UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
Amendment Number 1
( 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, 2005
( ) 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, 2005 were $1,770,090
As of December 31, 2005, the Registrant had 18,120,649 shares of its $0.001
par value common stock outstanding with a market capitalization of $1,812,065
Page 1 of 28 sequentially numbered pages
Form 10-KSB
Annual Report For The Fiscal Year Ended December 31, 2005
1
TABLE OF CONTENTS
Page Number
PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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 . . . . . . . . . . . . . . . . . . . . . . . .14
Item 8. Changes In and Disagreements With Accountants on Accounting and .. . .14
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons . . . . .15
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .18
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . 19
Item 12. Certain Relationships and Related Transaction . . . . . . . . . . .. 20
Item 13. Exhibits and Reports on Form 8-k . . . . . . . . . . . . . . . . . .20
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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.
Current Products and Services
Vasocor Vascular Diagnostic Centers
The Company recently initiated the commercialization of Vasocor Vascular
Diagnostic Centers (VVDC), after an extensive patient, provider and health
insurance plan acceptance test.
It is a freestanding diagnostic device, that employs a revolutionary
non-invasive inexpensive, easy to use procedure that has been clinically
proven to detect coronary artery disease (CAD) earlier and more accurately
than existing Techniques. CAD. The Vasocor Device has FDA pre-market approval,
validated clinical trial data, Medicare/Medicaid and Indemnity insurance
re-imbursement eligibility. In addition to coronary arterial disease, the
device can also be used in the non-invasive diagnosis of peripheral vascular
disease and estimating endothelial function
InterCare Clinical Explorer (ICE(tm))
This is an Electronic Health Record System, with Tele-Medicine and Telehealth
Components. 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 6201 Bristol Parkway, Culver City,
California 90230. Its telephone number is (213) 627-8878.
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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
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 Systems, (VIP Concierge Medical Services Company) is a division
of Meridian Holdings, Inc, focused in provision of tertiary medical specialty
care for the international clientele in 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 the patients, families, physicians, allied health, hospitals and vendors.
We also offer optional Flexible Medical Care Services through our preferred
participating healthcare provider network in both United States and Abroad under
our Healthcare membership discount services program, as well as facilitate the
setting up of a Health Savings Account (HSA) program through a partner
Commercial Bank, and/or High Deductible Health Insurance plan through a
partner health insurance company.
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
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is unable to manage growth effectively, such inability could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
NEW BUSINESS AREAS
The Company intends to expand its operations by promoting new or complementary
products or sales formats and by expanding the breadth and depth of its product
or service offerings. Expansion of the Company's operations in this manner would
require significant additional expenses, development, operations and editorial
resources and would strain the Company's management, financial and operational
resources. Furthermore, the Company may not benefit from the first-mover
advantage that it will experience in the online high technology market and gross
margins attributable to new business areas may be lower than those associated
with the Company's existing business activities prior to the introduction of new
products or line of business. There can be no assurance that the Company will be
able to expand its operations in a cost-effective or timely manner. Furthermore,
any new business launched by the Company that is not favorably received by
consumers could damage the Company's reputation or the Bolingo.com brand. The
lack of market acceptance of such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products to offset their
cost could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
INTERNATIONAL EXPANSION
The Company intends to expand its presence in foreign markets. To date, the
Company has only limited experience in sourcing, marketing and distributing
products on an international basis and in developing localized versions of its
Web site and other systems. The Company expects to incur significant costs in
establishing international facilities and operations, in promoting its brand
internationally, in developing localized versions of its Web site and other
systems and in sourcing, marketing and distributing products in foreign markets.
There can be no assurance that the Company's international efforts will be
successful. If the revenues resulting from international activities are
inadequate to offset the expense of establishing and maintaining foreign
operations, such inadequacy could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations. In
addition, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export and import
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, political instability,
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
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encountered in connection with such business combinations, investments, joint
ventures or other strategic alliances, or that such transactions will not have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of the its Internet websites. The
Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new technologies and
the emergence of new industry standards and practices that could render the
Company's existing Web site and proprietary technology and systems obsolete. The
Company's success will depend, in part, on its ability to license leading
technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied
needs of its prospective customers and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
The development of Web site and other proprietary technology entails significant
technical, financial and business risks. There can be no assurance that the
Company will successfully implement new technologies or adapt its Web site,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. If the Company is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, such inability
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. The Company's future success also
depends on its ability to identify, attract, hire, train, retain and motivate
other highly skilled technical, managerial, editorial, merchandising, marketing
and customer service personnel. Competition for such personnel is intense and
there can be no assurance that the Company will successfully attract, assimilate
or retain sufficiently qualified personnel. In particular, the Company has
encountered difficulties in attracting a sufficient number of qualified software
developers for its Web site and transaction-processing systems and there can be
no assurance that the Company will retain and attract such developers. The
failure to retain and attract the necessary technical, managerial, editorial,
merchandising, marketing and customer service personnel could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
ACQUISITIONS
If appropriate opportunities present themselves, the Company intends to acquire
businesses, technologies, services or products that the Company believes are
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, 2005, the Company had approximately 14 full-time employees.
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 6201 Bristol Parkway, Culver
City, California 90230. The Company is required to pay $13,975 per
month rental for both Culver City and Lawndale clinic facilities. The telephone
number is (213) 627-8878.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be engaged in litigation in the ordinary course of
our business or in respect of which we are insured or the cumulative effect of
which litigation our management does not believe may reasonably be expected to
be materially adverse. With respect to existing claims or litigation, our
management does not believe that they will have a material adverse effect on
our consolidated financial condition, results of operations, or future
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 25, 2006 the shareholders voted to re-appoint Madsen Associates CPA,
Inc., as the Company's independent accountant for the fiscal year ended
December 31, 2005. Also, the shareholders re-approved the Registrants' 2001
stock option plan for 2006, as well as the election of the following
directors for another one year term:
Mr. James Truher
Dr. Ludlow Creary
Mr. Andrew Smith
Mrs Marcelina Offoha
Dr. Anthony C. Dike
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 2005
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
High Low
Calendar 2004
Quarter ended March 31 0.031 0.031
Quarter ended June 30 0.06 0.06
Quarter ended September 30 0.10 0.10
Year ended December 31, 2004 0.15 0.13
At December 31, 2005, the company had approximately 543 shareholders of record
for its common stock. Our preferred shares have never been offered to the
public, therefore have never been publicly traded.
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SELECTED FINANCIAL DATA
The Company had net working capital of $1,576,876 as at December 31 2005
compared to $1,187,221 at December 31, 2004. This represents a 33% increase
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, 2005 AS COMPARED TO THE
TWELVE MONTHS ENDED DECEMBER 31, 2004.
REVENUE
Medical services revenues decreased by 70% from $887,926 for three months ended
December 31, 2004 to $269,010 for three months ended December 31, 2005. For
Twelve months ended December 2005, Medical services decreased by 9.8% from
$2,365,048 for the twelve months ended December 31, 2004 to $1,770,090
for the twelve months ended December 31, 2005. The decrease in medical services
revenue is attributed to decrease in membership in the Capnet IPA due to
dis-enrollment of membership, as well as termination of certain managed care
contract with Los Angeles Community Health Plan and Tenet Health Systems.
Capitation revenues from our CHP contract decreased by 93% from $331,514
for three months ended December 31, 2004 to $22,451 for three months ended
December 31, 2005.
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For twelve months ended December 31, 2005, Capitation revenue decreased
from $1,322,830 for the twelve months ended December 31, 2004 to $ 406,577
for the twelve months ended December 31, 2005. The decrease in capitation
revenue was due in part to the termination of some of our Managed care
contracts with CHP, delay in procuring a replacement contracts for the new
hospital owners, dis-enrollment of members, and increased withholding of our
capitation fees by CHP. Management is pursuing all its available options to
mitigate further losses, including but not limited to procuring new manage care
contracts, expansion of our primary care physician network into adjoining
counties in Southern California. There can be no guarantee that these
efforts will be successful in reversing these losses.
Fee for Service Revenue, decreased by 55% from $549,140 for three months
ended December 31, 2004 to $246,559 for comparable period in 2005
For twelve months ended December 31, 2005, fee for service revenue increased
by 31% to $1,361,715, as compared to $1,035,171, during the comparable period
in 2004. This receivable relates principally, to medical services provided on
a fee-for-service basis, and are reduced by amounts estimated to be
uncollectible. These receivables are typically uncollateralized customer
obligations due under normal trade terms requiring payment within 30-90 days
from the invoice date. The Company does not charge late fees or penalties
on delinquent invoices, however it continually evaluates the need for a
valuation allowance. Management's estimate of uncollectible amounts is based
upon its analysis of historical collections and other qualitative
factors.
With regard to revenues, expenses and receivables arising from global risk
agreements with CHP and TENET, the Company estimates amounts it believes will
ultimately be realizable based in part upon estimates of claims incurred but
not reported (IBNR) and estimates of retroactive adjustments or unsettled
costs to be applied by CHP and/or Cap Management Systems. The IBNR estimates
are made by CAP-Management Systems, utilizing actuarial methods and are
continually evaluated by management of the Company based upon its specific
claims experience. It is reasonably possible that some or all of these
estimates could change in the near term by an amount that could be
material to the financial statements.
Cost of Revenues
The cost of revenue for twelve months ended December 31, 2005 is $630,372,
compared to $1,288,208, for twelve months ended December 31, 2004. The
decrease in cost of revenue is due to decrease in volume medical claims
paid in 2005 fiscal year, low membership enrolment and termination of certain
managed care contracts..
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, 2005, these cost represents 35% of total
revenue compared to 56% for the year ended December 31, 2004. This is referred
to as Medical Loss Ratio (MLR). 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 $816,838 or 46 % of total revenues
for the twelve months ended December 31, 2005, compared to $1,549,824 or 66%
of total revenues for twelve months ended December 31, 2004. The decrease in
general and administrative expense is due decrease in fees paid to consultants
10
as well as other corporate expenses.
Of the $816,836 General and administrative expense for the period ended
December 31, 2005, $756,235 was for employee salaries and wages, $17,492 was
For depreciated assets, $10,588 was for Taxes and Permits, and the rest was for
General corporate purposes.
INCOME/LOSS FROM OPERATIONS
The registrant recorded a net income from operations for the twelve months
ended December 31, 2005 of $323,356, compared to a net loss of $472,984,
during comparable period in 2004. The increase in Net operating income for the
period ended the increase in fee for service revenue and decrease in general
and administrative expense for the period then ended.
NET INCOME/EXPENSE
On December 31, 2005 the company recorded Net loss of $1,362,973 as compared
To $522,227 for the period ended December 31, 2004. The increase in Net Loss
is due to a write down of investment in subsidiary in the
amount of $1,416,019 and the write off of related party receivable in the
amount of $240,522 during the period ended December 31, 2005. Management is
aggressively seeking for new contracts and other avenues to generate revenue.
There can be no assurance that these efforts will yield dividends in the next
near future.
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
11
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 continues to aggressively expand its provider network, as well
as seek for other managed care and PPO contracts for its contracted providers.
We plan to expand our provider network to Riverside, San Bernardino, Orange
and greater Los Angeles, County, with the hope of increasing our membership
enrollment. Also, the company is aggressively seeking for more managed care
contracts in the four counties targeted for proposed network expansion. There
can be no assurance that this plan of network expansion will yield immediate
dividend.
The Company has initiated a community outreach program targeting Medicare
eligible members about the Medicare Prescription Drug Program.
Passed by Congress and signed into law by President Bush on December 8, 2003,
the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA), made sweeping changes to the Medicare program including the creation of
Part D, the prescription drug coverage program that will be available beginning
January 1, 2006. CMS noted in its September 23, 2005 press release, "People
with Medicare will be able to get prescription drug coverage in January,
through their choice of either a newly approved stand-alone prescription drug
plan that works with traditional Medicare, or a Medicare Advantage plan that
offers drug coverage and other benefits. We hope that by promoting this program
to the communities we serve, we will be able to enroll patients into our
provider network, while proving our patient population timely information
regarding their healthcare needs.
On March 5, 2005, the following individuals were elected to serve as directors
of the company until the 2006 annual meeting: Jerry Aguolu, James Truher, Randy
Simpson and Marcellina Offoha.
Additionally, shareholders ratified the reappointment of Madsen Associates CPAs,
as the independent auditor for the fiscal year ending December 31, 2004 and
reapproved the Company's 2001 Joint Incentive and Non-Qualified Stock Option
Plan for fiscal year 2005.
On July 18, 2005 the company issued a press release announcing that its'
subsidiary CGI Communications Services, Inc., (CGI) Common Stock is now trading
Over The Counter (OTC) under the symbol "CGIC".
Also, CGI Communications Services, Inc., an applications services provider
specializing in Telemedicine and Telehealth services to the healthcare
community, has entered into a memorandum of understanding (MOU) with ITeMAX, a
technology Company based in Riverside California , that specialized in providing
ITenabled services to the global marketplace
Also, during the second quarter of 2005, the registrant re-stated it financials
for the June 30 2004 and December 31, 2004 year end to reflect the loss in its'
investment in CGI Communication services, Inc. (Subsidiary) and the removal of
judgment receivable which is a gain contingency from the account and instead
placing it in the note to the financial statements, in accordance with GAAP,
so as not to recognize revenue prior to realization. Every effort is being made
by the management to collect on this judgment.
On August 8, 2005, the board directors authorized the issuance of 3,750,000
shares of common stock of the registrant at a fair-market value of 0.08 cents
12
per share (based on closing Asking price of our common stock as of August 5,
2005) to Anthony C. Dike, MD, our Chairman and CEO, in exchange for
extinguishing $300,000 debts owed to him by the registrant as at December 31,
2004.
On Septmber 2, 2005, the registrant announced that pursuant to the written
consent of the board of directors of both Meridian Holdings, Inc, and CGI
Communications Services, Inc., (Pinksheet: CGIC) dated August 24, 2005, in which
it was approved that Meridian Holdings, Inc., declare a dividend of shares of
CGI Communications Services, Inc., Common Stock it owns, to each of its
shareholders with the exception of all current and past officers, directors and
affiliates, by transferring or causing to be issued one (1) share of the CGI
Stock for every ten (10) shares of Meridian Holdings, Inc., common Stock held
by each of such shareholder ("Dividends") of record as of September 26, 2005.
On October 4, 2005, Tenet HealthSystem Hospitals, Inc, (Tenet) announced that
it has entered into an agreement to sell Community & Mission Hospitals of
Huntington Park in Huntington Park, California., to Karykeion, Inc., a privately
held Corporation. These are two of the hospitals contracted with CAPNET IPA
and County of Los Angeles Community Health Plan . This transaction is expected
to closed on December 31, 2005. Subsequently, Capnet IPA has initiated a new
contract negotiation with the new owners of the hospital.
On December 23, 2005 the registrant announced that CAPNET IPA has entered into
a Management Services and Virtual pool Agreement with Regal Medical Group
Under the terms of the agreement which becomes effective immediately, Regal will
evaluate contracts and represent CAPNET in negotiations with payors, hospitals,
ancillary vendors and physicians who provide medical services to enrollees on
behalf of CAPNET. Simultaneous to this agreement, the parties have executed a
virtual pool agreement that allows CAPNET access to over 17 managed care
contracts with various HMO/Payors within Southern California.
Recent Events
On February 8, 2006, the registrant issued a press release announcing that
Meridian Health Systems, a healthcare services division of Meridian Holdings,
Inc, has entered into an Exclusive Healthcare Services and Project Teaming
Agreement with Los Angeles Hispanic Health Network, (LHHN), a Los Angeles
Metropolitan Hispanic Chambers of Commerce initiative.
Under the terms of this three-year automatically renewable agreement, Meridian
will arrange for the provision of healthcare services on an exclusive basis to
enrolled employees and relatives of small to medium sized Hispanic employer
groups and self employed individual members of LHHN, in a culturally sensitive
manner, through Meridian's network of affiliated physicians, hospitals and other
ancillary services providers initially within Greater Los Angeles County, with
later expansion to other areas of United States and abroad.
The company projects that this agreement with LHHN which initially is estimated
to provide increased health insurance purchasing power to over 500 employer
groups mainly in Los Angeles metropolitan area, will provide revenue to Meridian
based on member enrollments and network access fees.
At the annual meeting of the shareholders, held on Saturday, February 25, 2006,
the following individuals were elected to serve as directors of the company
until the next annual meeting: Andrew Smith, Ludlow Creary, James Truher and
Marcellina Offoha. Anthony C. Dike, was re-elected for another three year term.
Additionally, shareholders ratified the reappointment of Madsen Associates
CPA, Inc., as the independent auditor for the fiscal year ending December 31,
2005 and re-approved the Company's 2001 Joint Incentive and Non-Qualified
Stock Option Plan for fiscal year 2006.
13
Subsequent Events.
On May 19, 2006, the company accepted the offer by InterCare DX, Inc., and
CGI Communications Services, Inc, both an affiliated entities 5,000,000
of Common stock at fair market value of 0.023 cents and warrant to
purchase additional 5,541,503 shares at 25 cents per share, with
expiration date of May 19, 2008, in exchange for forgiveness of debt owed
to Meridian, in the Amount of $1,500,375.84. by InterCare. Also, the
registrant accepted the Offer to be issued by CGI Communications Services,
6,013,043 Shares of this CGI Common Stock at 0.04 cents per share, to
Meridian Holdings, Inc, in exchange for forgiveness debt in the amount of
$240,521.71
RISKS ASSOCIATED WITH MANAGING GROWTH
The Company's anticipated level of growth, should it occur, will challenge the
Company's management and its sales and marketing, customer support, research and
development and finance and administrative operations. The Company's future
performance will depend in part on its ability to manage any such growth, should
it occur, and to adapt its operational and financial control systems, if
necessary, to respond to changes resulting from any such growth. There can be no
assurance that the Company will be able to successfully manage any future growth
or to adapt its systems to manage such growth, if any, and its failure to do so
would have a material adverse effect on the Company's business, financial
condition and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's securities may be deemed "penny stock" as defined in Rule 3a51-1
of the Securities and Exchange Act of 1934, as amended, since the average bid
price has remained consistently below $2. Such a designation could have a
material adverse effect on the development of the public market for shares of
the Company's common stock or, if such a market develops, its continuation,
since broker-dealers are required to personally determine whether an investment
in such securities is suitable for customers prior to any solicitation of any
offer to purchase these securities. Compliance with procedures relating to sale
by broker-dealers of "penny stock" may make it more difficult for purchasers of
the Company's common stock to resell their shares to third parties or to
otherwise dispose of such shares.
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,
14
the Company's management was required to apply its reasonable judgment. Based
upon the required evaluation, the Management concluded that as of December 31,
2004, the Company's disclosure controls and procedures were effective
(at the "reasonable assurance" level mentioned above) to ensure that
information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
Occasionally, 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 provisions necessary
or desirable to address recommendations of the Company's management, its counsel
and/or its independent auditors, including any recommendations of its
independent auditors arising out of their audits and reviews of the Company's
financial statements. These changes may include changes to the Company's own
systems, as well as to the systems of businesses that the Company has acquired
or that the Company may acquire in the future and will, if made, be intended to
enhance the effectiveness of the Company's controls and procedures. The Company
is also continually striving to improve its management and operational
efficiency and the Company expects that its efforts in that regard will from
time to time directly or indirectly affect the Company's disclosure controls
and procedures, as well as the Company's internal control over financial
reporting.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal controls or in other
factors that could significantly affect internal controls as of
December 31, 2005
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, 2005
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
15
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 2004/2005 adequately reflect the
Company's compensation goals and policies. In 1993, the Internal Revenue Code
was amended to add section 162(m), which generally disallows a tax deduction for
compensation paid to a company's senior executive officers in excess of $1
million per person in any year. Excluded from the $1 million limitation is
compensation which meets pre-established performance criteria or results from
the exercise of stock options which meet certain criteria. While the Company
generally intends to qualify payment of compensation under section 162(m), the
Company reserves the right to pay compensation to its executives from time to
time that may not be tax deductible.
The Company will compensate the members of the Board of Directors for each
meeting he/she attends, in the amount of $250 cash or equivalent in the form of
the Company's Common Stock at the fair market value.
TERM AND CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors has determined that there will be two Classes of
Directors (Class A and Class B). Class A Directors are also officers of the
Company. Class B Directors are outside directors. The full Board shall consist
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 February 25, 2006.
James W. Truher
-----------------
Mr. Truher, aged 70, 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.
15
Marcellina Offoha, Ph.D.
--------------------------
Ms. Offoha, age 51, 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.
Ludlow Creary, MD
-----------------
Professor Ludlow Creary, MD. age 75 is a family physician in private
practice in Los Angeles, California. He is currently a Professor of Clinical
Family Medicine at UCLA School of Medicine. He was formerly the Chairman and
Professor of Family Medicine Department at LAC-King/Drew Medical Center, Los
Angeles California from 1981-2000. He is a member of the Board of Directors
of California Academy of Family Physicians Foundation. He is a member and
Chairman of Physician Advisory Counsel of Imperial Partners LLC.
Andrew M. Smith, CPA
-------------------
Mr. Andrew M. Smith, age 57, a Certified Public Accountant is a
Principal Accountant at Williams and Tucker APAC, with overall
16
responsibilities for audit, write-up, management consulting, tax engagements,
and personal computers applications for the firm and client. Since 1975 he
has been involved in management of a Forbes 500 company, having served as the
Finance Manager of The Walt Disney Company from 1975-1988. He is currently
a member of board of directors and treasurer of Partners Federal Credit Union
a $100,000,000 credit union servicing Orange County, California based
employees of the Walt Disney Company. He also served as the Past President
and Treasurer of Toastmaster International. He was formerly an independent
auditor of Meridian Holdings, Inc.
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
16
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. Smith, Truher, Creary 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, 2005, the Company's Board of
Directors acted six times by a unanimous written consent in lieu of a
meeting. Each member of the Board participated in each action of the Board.
AUDIT AND ETHICS COMMITTEE REPORT
Management has the primary responsibility for the financial reporting process
and the audited consolidated financial statements, including the systems of
internal controls. The Corporation's independent auditors, Madsen Associates
CPA, Inc. 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 non-audit 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
17
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, 2005 and 2004,
for filing with the Securities and Exchange Commission.
Members of the Audit and Ethics Committee:
James Truher Creary
Andrew Smith 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
Anibal Fallah, MBA Director of Business Development (interim)
Henry Garcia, Director of Marketing and Media Communications.
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) 2005 $144,000 0 150,000 0
Wesley Bradford (2) 2005 $ 35,000 0 100,000 0
1. As of December 31, 2005, 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
18
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, 2005.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2005 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 9,065,255 Active 50%
Jerry Aguolu (2,4) Director 100,000 Active 0.5%
James W. Truher (2) Director 265,900 Active 1.4%
Randy Simpson (2,4) Director 200,000 Active 1.0%
Marcellina Offoha, Ph.D (2) Director 257,190 Active 1.4%
Wesley G. Bradford, MD (2) Medical 200,000 Active 1.0%
Director
All directors and Officers as
a group (five persons) 10,088,345 55%
Other Beneficial Owners
CGI Communications Services, Inc. 611,501 3%
MMG Investments, Inc. (3) 2,767,000 14%
Other public shareholders 5,253,354 28%
Total Number of Shares Outstanding 18,720,200 100%
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.
19
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, 2005 and the underlying options and warrants representing
shares person has the right or will have the right to acquire based on the 2005
stock option plan.
3. Anthony C. Dike, is the sole Director of MMG Investments, Inc, and an
Indirect beneficial owner of 2,767,000 shares of Common stock held by
MMG Investments, Inc.
4. Directors whose term expired as of December 31, 2005.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On August 8, 2005, the board directors authorized the issuance of 3,750,000
shares of common stock of the registrant at a fair-market value of 0.08 cents
per share (based on closing Asking price of our common stock as of August 5,
2005) to Anthony C. Dike, MD, our Chairman and CEO, in exchange for
extinguishing $300,000 debts owed to him by the registrant as at December 31,
2005.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
Item Description
Exhibit 99.1 Independent Auditors' Report and Consolidated Financial Statements
ADDITIONAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K
31.1 Certification pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
of Anthony C. Dike
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: May 22, 2006, By: /s/ Anthony C. Dike
____________________________________Signature
Anthony C. Dike
Chief Executive officer
20
EXHIBIT 99.1
Financial Statements
and Independent Auditors' Reports
MERIDIAN HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 2005 AND 2004
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, 2005 and 2004 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, 2005, and 2004 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
May 22, 2006
F-3
Meridian Holdings, Inc.
Balance Sheets
ASSETS
As of December 31,
----------------------
2005 2004
======= ========
Current assets
Cash and cash equivalents $ 22,525 $ 173,628
Restricted cash (Note 8) 11,525 217,283
Accounts receivable, net of allowance for doubtful accounts
of $282,454 and $179,813, respectively 2,245,848 1,645,838
Other current assets 7,802 11,420
----------- ----------
Total current assets 2,287,701 2,048,170
Fixed assets, (net of accumulated depreciation 16,451 33,944
Intellectual property, net of accumulated amortization of
$34,998 as of (Note 3) - -
Investments (Notes 3 and 12) 2,000,000 3,424,997
---------- -----------
Total assets $ 4,304,152 $ 5,507,111
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 309,156 110,925
Accrued payroll and other Expenses 307,021 $ 299,504
Reserve for incurred but not reported claims (Note 8) 39,480 201,311
Line of Credit facilities (Note 5) 50,348 50,263
Current portion of long-term debt (Note 7) 4,460 4,112
--------- --------
Total current liabilities 710,825 860,949
Long Term Liabilities
Loan from Majority Stockholder/Office (Note 11) 60,607 40,946
Long-term debt, net of current portion (Note 7) 35,598 45,121
------- -------
Total Long Term Liabilities 96,205 280,896
------- -------
Total liabilities 807,030 947,016
======== =======
Commitments and contingencies (Notes 10)
Stockholders' equity (Notes 2, 3, 10 and 14)
Common stock (100,000,000 shares authorized, par value
$0.001; 18,120,650 and 14,370,649 shares issued and
outstanding at December 31, 2005 and 2004, respectively) 18,121 14,370
Paid-in capital $ 5,823,010 $ 5,526,760
Accumulated deficit (551,589) (981,035)
-------------- ------------
Total stockholders' equity $ 3,497,122 $ 4,560,095
-------------- ------------
Total liabilities and stockholders' equity $ 4,304,152 $ 5,507,111
============== ============
See accompanying notes to consolidated financial statements.
F-3
Meridian Holdings, Inc.
Consolidated Statements of Operations
YEARS ENDED DECEMBER 31,
---------------------------
2005 2004
======= =====
Revenues
Healthcare Services $ 1,363,987 $ 1,042,218
Capitated Services 406,577 1,322,830
--------- ----------
1,770,566 2,365,048
Cost of revenues 630,372 1,288,208
------- --------
Gross Profit 1,140,196 1,076,840
Operating expenses
General and administrative 816,838 1,549,824
--------- --------
1,334,824 1,549,824
Income (loss) from operations 323,356 (472,984)
Other income and (expense)
Write down of investment in
Subsidiary (1,416,019) $ -
Write of related party
Receivable ( 240,522) $ -
Equity interest in earnings
of investment (8,978) (33,568)
Other net (20,810) (15,675)
------- --------
(1,686,329) (49,243)
Provision for income tax - -
------- ---------
Net income (loss) $ 1,362,973) $ (522,227)
========= ==========
Net income (loss) per share:
Weighted Average Shares
Common Stock Outstanding 15,620,649 13,120,649
========== =========
Net Income(Loss) per Common Share
(Basic and Fully diluted) $ 0.00 $ (0.04)
========= ==========
See accompanying notes to consolidated financial statements.
F-4
Meridian Holdings, Inc.
Statements of Stockholders' Equity
For the Years Ended December 31,
2005 and 2004
Accumulated
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
========= ====== ======== ==========
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)
Issuance of stock for
services at $.10 per share 5,000,000 5,000 495,000 -
Net loss for period - - - (522,227)
---------- ------- ------ -----------
Balance December 31, 2004 14,370,649 14,371 5,526,760 $ (981,035)
Issuance of stock for
services at $.08 per share 3,750,000 3,750 296,250 -
Net income for period - - - (1,362,973)
Balance December 31, 2005 18,120,649 18,121 5,823,010 $ (2,344,008)
========== ========= =========== ==========
See accompanying notes to consolidated financial statements.
F-5
Meridian Holdings, Inc.
Consolidated Statements of Cash Flows
Meridian Holdings, Inc.
Consolidated Statements of Cash Flows
Twelve Months Ended December 31,
2005 2004
(restated)
====== ======
Cash flows from operating activities
Net income/(loss) $ (1,362,973) (522,227)
Adjustments to reconcile net Loss/income
to net cash used in operating activities:
Depreciation and amortization 17,493 18,232
Common Stock issued for services - 500,000
Equity in loss of subsidiary 8,978 33,568
Write down investment in subsidiary 1,416,019 -
(Increase) decrease in:
Restricted Cash 205,758 63,727
Accounts receivable (600,012) (146,356)
Other current assets 3,618 (3,118)
Accounts payable 3,397 72,458
Accrued payroll and other 307,517 299,504
Incurred but not reported reserve (161,831) (26,509)
--------- ---------
Net cash used in operating activities (161,676) 289,279
Cash flow from investing activities
Purchase of fixed assets - (8,918)
Investments in CGI - (10,001)
---------- --------
Net cash used in investing activities - (18,919)
---------- -------
Cash flow from financing activities
Borrowings from majority stockholder/officer 20,011 40,946
Advances on line of credit 85 1,351
Repayment on long-term debt (9,523) (140,010)
Other Payments -
-------- ---------
Net cash (used in) provided by financing activities 10,573 (97,949)
--------- ---------
Increase/(Decrease) in cash and cash equivalents (151,103) 172,411
Cash and cash equivalents, beginning of period 173,629 1,218
--------- -------
Cash and cash equivalents, end of period $ 22,526 173,629
========= ========
Cash Paid for Interest $ 4,536 $ 4,750
========= =======
Supplemental Disclosure of non-cash
financing activities:
Shares issued for payment of long term debt $300,000 $ -
========= ==========
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 at 6201 Bristol
Parkway Culver City, California, U.S.A. and contracts with physicians to provide
Health care services primarily within Southern California.
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.
Fiscal Year
The Company operates on a December 31 year end.
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.
On September 2, 2005, Meridian Holdings, Inc, announced that pursuant to the
written consent of the board of directors of both Meridian Holdings, Inc, and
CGI Communications Services, Inc., (OTC: CGIC) dated August 24, 2005, in which
it was approved that Meridian Holdings, Inc., declare a dividend of shares of
CGI Communications Services, Inc., Common Stock it owns, to each of its
shareholders with the exception of all current and past officers, directors and
affiliates, by transferring or causing to be issued one (1) share of the CGI
Stock for every ten (10) shares of Meridian Holdings, Inc., common Stock held
by each of such shareholder ("Dividends") of record as of September 26, 2005.
Since this event occurred close to the end of third quarter, 2005, and the
delivery of shares to the shareholders of the registrant continued into the
forth quarter of 2005. The fair market value of the shares issued based on
the closing bid price of the CGI Communications Services Common Stock of
0.01 cents per share was $39,000. In addition, at December 31, 2005, management
reviewed the carrying amount of the Investment in CGI. The investment amount
was written down to $2,000,000 which is the fair market value of the shares of
CGI that are owned by the Company.
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.
The fee for service receivable relates principally, to medical services
F-8
provided on a fee-for-service basis, and are reduced by amounts estimated
to be uncollectible. These receivables are typically uncollateralized
customer obligations due under normal trade terms requiring payment within
30-90 days from the invoice date. The Company does not charge late fees or
Penalties on delinquent invoices, however it continually evaluates the need
for a valuation allowance. Management's estimate of uncollectible amounts is
based upon its analysis of historical collections and other qualitative
factors.
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.
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.
F-9
Accounting for Stock-based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-based Compensation,"
which establishes financial accounting and reporting standards for stock-based
compensation. SFAS No. 123 generally suggests, but does not require,
stock-based employee compensation transactions be accounted for based on the
fair value of the consideration received, or the fair value of the equity
instruments issued, whichever is more reliably measurable. Companies that do
not elect to change their accounting for employee stock-based compensation are
required to disclose the effect on net income as if the provisions of SFAS No.
123 were followed. The Company has decided to retain the provisions of APB
Opinion No. 25, and related interpretations thereof, for recognizing stock-based
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.
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, 2005 and 2004.
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, 2005.
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
F-8
of the transaction, the Company's shares opened at a price of $3 per share.
Between September 1, 1999 and the acquisition date, the Company's stock sold
within a range of $.25 to $3.25 per share (an average of $.97 per share).
Because of the limited trading history of the Company, the six-month average was
deemed to be a fair valuation of the transaction, resulting in a total
investment balance of $3,911,511 and $3,880,000 as of December 31, 2002
and 2001 respectively. The shareholders of CGI were also issued warrants
to purchase an additional 1,000,000 pre-split (adjusted to 3,000,000 post-split)
shares of common stock at $2 pre-split share (or approximately $0.67 on a
post-split basis) over a five-year period as a hedge against any fluctuation of
the share price of the common stock in the immediate future. These warrants
expired on December 30, 2004.
During 2005, the Company recorded non-cash dividends of $39,000, representing
distributions of a portion of its holdings of CGI Communications Services,
Inc. to the Company's stockholders. In addition, at December 31, 2005,
management reviewed the carrying amount of the Investment in CGI. The investment
amount was written down to $2,000,000 which is the fair market value of the
shares of CGI that are owned by the Company.
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, 2005 and
2004 respectively and is summarized as follows:
2005 2004
====== ======
Computer equipment $ 111,155 $ 111,155
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
------- --------
212,028 212,028
Less accumulated depreciation (195,577) (178,084)
$ 16,451 $ 33,944
5. Line of Credit
During 2005 and 2004, the Company had a $50,000 line of credit with a financial
institution. Approximately $50,348 and $50,263 was outstanding under this
facility as of December 31, 2005 and 2004, respectively. Related advances bear
interest at 11%, and interest is payable monthly. The line of credit expired
March 21, 2006.
6. Lease Obligations
The Company's corporate offices are located at 6201 Bristol Parkway,
Culver City, California 90230. The monthly obligation is $7,596 not including
common area Maintenance. In addition, the Company leases office space at
15306 South Hawthorne Blvd. The monthly obligation for this clinic facility
is $4,754, not including Common area maintenance. These leases are under
renegotiation with the landlord, and the Company will update the lease
amount, retro-active to June 30,2005, upon completion of the new lease
agreement with the land-lord. In addition, the Company has entered into a
F-8
sub-ordinated agreement with the landlord to pay back leases and fees for
the period beginning April 1, 2006, when the new lease and review is
completed. The estimated amount due is approximately $150,000. This amount
and other fees have been reflected in the balance sheet under current
liabilities.
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.
7. 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.
On December 31, 2005 and 2004, the Company had a net operating losses available
For carry forward of $1,362,973 and $981,035 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 2019.
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, 2005 and 2004 respectively..
The Company has also reflected the monies in the escrow account as of December
31, 2005 and December 31, 2004 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. On December 2004 and 2005, Tenet sold the five hospitals under
this risk pool agreement to third parties. The company has entered into
a new risk pool agreement with one of the new owners of three of the TENET
hospitals under this risk pool agreement as at January 31, 2005.
Negotiations are in progress with the other owners of two of the TENET
Hospitals to renew the contract with Los Angeles Count Community Health plan.
As at May 19, 2006, this contract has not been renewed, and will subsequently
terminate retroactively to December 31, 2005.
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.
F-8
As at December 31, 2005, 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
F-10
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.
A summary of the status of the Plan and changes during the years ended December
31 2005 and 2004 is as follows:
2005 2004
===== =====
Fixed Options Fixed Options
Shares Weighted Shares Weighted
Average Average
Price Price
======== ======== ======= ========
Outstanding at beginning of Year 0 $0.00 1,094,000 $ 0.57
Granted 0 0.00 3,906,000 $ 0.20
Exercised 0 0.00 (5,000,000) 0.10
Forfeitures/Cancelled - - - -
---------- ------ --------- ------
Outstanding at end of the year 0 $ 0.00 0 $ 0.00
========== ====== ========= =======
Exercisable at end of year 0 $ 0.00 0 $ 0.00
========== ====== ========= =======
Weighted average fair value per Options
Granted during the year $ 0.00. $ 0.29
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 August 8, 2005, the board directors authorized the issuance of 3,750,000
shares of common stock of the registrant at a fair-market value of 0.08 cents
F-9
per share (based on closing Asking price of our common stock as of August 5,
2005) to Anthony C. Dike, MD, our Chairman and CEO, in exchange for
extinguishing $300,000 debts owed to him by the registrant as at December 31,
2005.
12. Equity Method Investments
APB Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock, states that use of the equity method of accounting for
investments is required if the investor has the ability to exercise
significant influence over operating and financial policies of the investee.
Paragraph 17 of the Opinion 18 establishes standards for use of the equity
method to account for investments in common stock other than subsidiaries
and corporate joint ventures. It states that:
"The (Accounting Principles) Board concludes that the equity method of
Accounting for an investment in common stock should also be followed by an
investor whose investments in voting stock gives it the ability to exercise
significant influence over operating and financial policies of an investee
even though the investor holds 50% or less of the voting stock. Ability to
exercise that influence may be indicated in several ways, such as
representation on the board of directors, participation in policy making
process, material intercompany transactions, interchange of managerial
personnel, or technological dependency"
" ... In order to achieve reasonable degree of uniformity in application,
the (Accounting Principle) Board concludes that an investment
(direct or indirect) of 20% or more of the voting stock of an investee
Should lead to a presumption in absence of evidence
to the contrary that an investor has the ability to exercise significant
influence over investee. "
Summary financial information for CGI as of and for the two years ended
December 31, 2005 and 2004 respectively is presented in the following
Table:
2005 2004
(unaudited) (unaudited)
Long-term assets $ 5,262,450 $ 5,262,450
Total assets 5,262,929 5,262,929
Current liabilities 1,647,795 1,647,795
Total liabilities 1,647,795 1,647,795
Revenues - -
Other Revenue - -
Gross margin - -
Net income (loss) (44,890) (44,890)
The Company continues to assess for impairment of its investment in CGI
Communications Services, Inc., by evaluating whether an event or change in
circumstances has occurred in the current reporting period that may have
significant adverse effect on the fair value of the investment.
The impairment indicators utilized by the company includes but not limited to
the following:
1. A significant deterioration in the earnings performance, credit rating
asset quality, or business prospects of the investee
2. A significant adverse change in the regulatory, economic, or technological
environment of the investee
3. A significant adverse change in the general market condition of either the
geographic area or the industry in which the investee operates
F-12
4. A bona fide offer to purchase (whether solicited or unsolicited), an offer
by the investee to sell, or a completed auction process for the same or
similar Security for an amount less than the cost of the investment.
5. Factors that raise significant concerns about the investee's ability to
continue as a going concern, such as a negative cashflows from operations,
working capital deficiencies, or non-compliance with statutory capital
requirements or debt covenants.
Based on managements most recent assessment, the fiar value of its investment
Was less than the carrying value of the investment at December 31, 2005.
Management therefore elected to write down the investment to the amount of
$2,000,000 which represents the fair market (trading) value of the CGI at
December 31, 2005.
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 not been reflected in the balance sheet
and the income statement as a judgment receivable. The current value of the
judgment at at January 8, 2006 is $39,894,303. Management is pursuing all
collections options regarding this judgment.
Other Events
On October 4, 2005, Tenet HealthSystem Hospitals, Inc, (Tenet) announced that
it has entered into an agreement to sell Community & Mission Hospitals of
Huntington Park in Huntington Park, California., to Karykeion, Inc., a privately
held Corporation. These are two of the hospitals contracted with CAPNET IPA
and County of Los Angeles Community Health Plan . This transaction is expected
to closed on December 31, 2005
Subsequent Events
On May 19, 2006, the company accepted the offer by InterCare DX, Inc., and
CGI Communications Services, Inc, both an affiliated entities 5,000,000
of Common stock at fair market value of 0.023 cents and warrant to purchase
additional 5,541,503 shares at 25 cents per share, with expiration date of
May 19, 2008, in exchange for forgiveness of debt owed to Meridian, in the
amount of $1,500,375.84. by InterCare. Also, the registrant accepted the offer
to be issued by CGI Communications Services, 6,013,043 Shares of this CGI
Common Stock at 0.04 cents per share, to Meridian Holdings, Inc, in exchange
for forgiveness debt in the amount of $240,521.71
F-13