES, INC.
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.
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 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
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its marketing efforts to specialty and small business entities.
Meridian Energy Corporation
Meridian Energy Corporation is a wholly owned subsidiary of Meridian Holdings,
Inc., both Colorado Corporation., is a diversified energy and natural resource
Company, seeking high returns with minimal risk, in the field of Electricity,
Oil and Gas market. Meridian Operates, backs and invests in major exploration
and exploitation organized by highly regarded geologist, geophysicists and
other energy executives. The Company seeks highly visible opportunities in
countries around the globe with a history of natural resource production that
offer exciting and attractive propositions the company will seek to minimize
risk by bringing in either joint venture, carried or working interest partners,
depending on the size and scale of the project.
Meridian Health System
Meridian Health System,(VIP Concierge Medical Services Company) is a division of
Meridian Holdings focusing on provision of tertiary medical specialty care for
the international clientele in the U.S.A. The Company's mission is to provide
access to the very best US physicians and hospitals for international patients
and providers as well as reduce and mitigate access barriers to US healthcare.
The Company serves as a single point of contact and accountability for patients,
families, physicians, allied health, hospitals and vendors.
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.
5
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,
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
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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
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.
EMPLOYEES
As of December 31, 2004, the Company had approximately 15 full-time employees.
Of the total,10 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, 2005. 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 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. The
Company is currently in negotiation with the Judgment Creditor
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
7
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 Company is awaiting the final court ruling in this matter.
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 and potential interest has been reflected in the balance sheet and
the income statement as a judgment receivable. Management is pursuing all
collections options regarding this judgment.
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 $1.00 and a low bid of $0.04 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.
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 2004
Quarter ended March 31 0.20 0.20
Quarter ended June 30 0.10 0.10
Quarter ended September 30 0.06 0.06
Year ended December 31, 2004 0.04 0.04
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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
At December 31, 2004, the company had approximately 800 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 $1,187,221 as at December 31 2004
compared to $1,279,979 at December 31, 2003.This represents a 7% decrease
in working capital.
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
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, 2004 AS COMPARED TO THE
TWELVE MONTHS ENDED DECEMBER 31, 2003.
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REVENUE
Medical services revenues decreased by 9.8% from $2,624,135 for the twelve
months ended December 31, 2003 to $2,365,048 for the twelve months ended
December 31, 2004. The decrease in medical services revenue is attributed to
decrease in membership in the Capnet IPA due to dis-enrollment.
Revenue generated from our managed care contracts with HMOs as a percentage
of medical services revenue was approximately 99% during the two consecutive
period.
Cost of Revenues
The cost of revenue for twelve months ended December 31, 2004 is $1,288,208,
compared to $900,203 for twelve months ended December 31, 2003. This
represents a 43% increase in cost of revenue. The increase in cost of revenue
is due to increase in volume medical claims paid in 2004 fiscal year.
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, 2004, these cost represents 56% of total
revenue compared to 59% for the year ended December 31, 2003. This is referred
to as Medical Loss Ratio (MLR). The decrease 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 is $1,549,824 or 66 % of total revenues
for the twelve months ended December 31, 2004, compared to $1,515,505 or 43%
of total revenues for twelve months ended December 31, 2003. The increase in
general and administrative expense is due increase in fees paid to consultants
as well as other corporate expenses.. The company continues to implement cost
cutting measures started in 2001 during the twelve months ended December
31, 2004.
Of the $1,549,824 General and administrative expense for the period ended
December 31, 2004, $574,865 was for employee salaries and wages, $90,102 was
for rent and lease payments, $29,030 was for insurance including stop-loss, D&O
liability, general and liability, Medical Mal-practice, Workermans'
Compensation, employees health and dental insurance, $223,402 was for payment
of outside consultants, and the rest was for other corporate purposes.
INCOME/LOSS FROM OPERATIONS
The registrant recorded a net loss from operations for the twelve months
ended December 31, 2004 of $138,659, compared to a net income of $138,566
during comparable period in 2003. The net loss from operations is due to the
decrease in revenue following the disenrollment of some of our members from our
managed care contract. Management believes that trend will continue for 2005,
due to the activation of new HMO contracts.
OTHER INCOME/EXPENSE
The Company was awarded a judgment in the amount of $30,687,926 against Sirius
Technologies of America, Inc., and an individual who was formerly an officer in
this Company. The Company reported this as income to Meridian during the second
quarter of 2004 and the Company recorded an impairment of this asset in the
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amount of $30,337,926. The remaining $350,000 has been recorded as a long term
asset of the Company. Management believes that there is a reasonable likelihood
that this $350,000 will be collected from parties involved in this judgment.
The Company will vigorously continue to pursue collection of the entire
Judgment amount.
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.
PLAN OF OPERATIONS
The Company intends to embark on more aggressive marketing campaign to increase
the enrollment of membership into its Capnet IPA Healthy Family Program
contract with the County of Los Angeles Community Health Plan..
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.
In August, 2004, Tenet HealthSystem Hospitals, Inc, (Tenet) announced that
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it has entered into an agreement to transfer one of the hospitals contracted
with CAPNET IPA and County of Los Angeles Community Health Plan to Centinela
Freeman HealthSystem. This transaction is expected to close sometime in
November 2004. Subsequently, Capnet IPA has signed a release and assignment of
the contract with Tenet to Centinela Freeman HealthSystem.
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 second quarter of 2005, which we believe will
significantly enhance our revenue generation.
The Company continues to look into various business opportunities that will help
to increase its revenue and the results of operation. There can be no assurance
that such an effort will materialize in any meaningful results.
RECENT EVENTS
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 and potential interest has been reflected in the
balance sheet and the income statement as a judgment receivable. Management
is pursuing all collections options regarding this judgment, with allowance
for impairment recorded accordingly. On December 8,2004, the registrant
entered into a judgment collection agreement with Surgimed Funds, a legal
collections agency. Under the terms of the agreement, the Company will pay
Surgimed 45% of net collectible. (See note 14 of the financial statements.)
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.
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.
In August, 2004, Tenet HealthSystem Hospitals, Inc, (Tenet) announced that
it has entered into an agreement to transfer one of the hospitals contracted
with CAPNET IPA and County of Los Angeles Community Health Plan to Centinela
Freeman HealthSystem. This transaction is expected to close sometime in
November 2004. Subsequently, Capnet IPA has signed a release and assignment of
the contract with Tenet to Centinela Freeman HealthSystem.
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
12
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.
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
ITEM 8a. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(e) 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
the end of this reporting period. 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 March 31,
2005, 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
13
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 as of
December 31, 2004
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 2003/2004 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.
13
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
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, 2004.
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.
15
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.
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, 2004, 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.
16
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)
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, 2004 and 2003,
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
Elizabeth Campos, Vice President IPA Operations
Foday Conteh, BSc.(Accounting) Director of Finance
David Cutler, MSc, Director of Medical Information Systems
16
ITEM 10. EXECUTIVE COMPENSATION
Executive Officers
The executive officers of the Company are as follows:
Anthony C. Dike, Chairman/CEO
Wesley Bradford Chief Medical Officer
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 and other full-time employee executive officers of the
Company:
Annual Compensation
Name Year Salary Bonus Stock Option All Other
Compensation
Stock Awards
Anthony C. Dike (1) 2004 $144,000 0 150,000 0
Wesley Bradford (2) 2004 $ 35,000 0 100,000 100,000
1. As of December 31, 2003, Anthony C. Dike has not received any salary from
the registrant, and has deferred such payment until the registrant can afford
to pay after meeting all other obligations.
2. Dr. Bradford's salary is based on a part-time employment, with a base salary
and other non-cash compensation such as stock and stock option award. He is also
a member of the Board of Directors of InterCare DX, Inc., an affiliated entity.
Indemnification
The Company's Certificate of Incorporation eliminates or limits the
personal financial liability of the Company's directors, except in situations
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or knowing violation of the law. In addition, the
Company's by-laws include provisions to indemnify its officers and directors and
other persons against expenses, judgments, fines and amounts paid in settlement
in connection with threatened, pending or completed suits or proceedings against
such persons by reason of serving or having served as officers, directors or in
other capacities, except in relation to matters with respect to which such
persons shall be determined to have acted not in good faith, unlawfully or not
in the best interest of the Company.
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, 2004.
18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2004 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 8,590,270 Active 58%
Michael Muldavin (2) Director 125,000 Active 1%
James W. Truher (2) Director 165,900 Active 1%
Randy Simpson (2) Director 125,000 Active 1%
Marcellina Offoha, Ph.D (2) Director 157,190 Active 1%
All directors and Officers as
a group (five persons) 9,162,460 62%
Other Beneficial Owners
CGI Communications Services, Inc. 961,501 6%
Other public shareholders 4,746,689 32%
Total Number of Shares Outstanding 14,870,650 100%
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.
2. The numbers shown include the shares of our Common Stock actually owned
as of December 31, 2004 and the underlying options and warrants representing
shares person has the right or will have the right to acquire based on the 2004
stock option plan table.
3. Anthony C. Dike, is the sole Director of MMG Investments, Inc, and an indirect
beneficial owner of 267,000 shares of Common stock held by MMG Investments, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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.
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
19
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: June 25, 2005 By: /s/ Anthony C. Dike
____________________________________Signature
Anthony C. Dike
Chief Executive officer
20
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/A of Meridian Holdings,
Inc.;
2. Based on my knowledge, this annual 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 annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual 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: June 25, 2005
By: /s/ Anthony C. Dike
Anthony C. Dike
Chairman and CEO (Principal Executive Officer)
21
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/A of Meridian Holdings,
Inc.;
2. Based on my knowledge, this annual 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 annual 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 annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual 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: June 25, 2005
By: /s/ Foday Sorsor Conteh
Foday Sorsor Conteh
Director of Finance
22
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/A for the period ending December 31, 2004 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: , June 25, 2005 By: /s/ Anthony C. Dike
-------------------
Anthony C. Dike
Chairman and CEO
By: /s/ Foday Sorsor Conteh
-------------------
Foday Sorsor Conteh
Director of Finance
22
EXHIBIT 99.1
Financial Statements
and Independent Auditors' Reports
MERIDIAN HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 2004 AND 2003
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, 2004 and 2003 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.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Meridian Holdings, Inc., as of
December 31, 2004, and 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
June 25, 2005
F-3
Meridian Holdings, Inc.
Balance Sheets
ASSETS
As of December 31,
----------------------
2004 2003
======= ========
Current assets
Cash and cash equivalents $ 173,628 $ 1,218
Restricted cash (Note 8) 217,283 281,010
Accounts receivable, net of allowance for doubtful accounts
of $198,030 and $179,813, respectively 1,645,838 1,497,982
Other current assets 11,420 8,302
----------- ----------
Total current assets 2,048,170 1,790,012
Fixed assets, (net of accumulated depreciation 33,944 43,258
Intellectual property, net of accumulated amortization of
$34,998 as of (Note 3) - -
Investments (Notes 3 and 12) 3,424,997 3,448,564
Judgment receivable, less allowance for impairment (Note 12) 350,000 -
---------- -----------
Total assets $ 5,857,111 $ 5,281,834
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 305,759 $ 233,301
Accrued payroll and other 299,504 -
Reserve for incurred but not reported claims (Note 8) 201,311 227,820
Line of credit (Note 5) 50,263 48,912
Current portion of long-term debt (Note 7) 4,112 -
--------- --------
Total current liabilities 860,949 510,033
Long Term Liabilities
Loan from majority stockholder/officer (Note 11) 40,946 -
Long-term debt, net of current portion (Note 7) 45,121 189,479
------- -------
Total liabilities 947,016 699,512
Commitments and contingencies (Notes 10)
Stockholders' equity (Notes 2, 3, 10 and 14)
Common stock (100,000,000 shares authorized, par value
$0.001; 14,370,649 and 9,370,649 shares issued and
outstanding at December 31, 2004 and 2003, respectively) 14,370 9,370
Paid-in capital $ 5,526,760 $ 5,031,760
Accumulated deficit (631,035) (458,808)
-------------- ------------
Total stockholders' equity $ 4,910,095 $ 4,582,322
-------------- ------------
Total liabilities and stockholders' equity $ 5,857,111 $ 5,860,212
============== ============
See accompanying notes to consolidated financial statements.
F-3
Meridian Holdings, Inc.
Consolidated Statements of Operations
YEARS ENDED DECEMBER 31,
---------------------------
2004 2003
======= =========
Revenues
Capitation $ 2,365,048 $ 2,624,135
--------- ----------
2,365,048 2,624,135
Cost of revenues 1,288,208 900,203
--------- -------
Gross Profit 1,076,840 1,723,932
Operating expenses
General and administrative 1,549,824 1,515,505
--------- -------
1,549,824 1,515,505
Income (loss) from operations (472,984) 208,427
Other income and (expense)
Judgment award $ 30,687,926 $ -
Impairment of judgment award (30,337,926) -
Equity interest in earnings of investment (33,568) (45,316)
Other net (15,675) (24,545)
------- --------
300,757 (69,861)
Provision for income tax - -
------- ---------
Net income (172,227) $ 138,566
========= ==========
Net income (loss) per share:
Weighted Average Shares
Common Stock Outstanding 13,120,649 9,383,146
========== =========
Net Income(Loss) per Common Share
(Basic and Fully diluted) $ (0.00) $ 0.01
========= ==========
See accompanying notes to consolidated financial statements.
F-4
Meridian Holdings, Inc.
Statements of Stockholders' Equity
For the Years Ended December 31,
2004 and 2003
Accumulated
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
========= ====== ======== ==========
Balances, December 31, 2001 93,706,485 $ 93,707 $ 4,947,424 $(553,571)
Net Income/(Loss) (43,803)
----------- --------- --------- ---------
Balance December 31, 2002 93,706,485 $ 93,707 $ 4,947,424 $(597,374)
Net Income/(Loss) 138,566
Stock split reversal (84,335,836) (84,337) 84,337 -
----------- --------- --------- --------
Balance December 31, 2003 9,370,649 $ 9,370 $ 5,031,760 $(458,808)
Net Income(Loss)
Issuance of stock for
services at $.10 per share 5,000,000 5,000 495,000 -
Net loss for period - - - (172,227)
---------- ------- ------ -----------
Balance December 31, 2004 14,370,649 14,370 5,526,760 $ (631,035)
========== ========= =========== ============
See accompanying notes to consolidated financial statements.
F-5
Meridian Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
========================
2004 2003
======== =========
Cash flows from operating activities
Net income (loss) $ (172,227) $ 138,281
Adjustments to reconcile net income (loss) to net
cash provided by operating expenses:
Depreciation and amortization 18,232 33,030
Judgment award net of impairment (350,000) -
Common stock issued for services 500,000 -
Equity in loss of subsidiary 33,568 45,316
Changes to operating assets & liabilities
(Increase) decrease in
Restricted cash 63,727 119,983
Accounts receivable (146,356) (343,511)
Other current assets (3,118) -
Increase(Decrease) in:
Accounts payable 72,458 (49,425)
Accrued payroll and other 299,504 (391,697)
Incurred but not reported reserve (26,509) (38,138)
-------- -------
Net cash used in operating activities 289,279 (486,161)
Cash flow from investing activities
Purchase of fixed assets (8,918) (30,595)
Disposition of fixed assets - 315,002
Investment in CGI (10,001) 417,331
--------- ---------
Net cash used in investing activities (18,919) 701,738
Cash flow from financing activities
Borrowing from majority stockholder/officer 40,946 -
Advances from line of credit 1,351 (146,050)
Repayment of long term debt (140,246) (91,348)
---------- -----------
Net cash provided by financing activities (97,949) (237,398)
---------- -----------
Increase (decrease)in cash and cash equivalents (172,411) (21,821)
Cash and cash equivalents, beginning of period 1,218 23,039
---------- ----------
Cash and cash equivalents, end of period $ 173,628 $ 1,218
========== ==========
Cash Paid for interest $ 4,750 $ 6,118
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 entity includes CGI Communications Services, Inc.
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, 2004, approximately 99% of capitation revenues are derived from
one 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
F-8
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
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, 200 4and 2003 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, 2004 and 2003.
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, 2004.
3. Investments and Business Port-Folio:
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)
F-9
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
expired on December 30, 2004.
4. Fixed Assets
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, 2004 and
2003 respectively and is summarized as follows:
2004 2003
====== ======
Computer equipment $ 111,155 $ 102,237
Leasehold improvements 6,500 6,500
Office furniture and fixtures 36,603 36,603
Office equipment 25,313 25,313
Software 25,803 25,803
Medical equipment 6,654 6,654
------- --------
212,028 203,110
Less accumulated depreciation (178,084) (159,852)
$ 33,944 $ 43,258
5. Line of Credit
During 2004 and 2003, the Company had a $50,000 line of credit with a financial
institution. Approximately $50,263 and $48,912 was outstanding under this
facility as of December 31, 2004 and 2003, respectively. Related advances bear
interest at 11%, and interest is payable monthly. The line of credit expired
March 21, 2005, and has been subsequently renewed through March 21, 2006.
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 2005 and provides the
option to renew for one three-year term. Monthly rents range from $4,761 to
$5,786 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.
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
The Company utilizes the liability method of accounting for income taxes. Under
The liability method deferred tax assets and liabilities are determined based
on the differences between financial reporting and the tax bases of the assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect, when the differences are expected to reverse. An allowance against
deferred tax assets is recorded, when it is more likely than not, that such tax
benefit will not be realized.
F-10
On December 31, 2004 and 2003, the Company had a net operating losses available
For carry forward of $981,035 and $458,808 respectively. The tax benefit of
This loss carryforward has been fully offset by a valuation reserve because the
Use to the tax benefit is undetermined since there is no reasonable method to
Determine the usage of this carryforward in the future. The loss carryforward
will start to expire in 2018.
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 facility related 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 periods ended
December 31, 2004 and 2003 respectively..
The Company has also reflected the monies in the escrow account as of December
31, 2004 and December 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.
.
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, 2004, no 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
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.
F-10
A summary of the status of the Plan and changes during the years ended December
31 2004 and 2003 is as follows:
2004 2003
===== =====
Fixed Options Fixed Options
Shares Weighted Shares Weighted
Average Average
Price Price
======== ======== ======= ========
Outstanding at beginning of Year 1,094,000 $0.57 1,500,000 $ 1.45
Granted 3,006,000 0.20 1,500,000 $ 0.46
Exercised (5,000,000) 0.10 (406,000) 0.17
Forfeitures/Cancelled - - (1,500,000) (1.45)
---------- ------ --------- ------
Outstanding at end of the year 0 $ 0.00 1,094,000 $ 0.57
========== ====== ========= =======
Exercisable at end of year 0 $ 0.00 1,094,000 $ 0.57
========== ====== ========= =======
Weighted average fair value per Options
Granted during the year $ 0.29. $ 1.95
Proforma disclosure of the effect of accounting for stock options under
Statement of Financial Accounting Standard (FAS 123) is required. The Company
Accounts for its stock options in accordance with APB 25 " Accounting for
Stock Issued to Employees". Under APB 25, no compensation is recognized when
the exercise price of employee options is equal to the fair market value of
the underlying stock on the date of the grant. For each of the Company's stock
options the exercise price was equal to the estimated fair market value of the
shares at the date of grant.
11. Related Party Transactions
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.
In August, 2004, Tenet HealthSystem Hospitals, Inc, (Tenet) announced that
it has entered into an agreement to transfer one of the hospitals contracted
with CAPNET IPA and County of Los Angeles Community Health Plan to Centinela
Freeman HealthSystem. This transaction is expected to close sometime in
November 2004. Subsequently, Capnet IPA has signed a release and assignment of
the contract with Tenet to Centinela Freeman HealthSystem.
12. Equity Method Investments
Summary financial information for CGI as of and for the two years ended December
31, 2004 and 2003 respectively is presented in the following table.
2004 2003
(unaudited) (unaudited)
Long-term assets $ 5,273,128 $ 5,273,128
Total assets 5,273,128 5,273,128
Current liabilities 1,588,932 1,857,097
Total liabilities 1,588,923 1,857,097
Revenues - -
Gross margin - -
Net income (loss) (250,792) (462,647)
F-12
The differences in the underlying net equity of the above-described investees
and the investment balances recorded at December 31, 2004 and 2003 respectively
are a result of the initial acquisition accounting of the Company's percentage
interests.
13 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 are $30,687,926, with a pre-judgment interest at the annual rate of 10%.
This amount and potential interest has been reflected in the balance sheet and
the income statement as a judgment receivable. Management is pursuing all
collections options regarding this judgment.
Note 14 Judgment Award
As mentioned in Note 13, the Company was awarded a judgment in the amount of
$30,687,926 against Sirius Technologies of America, Inc., and an individual who
was formerly an officer in this Company. The amount of the award was recorded
as income to Meridian during the second quarter of 2004 and the Company recorded
an impairment of this asset in the amount of $30,337,926. The remaining $350,000
has been recorded as a long term asset of the Company. Management has been in
contact with one of the individuals/entities who owes this judgment amount, to
the Company. Based upon discussions with this individual and obtaining
information concerning the net worth of this individual and his willingness to
repay this obligation, management feels that it is probable that the Company
will receive the $350,000, net of collection costs, from this individual.
On December 8,2004, the registrant entered into a judgment collection agreement
with Surgimed Funds, a legal collections agency. Under the terms of the
agreement, the Company will pay Surgimed 45% of net collectible. These amount is
reflected in the balance Sheet and Income Statement. the income statement as a
judgment receivable. Management is pursuing all collections options
regarding this judgment.