UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From ___________ to ____________
COMMISSION FILE NUMBER: 0-30018
MERIDIAN HOLDINGS,INC.
----------------------
(Exact Name of Registrant as Specified in its Charter)
COLORADO 52-2133742
------------------------------- ------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
900 WILSHIRE BOULEVARD, SUITE 500, LOS ANGELES, CALIFORNIA 90017
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(Address of Principal Executive Offices)
(213) 627-8878
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
As of June 30, 2002, Meridian Holdings, Inc., Registrant had 93,706,485
shares of its $0.001 par value common stock outstanding.
Page 1 of 14 sequentially numbered pages
Form 10-Q
Second Quarter 2002
MERIDIAN HOLDINGS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Legal Proceedings 13
Additional Information 14
Signature 14
2
MERIDIAN HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
As of June 30, December
2002 2001
========== ==========
Current assets
Cash and cash equivalents $ 51,218 $ 7,219
Restricted cash 292,787 331,232
Accounts receivable, net of allowance for
doubtful accounts of $179,812 and $151,744 1,106,162 1,485,530
Other current assets 52,681 17,881
---------- ----------
Total current assets 1,502,848 1,841,863
Fixed assets, net of accumulated depreciation 37,018 37,870
Intellectual property, net of accumulated
$0, depreciation as at June 30, 2002 (Note2) - 350,000 -
Investments 3,915,102 3,803,691
--------- ----------
Total assets $ 5,804,968 $ 5,683,424
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 180,351 $ 202,750
Accrued payroll and other 355,977 283,477
Dividend payable - -
Reserve for incurred but not reported claims 150,162 144,025
Accrued interest 38,545 -
Line of credit 63,931 46,278
Current portion of long-term debt 96,375 96,375
------- -------
Total current liabilities 885,341 772,904
Long Term liabilities
Loan from majority stockholder/officer 290,777 -
Long-term debt, net of current portion 44,818 422,530
--------- ---------
Total liabilities 1,220,936 1,195,434
========= ==========
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; 93,456,485 shares issued and outstanding at
June 30, 2001 and 93,706,485 as at June 30, 2002 93,706 93,957
Additional paid-in capital 4,947,424 4,947,424
Accumulated deficit (457,098) (553,140)
---------- ----------
Total stockholders' equity 4,584,032 4,487,990
----------- -----------
Total liabilities and stockholders' equity $ 5,804,968 $ 5,683,424
============ ============
See accompanying notes to Condensed consolidated financial statements
3
MERIDIAN HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
===== ==== ==== ====
Revenues
Capitation $ 421,847 $ 576,555 831,313 1,054,383
Risk Pool 107,854 - 300,772 -
Fee For Service 7,749 - 16,197 -
Sale of software - - - 149,600
--------- ----------- ---------- ----------
537,450 576,555 1,148,282 1,203,383
Cost of revenues
Capitation 136,685 258,888 284,729 462,736
------- ------- ------- -------
Gross margin 400,765 317,667 863,553 740,647
------- ------- ------- -------
Operating expenses
General and administrative 445,257 272,995 855,695 936,918
Research and development - 78,817 - 80,833
------- ------- ---------- -------
Income/(loss) from operations(44,492) (34,145) 7,858 (277,104)
-------- ------- ---------- -------
Other income and expense
Equity interest in earnings
(loss) of investment 116,412 (50,138) 111,656 (74,180)
Other net (13,928) (3,784) (23,326) (14,774)
-------- ------- ---------- --------
102,484 (53,922) 88,330 (88,954)
-------- ------- ---------- --------
Net income/(loss) before
Extraordinary item 57,992 (88,067) 96,188 (366,058)
-------- ------- --------- -------
Extraordinary items
Loss on abandonment of
Software - (2,193,750) - (2,193,750)
Gain on forgiveness of
Debt - 2,891,250 - 2,891,250
----------- ----------- ----------- ----------
- 697,500 697,500
----------- ----------- ----------- ---------
Net income after
Extraordinary items $ - 609,433 - 331,442
=========== =========== =========== ==========
Basic and diluted $ 0.000 $ (0.003)
Weighted average shares outstanding 93,831,485 93,456,485
See accompanying notes to Condensed consolidated financial statements
4
MERIDIAN HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
Six Months Ended June 30,
2002 2001
===== ======
Cash flows from operating activities
Net income $96,189 331,442
Adjustments to reconcile net Loss to net
cash used in operating activities:
Loss on abandonment of software 2,193,750
Gain on forgiveness of debt (2,891,250)
Depreciation and amortization 5,412 178,983
Equity interest in earnings of investments 74,180
(Increase) decrease in:
Restricted cash 38,445 (124,033)
Accounts receivable 348,769 251,382
Other current assets (354,355) (1,293)
Accounts payable 4,267 (165,629)
Accrued payroll and other 13,530 (142,703)
Incurred but not reported reserve 6,137 42,580
Accrued interest 14,877 (111,082)
---------- ----------
Net cash used in operating activities 173,270 (78,267)
--------- ----------
Cash flow from investing activities
Acquisition of fixed assets (4,560) (8,119)
Investment in InterCare (111,411) -
Organization costs - -
---------- ---------
Net cash used in investing activities (115,971) (8,119)
---------- ---------
Cash flow from financing activities
Borrowings from majority stockholder/officer (11,262) 17,136
Borrowings on long-term debt - -
Repayment of debt (2,046) (25,288)
Borrowings on line of credit (3,733)
-------- ---------
Net cash (used in) provided by financing activities (13,308) (11,890)
--------- ---------
(Decrease) increase in cash and cash equivalents 43,911 (98,276)
Cash and cash equivalents, beginning of period 7,219 253,501
---------- ----------
Cash and cash equivalents, end of period $ 51,210 155,225
========== ==========
Supplemental Disclosure of non-cash investing and financing activities
See accompanying notes to Condensed consolidated financial statements
5
MERIDIAN HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
1. General
Basis of Reporting
The interim accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal, recurring
accruals) considered necessary for a fair presentation have been included.
For further information, management suggests that the reader refer to the
audited financial statements for the year ended December 31, 2000 included in
its Annual Report on Form 10-KSB. Operating results for the six-month
period ended June 30, 2002 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 2002.
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 opportunity.
2. Investments and Intellectual Property
On June 29, 2000, the Company purchased all of the assets of Sirius Computerized
Technologies Limited (Israel), consisting primarily of intellectual property and
technology related to that company's software used in healthcare management.
The asset purchase includes the highly innovative intellectual property commonly
known as MedMaster and the associated Virtual Multi-object-architecture
Database, as well as all components, subsystems, source code, and documentation.
The purchase price was $2.7 million. Simultaneous with this acquisition, the
Company formed a research and development subsidiary in Jerusalem, Israel known
as Corsys Group Limited ("Corsys"). During the quarter ended June 30, 2001,
the operations of Corsys ceased as discussed in the following paragraph.
The purchase of intellectual property was funded by the majority
stockholder/officer of the Company, and the Company has recorded a note payable
to the majority stockholder/officer in the amount of $2.7 million. Intellectual
property has been capitalized in the amount of $2.7 million in the accompanying
condensed consolidated balance sheet. The acquisition was made with the
understanding that the Company would have free and clear title to the
intellectual property.
The intellectual property, including its subsystems, source code and
documentation, was acquired out of the bankruptcy proceedings of Sirius
Computerized Technologies Limited (Israel) and Sirius Technologies of America
(Collectively, "Sirius"). The acquisition was made with the understanding that
the Company would have free and clear title to the intellectual property.
However, during fiscal year 2000, a significant creditor of Sirius, Lockheed
Martin Systems Integration, Owego ("Lockheed") obtained a judgment against
Sirius and executed same to obtain possession of the source code underlying
the Sirius MedMaster suite of software products, and has expressed its
intention to exploit same, thus creating competition with the Company. In
April 2001, the receiver for Sirius filed the appropriate documents to prevent
6
the Company from taking the software from the Corsys premises. In May 2001, the
Company notified the receiver of its intent not to pursue the intellectual
property rights further and to cancel the original purchase agreement.
Given the above events, the Company had recorded a loss on abandonment of
software during the quarter ended June 30, 2001 in the amount of $2,193,750,
which is classified as an extraordinary item in the accompanying condensed
consolidated statement of operations.
The original intent of the related note payable to the majority
stockholder/officer was to pay him back for the proceeds of $2,700,000 which he
had pledged in connection with the acquisition of the intellectual property.
The majority stockholder/officer is now seeking return of the stock, and, in
July 2001, has also rescinded the note payable, plus accrued interest. This
forgiveness of debt was recorded as of June 30, 2001 to match the timing of the
cancellation of the acquisition. Therefore, the Company had reflected an
extraordinary gain of $2,891,250 in the accompanying condensed consolidated
statement of operations.
3. Fixed Assets
Fixed assets consist of the following:
As of
June 30, 2002 December 31,2001
Computer equipment $ 78,376 $ 73,816
Leasehold improvements 6,500 6,500
Office furniture, fixtures and equipment 61,915 36,603
Software 22,389 22,389
Medical equipment 5,391 5,391
-------- -------
174,571 170,012
Less accumulated depreciation (137,553) (132,141)
--------- --------
$ 37,018 $ 48,883
========= ==========
4. Line of Credit
The Company has a $50,000 line of credit with a financial institution. Related
advances bear interest at 11%, and interest is payable monthly. The line of
credit expires March 21, 2003.
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 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 Tenet pays all
claims expenses, reinsurance expenses and retains a management fee. These
revenues and expenses have been reflected in the accompanying consolidated
statements of operations for the quarters ended June 30, 2002 and 2001.
The Company has also reflected the monies in the escrow account as of June 30,
2002 and June 30, 2001 as restricted cash in the accompanying consolidated
balance sheets. Additionally, Tenet provides the Company with an estimate as to
the incurred but not reported claims, which has been recorded as such in the
accompanying consolidated balance sheets.
7
Related party Transaction
On June 30, 2002, the registrant purchased the intellectual property rights to
the source code and proto-type software commonly know as ICE(tm) from
InterCare.com-Dx, Inc., an affiliated Company, in exchange for long term
debt reduction and prepayment for software document cost.
The source code and the prototype software will be utilized to develop
a replacement software program for the MedMaster product, which will satisfy
the needs of our current and future customers.
8
MERIDIAN HOLDINGS, INC.
THE COMPANY
Meridian Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on October 13, 1998. The Company is located in the City of
Los Angeles, California, U.S.A. and contracts with physicians to provide health
care services primarily within 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 opportunity.
SELECTED FINANCIAL DATA
The Company had net working capital of $617,507 as at June 30, 2002
compared to $1,068,959 at December 31, 2001. This represents a decrease in
working capital of 42%. This decrease in working capital is attributed to
decrease in enrollment of membership into the Capnet IPA Network as well as
decreases in monthly fees paid by the contracted health plans to the IPA.
The selected financial data set forth above should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
The following section contains forward-looking statements that involve risks and
uncertainties, including those referring to the period of time the Company's
existing capital resources will meet the Company's future capital needs, the
Company's future operating results, the market acceptance of the services of the
Company, the Company's efforts to develop new products and services, and the
Company's planned investment in the marketing of its current services and
research and development with regard to future endeavors. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including: domestic
and global economic patterns and trends.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY.
We believe that we will be able to fund our capital commitments, operating cash
requirements and satisfy our obligations as they become due from a combination
of cash on hand, expected operating cash flow improvements through HMO premium
increases and improvements in the benefit structure of HMO contracts effective
January 1, 2001, as per our IPA contract amendment with the County of Los
Angeles Community health Plan.
However, there can be no assurances that these sources of funds will be
Sufficient to fund our operations and satisfy our obligations as they become
due.
Long-term cash requirements, other than normal operating expenses, are
anticipated for the continued development of the Company's business plans. The
Company will need to raise additional funds from investors in order to complete
these business plans.
If we need additional capital to fund our operations, there can be
no assurance that such additional capital can be obtained or, if obtained, that
it will be on terms acceptable to us. The incurring or assumption of additional
indebtedness could result in the issuance of additional equity and/or debt which
could have a dilutive effect on current shareholders and a significant effect on
our operations.
9
RESULTS OF OPERATIONS
THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF MERIDIAN
HOLDINGS FOR THE THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 2002 AS
COMPARED TO THE THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 2001.
REVENUE
Medical services revenues decreased by 27% from $576,555 for the three
months ended June 30, 2001 to $421,847 for the three months ended
June 30, 2002, and by 21% from $1,054,383 for the six months ended June 30,
2001 to $831,313 for the six months ended June 30, 2002. Revenue from fee
for services increased by 100% from $0.00 for the three months ended June 30,
2001 to $ 7,749 for comparable period in June 2002. For the six months ended
June 30, 2002, revenue from fee for service increased by 100% as against the
comparable period June 2001. No revenue was generated from the sale of software
during both periods.
We provided managed care services for approximately 30,000 and 25,000 member
months (members per month multiplied by the months for which services were
available) during the six months ended June 30, 2002 and 2001, respectively.
This figure is comparative for both the three months and six months ended June
30, 2002 and 2001 respectively.
Revenue generated by our managed care entities under our contracts with
HMOs as a percentage of medical services revenue was approximately 96% and 99%,
respectively, during the six months ended June 30, 2002 and 2001. Revenue
generated by the Los Angeles County Community Health Plan ("CHP") contracts was
99.9% and 95% of medical services revenue for the six months ended June 30, 2002
and 2001, respectively. Revenue generated by LACARE Health Plan ("LACARE")
contract was less than 1% of medical services revenue for the six months ended
June 30, 2002 and 2001, respectively. This figure is comparative to the three
months ended June 30, 2002 and 2001 respectively.
Revenue from other services including software licensing and implementation
services was 0% and 41% of our total revenues during the six months ended June
30,2002 and June 30, 2001 respectively, and 0% of our total revenues
during the three months ended June 30, 2002 and June 30, 2001, respectively.
EXPENSES
Medical claims paid, which includes capitation payments to our contracted
primary care IPA physicians and medical claims paid revenue after giving
account to IBNR reserves, for the three month period ended June 30,2002 were
$114,365 or 21% of medical services revenue after giving account to IBNR
reserves, compared to $258,888 or 45% of medical services revenue for the three
month period ended June 30, 2001. Medical services expenses, for the six month
period ended June 30,2002 were $226,773 or 20% of medical services revenue,
compared to $462,736 or 44% of medical services revenue for the six month period
ended June 30, 2001. The decreases are due to decrease in volume of
claims paid to contracted providers for services rendered. The decrease in
volume of claims is also attributable to decrease in enrollment of members in
the IPA network with concomitant decrease in utilization of services.
Medical claims represent the costs of medical services provided by providers
other than our contracted primary care providers, but which are to be paid
by us for individuals covered by our capitated risk contracts with HMOs. Our
claim loss ratio varies from quarter to quarter due to fluctuations in
utilization, the timing of claims paid by the HMOs on our behalf, as well as
increases in medical costs without counterbalancing increases in capitation
revenues.
General and administrative expenses were $445,257 or 83% of total revenues and
$272,995 or 47% of total revenues, for the three months ended June 30, 2002 and
2001,respectively and $855,6958 or 75% of total revenues compared to
$936,918 or 78% of total revenues for the six months ended June
30, 2002 and 2001 respectively. The variance is due the explanation in the
paragraph above.
10
The company had embarked on an aggressive cost containment measures such as
closing of the Israeli operation and laying-off of some personnel in order to
reduce its operating expense.
For the three months ended June 30, 2002 and 2001, payroll and employee benefits
for administrative personnel was $121,554, or 23% of total revenues, compared to
$141,605 or 25% of revenue, respectively. Payroll and employee benefits for
administrative personnel was $275,766 for the six months ended June 30, 2002, or
24% of total revenues, compared to $299,575 or 25% of revenue for the six months
ended June 30, 2001. The decrease in employee payroll expenses was due to
reduction in the support staff as well as other cost containment measures
implemented by the registrant to help enhance its balance sheet.
The Company waived future payments for administrative services by
InterCare.com-Dx, Inc., an affiliated entity to offset amounts previously paid
for MedMaster Software maintenance and enhancement to Corsys Group (Israel)
Limited, a wholly owned subsidiary of the registrant that was not
delivered, in the amount of $325,000, due to the abandonment of Medmaster
software by the registrant, following a Georgia (USA) Court decision
in 2001 to award the said asset to Lockheed Martin Owego, New York, one of
Sirius Computerised Technology (Israel), Limited creditors.
Management anticipates that general operating expenses will increase, as it
pursues, vigorously, its acquisition of new business opportunities and the
integration of the existing ones.
INCOME/LOSS FROM OPERATIONS
The registrant recorded a loss from operations for the three months ended June
30, 2002 of $44,492, or 8% of total revenues, and a loss of $34,145, or 5%
of total revenues, for the three months ended June 30, 2001. During the six
months ended June 30, 2002, the registrant recorded an income from operations
of $7,858, or 0.7% of total revenues compared to a loss from operations of
$277,104 or 23% of total revenues for the six months ended June 30, 2001. The
increase in net loss from operations is due to the increase in operating
expenses, and the income reported for the six months ended June 2002 is as a
result of the decrease in operating expenses.
NET INCOME (LOSS)
The net income for the three months ended June 30, 2002 and 2001 was $57,992
and $609,433 respectively. The net income for six months ended June 30, 2002
and 2001 was $96,188 and $331,442 respectively. These decreases in net
income were due to the extraordinary net gain that was recorded on June 30,
2001 following the abandonment of purchase of the intellectual property
commonly known as MedMaster(tm).
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this Form 10-Q, the words
"believe," "anticipate," "think," "intend," "plan," "will be," and similar
expressions, identify such forward-looking statements. Such statements regarding
future events and/or the future financial performance of our Company are subject
to certain risks and uncertainties, which could cause actual events or our
actual future results to differ materially from any forward-looking statement.
Certain factors that might cause such a difference are set forth in our Form
10-K for the period ended December 31, 2000, 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
11
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 April 30, 2002, the Company initiated a restructuring of its business
whereby some employees were laid-off. This restructuring was necessitated by
the need for the Company to enhance the Company's balance sheet, as well
as streamline its operations. Additional support staff was hired to fill the
special needs of the Company in the area of claims processing and quality
management.
On June 30, 2002, the registrant purchased the intellectual property rights to
the source code and proto-type software commonly know as ICE(tm) from
InterCare.com-Dx, Inc., an affiliated Company, in exchange for long term
debt reduction and prepayment for software document cost.
The source code and the prototype software will be utilized to develop
a replacement software program for the MedMaster product, which will satisfy
the needs of our current and future customers.
The Company is now in the final stages of the development of ICE(tm) clinical
documentation software, which is scheduled to be released during the third
quarter of 2002. There can be no assurance that the Company expected date of
release of the software will be within the above stated time frame. Management
will continue to make such adjustments in the release date, until it is
satisfied that the developed software application will perform as per our
original software specifications. If we are not able to release the software
application in a timely manner, our revenue growth will be impacted.
PART II - OTHER INFORMATION
LEGAL PROCEEDINGS
The registrant believed that it had acquired the intellectual property
commonly known as MedMaster (tm), including its sub-systems, source-code
and documentation, out of the bankruptcy proceedings of Sirius Computerized
Technologies Limited and Sirius Technologies of America (collectively,"Sirius").
The acquisition was made with the understanding that the registrant would
have free and clear title to the intellectual property. However, a significant
creditor of Sirius, Lockheed Martin Systems Integration, Owego ("Lockheed"),
obtained a judgment against Sirius and executed same to obtain possession
of the source-code underlying the Sirius' MedMaster (tm) suite of software
products, and expressed its intention to exploit same, thus resulting in
the potential of significant competition against the registrant and casting
doubt on its ownership of the MedMaster(tm) suite of software products.
The registrant had requested on March 31, 2001, that Sirius and Lockheed come
to a negotiated settlement of their dispute on or before April 30, 2001 in
order for the asset to be delivered free and clear to the registrant
12
per the terms of the purchase agreement of the intellectual property,
as originally approved by the Israeli Bankruptcy Courts, or the registrant
would be forced to take action to seek redress from the Israeli Bankruptcy
Court.
On or about April 16, 2001, the registrant was notified by the US Counsel
representing Sirius Computerized Technology (LTD) and Sirius Technology of
America, Inc. (Collectively known as "Sirius") in case Number A00-71987
(304-Ancillary) in the United States Bankruptcy Court for the District of
Georgia, Atlanta Division, USA, that he had filed a motion to withdraw as
counsel for Sirius in the Ancillary bankruptcy proceeding filed on behalf of
Sirius for lack of payment of the outstanding legal fees by Sirius.
As of April 30, 2001, no agreement had been reached between Sirius and Lockheed
Martin, regarding settlement of their dispute.
On April 30, 2001, the receiver for Sirius filed an application to the Tel Aviv
District court, and obtained a decree on May 1, 2001, prohibiting "Corsys Group
(A subsidiary of Meridian Holdings, Inc, based in Jerusalem, Israel) and all its
representatives from taking out of the Company's premises any part of the
assets which were purchased by Meridian, including copies of the source-code,
and/or the technology, and/or any know-how and/or documents and/or written
and/or magnetic material and/or any technological means, including that known as
"V.M.D.B"., MedMaster" and everything connected and ancillary to it and/or from
presenting copies of these to any party.
On May 16, 2001, the registrant notified Mr. Amir Dolev (Sirius' Receiver), that
it had cancelled the Agreement and Agreements in principle to purchase the
assets of Sirius, because of the acts that were done to prevent the registrant
from using the MedMaster software and the source-code, which conduct constituted
serious and material breaches of the agreements, in addition to the receivers'
inability to deliver to the registrant the purchased assets, free and clear of
third party claims and liens.
The registrant further informed the receiver that it estimated the damage that
was caused to it as a result of the breach of the contractual relationship with
the Receiver, and that the letter of termination should not be deemed to be a
waiver of any assertions or rights of the registrant including (but not limited
to) its rights to receive full compensation for all of its cost, losses, and
damage caused to it as a direct and/or indirect result of the contractual
relationship with the receiver and/or his breaches thereof.
On May 21, 2001, the registrant was notified that the Ancillary proceedings,
Case Number A00-71987 (304-Ancillary), filed by Sirius on September 2000 against
Lockheed Martin were dismissed with prejudice in favor of Lockheed Martin. The
Ancillary proceedings related to the execution of the judgment against Sirius
thereby obtaining for Lockheed Martin full possession of the source-code
underlying the Sirius' MedMaster(tm) suite of software products.
On May 22, 2001, the registrant received a letter from Sirius' receiver,
refusing to honor the registrant's letter of cancellation of the Agreement and
Agreements in principle to purchase the assets of Sirius.
On June 6, 2001, the registrant again affirmed its position regarding the
cancellation of the Agreement and Agreements in principle to purchase the assets
of Sirius. The receiver was advised to remove from the Corsys Group premises all
the assets that belong to Sirius as soon as possible.
On or about July 12, 2001, the registrant filed a notification to the District
Court of Israel (Bankruptcy 1117/00, Civ. App. 10221/01), informing the court
that the registrant and /or its representatives did not have a copy or copies
of the source code of MedMaster software. Also, the Court was informed that,
after realizing that the Receiver failed to fulfill his obligations to the
registrant, the registrant had issued a notice of cancellation of the agreement
between the receiver and the registrant, and the receiver has opposed such
notice.
On July 18, 2001, the board of directors by way of written consent approved the
rescession of the promissory note entered between the registrant and Anthony C.
Dike, in the amount of $2.7 million being the purchase price of the
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intellectual property of Sirius, a result of the above cancellation.
On July 19, 2001, Ventures & Solutions, LLC, filed a lawsuit against the
company, styled Ventures & Solutions, LLC, Plaintiff v. Meridian Holdings, Inc.,
Defendant, Circuit Court of Alexandria, Virginia, Case No. C10517. The company
was served with a copy of the Complaint on August 6, 2001. Plaintiff has
alleged that the company owes it approximately $29,000.00, pre and post
judgment interest, and attorneys' fees and costs.
On May 3, 2002 the registrant filed a counter-claim styled Ventures & Solutions,
LLC., Plaintiff v. Meridian Holdings, Inc, in Virginia Circuit Court for the
City of Alexandria, Case No. CL020075, as amended. The Company is seeking over
$1,500,000 for both compensatory and punitive damages against the plaintiff and
Mr. Dale Church the CEO of Ventures and Solutions, LLC, for misrepresentation
and fraud, breach of contract and breach of fiduciary duties. This lawsuit is
in the discovery phase.
Also, the registrant has filed a cross complaint against Silicon Valley Bank
in the lawsuit Titled Silicon Valley Bank, a California Corporation v.
Meridian Holdings, Inc., a Colorado Corportation, InterCare.com, Inc, a Nevada
Corporation, Case number BC 259513. The lawsuit, as well as the cross-complaint
were due to the earlier acquisition of the asset of Siruis Computerized
Technology of Israel from the Israeli Bankruptcy Court by the registrant, for
which Silicon Valley Bank claimed that said asset was pledged as collateral by
Sirius et al for a loan in the amount of $450,000. The Registrant had earlier
abandoned the proposed asset purchase, and has filed a lawsuit against Siruis
et al as described earlier in this section, and believes that the lawsuit
brought by Silicon Valley Bank is without merit, and frivolous, and we will
vigorously defend our position in this matter. This case is still in the
discovery phase.
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.
ADDITIONAL INFORMATION
None.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MERIDIAN HOLDINGS, INC.
DATE: August 10, 2002 By: /s/ Foday Sorsor Conteh
-------------------
Foday Sorsor Conteh
Vice President Finance
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