UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
Amendment Number 3
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2006
( ) 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
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6201 BRISTOL PARKWAY, CULVER CITY, CALIFORNIA 90230
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(Address of Principal Executive Offices)
(213) 627-8878
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
As of March 31, 2006, Meridian Holdings, Inc., Registrant had 18,120,649
shares of its $0.001 par value common stock outstanding.
Page 1 of 19 sequentially numbered pages
Form 10-Q
First Quarter 2006
MERIDIAN HOLDINGS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
The Company 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3 Controls and Procedures 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 17
2
MERIDIAN HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
As of
March 31, December 31,
2006 2005
========== ==========
Current assets
Cash and cash equivalents $ 24,321 $ 22,525
Restricted cash 30,042 11,525
Accounts receivable, net of allowance for
doubtful accounts of $ 282,454 2,387,199 2,245,848
Other current assets 8,444 7,802
---------- ----------
Total current assets 2,450,006 2,287,701
Fixed assets, net of accumulated depreciation 12,599 16,451
Investments in CGI 2,010,000 2,000,000
---------- ----------
Total assets $ 4,472,605 $ 4,304,152
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Account payable 326,325 309,156
Accrued payroll and other expense 379,781 307,021
Reserve for incurred but not reported claims 15,982 39,480
Other Credit Facilities 56,499 50,348
Current portion of long-term debt 4,460 4,460
----------- -----------
Total current liabilities 783,047 710,825
Long Term liabilities
Loan from Majority Shareholder/officer $ 60,607 60,607
Long-term debt, net of current portion $ 32,546 35,598
---------- --------
Total Long Term Liabilities 93,153 96,205
------------ ---------
Total liabilities 876,200 807,030
========== =========
Commitments and contingencies
Stockholders' equity
Preferred stock (20,000,000 shares authorized,
par value $0.001; no shares issued and outstanding) - -
Common stock (100,000,000 shares authorized, par value
$0.001; 18,120,649 shares issued and outstanding at
December 31, 2005 and March 31, 2006 respectively 18,121 18,121
Additional paid-in capital 5,823,010 5,838,010
Accumulated deficit (2,244,725) (2,344,008)
----------- ----------
Total stockholders' equity 3,596,405 3,497,122
----------- -----------
Total liabilities and stockholders' equity $ 4,472,605 $ 4,304,152
============ ===========
See accompanying notes to consolidated financial statements
3
MERIDIAN HOLDINGS, INC.
Consolidated Statements of Operations
(UNAUDITED)
Three Months Ended March 31,
2005 2004
==== ====
Revenues
Healthcare Services Revenue $ 282,515 $ 138,086
Capitated Services 95,721 322,192
---------- ----------
378,236 460,278
Cost of revenues
Cost of Service- Claims and Capitation payments (75,971) (159,603)
--------- -------
Gross margin 302,265 300,675
--------- -------
Operating expenses
General and administrative 197,633 450,983
--------- ---------
Income/(Loss) from operations 104,632 (150,308)
---------- ---------
Other income and (expense)
Other, expense (5,349) (14,211)
---------- --------
(5,349) (14,211)
--------- ---------
Net Income/(Loss) 99,283 $ (164,519)
=========== ===========
Net Loss per share:
Basic and diluted $ 0.01 $ 0.000
Weighted average shares outstanding 18,120,650 14,370,649
See accompanying notes to consolidated financial statements
4
MERIDIAN HOLDINGS, INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
Three Months Ended March 31,
2005 2004
===== ======
Cash flows from operating activities
Net Loss $ 99,283 $ (680,072)
Adjustments to reconcile net Loss to net
cash used in operating activities:
Stock Option issued - 500,000
Depreciation and amortization 3,852 8,908
Equity interest in earnings of investments
(Increase) decrease in:
Restricted cash (18,517) 98,777
Accounts receivable (141,351) (131,761)
Other current assets (642) -
Increase(Decrease) in
Accounts payable (17,169) 170,351
Accrued payroll and other 72,000 -
Incurred but not reported reserve (23,498) (26,509)
-------- -------
Net cash provided by operating activities 8,696 (60,306)
-------- -------
Cash flow from investing activities
Acquisition of fixed assets - (8,918)
Increase in investment in CGI (10,000) -
-------- --------
Net cash used in investing activities (10,000) (8,917)
--------- --------
Cash flow from financing activities
Borrowings from majority stockholder - 31,459
Borrowings on long term debt - (38,025)
(Repayment)Borrowing from Line of Credit 6,151 1,300
(Repayment)Borrowing from Long Term Debt (3,052) -
-------- --------
Net cash provided by financing activities 3,099 70,784
-------- ---------
Increase(Decrease) in cash and cash equivalents 1,795 1,560
Cash and cash equivalents, beginning of period 22,526 1,218
--------- --------
Cash and cash equivalents, end of period $ 24,321 $ 2,778
========== ==========
See accompanying notes to consolidated financial statements
5
MERIDIAN HOLDINGS, INC.
Notes to Consolidated Financial Statements
1. General
Basis of Reporting
The interim accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal, recurring accruals) considered necessary for
a fair presentation have been included. For further information, management
suggests that the reader refer to the audited financial statements for the year
ended December 31, 2005 included in its Annual Report on Form 10-KSB. Operating
results for the three-month period ended March 31, 2006 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 2006.
Nature of Operations
Meridian Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on October 13, 1998. The Company is located in the City of
Los Angeles, California, U.S.A. and contracts with physicians to provide health
care services primarily within the area of Los Angeles County.
The Company is an acquisition-oriented holding company focused on building,
operating, and managing a portfolio of business-to-business companies. It seeks
to acquire majority or controlling interests in companies engaged in e-commerce,
e-communication, and e-business services, which will allow the holding company
to actively participate in management, operations, and finances. The Company's
network of affiliated companies is designed to encourage maximum leverage of
information technology, operational excellence, industry expertise, and
synergistic business opportunities.
The Company also provides medical services management to its' Capnet IPA health
care provider network. We provide the following services:
- disease management -- a method to manage the costs and care of high risk
patients and produce better patient care
- quality management -- a review of overall patient care measured against
best medical practice patterns
- utilization management -- a daily review of statistical data created by
encounters, referrals, hospital, admissions and nursing home information
- claims adjudication and payment
Cash And Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents ( e.g. restricted cash). From time
to time, the Company maintains cash balances with financial institutions in
excess of federally insured limits.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
The most significant area requiring estimates relate to the Company's
6
Global Risk arrangement with County of Los Angeles Community Health Plan,
(CHP) and Tenet Healths Systems, such estimates are based on knowledge of
current events and anticipated future events, and accordingly, actual
results may ultimately differ materially from those estimates.
Fiscal Year
The Company operates on a December 31st year end.
Revenue Recognition
The Company prepares its financial statements and federal income taxes on the
accrual basis of accounting. The Company recognizes capitation revenue on a
monthly basis from managed care plans that contract with the Company for the
delivery of health care services. This capitation revenue is at the
contractually agreed-upon per-member, per-month rates.
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.
The Company is a party to a Risk Pool Agreement (the "Agreement") with Tenet
HealthSystem Hospitals, Inc. ("Tenet"). Pursuant to the Agreement, 50% of the
monthly capitation revenue is received directly by the Company, and the
remaining 50% is deposited into an escrow account from which Cap-Management
Systems, Inc., a subsidiary of Tenet pays all claims expenses, reinsurance
expenses, make allowance for IBNR reserve, and retains a management fee.
The Company is responsible for 50% of Profit (loss) after all institutional
claims reinsurance and management fees are paid, and Incurred But Not Reported
("IBNR") reserve have been accounted for.
As of December 2004, Centinela Hospital, one of Tenets facilities under global
risk contract with the Company, was sold to Centinela Freeman Health
Systems, Inc. A replacement contract between the Company, CHP and Centinela
Freeman Health System is still in process. All IBNR calculations and
estimates for the previous contracts with Centinela Hospital /Tenet has been
suspended. A new IBNR calculation and estimate will be established, as soon
as the replacement contracts between the Company, CHP and Centinela
Freeman Health are activated.
From time to time, CHP charges the Company for certain medical expenses, which
the Company believes are erroneous or are not supported by its underlying
agreements with CHP. Management's estimate of recovery on these contestations
is based upon its judgment and its consideration of several factors including
the nature of the contestations, historical recovery rates and other
qualitative factors.
Non-HMO accounts receivable (Fee for Service Revenue), aggregating
approximately $138,086 as at March 31, 2005, relate 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.
7
Costs of Revenues
The Company recognizes costs of revenues paid to physicians on a monthly basis
who contract with the Company for the delivery of health care services. These
costs are at the contractually agreed-upon per-member, per-month rates
or at the California Medi-cal fee for service rates.
Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying amounts of cash, receivables, accounts payables and accrued
liabilities approximate fair value because of the immediate or short-term
maturity of these financial statements.
Equity Method
Investments in certain companies whereby the Company owns 20 percent or more
interest are carried at cost, adjusted for the Company's proportionate share of
their undistributed earnings or losses, because the Company exercises
significant influence over their operating and financial activities. Such
investee entity is CGI Communications Services, Inc. ("CGI").
2. Investments
InterCare
On September 18, 1999, the Company acquired 51% of all the outstanding Common
Stock of InterCare in exchange for services and assumption of certain debts of
InterCare. During fiscal year 2000, additional stock issued by InterCare
combined with a dividend distribution by the Company of InterCare stock
resulted in a net decrease in the Company's ownership percentage to 32% as at
December 31, 2000. A dividend of approximately $160,800 was recorded reflecting
the relative net book value of the Company's investment in InterCare that was
distributed to Meridian Holdings, Inc., shareholders as at that time. The
company earlier in 2003 completely divested itself from InterCare DX, but
continues to provide management and administrative services for InterCare for
a fee.
CGI
On December 10, 1999, the Company agreed to acquire a 20% equity interest in CGI
for common stock. On December 20, 1999, the board of directors authorized the
issuance of 4,000,000 pre-split (adjusted to 12,000,000 post-split) shares of
common stock in consideration for the 20% of the interest in CGI. At the date
of the transaction, the Company's shares opened at a price of $3 per share.
Between September 1, 1999 and the acquisition date, the Company's stock sold
within a range of $.25 to $3.25 per share (an average of $.97 per share).
Because of the limited trading history of the Company, the six-month average was
deemed to be a fair valuation of the transaction, resulting in a total
investment balance of $3,880,000 as of December 31, 2000 and 1999. The
shareholders of CGI were also issued warrants to purchase an additional
1,000,000 pre-split (adjusted to 3,000,000 post-split) shares of common stock at
$2 pre-split share (or approximately $0.67 on a post-split basis) over a
five-year period as a hedge against any fluctuation of the share price of the
common stock in the immediate future. These warrants will 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.
7
3. Fixed Assets
Fixed assets consist of the following:
As of
March 31, 2005 December 31,2005
Computer equipment $111,155 $ 111,155
Leasehold improvements 6,500 6,500
Office furniture and fixtures 36,603 36,603
Office equipment 25,356 25,312
Software 26,502 25,803
Medical equipment 6,654 6,654
-------- -------
212,770 212,027
Less accumulated depreciation (200,171) (182,738)
--------- --------
$ 12,599 $ 29,289
========= ==========
4. Line of Credit
The Company has a $50,000 line of credit with a financial institution. Related
advances bear interest at 11%, and interest is payable monthly. The line of
credit expired March 21, 2006. The outstanding balance has been converted to
a term loan payable over six months period at interest rate of 11% per annum..
5. Long-term Debt
The Company has various loans with financial institutions with interest rates
ranging from 4% to 15% and maturity dates ranging from 2015 to 2024.
6. Risk Pool Agreement
The Company is a party to a Risk Pool Agreement (the "Agreement") with Tenet
HealthSystem Hospitals, Inc. ("Tenet"). Pursuant to the Agreement, 50% of the
monthly capitation revenue is received directly by the Company, and the
remaining 50% is deposited into an escrow account from which Cap-Management
Systems, Inc., a subsidiary of Tenet pays all claims expenses, reinsurance
expenses, make allowance for IBNR reserve, and retains a management fee.
The Company is responsible for 50% of Profit (loss) after all institutional
claims reinsurance and management fees are paid, and Incurred But Not Reported
("IBNR") reserve have been accounted for.
These revenues and expenses have been reflected in the accompanying Consolidated
statements of operations for the for the quarters ended March 31, 2006 and 2005.
The Company has also reflected the monies in the escrow account as of March 31,
2006 and March 31, 2005 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 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 closed on
December 31, 2005. Also, as of January 1, 2006, the registrant has no contracts
with Tenet Health Systems Hospitals, as a result of sale of all the contracted
Hospitals by Tenet.
The new owners of these hospitals, have indicated their intent not to renew the
contract with Los Angeles County Community Health Plan and CAPNET IPA.
9
13 Judgment Award
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%
The company is pursuing collection of this judgment very vigorously.
Recent 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
10
MERIDIAN HOLDINGS, INC.
BUSINESS
The following section contains forward-looking statements that involve risks and
uncertainties, including those referring to the period of time the Company's
existing capital resources will meet the Company's future capital needs, the
Company's future operating results, the market acceptance of the services of the
Company, the Company's efforts to establish and the development of new services,
and the Company's planned investment in the marketing of its current services
and research and development with regard to future endeavors. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including: domestic
and global economic patterns and trends.
Meridian Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on October 13, 1998. The Company is located in 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
Software technology, most of the healthcare industry information processing
could be handled more efficiently. To be competitive, the Company must license
11
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.
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
12
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.
SELECTED FINANCIAL DATA
The Company has net working capital of $1,666,959 as at March 31, 2006 compared
to $1,006,897 at March 31, 2005. This represents an increase in working
capital of about 65%. This increase in working capital is attributed to the
increase in account receivable as well as decrease in operating expense for
the period then ended.
The selected financial data set forth above should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
The following section contains forward-looking statements that involve risks and
uncertainties, including those referring to the period of time the Company's
existing capital resources will meet the Company's future capital needs, the
Company's future operating results, the market acceptance of the services of the
Company, the Company's efforts to develop new products and services, and the
14
Company's planned investment in the marketing of its current services and
research and development with regard to future endeavors. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including: domestic
and global economic patterns and trends.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY.
We believe that we will be able to fund our capital commitments, operating cash
requirements and satisfy our obligations as they become due from a combination
of cash on hand, expected operating cash flow improvements through HMO premium
increases and improvements in the benefit structure of HMO contracts.
However, there can be no assurances that these sources of funds will be
sufficient to fund our operations and satisfy our obligations as they become
due.
Long-term cash requirements, other than normal operating expenses, are
anticipated for the continued development of the Company's business plans. The
Company will need to raise additional funds from investors in order to complete
these business plans.
If we need additional capital to fund our operations, there can be
no assurance that such additional capital can be obtained or, if obtained, that
it will be on terms acceptable to us. The incurring or assumption of additional
indebtedness could result in the issuance of additional equity and/or debt which
could have a dilutive effect on current shareholders and a significant impact on
our operations.
RESULTS OF OPERATIONS
THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF MERIDIAN
HOLDINGS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AS COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2005.
REVENUE
The Company generated revenues from operations of $378,236 during the first
quarter ended March 31, 2006, compared to revenues from operations of $460,278
during the comparable period in 2005.
The Company recorded a net income from operations of $104,632 during the
three-month period ended March 31, 2006, compared to net loss of $164,519
during the comparable period in 2005. The increase in net income is due to
additional revenue generated from the clinic operations, as well as risk pool
settlement release by Los Angeles County Community Health Plan for prior period.
Revenue generated from our managed care contracts with HMOs as a percentage
of medical services revenue was approximately 21% and 70%, respectively, during
the three months ended March 31, 2006 and 2005. Revenue generated from the
clinic operations for the first 3 months ended March 31, 2006 was $282,515 or
75% of the total revenue for the period then ended compare to $138,086 or
30% of the total revenue for comparable period in 2005.
The Company is a party to a Risk Pool Agreement (the "Agreement") with Tenet
HealthSystem Hospitals, Inc. ("Tenet") and Centinela Freeman Health Systems.
Pursuant to the Agreement, 50% of the monthly capitation revenue is received
directly by the Company, and the remaining 50% is deposited into an escrow
account from which Cap-Management Systems, Inc., a subsidiary of Tenet pays
all claims expenses, reinsurance expenses, make allowance for IBNR reserve,
and retains a management fee. The Company is responsible for 50% of Profit
(loss) after all institutional claims reinsurance and management fees are paid,
and Incurred But Not Reported ("IBNR") reserve have been accounted for. The risk
pool revenue component of the total revenue generated from our managed care
contracts is $33,322 or 7.2% of total revenue for the period ended March 31,
2006 compared to $118,965 or 26% of total revenue for the period ended March
31, 2005.
The incurred but not reported (IBNR)reserve decreased from $39,840 for the
Period ended December 31, 2005 to $15,982 for the period ended March 31, 2006.
The decrease in IBNR reserve is due to payment of additional claims incurred
during the previous quarter then ended.
Non-HMO accounts receivable (Fee for Service Revenue), aggregating
approximately $282,515 or 75% of total revenue as at March 31, 2006, compared
to $138,086 or 30% of total revenue for the period ended march 31, 2005.
This revenue relate 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.
COST OF REVENUE
The cost of revenue for three months ended March 31, 2006 is $75,971
compared to $159,603 for three months ended March 31, 2005. This represents
a 52% decrease in cost of revenue. The decrease in cost of revenue is due to
decrease in membership enrolment in our manage care contracts, as well as
termination of Tenet contracts with contracted hospital as well as providers.
EXPENSES
General and administrative expenses were $197,633 or 43% of total revenues
for the three months ended March 31, 2006 compared to $450,983 or 98%
of total revenues for three months ended March 31, 2005. This decrease in
operating expense is due to laying off of some of the clinic employees, and
outsourcing of of Capnet IPA management services to Regal Medical Group.
Direct medical costs includes all costs associated with providing services for
CAPNET IPA contracted members, including direct medical payment to physician
providers, hospitals and ancillary services on capitated and fee for service
basis. For the quarter ended March 31, 2006, these costs represents 16% of
total revenue, compared to 36% of total revenue fore quarter ended March 31,
2005. This is referred to as Medical Loss Ratio (MLR). Our Medical Loss
Ratio varies from quarter to quarter due to fluctuations in utilization,
the timing of claims paid by the HMOs on our behalf, as well as increases in
medical costs without counter-balancing increases in capitation revenues.
Of the $202,982 total expenditure for the three months ended March 31, 2006,
$75,971 or 28% was for payment of medical claims, $122,804 or 45% was for
payroll and employee benefits, or 27% was for payment of consultants and
general corporate purposes.
Management anticipates that general operating expenses will increase, as the
IPA membership continues to grow and the company hires more personnel.
INCOME/LOSS
The registrant recorded a net income from operations for the three months ended
March 31, 2006 of $ 99,283 compared to net loss of $164,519 during
comparable period in 2005
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this Form 10-QSB, the words
"believe," "anticipate," "think," "intend," "plan," "will be," and similar
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expressions, identify such forward-looking statements. Such statements regarding
future events and/or the future financial performance of our Company are subject
to certain risks and uncertainties, which could cause actual events or our
actual future results to differ materially from any forward-looking statement.
Certain factors that might cause such a difference are set forth in our Form
10-KSB for the period ended December 31, 2004, including the following: our
success or failure in implementing our current business and operational
strategies; the availability, terms and access to capital and customary trade
credit; general economic and business conditions; competition; changes in our
business strategy; availability, location and terms of new business development;
availability and terms of necessary or desirable financing or refinancing; labor
relations; the outcome of pending or yet-to-be instituted legal proceedings;
and labor and employee benefit costs.
Medical claims payable include estimates of medical claims expenses incurred
by our members but not yet reported to us. These estimates are based on a number
of factors, including our prior claims experience and pre-authorizations
of treatment. Adjustments, if necessary, are made to medical claims expenses in
the period the actual claims costs are ultimately determined. We cannot assure
that actual medical claims costs in future periods will not exceed our
estimates. If these costs exceed our estimates, our profitability in future
periods will be adversely affected.
Pursuant to the Medicaid program, the federal government supplements
funds provided by the various states for medical assistance to the medically
indigent. Payment for such medical and health services is made to providers in
an amount determined in accordance with procedures and standards established by
state law under federal guidelines. Significant changes have been and may
continue to be made in the Medicaid program which could have an adverse effect
on our financial condition, results of operations and cash flows.
During certain fiscal years, the amounts appropriated by state legislatures
for payment of Medicaid claims have not been sufficient to reimburse providers
for services rendered to Medicaid patients. Failure of a state to pay Medicaid
claims on a timely basis may have an adverse effect on our cash flow, results
of operations and financial condition.
PLAN OF OPERATIONS
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 160,000
Hispanic businesses within the greater Los Angeles Metropolitan area. Revenue
will be generated through manage care services and membership enrolment into
our network.
RECENT EVENTS
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.
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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.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act" ), the Company carried out an evaluation under the
Supervision and with the participation of the Company's management, including
the Chief Executive Officer and President and the Principal Financial Officer,
of the effectiveness of the Company's disclosure controls and procedures as of
the end of this reporting period. In designing and evaluating the Company's
disclosure controls and procedures, the Company and its management recognize
that there are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error
and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only
provide reasonable assurance of achieving their desired control objectives.
Additionally, in evaluating and implementing possible controls and procedures,
the Company's management was required to apply its reasonable judgment. Based
upon the required evaluation, the Management concluded that as of March 31,
2005, the Company's disclosure controls and procedures were effective
(at the "reasonable assurance" level mentioned above) to ensure that
information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
From time to time, the Company and its management have conducted and will
continue to conduct further reviews and, from time to time put in place
additional documentation, of the Company's disclosure controls and procedures,
as well as its internal control over financial reporting. The Company may from
time to time make changes aimed at enhancing their effectiveness, as well as
changes aimed at ensuring that the Company's systems evolve with, and meet the
needs of, the Company's business. These changes may include changes necessary or
desirable to address recommendations of the Company's management, its counsel
and/or its independent auditors, including any recommendations of its
independent auditors arising out of their audits and reviews of the Company's
financial statements. These changes may include changes to the Company's own
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
March 31, 2006.
PART II - OTHER INFORMATION
LEGAL PROCEEDINGS
From time to time, we may be engaged in litigation in the ordinary course of
our business or in respect of which we are insured or the cumulative effect of
which litigation our management does not believe may reasonably be expected to
be materially adverse. With respect to existing claims or litigation, our
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management does not believe that they will have a material adverse effect on
our consolidated financial condition, results of operations, or future
cash flows. (Please see the 2005 form 10KSB filed with SEC at www.sec.gov for
additional information.)
Exhibits
31.1 Certification pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
32.1 Certification pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Meridian Holdings, Inc.
Date: May 22, 2006 By: /s/ Anthony C. Dike
____________________________________Signature
Anthony C. Dike
Chief Executive officer
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