UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
( 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, 1999
( ) 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.
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(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)
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 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 ( )
As of December 31, 1999, Meridian Holdings, Inc., Registrant had 31,157,500
shares of its $0.001 par value common stock outstanding. Based upon the closing
price at such date, aggregate market value was $186,945,00.
Page 1 of 49 sequentially numbered pages
Form 10-KSB
Annual Report For The Fiscal Year Ended December 31, 1999
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
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PAGE
PART I
Item 1. Business--------------------------------------------------------1
Item 2. Properties-----------------------------------------------------13
Item 3. Legal Proceedings13
Item 4. Submission of Matters to a Vote of Security Holders----13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters-------------------------------------------.14
Item 6. Selected Financial Data15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--------------------------16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk-----------------------------------------------------------16
Item 8. Financial Statements and Supplementary Data----------------24
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures-----------------------24
PART III
Item 10. Directors and Executive Officers of the Registrant-------25
Item 11. Executive Compensation28
Item 12. Security Ownership of Certain Beneficial Owners and
Management-----------------------------------------------------31
Item 13. Certain Relationships and Related Transactions-------------32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K----------------------------------------------------34
SIGNATURES
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PART I
ITEM 1. BUSINESS
Meridian Holdings, Inc. (OTC Bulletin Board - MEHO) was incorporated under the
laws of the State of Colorado on October 13, 1998. The Company is an Internet
based company with special emphasis on e-commerce, e-communications and
e-business. The Company became fully reporting under Securities & Exchange
Commission guidelines on March 31, 1999. The Company's common stock started
trading on the NASDAQ OTCBB on August 26, 1999. The Company is an
acquisition-oriented holding company focused on building, operating and
managing a portfolio of business-to-business companies. Meridian 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. Meridian's
network of affiliated companies is designed to encourage maximum leverage of
information technology, operational excellence, industry expertise and
synergistic business opportunity.
STRATEGY
Our strategy is to establish Meridian Holdings, Inc., as a Technology and
Internet-centric holding company which identifies, acquires, operates and
manages business-to-business companies. Meridian Holdings, Inc., currently
focuses on companies engaged in e-commerce, e-communication, and e-business
services. The Company generally acquires ownership interests in companies that
allow it to have a significant influence over their direction and management
over the long-term. Meridian Holdings, Inc., assigns a dedicated team to each
partner company and actively assists its partner companies 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 with Internet and
e-commerce business to business expertise to lend expert guidance in further
<PAGE>
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.
Electronic Commerce ("e-Commerce") is the buying and selling of information,
products or services via computer networks. e-Commerce is allowing buyers and
sellers to communicate directly rather than through third parties.
Consumer oriented industries, such as travel, where service and information play
a large part in the buying process, are becoming important e-commerce
participants. Generally speaking, the more time consuming and difficult a
purchase category is, the more likely it is that consumers will use the Internet
versus standard means.
An e-commerce study by dePaul University found that 60% of Internet users aged
30 to 49 years have already made at least one purchase electronically. Other
studies estimate that between 15% and 24% of all Internet users have made a
purchase online. A report recently released by the Deloitte & Touche Consulting
Group estimates that by the Year 2000, e-commerce will grow by 300% and that
many businesses will be conducting over half of their business over the
Internet.
A report by eMarketer concludes that consumer e-commerce will grow to $26.6
billion US by 2002 and business-to-business e-commerce will climb to $268
billion US from an estimated $5.6 billion in 1997.
The U.S. Department of Commerce has suggested that e-commerce will surpass $300
million in the next two years. This is partially based on their estimate that
Internet usage is doubling every 100 days.
BUSINESS OBJECTIVES USING THE INTERNET
- - - - Use the internet as an improvement to the current business
communications environment, and as an adjunct to the Company's
advertising and marketing strategy, or part of an online sales effort.
- - - - Increase corporate name recognition in a low-cost manner.
- - - - To survey, and to be in regular communications with, customers.
- - - - To sell the Company's product globally.
- - - - The Company's target customer profile fits the demographics of the
internet user community.
- - - - To match the Company's communications network to the internet
communications environment.
MARKETING STRATEGY
As an Internet-based service, the Company will have a presence on the World Wide
Web. Key to the Company's success will be the strategic use of Internet links
and keywords. Its strongest product feature will be that products offered by
the Company will be sold at very competitive prices pursuant to pre-existing
contracts that the Company will have with individual vendors. The key to the
successful marketing of the service will be strategic use of the Internet itself
as a marketing tool. The Company plans to develop an effective marketing
strategy that includes registering with key search engines for information such
as Excite, Yahoo and Alta Vista. The Company may also choose to advertise on
various internet portals.
The Company's services will also be outlined in various print materials
including brochures and inserts to be included in a variety of mail-outs such as
credit card bills or frequent flyer statements.
During the Company's initial marketing phase in United States, Canada and
Europe, local press will be targeted with press releases. Advertising will be
purchased in key publications such as Internet World Magazine, Computer Current
and local newspaper Technology sections.
TARGET SEGMENTS
The Company's target market segment is both college students and middle to high
income workers with access to the Internet and likelihood to participate in
e-commerce. As nearly as can be determined from independent studies, this could
be as many as 100 million potential users by the year 2002.
BUSINESS UNITS AND AFFILIATED PARTNERS
The Company has the following business units:
1. Bidfair.com
2. Bolingo.com
3. Capnet.com
4. CGI Communications Services, Inc. (20% owned)
<PAGE>
5. PricePickers.com
6. Intercare.com, Inc. (51% owned)
BIDFAIR.COM
"Bidfair.com" (http://www.bidfair.com) is an Internet premier person to person
auction site, a Web-based community in which buyers and sellers are brought
together in an efficient and entertaining auction format to buy and sell
personal items such as antiques, coins, collectibles, computers, memorabilia,
stamps and toys. The Bidfair.com service permits sellers to list items for
sale, buyers to bid on items of interest and all Bidfair.com users to browse
through listed items in a fully-automated, topically-arranged, intuitive and
easy-to-use online service that is available 24 hours a day, seven days a week.
The Internet offers for the first time the opportunity to create a compelling
global marketplace for person-to-person trading to exchange goods between
individuals. This trading has traditionally been conducted through trading
forums, such as classified advertisements, collectibles shows, garage sales and
flea markets, or through intermediaries, such as auction houses and local dealer
shops. These markets are highly inefficient for these reasons: (i) their
fragmented, regional nature makes it difficult and expensive for buyers and
sellers to meet, exchange information and complete transactions; (ii) they offer
a limited variety and breadth of goods; (iii) they often have high transaction
costs from intermediaries; and (iv) they are information inefficient, as buyers
and sellers lack a reliable and convenient means of setting prices for sales or
purchases. Despite these inefficiencies, the Company believes that the market
for traditional person-to-person trading in the United States through auctions
and classified ads exceeded $50 billion in goods sold in 1997. An Internet
based centralized trading place can overcome the inefficiencies associated with
traditional person-to-person trading by facilitating buyers and sellers meeting,
listing items for sale, exchanging information, interacting with each other and,
ultimately, consummating transactions. Through such a trading place, buyers can
access a significantly broader selection of goods to purchase and sellers have
the opportunity to sell their goods efficiently to a broader base of buyers. As
a result, a significant market opportunity exists for an Internet based
centralized trading place that applies the unique attributes of the Internet to
facilitate person-to-person trading.
BIDFAIR.COM SOLUTIONS
By leveraging the interactive nature of the Internet, Bidfair.com facilitates a
sense of community through direct buyer and seller communication, thereby
enabling the interaction between individuals with mutual interests. In
addition, this community orientation, facilitation of direct buyer and seller
communication and efficient access to information on a particular buyer or
seller's trading history can help alleviate the risks of anonymous trading. As
a result, there exists a significant market opportunity for an Internet based
centralized trading place that applies the unique attributes of the Internet to
facilitate person-to-person trading.
BUYING FROM THE BIDFAIR.COM AUCTION WEBSITE
By featuring different auction styles, the Company encourage participants to not
only compete for items, but to have some fun.
If you are bidding in a WINNING BID auction (a simple bidding war between
participants), the highest bid wins. The fewer the items available, the fiercer
the competition.
In a CLEAR PRICE auction, the wise participants win by underbidding the big
spenders. In multiple-item auctions, every winning bidder gets the items for
the lowest winning bid.
In a SECOND PRICE auction, winning bidders get the item for an amount equal to
the highest losing bid plus the bid increment, or the lowest winning bid,
whichever is less.
At no point during the process does the Company take possession of either the
item being sold or the buyer's payment for the item.
SELLING ON THE BIDFAIR.COM AUCTION WEBSITE
A seller who registers with Bidfair.com can list a product for auction by
completing a short online form. The seller selects a minimum price for opening
bids for the item and chooses whether the auction will last three, five or seven
days. Additionally, a seller may select a reserve price for an item, which is
the minimum price at which the seller is willing to sell the item and is
typically higher than the minimum price set for opening bids. The reserve price
is not disclosed to bidders. A seller can elect to sell items in individual
auctions or, if he or she has multiple identical items, can elect to hold a
"Dutch Auction". For example, an individual wishing to sell 10 identical
watches could hold 10 individual auctions or hold a Dutch Auction in which the
10 highest bidders would each receive a watch and all lower bids would be
rejected. A seller may also specify that an auction will be a private auction.
With this format, bidders' e-mail addresses are not disclosed on the item
<PAGE>
screen or bidding history screen. Sellers pay no placement fee and are charged
a success fee that steps down from 4% to 1% of the transaction value only if an
auction is concluded with a successful bid.
COMPLETION OF THE TRANSACTION
At the end of an auction period, if a bid exceeds the minimum price and, if one
is set, the reserve price, Bidfair.com automatically notifies the buyer and
seller via e-mail and the buyer and seller can then consummate the transaction
independently of Bidfair.com. At the time of the e-mail notification,
Bidfair.com charges the seller a success fee equal to 4% of the first $20 of the
purchase price, 2% of any purchase price between $20 and $1,000 and 1% of any
purchase price over $1,000. At no point during the process does the Company
take possession of either the item being sold or the buyer's payment for the
item. Rather, the buyer and seller must independently arrange for the shipment
of and payment for the item, with the buyer typically paying for shipping.
BIDFAIR.COM BUSINESS MODEL SUCCESS
Bidfair.com offers its clients an exciting online auction experience with
buying, selling and trading their wares online via the Internet. Our online
auction site offers you the chance to buy virtually any tradable items at
strikingly low prices. The Company allows its buyers and sellers to bypass
traditionally expensive, regionally fragmented intermediaries and transact
business on a 24 hour a day, seven day a week basis. Because Bidfair.com
carries no inventory, sellers bypass costly traditional intermediaries, thus
allowing for lower selling costs and increasing the sellers' likelihood of
finding buyers willing to pay his or her target price. To list an item on
Bidfair.com, sellers pay no placement fee and are charged a success fee that
steps down from 4% to 1% of the transaction value only if an auction is
concluded with a successful bid. As a result, sellers for the first time can
sell relatively inexpensive items which had previously been prohibitively
expensive to list through most traditional trading forums. By allowing sellers
to conveniently reach a broad range of buyers, Bidfair.com also ameliorates the
time consuming, logistical inconvenience of individual selling. Buyers have
access to a broad selection of items and avoid the need to pay expensive markups
or commissions to intermediaries. Buyers are not charged for trading through
Bidfair.com. The critical mass of items listed on Bidfair.com provides a mutual
benefit for buyers and sellers to more effectively determine an appropriate
price for an item.
REGISTRATION
While any visitor to Bidfair.com can browse through the Bidfair.com service and
view the items listed for auction, in order to bid for an item or to list an
item for sale, buyers and sellers must first register with Bidfair.com. Users
register by completing a short online form and thereafter can immediately bid
for an item or list an item for sale.
BOLINGO.COM
"Bolingo.com",(http://www.bolingo.com) is a retailer of high technology
products, which includes computer accessories, hardware and software on the
internet. There are over 200,000 computer software programs and related
hardware available for sale through our major distributor. The Company intends
over time to expand its catalog into other information based products, such as
new high technology product information dissemination, training and promotion.
Bolingo.com has virtually unlimited online shelf space and offers customers a
vast selection through an efficient search-and-retrieval interface. Through its
relationship with Ingram Micro, Inc., the world's largest Wholesale Distributor
of High Technology Products, the Company offers a catalog of more than 200,000
products, easy-to-use search and browse features, e-mail services, personalized
shopping services, Web-based credit card payment and direct shipping to
customers to any place in the world, using Ingram Micro's World Wide
Distribution Channels.
In the future, additional High Technology Products may be added to the catalog
through direct relationship with the manufacturers or product major distributors
worldwide. An online customer now could be able to browse through the Company's
catalog and select one or more items to purchase. When a product is identified,
the customer may then fill out an order entry form online. The information
required to complete the order form would include details of the items to be
purchased and the credit card information for the sale. From the completed
order form, the credit card information may be verified electronically via
Cybercash, an Internet based credit card verification facility. Upon
verification, the funds will be automatically deposited into a trust account
maintained at Wells Fargo bank and the customer will be assigned an electronic
identification number, which will enable the customer to track the purchased
item(s) for shipping purposes, or electronic download via the Internet into the
customer's computer hard-drive. For hardware products, the company has
established a relationship with one of the major distributors of computer
hardware and software products, to help fulfill all online orders placed through
our Website.
Bolingo.com was founded to capitalize on the opportunity for online retailing.
Management believes that High Technology product distribution, utilizing the
<PAGE>
model set forth herein, is particularly suited to online retailing for several
reasons. First, an online retailer can offer virtually unlimited online shelf
space. Secondly, it can offer its customers a wide range of products that,
heretofore, would have required a large amount of operational space. Thirdly,
serving a global market, online retailers can realize substantial economies
relative to the traditional storefront retailer. The ability of the Company to
introduce the marketing channel as described above, is predicated on the
willingness of the manufacturers of the products to enter into
distribution/vendor agreements with the Company.
CAPNET.COM
"Capnet.com" (http://www.capnet.com) is an internet based information and
management services portal specifically focused on providing management, content
and information regarding healthcare, high technology and humanity. Capnet
Gateway Online Services, a division of Capnet.com, has been sited in various
Internet Magazines, rating companies etc. Capnet Gateway Online Services has
recently signed a licensing agreement with Meridian Medical Group, P.C. to
publish all of its Clinical Outcomes Analysis, Drug and Care Utilization data,
as well as its "Policies and Procedure Manual" on a subscription basis via its
internet transaction server. The Company is also in the process of finalizing
negotiations with a major university teaching hospital and medical center to
acquire the license to convert all of their recently published disease state
management protocols into a portable electronic document to be marketed on a
subscription basis via the Internet.
In addition, the Company has recently finalized arrangements with UPI Inc., an
international news agency, to provide news content to Capnet Gateway Online
Services. The news feed focuses on the following areas of human concern:
GENERAL, FINANCIAL, HEALTHCARE, ENTERTAINMENT, TECHNOLOGY AND SPORTS NEWS. One
of the most interesting aspects of the News section is the dynamic nature of the
hourly News Summary, which brings news-feeds from different parts of the world
every hour.
CAPNET.COM ELECTRONIC DRUG STORE
According to the Health Care Financing Administration (HCFA), healthcare
expenditures in the United States totaled approximately $1 trillion in 1996, or
14% of the country's gross domestic product, making it the largest single sector
of the economy. One of the fastest growing components of healthcare
expenditures is pharmaceutical costs, which last year totaled approximately $100
billion, according to IMS HEALTH, a leading provider of pharmaceutical
information. According to HCFA, pharmaceutical costs are expected to increase
at an annual rate of approximately 10% through 2007, driven by an aging
population, the accelerating introduction of new drugs, direct-to-consumer
advertising by pharmaceutical manufacturers and cost advantages over alternate
forms of care, most notably inpatient hospital care. This in turn has created
pressure on managed care organizations to control pharmacy costs and improve the
process of managing medication treatments.
Physicians have also been affected as healthcare has shifted from a
fee-for-service model to managed care forms of reimbursement, which increasingly
transfer financial risk for pharmaceutical costs from traditional third-party
payers to physicians. This transfer of risk has often had an adverse financial
impact on physicians. Moreover, as healthcare becomes increasingly consumer
driven, patients are seeking more information, control and convenience, placing
additional time and financial pressures on physicians. These changes have led
many physicians in the United States to search for tools and solutions to
improve practice efficiency, increase revenue, comply with managed care
guidelines and address patient needs.
RAPID GROWTH OF THE INTERNET AND E-COMMERCE
The Internet is becoming an increasingly important medium in healthcare,
providing the opportunity for unprecedented connectivity and access to
information for all participants in the healthcare delivery process. The
Company believes that an increasing number of physicians regularly access the
Internet, indicating their willingness to adopt technology. Consumer usage of
the Internet continues to grow rapidly and health and medical information was
the second most popular subject of Web-based information retrieval searches in
1997 according to Media Metrix, an independent Internet research firm. In
addition, it is estimated that e-commerce will grow from $28 billion in 1998 to
over $100 billion by 2002.
THE OPPORTUNITY
The current process for prescribing and delivering medications is inefficient,
unnecessarily costly and error-prone. Physicians write virtually all of the 2.8
billion annual prescriptions by hand, resulting in errors and necessitating
millions of telephone inquiries from pharmacies for clarification and
correction. When physicians write prescriptions, they often do not have ready
access to information that would help ensure that the prescription is clinically
sound, cost effective and compliant with managed care organizations' pharmacy
guidelines. The pharmacist or managed care organization checks this information
<PAGE>
only after the physician writes the prescription. The inability of managed care
organizations to communicate with
physicians at the time of prescribing has made it difficult to manage
pharmaceutical costs. The existing process further inconveniences the patient,
who must travel from the physician's office to a pharmacy and must often wait
for the prescription to be filled. In addition, despite the fact that
pharmaceutical manufacturers spend billions of dollars promoting the use of
their drugs, physicians have a difficult time staying current on the rapidly
expanding body of pharmaceutical products and knowledge.
CAPNET.COM ELECTRONIC DRUG STORE SOLUTION
The Company currently offers or intends to offer other e-commerce products that
address various aspects of the medication management process. The Company
currently has an internet e-commerce section that enables physicians to purchase
pre-packaged prescription drugs and other office supplies that could be
dispensed from their offices via the Internet. The Company has negotiated with
a mail-order company to handle additional fulfillment of prescription orders,
thus making it possible for patients to have their prescriptions electronically
routed to the pharmacies of their choice or to receive their medications by
mail. To physicians, we intend to offer Internet based information services to
permit them to better care for their patients. To patients, the Company intends
to offer ancillary information and electronic services focused on improving
care, including patient education and compliance.
The Company's solution redesigns the pharmaceutical healthcare delivery process
to benefit each participant. By providing ready access to information during
the prescribing process, the Company's system benefits physicians by reducing
the amount of time spent clarifying and changing prescriptions. In addition,
the Company's system enables physicians to better manage financial risk and to
increase practice revenue through dispensing medications. Patients benefit from
the convenience, immediacy and confidentiality of receiving prescription
medications in the physician's office. Patients also gain access to valuable
information that enables them to play a more active role in managing their
healthcare. Managed care organizations benefit from higher physician compliance
with their pharmacy guidelines, resulting in lower overall costs. Pharmacies
benefit from improved connectivity with physicians, which enhances efficiency
and reduces the likelihood of errors.
BENEFITS OF THE COMPANY'S MODEL
Online Ordering. The Company's Website currently sells pharmaceuticals to
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physicians, enabling them to provide patients with medications in the office.
The Company plans to facilitate the delivery of pharmaceutical products directly
to patients in the future through a mail order system. The Company will enable
healthcare professionals to purchase medical-related texts, journals and
products online. Also, the non-prescription drug section of the online ordering
system is developed for the general consumer to be able to order
non-prescription items and cosmetics, including health foods and vitamins
online. The Company's Website is http://www.capnet.com/drugstore.asp.
Physician's Interactive. The Company intends to offer an interactive web-forum
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for physicians to discuss various issues regarding their pharmaceutical usage
and experience. This product will enable pharmaceutical manufacturers and
managed care organizations to deliver drug education and detailing to physicians
more efficiently and cost-effectively via the Internet, without the face-to-face
interaction currently required. In future, as the technology evolves, the
Company will offer interactive video conferencing to participating physicians
and the pharmaceutical representatives to discuss their experience and
pharmaceutical needs.
Intelligent Reminder. The Company intends to offer a service to track patient
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compliance with prescribed treatment and to send reminders to patients,
physicians and managed care organizations. By increasing compliance, the
Company expects to improve patient care and reduce unnecessary office visits,
benefiting patients, physicians and managed care organizations.
Patient Education. Through Capnet IPA and other healthcare entities the
- ------------------
Company intends to acquire, they will provide information to patients, enabling
them to take a more active role in managing and improving the quality and cost
of their healthcare. Specific information regarding health state, managed care
and medications will be made available on the Web site and via e-mail.
PREPACKAGED MEDICATIONS
The Company will fulfill orders for pre-packaged medications through various FDA
licensed repackaging vendors within the continental United States of America.
Enabling our physician members to sell repackaged pharmaceuticals is an
important component of our value proposition.
<PAGE>
CAPNET DOCUMENT ARCHIVES (INFORMATION WAREHOUSE)
Data Mining Products. As a by-product of electronic prescribing, the Company
- ----------------------
accumulates data that correlates the medications prescribed with the related
diagnosis. This type of correlated data is not readily available on a broad
scale and the Company believes that they can market it to pharmaceutical
manufacturers and managed care organizations. Currently, the Company is
offering such services, via the internet at http://www.capnet.com:5293/tr/. The
- - ------------------------------
Company currently offers information regarding healthcare, general market trends
and archives of its Capnet News items.
Capnet Gateway Online Services has recently signed a licensing agreement with
Meridian Medical Group, P.C. to publish all its Clinical Outcomes Analysis, Drug
and Care Utilization data, as well as its "Policies and Procedure Manual" on a
subscription basis via its internet transaction server. The Company also is in
the process of finalizing negotiation with a major university teaching hospital
and medical center, to acquire the license to convert all their recently
published Disease State Management Protocols into a portable electronic document
to be marketed on a subscription basis via the Internet.
In the future, this center will be the starting point for retrieval of hard to
find information, for a nominal fee, a phenomenon that is currently not catching
on amongst current internet users.
CAPNET NEWS SERVICE
In addition, the Company has recently finalized arrangements with UPI Inc., an
international news agency, to provide news content to Capnet Gateway Online
Services. The news feed focuses on the following areas of human concern:
General, Financial, Healthcare, Entertainment, Technology and Sports News. One
of the most interesting aspects of the News section is the dynamic nature of the
hourly News Summary, which brings news-feeds from different parts of the world
every hour.
The company will generate over 60% of its revenue from management services and
the remainder through e-commerce transaction activities and banner
advertisement.
CAPNET.COM HEALTHCARE TRANSACTION MANAGEMENT MODULE
The United States Health Care Delivery System Overview And Direction
The $1 trillion health care industry is currently going through a period of
tremendous change. Nowhere is this more evident than the patient care delivery
network where the three main components--physician groups, insurers and
hospitals - are scrambling for market share, volume and control.
Each component is highly fragmented and contains several segments. Over the last
30 years, many important changes have dramatically altered the landscape of the
health care delivery system. In 1994, health care expenditures in the United
States totaled $938.3 billion, up 6.1 % compared to 1993. Health care
represented 13.9% of the total United States gross domestic product in 1994.
Today, the market is estimated to be approaching $1 trillion. Between 1960 and
1993, per-capita spending for personal health care increased from $126 to
$2,920. This is a huge industry that affects nearly everyone in the country.
As a result of the size and growth of the market, American medicine is facing
serious challenges. The cost of, access to, and quality of health care are
significant issues. The health care delivery system must change as it
seeks resolution of these issues. Capnet.com management views the Medicare
business as an opportunity for major cost and risk savings. Although Medicare
risk contracting is expected to grow to $334 billion by 2002, it constitutes
only 14% of the nation's headcount while accounting for 45% of total health
care dollars. As Medicare is the fastest growing HMO in the country, Medicare
risk contracting represents a significant opportunity for risk pool savings
In the six states of Capnet.com's initial focus (California, Colorado, Wyoming,
Utah, Montana, and Idaho), Medicare represents $3.7 billion in physician
revenues. Based on Capnet.com's projected market share of 5%, this represents
$185 million in revenues in the six-state region.
<TABLE>
<CAPTION>
Medicare Benefit Payments
Capnet.com Initial Target Region
State Medicare Payments Physician Share** Capnet Share***
<S> <C> <C> <C>
California * $ 10,000,000,000 $ 2,200,000,000 $ 150,000,000
Colorado**** 1,634,905,000 359,679,000 17,984,000
Wyoming****. 159,246,000 35,034,000 1,752,000
Utah**** . . 629,943,000 138,587,000 6,929,000
Montana****. 395,644,000 87,042,000 4,352,000
Idaho****. . 401,179,000 88,259,000 4,413,000
------------------ ------------------ ----------------
Total. . . . $ 13,220,917,000 $ 2,908,601,000 $ 185,430,000
<FN>
* California revenue figures are based on rough estimates, however,
<PAGE>
Los Angeles County has over 300,000 Medicare beneficiaries.
** Physician share is 22% of Medicare payments.
*** Capnet share is 5% of physician share.
**** Source: HCFA/OBA/BDMS, March 1995.
</TABLE>
HISTORICAL PERSPECTIVE
The earlier traditional health care financing methods gave nearly unlimited
license to overspend. Third party financing and marketing of health insurance
created third parties to collect and dispense monies for healthcare services
rendered. For many years this system worked well. Growing risk pools made it
possible to meet big needs of the few, from the small payments of the many.
However, contained in the above method of healthcare services payment system
were the seeds for its destruction; i.e., Cost Plus for Hospitals and
Fee-For-Services for Physicians!
The traditional system offered other incentives to use resources and services as
long as the insurance companies paid the tab. This system provided an
environment of free spending and was not very efficient from a business
perspective. Physicians involved in this type of delivery system had very
little incentive to control costs or provide needed healthcare within given
budgets. Medicare adopted this spend thrift financing approach against the
advice of some, but with the approval of many, who feared fixed budgets or
pricing would restrict their ability to provide effective healthcare. Faced
with unlimited demands, prospects for unlimited payment for the richest of our
population (Physicians) startedAnd the race was on! Little time lapsed before
growing healthcare cost burdens caused employers and government agencies to
demand a change.
The first major attempt to control healthcare costs came shortly after Medicare
and Medicaid laws were passed. The nation turned to centralized planning to
allocate capital resources. This strategy failed in the face of increased
demands, which in turn were fueled by a flawed payment system that was
instrumental in the "usual and customary" reimbursement patterns that rewarded
health professionals based on geographical location and other actuarial method.
While national health planning strategies were failing, the concept of managed
care began to develop through the creation of Health Management Organizations,
Preferred Provider Organizations, and Exclusive Provider Organizations (HMOs,
PPOs, EPOs) and other variations on a theme.
The earlier HMOs were financed largely by Federal grants and later converted to
public market-financed. There was a push by HMOs to increase profit and reduce
costs.
The emergence of HMOs came at a time when health insurance companies were moving
away from community-rated insurance to corporate- or group-rated insurance. The
sense of community sharing of healthcare risk was being lost as corporations and
other groups chose to reduce their health care costs by extracting themselves
from the community pool.
The focused marketing of HMOs toward young and healthy groups exacerbated the
flight from the concept of community health. The result is massive cost
shifting among buyers of health services and massive displacement of potential
buyers of health insurance, which are either deemed an unhealthy risk or care
rates.
Physicians and other healthcare providers responded well to a growing but false
sense of price competition. Huge discounts were offered to HMOs, insurers or
employers who had a large number of purchasers. As a result, the displacement
of the uninsured or underinsured became even more severe. Healthcare providers
have slipped unwittingly into the mode of discriminatory pricing. Those
individuals who were good insurance risks or employed by the wealthiest
corporations now paid less for the same health care services than those who were
uninsured, underinsured or employed by a smaller, less wealthy corporation.
Without structural changes in the system, the current managed care delivery
system, riddled with preferential risks and discriminatory pricing is destined
to fail.
CONSOLIDATION STRUCTURE
The rapid escalation of health care costs has resulted in the growth and
evolution of "managed care." Managed care was initiated by payers and employers
and later gained support from governmental agencies. This widespread support
has shifted market power from physicians to health plans due to their size,
access to capital, relationships to buyers and ability to manage risks
Medical practices, for the most part, are small businesses and the physician
owners frequently lack the capital resources and business expertise to operate
efficiently and effectively. In addition, the small size of most medical
practices does not provide negotiating strength in dealings with other entities
in the medical delivery system, such as hospitals, HMOs and other physician
groups. Specifically, in dealing with hospitals and insurance carriers, medical
practices are at a disadvantage. Hospitals and insurance carriers have large
business staffs and sophisticated information systems which are not available to
<PAGE>
individual practices.
Most small practices lack the business expertise and systems to analyze
reimbursement levels, trends and administrative costs. They typically sign
managed care contracts, regardless of reimbursement and conditions, for fear of
losing patients. Belonging to 20, 30, or more HMO and PPO networks without the
expertise and information systems for analysis can result in actually losing
money on several networks without knowing it.
In an effort to gain support against stronger hospitals and insurance companies,
many physicians have begun to join larger group practices. In 1995, only 30.7%
of physicians were in groups with over 100 physicians and almost two-thirds of
physicians were in groups of 50 or less. Many physicians and small physician
groups are just beginning to realize the benefits of consolidation and are
seeking a way to fortify their position and take advantage of the economies of
scale offered by larger group organizations
Changes in the medical delivery system and the financing of medical services
have reduced reimbursement for physicians while burdening medical groups with
additional and more complex administrative tasks. These factors both decrease
revenue and increase overhead expenses. Many physicians have attempted to
maintain their take-home compensation by increasing their working hours. While
this was initially successful, physicians have run out of hours and reached the
limit of their physical endurance.
<TABLE>
<CAPTION>
Breakdown of Group Practices, By Size, 1995
Group Group Practices Physician Positions
Size # of Groups % of Total # of Physicians %of Total
<S> <C> <C> <C> <C>
3-4 . . 8,926 45.8% 30,941 14.7%
5-9 . . 6,904 35.4% 42,930 20.4%
10-25 . 2,657 13.6% 38,913 18.5%
26-49 . 527 2.7% 18,063 8.6%
50-99 . 226 1.2% 15,193 7.2%
100+. . 238 1.2% 64,770 30.7%
--------------- ----------- ------------------- ----------
Total 19,478 100.0% 210,810 100.0%
<FN>
Source: AMA, Medical Groups in the U.S., 1996 and JP Morgan
</TABLE>
There is a simultaneous oversupply and shortage of physicians, depending on
location. Nationally, there is an oversupply of specialists; however, there is
a shortage of specialists is rural areas. Specifically in the state of
California and the Rocky Mountain region, many rural communities have no support
or must rely on visiting specialists who have regular office time in rural
communities on a weekly or monthly basis. At the same time, and to some extent
because of the lack of specialists, rural areas have a difficult time recruiting
and retaining primary care physicians. Rural primary care physicians often
require special training to treat a wider variety of body systems than they were
originally trained to treat. They often do extensive surgery, obstetrics and
emergency medicine.
Enlarging medical practices to mitigate some of the limitations of size through
merger, acquisition or internal growth has limits. Practices of the size
required to gain efficiency, effectiveness and strength are often in violation
of federal antitrust regulations. In many locations, the community is not large
enough to support a practice which is large enough to realize economies of
scale. This is especially true in rural areas.
Increasingly, these physicians are turning away from affiliations with the two
traditional integrators of networks - hospitals and insurers - and looking for
both capital and management expertise from for-profit practice management firms.
The role of hospitals is also changing as over capacity results in
consolidations and closures.
Despite all of the changes in the health care delivery system, physicians still
occupy the central role in health care because they deliver the care. Since
physicians are the deliverers of care, improvements in quality and cost must be
accomplished by changing physician behavior. Due to the fact that physicians
control an estimated 85% of health care spending, efforts at reducing the cost
of health care must be fundamentally driven by physicians.
The Company is currently engaged in a significant branding and promotional
campaign to increase awareness of the Capnet.com brand.
The Company is employing a combination of online advertising and other marketing
and promotional efforts aimed at defining a desirable online destination for
healthcare professionals and consumers, attracting new subscribers and
consumers, increasing traffic on its Web site and developing additional revenue
opportunities. The Company also promotes Web based services through traditional
print media, including trade journals, newspapers and magazines targeted at
healthcare professionals and participates in trade-shows, conferences and
<PAGE>
speaking engagements as part of its ongoing public relations program. The
Company plans to continue to allocate significant resources to marketing
Capnet.com.
For its Electronic Drugstore, the company intends to market its products and
services through an internal direct sales force and intend to pursue strategic
relationships with key suppliers of physician practice management systems,
physician focused Internet portals and managed care organizations to complement
our internal efforts.
Since the participating physicians are part of Capnet IPA, we target sites with
a large number of high volume prescribing physicians in states where in-office
dispensing is well established or where many physicians bear financial risk for
pharmaceutical costs. We will use a variety of tools to attract prospective
customers, including editorials, articles and advertisements in trade journals,
as well as executive seminars, exhibits at selected trade shows and other direct
marketing techniques.
CAPNET IPA
Capnet IPA ("Independent Physician Association"), with over 10 payor contracts,
- ----------
600 physicians, 15 Community hospitals, 4 Teaching Hospitals and other ancillary
service companies contracted within its network, is the core component of
Capnet.com's 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
Internet 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.
AFFILIATION STRATEGY
Central to the new dynamic delivery model of management services is an economic
alignment between Capnet IPA and:
Physicians and providers of healthcare services as partners and
Shareholders who have demonstrated established practice patterns
resulting in optimal utilization of healthcare services and
disciplined cost control.
Tertiary care and community hospitals with shared interest in managing
Risk contracts in a highly captitated managed care environment
Health plans and third-party payors whose members are assigned to
Capnet IPA for provision of healthcare services.
To this end, the Company is in the process of acquiring additional healthcare-
related companies whose business purpose and technology will further enhance the
Company's ability to achieve its business goals and objectives in the
healthcare industry.
The key components of management services to be provided to Capnet's affiliated
healthcare providers and organizations include:
Cost efficiency and quality outcome analysis.
Pharmaceutical benefit management.
Dynamic unified electronic prescription/OTC drug formulary development
Electronic Drug Store for prescription/OTC drug ordering and processing.
R&D product substitution compliance.
Drug utilization data analysis.
Care utilization data analysis.
Care provider network and referral pattern analysis.
Quality management incentive compliance.
Dynamic and comprehensive clinical pathways.
Health risk and needs assessments of the patient population served
Electronic medical record system.
Clinical laboratory and diagnostic database repositories.
Contract negotiations, mergers and acquisition.
Strategic healthcare planning, marketing and implementation utilizing
all the available Internet technologies at Capnet.com's disposal.
CAPNET will create compensation formulas which are designed to attract and
retain good practitioners and maintain long-term harmony and productivity. A
sound compensation formula can help avoid many of the problems in a "medical
group." Practitioner incentives are designed to engage the practitioners in the
pursuit of CAPNET's mission.
CAPNET will use member meetings as a tool to nourish the benefits of synergy.
State councils meet monthly, board of directors quarterly and the corporation
will hold an annual meeting. Within the organization, groups such as office
<PAGE>
managers and financial staff meet periodically. CAPNET will integrate mid-level
practitioners to allow and foster the efficient, effective delivery of care.
Mid-level practitioners provide a balance of care givers at all levels. For
example, the membership consists of Physicians, Optometrists, Podiatrists,
License Social Workers, etc.
CAPNET will pursue the application and continuous enhancement of technology to
support efficient and effective clinical and business operations. This includes
"bottom up" and "top down" analysis, so as not to unduly interfere with current
clinical and business operations .
Wherever practical, local area networks in practices and administrative offices
will be connected to CAPNET's wide area network to eliminate duplication and
allow efficient interchange of information at a minimal cost.
CAPNET will develop a proper mix of physician specialties, mid-level providers
and medical facilities in order to insure the success of the above strategy.
CAPNET will develop a business approach to contracting with HMOs, PPOs and other
managed care carriers and entities. Contracts among the various elements of the
health care delivery business should be fair to all parties, provide for
reasonable administration and allow a fair profit.
CAPNET plans to use the business approach to assess contracting opportunities,
negotiate mutually beneficial agreements and then, monitor the cost and profit
of each agreement.
CAPNET will conduct periodic operations analyses and reviews to evaluate
practice operations in the context of the patient, practitioners, staff,
community and business environment in which the practice operates. The result
of the analyses are specific recommendations for improvement along with a plan
for implementation.
CAPNET will provide expertise to member practices in the area of clinical and
business operations. Expertise is provided through standard operational
techniques and procedures, as well as through an internal and contracted staff
with expertise in a wide variety of fields.
Support includes:
- Clinical operations
- Medical records
- High-tech systems (such as computers, phone systems and electronic
data interchange with hospitals and laboratories).
- Billing and collections
- Personnel/payroll systems
- Financial operations and analysis
- Legal
- Marketing
- Joint purchasing of medical and business supplies and equipment
- Insurance purchasing - malpractice and business insurance
- Development and implementation of clinical protocol
- Development and negotiation of risk contracts
CAPNET will provide reporting standards that allow CAPNET management to monitor
and analyze member practices. Practices which are out of compliance will be
analyzed in more detail by support staff. Practice guidelines are the basis for
analysis of each member group to determine what, if any, improvements are
clinically and operationally warranted considering the local environment.
Guidelines include:
1. Staffing costs
2. Profit margin
3. Overhead costs
4. Administration costs
5. Accounts receivable
6. Cost of providing clinical services, medical supplies and equipment
7. Industry operating ratios
CAPNET will select providers based on credentials and ethical standards. A
system of screening potential members is used to assure that problem
practitioners are not invited to join. Providers will be selected based on the
following criteria:
1. Exceptional clinical standards
2. High ethical standards
3. A demonstrated history of providing quality and cost-effective
medical care.
TECHNOLOGICAL COMPONENT
A critical element in the merger of talent and capacity of practitioners is the
Use of computerized medical records. Electronic networking with a high level of
security allows appropriate records to be shared among member practitioners.
This system provides rural practitioners with support from a broad scope of
specialty talent that is responsive to patients' needs, fosters the practice of
conservative medicine and provides care that is convenient for patients at an
<PAGE>
affordable cost.
Furthermore, Capnet.com, was born out of the need to develop technologies to
assist healthcare practitioners to reduce overhead, while simultaneously
increasing staff efficiency. The healthcare industry is currently undergoing a
tremendous amount of changes. Physicians and other healthcare organizations keep
trying to manage change, but we always manage the things we don't like. It is
time that healthcare providers truly make change their best friend, because
change is going to continue to accelerate because of technology. To make rapid
change our friend, we need to know what will happen before it happens. This is
why it is critical to understand the future of technology. By understanding the
future, you will be able to surpass the competition. Anthony C. Dike, MD, who
is the founder and pioneer of the Capnet.com conceptual model, believes that
"The next 10 years are already invented and the tools are here. The challenge
is to use the technology in new ways and not the old ways."
The availability of these new tools such as the global Internet, advanced
sdimulations in both 2-D and 3-D, electronic notepad, multimedia computers,
neural networks, object oriented programming (OOP), fuzzy logic, computer
integrated manufacturing (CIM), multisensory mobile robotics, digital
interactive TV, telecomputer, desktop videoconferencing, advanced flat-panel
display, personal communication networks, diamond thin films, endoscopic
technology, advanced compact disk technology, antinoise technology, recombinant
DNA technology, parallel computing, low Earth orbit satellites, digital imaging
and digital telecommunication linkages has changed the rules of the game. This
will have a great and beneficial impact on the healthcare industry. The whole
idea in developing Capnet.com programs and network is to enable the
participating providers and service organizations the opportunity to embrace the
technologies they want--one or all of the components listed above--at their own
self-learning pace. To quote Samuel Johnson, "Men may be convinced, but they
cannot be pleased against their will."
More recently Meridian Holdings, Inc., was invited to a NASA Technology Briefing
at Norfolk Virginia. The briefing provided the Company an ample opportunity to
evaluate all the available technologies in the area of Biofeedback, Telemedicine
and Video processing techniques, available to be licensed for commercialization
from NASA. The Company has since submitted a licensing and commercialization
work plan to NASA to enable the company to deploy NASA time-tested technology to
the general consumer market.
TELECOMMUNICATIONS COMPONENT
OPPORTUNITY FOR CONNECTIVITY
Already, the mobile work force numbers 45 million and nearly 40% of all
employees. By the year 2000, sales of wireless data will reach $12 billion
annually and the market for portable devices will climb to 15 million units.
Mobile wireless computing in healthcare continues to draw significant attention.
There are several examples of wireless mobile computing in hospitals across the
country. Physicians as a professional group, due to their job requirement,
constitute the largest consumer of mobile telecommunication services. Almost all
actively practicing physicians have wireless pagers and some sort of message
center.
However, there are very few large implementations of this technology in the
ambulatory care setting. As compared with home and acute care, ambulatory care
has several significant challenges associated with it. This includes staff
tolerance for technological complexity, clinician acceptance and the ability to
handle years of existing paper-based medical records.
[GRAPHIC OMITTED]
Capnet.com has arranged with CGI Communications Services, Inc., which has a
strategic partnership relationship with the following leaders in the area of
telecommunication, including US Robotics-Mobile Communication Division, (d/b/a
Megahertz Inc.), Microsoft Corporation, Ram Mobile Data and DTS Wireless
Services, Inc., to provide participating healthcare providers with effective
communication tools to help them manage their patients more effectively.
Each participating provider will have access to a full range of
Telecommunications services, including "after hours" medical emergency services
coverage.
Furthermore, each participating healthcare provider will have the option to sign
up for turnkey wireless telecommunication services whereby they are provided
with the following items on rental/lease terms:
* A hand-held computer; e.g., HP Palmtop PC.
* A wireless modem
* Access to Mobitex Network, the international de facto standard for
wireless communications e.g Ram Mobile Data Network.
* A subscription to wireless service which includes a client software,
Internet address, personal 800 number for 24-hour message center,
<PAGE>
Personal 888 fax number for receiving faxes, registration of fax
coversheet, letterhead and signature with 5 pages of stored
attachments. ( with option to purchase additional stored fax
attachment service, accessories e.t.c.) e.g., Go America, Inc.
* Internet browser (e.g., Microsoft Internet Explorer Version 4.X or
Netscape Communicator Version 4.X).
This design will alert on-call personnel to priority messages in a timely and
cost effective manner. The telecommunications package includes a customizable
mailbox system, remote paging and E-mail. Additional optional mailboxes may be
added to accommodate medical groups or staff.
The Capnet.com Gateways will make it possible to provide inexpensive, efficient
and engaging real time linkages across the entire healthcare community. Many
companies, including integrated delivery systems, pharmaceutical and managed
care organizations, can take advantage of new connectivity tools.
TELECOMMUNICATIONS BENEFITS
1. Instant and comprehensive dissemination of timely, provider-specific
information such as health plan costs and benefits, physician site
locations and biographical profiles and urgent care advice from
tele-nurses.
2. Access to clinical studies and consumer health information contained in
both public and private data repositories.
3. Access to medical records, test results, authorization rules and care
guidelines stored on the Company or off-site data bases.
4. Member health risk and needs assessment information gathering by robotics
voice response outbound telephone technology.
5. E-Mail messaging between providers across the care continuum and directly
into the patient's home.
6. A communications forum or chat-line for physicians wishing to share ideas
with colleagues, as well as patients with chronic diseases wishing
to communicate with other patients about common conditions, experiences
and treatment options.
8. Enrollment for self-help training programs, online teleconferences and
participation in regularly scheduled healthcare seminars via a telemedicine
video conferencing, telephone or Internet connectivity.
9. Secure areas of any communication channel can be used to disseminate
information to selected audiences, e.g., clinical updates, management
reports and marketing promotions.
10. Cost-effective connectivity to private WANs, organizational Intranet and
other geographicaly remote care sites or other providers anywhere in the
world.
11. Access to Capnet .com Electronic Drugstore for product ordering and
utilization.
12. Efficient addressing that enables the end-user to transmit data quickly and
more efficiently as compared to data-over-cellular and data-over-trunk line
13. Assured receipt, store and forward capability, which allows messages that
cannot be delivered immediately to be stored in the network. Messages are
then forwarded to the mobile unit at the first available
opportunity
14. Preview e-mail headers before downloading, so as to help the provider
select which messages to read, hold, discard or forward. The physician then
manages wireless costs by paying only for those e-mails downloaded.
15. Ability to reply to and send e-mail to anyone in the world with an Internet
address.
16. Ability to receive phone messages called into the healthcare providers
personal 800 number. Calls could be redirected to an operator-assisted
24-hour message center for wireless delivery; i.e., Voice-Text or
Text-Voice messaging service.
17. Ability to send messages to fax machines, most alphanumeric pagers and even
telephones.
18. Ability to fax documents by using a personalized pre-stored letterhead,
personal signature and even the physician's most used fax attachments.
19. Global dial-in access, which allows the healthcare provider to download or
send
20. e-mail, fax and phone messages, no matter where they are in the world.
21. Access to the WWW and the ability to download pages in text mode from a
favorite site.
22. No third-party misinterpretation because messages are received with
complete accuracy.
23. Improved response time. Savings of up to 40% over existing service. The
physician's phone is answered on the first ring.
24. Each incoming message is time and date stamped.
25. Callers are never placed on hold.
26. Physicians are immediately notified of an emergency by pager.
27. Access to Capnet.com Disease Management Information System, for database
access; e.g., patient medical records, laboratory data and downloads
SALES AND MARKETING
The Company markets Capnet.com through its internal sales force and its
strategic distribution relationships, which typically couple the Company's use
of the strategic partner's services or content with the strategic partner's
obligation to market Capnet.com to its customer or client base. The Company's
<PAGE>
distribution partners, which target different healthcare sectors, combined with
the Company's internal sales force, provide the Company with sales and marketing
professionals who are experienced in the healthcare industry. The Company's and
its strategic partners direct marketing efforts, which may include promotional
offers, direct mail and telemarketing initiatives, emphasize the ease of use and
adoption, attractive pricing and integrated solution offered by Capnet.com. The
Company has entered into, and intends to continue to enter into, strategic
alliances with parties who have established customer or client bases that have
an anticipated need for the services provided through Capnet.com. In connection
with certain of these strategic alliances, such as the alliances with DRx
Network, Pam Pacific and Associates, GoAmerica, MDS Technologies, Microsoft
Corporation, Link-Exchange, Ingram Micro and Sager Midern Corporation. The
Company has agreed to bear the cost of certain subsidized promotional offers
and to compensate such partners for each subscriber that Capnet.com obtains
through their marketing efforts or to make guaranteed payments to such partners.
The Company intends to continue to enter into additional promotional
arrangements in the future.
CGI COMMUNICATIONS SERVICES, INC.
CGI COMMUNICATIONS SERVICES, INC., a start-up Company, delivers broadband
communications solutions including high-speed Internet access, data, voice and
video services over a revolutionary national network to a wide spectrum of
business customers. Additionally, it offers application development, network
integration and systems management services to businesses worldwide. Through
strategic alliances and cost-effective network planning, it provides superb
performance and service.
Industry
According to TeleChoice, a telecommunications consulting firm, the market for
digital subscriber lines (DSL) has charted growth of 300% for the first half of
1999, well beyond analysts' expectations. Positioning itself to give cable
modem competition a good run, DSL is a technology that uses digital coding to
push up to 99% more information through a regular copper phone line. The result
is that the line can transmit data using a higher frequency, and simultaneous
voice and fax using a lower frequency. DSL services the "last mile"- the area
stretching from the central phone exchange to the customer - that has proven
such a challenge in providing fast connections to businesses. Laurie Falconer,
DSL analyst at TeleChoice, expects market growth for DSL to speed up, and
competition to increase. "There's a lot of demand for it," she says. Falconer
claims a main factor to separate the market leaders and losers will be the
viability of the targeted market. The Company is aiming to attract
multi-location businesses to its products and services.
Published figures and projections about growth of the Internet vary, but
agreement about rapid expansion is standard. A new study of the Internet
telephony business by Killen & Associates, a telecommunications research and
consultant group in Palo Alto, Calif. Forecasts an $8 Billion market by the year
2003 for providers of IP services offering voice, fax and video capabilities.
Recent mergers of telephone and cable companies, and acquisitions of Internet
technology companies predict that broadband access is the future of the online
world.
The Internet's increasingly pivotal role in business via Web content, e-commerce
and virtual private networks (VPNs), combined with the lack of affordable,
high-speed access solutions for small businesses, have created a large niche for
DSL services. Although the market is still nascent, Morgan Stanley Dean Witter &
Co. estimates the U.S. DSL service market for access alone will reach $7 billion
to $9 billion by 2002.
Although local phone companies are in the best position to offer DSL because
they own the core infrastructure that supports it, until very recently, they
were reluctant to market these services to business customers. According to New
York-based Bank of America Securities LLC senior analyst Michael Renegar, ILECs
("Incumbent Local Exchange Carriers") won't aggressively sell DSL services to
businesses. "DSL will cannibalize existing T1 service, for which ILECs typically
charge $1,000 a month," he says. "It would reduce margins considerably."
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.
Corporate Information
CGI Communications Services, Inc., was incorporated under Delaware law on April
12, 1997. Its executive offices are at 900 Wilshire Blvd., Suite 500, Los
Angeles, California 90017. Its telephone number is (213) 627-8878. Its fax
number is (213) 627-9183. On December 10, 1999, Meridian Holdings, Inc.,
acquired 20% equity interest in the Company, in exchange for an aggregate of
$12,000,000 equity investment over 5 years.
<PAGE>
PRICEPICKERS.COM AND PRICEPICKERS.NET
PricePickers.com is an Internet-based general merchandise mall, focused on
selling excess inventory items at a rock-bottom prices. The business model is
built around the consumer being able to pick the best price he or she wants to
pay for the listed product. If the price is right, then they pay for the product
at the best price possible.
The following is the protocol for participating in the PricePickers.com and
PricePickers.net bargain mall:
1. The Manufacturers Suggested Retail Price (MSRP) for the product will be
listed (for example, $1,000.00).
2. Then a price range for which the product will be sold is programmed into
the
pricepicker.com price selection entry dialogue, say $400-$500.(not visible
to the customer)
3. The customers are requested to enter any price they will be willing to pay
for
the product.
4. If a customer enters any price above $500, for instance, and sends it for
processing, an immediate auto-responder will inform the customer that he or
she is probably paying too much for the product and give the customer the
option to either continue processing or lower the price to fit within the
established range.
5. If a customer enters any price less than $400, the customer will be
informed that the amount entered is too low and we may not be able to sell
at that price without losing money and the customer is given the option to
adjust his or her price.
6. If the customer enters a price within the programmed range, then a message
congratulating the customer for having successfully completed a bargain
appears. Then the customer is directed to the order processing center for
credit card information, as well as collecting the shipping address
7. The entire sequence is like an auction site, except that the individual
concludes that sale instantly, without waiting for the auction to close.
8. All customers must register before participating in the Price-Picking
process. All product purchases are final. There will be no refunds except
for defective product which should be covered under the manufacturers
warranty.
9. New products are initially added to the site weekly, based on the
advertisement money received. Price adjustments can be made at any time
for products that are not selling fast enough.
The whole idea is to promote repeat visits to the website by customers
interested in bargain hunting, and to pick the best price for the product.
INTERCARE.COM, INC.
Intercare.com, Inc., a California Corporation, was founded originally as
Intercare Diagnostics, Inc. in 1991 and is presently in a growth stage.
Intercare can best be described as a developer and supplier of high-technology
solutions in biofeedback and telemedicine. Our key strengths have been
state-of-the-art multimedia software technology and innovative internet
marketing. The Mirage Systems Interactive Multimedia Biofeedback Interface,
including the Stress Profiling and Trigger Points applications, is the world's
first and only FDA-approved biofeedback software, and has long established
Intercare.com as a leader in the field of interactive multimedia biofeedback
software.
On September 18 1999, the Company acquired 51% of Intercare Diagnostics, Inc., a
United States FDA registered, world renowned biomedical software manufacturing
and publishing company with over five Multimedia software titles in the market,
namely:
a). The Mirage Systems Body Pain Trigger Points Software programs
(Both Macintosh and Windows versions)
b). The Mirage Systems Multimedia Biofeedback Software Programs
(Both Macintosh and Windows versions)
c). The Mirage Systems Internet-based Healthcare Transaction Management
Software Program
d). The Mirage Systems Stress Profiling Software Programs
(Both Macintosh and Windows versions)
e). The Mirage Systems Electro-Diagnostics Scan Site Program
(Both Macintosh and Windows versions)
The parent corporation, Meridian Holdings, Inc. now owns 51% of Intercare.com.
Intercare.com receives free Internet advertising throughout the web-sites of all
of the subsidiaries. Intercare.com contracts with the other subsidiaries to
provide multimedia content production and web-site development services.
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At present Intercare.com offers the full Mirage Systems Interactive Multimedia
Biofeedback Interface, and the Stress Profiling and Trigger Points programs,
originally developed in 1993. Given the rapid rate of change in both hardware
and software technology, these programs are at the outskirts of their useful
shelf lives. Our current efforts are targeted on taking advantage of our
strengths in the application of high technology in the following areas:
* The development and/or acquisition, through licensure or purchase,
of a low-cost physiological monitoring device as the hardware component
for a PC-based, executive and consumer-level biofeedback device.
* The development of cutting edge, modular software to interactively
display a wide variety of multimedia feedback from the hardware device
described above. The software would be highly extensible and would
optionally facilitate an Internet connection to Intercare.com and the
uploading of generated physiological data for analysis and return to the
user via email or web page.
* The development, through licensing and/or acquisition, of streaming
video technology to facilitate the delivery of high-resolution
video-based telemedicine and other content over the Internet.
The server-side software would be marketed to Internet and intranet
providers. A basic client-side browser plug-in would be offered as a
free download from Intercare.com, while a more robust stand-alone player
would be offered for sale as an upgrade.
* The development of direct reseller relationships with manufacturers of
telemedicine hardware and software (e.g. Sony). In addition to reselling
telemedicine equipment and software, Intercare.com will provide
telemedicine systems design and integration, installation and support
services, with the latter entailing both face-to-face client contact
and a unique interactive multimedia Internet site devoted to
answering most questions about telemedicine, including tutorials, chat
and forum capabilities.
* The provision of web-site design and development services, including the
production and/or acquisition and conversion of interactive multimedia
content, for all of the above areas and for the other subsidiaries of
Meridian Holdings, Inc.
The Telemedicine Market
There are several different reports and articles discussing the telemedicine
market. Each of them looks at telemedicine in a slightly different way and
provides different estimates, as follows:
* Business Communications Company (BCC): BCC is a large consulting firm
producing industry reports on many industry sectors. In February 1998
the firm produced a report titled: Telemedicine Opportunities for
Medical and Electronic Providers (240 pages, cost: $1,350). Ben Grimley,
an industry analyst who specializes in health and information technology
issues, prepared the report.
BCC estimates that the current U.S. market for telemedicine is $65
million and will reach $3 billion by the year 2002, based on the high
growth rates of leading market segments and an assumption that full
reimbursement for telemedicine services will continue to become more
common. The overall growth rate for telemedicine is predicted to be
35 percent per year over the next five years with a 42 percent
increase in public sector investments and an 89 percent growth in sites
over the same period. The report cites provider plans for predicting a
280 percent growth in prison telemedicine sites over five years and a
doubling of military investment over seven years. The predicted rates
of growth for telemedicine is particularly important given the firm's
prediction that the market for overall health-care related information
is expected to grow only three percent per year.
* Feedback Research Services (FRS): FRS is a market research firm
specializing in high-tech health care delivery systems. Overall, FRS
states that the current annual U.S. market for telepathology,
teleradiology, and videoconferencing telemedicine systems is under $100
million. According to FRS, telemedicine-related videoconferencing
equipment sales in Europe, North America, and the Pacific Rim accounted
for $250 million in revenues in 1996. They estimate that worldwide sales
of products and services during the 1990s reached an estimated $520
million, cumulative through the year-end of 1996. They project
the annual worldwide growth rate to be 15 percent. They project that
Europe and the Pacific Rim combined may represent cumulative
telemedicine expenditures of $1.4 billion by 2001.
* Frost and Sullivan (F&S): F&S is an international marketing, consulting
and training firm covering many different markets. A representative from
F&S wrote an article in the April 1998 issue of ADVANCE for
Administrators in Radiology & Radiation Oncology that provided market
forecasts for PACS and Teleradiology. According to the article,
the current total PACS and teleradiology systems market revenue for
the U.S. and Europe is estimated for 1998 at $368.8 million, with the
United States generating 81 percent of this market. They project a
Growth rate of about 28 percent over the next six years yielding a
total annual market of $1.6 billion by 2004. In a separate report on
U.S. hospital communications equipment markets, including telemedicine
videoconferencing as well as other segments, F&S forecasts a 30 percent
growth in this market.
* Waterford Advisors: An investment firm specializing in healthcare and
<PAGE>
information systems. The firm has developed the Waterford Telemedicine
Index (WTI), an index of stock prices from various telemedicine-related
companies. WTI was debuted in the April 1998 issue of Telemedicine and
Telehealth Networks and will be a regular feature of the magazine. The
index does not attempt to predict market size. Rather, the index is
designed to be a monitor of the overall performance of the industry
and a way to estimate the economic value of telemedicine companies.
since the index is new, there is little information about the
recent performance of telemedicine companies in the market. The index
currently includes 38 companies.
* HIMSS annual leadership survey: The Healthcare Information and Systems
Society (HIMSS) recently conducted its ninth annual survey of senior
healthcare executives. Of the 1,754 respondents, 34 percent reported
that their organizations currently use telemedicine, ten percent plan to
use telemedicine within the next 21 months and 28 percent are
investigating its use in the future.
* Telemedicine and Telehealth Networks Survey: The Telemedicine and
Telehealth Networks magazine recently completed a survey of selected
Telemedicine program managers. Ninety-three percent reported that
they expect to expand their operations in the next five years.
GENERAL OVERVIEW
SYSTEM DEVELOPMENT AND OPERATION
The Company's revenues depend upon the number of visitors who shop on its Web
site and the volume of orders it fulfills. Any system interruptions that result
in the unavailability of the Company's Web site or reduced order fulfillment
performance would reduce the volume of goods sold and the attractiveness of the
Company's product and service offerings. The Company has experienced periodic
system interruptions, which it believes will continue to occur from time to
time. The Company uses an internally developed system for its Web site, search
engine and substantially all aspects of transaction processing, including order
management, cash and credit card processing, purchasing, inventory management
and shipping. The Company will be required to add additional software
and hardware and further develop and upgrade its existing technology,
transaction-processing systems and network infrastructure to accommodate
increased traffic on its Web site and increased sales volume through its
transaction-processing systems. Any inability to do so may cause unanticipated
system disruptions, slower response times, degradation in levels of customer
service, impaired quality and speed of order fulfillment, or delays in reporting
accurate financial information. There can be no assurance that the Company will
be able to accurately project the rate or timing of increases, if any, in the
use of its Web site or in a timely manner to effectively upgrade and expand its
transaction-processing systems or to integrate smoothly any newly developed or
purchased modules with its existing systems. Any inability to do so could have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
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
Company's employee base has similarly expanded, growing from one full-time
employee as of December 31, 1998 to seven full-time and three part-time
employees as of June 30, 1999. The projected expansion of the Company's
operations and employee base will place a significant strain on the Company's
management, operational and financial resources. To manage the expected growth
of its operations and personnel, the Company will be required to improve
existing and implement new transaction-processing, operational and financial
systems, procedures and controls and to expand, train and manage its growing
employee base. There can be no assurance that the Company's current and planned
personnel, systems, procedures and controls will be adequate to support the
Company's future operations, that management will be able to hire, train,
retain, motivate and manage required personnel or that Company management will
be able to successfully identify, manage and exploit existing and potential
market opportunities. If the Company is unable to manage growth effectively,
such inability could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
NEW BUSINESS AREAS
The Company intends to expand its operations by promoting new or complementary
products or sales formats and by expanding the breadth and depth of its product
or service offerings. Expansion of the Company's operations in this manner
<PAGE>
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
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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
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
<PAGE>
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.
DOMAIN NAMES
The Company currently holds various Web domain names relating to its brand,
including the "Bolingo.com", "Bidfair.com", "Bidfare.com", "Capnet.com" domain
names. The acquisition and maintenance of domain names is generally regulated
by governmental agencies and their designees. For example, in the United
States, the National Science Foundation has appointed Network Solutions, Inc. as
the exclusive registrar for the ".com, " ".net" and ".org" generic top-level
domains. The regulation of domain names in the United States and in foreign
countries is subject to change. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, there can be no assurance
that the Company will acquire or maintain relevant domain names in all
countries in which it conducts business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. The Company, therefore, may be unable to prevent
third parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of its trademarks and other proprietary rights.
Any such inability could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
ONLINE COMMERCE SECURITY
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card numbers.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, other events or developments will not
result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
reputation, business, prospects, financial condition and results of operations.
A party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of the Internet and other
online transactions and the privacy of users may also inhibit the growth of the
Internet and other online services generally and the Web in particular,
especially as a means of conducting commercial transactions. To the extent that
activities of the Company or third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose the Company to a risk
of loss or litigation and possible liability. There can be no assurance that
the Company's security measures will prevent security breaches or that failure
to prevent such security breaches will not have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
DEVELOPING MARKET
The market for the sale of goods over the Internet, particularly through
person-to-person trading, is a new and emerging market. The Company's future
revenues and profits are substantially dependent upon the widespread acceptance
and use of the Internet and other online services as a medium for commerce by
consumers. Rapid growth in the use of and interest in the Web, the Internet and
other online services is a recent phenomenon and there can be no assurance that
this acceptance and use will continue to develop or that a sufficiently broad
base of consumers will adopt, and continue to use, the Internet as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and there
exist few proven services and products. Growth in the Company's user base
relies on obtaining consumers who have historically used traditional means of
commerce to purchase goods. For the Company to be successful, these consumers
must accept and use novel ways of conducting business and exchanging
information. In addition, the Internet may not be commercially viable in the
long term for a number of reasons, including potentially inadequate development
of the necessary network infrastructure or delayed development of enabling
technologies, performance improvements and security measures. To the extent
that the Internet continues to experience significant growth in the number of
users, their frequency of use or their bandwidth requirements, there can be no
assurance that the infrastructure for the Internet and other online services
<PAGE>
will be able to support the demands placed upon them. In addition, the Internet
or other online services could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet or other online service activity, or due to
increased governmental regulation. Changes in or insufficient availability of
telecommunications services to support the Internet or other online services
also could result in slower response times and adversely affect usage of the
<PAGE>
Internet and other online services generally and the Bidfair.com service in
particular. If use of the Internet and other online services does not continue
to grow or grows more slowly than expected, if the infrastructure for the
Internet and other online services does not effectively support growth that may
occur, or if the Internet and other online services do not become a viable
commercial marketplace, the Company's business, results of operations and
financial condition would be materially adversely affected.
CERTAIN ACTIVITIES ON THE COMPANY'S SERVICE
The law relating to the liability of providers of online services for activities
of their users on the service is currently unsettled. While the Company does
not pre-screen the types of goods offered on Bidfair.com, the Company is aware
that certain goods, such as alcohol, tobacco, firearms, adult material and other
goods that may be subject to regulation by local, state or federal authorities
have been traded on the Bidfair.com service. There can be no assurance that the
Company will be able to prevent the unlawful exchange of goods on its service or
that it will successfully avoid civil or criminal liability for unlawful
activities carried out by users through the Company's service. The imposition
upon the Company of potential liability for unlawful activities of users of the
Bidfair.com service could require the Company to implement measures to reduce
its exposure to such liability, which may require, among other things, the
Company to spend substantial resources and/or to discontinue certain service
offerings. Any costs incurred as a result of such liability or asserted
liability could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company's
success depends largely upon sellers reliably delivering and accurately
representing the listed goods and buyers paying the agreed purchase price. The
Company takes no responsibility for delivery of payment or goods to any user of
the Bidfair.com service. Any litigation as a result of failure to deliver as
promised by the seller could be costly for the Company, divert management
attention and could result in increased costs of doing business, or otherwise
have a material adverse effect on the Company's business, results of operations
and financial condition. Any negative publicity generated as a result of
fraudulent or deceptive conduct by users of Bidfair.com could damage the
Company's reputation and diminish the value of its brand name, which could have
a material adverse effect on the Company's business, results of operations and
financial condition. The Company does not pre-screen the goods that are listed
by users on Bidfair.com or the contents of their listings, which may include
text and images. The Company has received in the past, and anticipates that it
will receive in the future, communications alleging that certain items sold
through the Bidfair.com service infringe third-party copyrights, trademarks or
other intellectual property rights. While the Company's user policy prohibits
the sale of goods which may infringe third-party intellectual property rights
and the Company is empowered to suspend the account of any user who infringes
third-party intellectual property rights, there can be no assurance that an
allegation of infringement will not result in litigation against the Company.
Any such litigation could be costly for the Company and could result in
increased costs of doing business, or could in some other manner, have a
material adverse effect on the Company's business, results of operations and
financial condition.
ONLINE COMMERCE SECURITY
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Currently, a
significant number of users of the Company's Internet e-Commerce websites
authorize the Company to bill their credit card accounts directly for all
transaction fees charged by the Company. The Company relies on encryption and
authentication technology licensed from third parties to provide the security
and authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. There can be no assurance
that advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result in a compromise or
breach of the technology used by the Company to protect customer transaction
data. If any such compromise of the Company's security were to occur, it could
have a material adverse effect on the Company's reputation and, therefore, on
its business, results of operations and financial condition. Furthermore, a
party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of transactions conducted
on the Internet and other online services and the privacy of users may also
inhibit the growth of the Internet and other online services generally and the
Web in particular, especially as a means of conducting commercial transactions.
To the extent that activities of the Company involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose the Company to a risk
of loss or litigation and possible liability. The Company's insurance policies
carry low coverage limits, which may not be adequate to reimburse the Company
for losses caused by security breaches. There can be no assurance that the
Company's security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on the
Company's business, results of operations and financial condition.
<PAGE>
ACQUISITIONS
If appropriate opportunities present themselves, the Company intends to acquire
businesses, technologies, services or products that the Company believes are
strategic. For example, the Company recently acquired Capnet Group of Companies
("CGC") an Internet based e-Commerce company in a stock-for-assets transaction.
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. The process of integrating an
acquired business, technology, service or product into the Company may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of the Company's business. Moreover, there can be no assurance that the
anticipated benefits of any acquisition, including "CGC", will be realized.
Future acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or amortization
expenses related to goodwill and other intangible assets, which could materially
adversely affect the Company's business, results of operations and financial
condition. Any such future acquisitions of other businesses, technologies,
services or products might require the Company to obtain additional equity or
debt financing, which might not be available on terms favorable to the Company,
or at all, and such financing, if available, might be dilutive.
INFORMATION DISSEMINATED THROUGH THE COMPANY'S SERVICE
The law relating to the liability of online services companies for information
carried on or disseminated through their services is currently unsettled. It is
possible that claims could be made against online services companies under both
United States and foreign law for defamation, libel, invasion of privacy,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their services.
Several private lawsuits seeking to impose such liability upon other online
services companies are currently pending. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon the Company and
other online services providers of potential liability for information carried
on or disseminated through their services could require the Company to implement
measures to reduce its exposure to such liability, which may require the Company
to expend substantial resources and/or to discontinue certain service offerings.
In addition, the increased attention focused upon liability issues as a result
of these lawsuits and legislative proposals could impact the growth of Internet
use. While the Company carries liability insurance, it may not be adequate to
fully compensate the Company in the event the Company becomes liable for
information carried on or disseminated through its service. Any costs not
covered by insurance incurred as a result of such liability or asserted
liability could have a material adverse effect on the Company's business,
results of operations and financial condition.
WAREHOUSING AND FULFILLMENT
The Company purchases a substantial majority of its products from Ingram Micro,
the world's largest wholesale distributor of High Technology Products. The
Company also has a retailer agreement with Merisel, another High Technology
Products Major Distributor. The Company had introduced its' own brand of
NoteBook Personal Computers, known as "Bolingo Notebook P.C.", which are
currently marketed to the United States customers over the Internet.
The Company utilizes automated interfaces for sorting and organizing its orders,
enabling it to achieve the most rapid and economic purchase and delivery terms
possible. The Company's proprietary software selects the orders that can be
filled via electronic interfaces with vendors and forwards remaining orders to
its special orders group. Under the Company's arrangements with distributors,
electronically ordered products often are shipped by the distributor within
hours of a receipt of an order from Bolingo.com. The Company has developed
customized information systems and trained dedicated ordering personnel who
specialize in sourcing hard-to-find high technology products.
For the Electronic Drug Store, the Company has contracted with various drug
repackaging companies to provide fulfillment capabilities for its respective
clients.
TECHNOLOGY
The Company has implemented an array of site management, search, customer
interaction, transaction-processing and fulfillment services and systems using a
combination of its own proprietary technologies and commercially available,
<PAGE>
licensed technologies. The Company's current strategy is to focus its
development efforts on creating and enhancing the specialized, proprietary
software that is unique to its business and to license commercially developed
technology for other applications where available and appropriate.
The Company uses a set of applications for accepting and validating customer
<PAGE>
orders, organizing, placing and managing orders with suppliers, managing
inventory, assigning inventory to customer orders and managing shipment of
product to customers based on various ordering criteria. The Company's
transaction processing systems handle millions of items, a number of different
availability statuses, gift wrapping requests and multiple shipment methods and
allow the customer to choose whether to receive single or several shipments
based on availability. These applications also manage the process of accepting,
authorizing and charging customer credit cards. The Bolingo.com Web site also
incorporates a variety of search and database tools.
A group of systems administrators and network managers monitor and operate the
Company's Web site, network operations and transaction processing systems. The
continued uninterrupted operation of the Company's Web site and transaction
processing systems is essential to its business and it is the job of the site
operations staff to ensure, to the greatest extent possible, their reliability.
The Company uses the services of two Internet service providers, Softaware Inc.
and UUNET Network Inc., to obtain connectivity to the Internet over multiple
dedicated lines. The Company's Servers are hosted at The Internet Building in
Marina Del Rey, California and linked directly to the main Internet hub with an
equivalent of "10" T1 lines connected, to provide maximum speed and efficient
transaction processing.
COMPETITION
The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. In addition, the retail high technology industry is
intensely competitive. The Company's current or potential competitors include:
(i) various online computer hardware and software retailers included but not
limited and vendors of other information-based products, including entrants into
narrow specialty niches; (ii) a number of indirect competitors that specialize
in online commerce or derive a substantial portion of their revenues from online
commerce, through which retailers other than the Company may offer products; and
(iii) computer superstores, including CompUSA, Egg Head, PC Mall, and other
large specialty high technology and integrated media corporations, many of which
possess significant brand awareness, sales volume and customer bases. The
Company believes that the principal competitive factors in its market are
Brand recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of editorial
and other site content, reliability and speed of fulfillment. Many of the
Company's competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than the Company.
The Company anticipates competing directly and indirectly for subscribers,
consumers, content and service providers, advertisers and acquisition
candidates with the following categories of companies: (i) online services or
Web sites targeted to the healthcare industry generally; (ii) publishers and
distributors of traditional off-line media, including those targeted to
healthcare professionals, many of which have established or may establish Web
sites; (iii) general purpose consumer online services that provide access to
healthcare-related content and services; (iv) public sector and non-profit Web
sites that provide healthcare information without advertising or commercial
sponsorships; (v) vendors of healthcare information, products and services
distributed through other means, including direct sales, mail and fax messaging;
and (vi) Web search and retrieval services and other high-traffic Web sites.
The Company does not have the contractual right to prevent its subscribers,
other than physician members of Capnet IPA who are under obligation to utilize
the Company's Website and services for information processing and medical
transaction and certain promotional plans, from terminating their service or
changing to a competing network. The Company believes that the principal
competitive factors in attracting and retaining healthcare subscribers are the
depth, breadth and timeliness of services and content, the ability to offer
compelling content and services and brand recognition.
Other important factors in attracting and retaining healthcare professionals
include ease of use, quality of service and cost. The Company believes that the
principal competitive factors that will attract advertisers include price, the
number of healthcare professionals who subscribe to Capnet.com, the aggregate
traffic on Capnet.com's website, the demographics of the Company's subscriber
and user bases and the creative implementation of advertisement placements.
For the Electronic Drugstore, the company believes that there are no competitors
in medication management that offer a comprehensive solution with ease of use,
accessibility, information content and value proposition comparable to the
Company's. However, several organizations offer components that overlap with
certain components of the Company's solutions and may become increasingly
competitive with the Company in the future.
The Company faces competition from several types of organizations, including the
following:
1. Physician practice management systems suppliers.
2. Electronic medical record providers.
3. Healthcare electronic data interchange providers.
4. Point-of-care dispensing providers.
5. Internet pharmacies.
<PAGE>
6. Internet information providers.
For the Bolingo Hi-Tech Store, the Company's current or potential competitors
include: (i) various online computer hardware and software retailers and vendors
of other information based products, including entrants into narrow specialty
niches; (ii) a number of indirect competitors that specialize in online commerce
or derive a substantial portion of their revenues from online commerce, through
which retailers other than the Company may offer products; and (iii) computer
superstores, including CompUSA, Egg Head, Creative Computers, and other large
specialty high technology and integrated media corporations, many of which
possess significant brand awareness, sales volume and customer bases. The
Company believes that the principal competitive factors in its market are brand
recognition, selection, personalized services convenience, price, accessibility
,customer service, quality of search tools, quality of editorial and other site
content, reliability and speed of fulfillment.
Many of the Company's competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than the Company.
Certain of the Company's competitors may be able to secure merchandise from
vendors on more favorable terms, devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing or inventory availability
policies and devote substantially more resources to Web site and systems
development than the Company. Increased competition may result in reduced
operating margins, loss of market share and a diminished brand franchise. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors.
The Company expects that competition in the online commerce market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on online retailers, including the Company.
For example, "shopping agent" technologies will permit customers to quickly
compare the Company's prices with those of its competitors. Competitive
pressures created by any one of the Company's competitors, or by the Company's
competitors collectively, could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
REVENUE PROJECTIONS
For the year ended December 31, 1999, the Company realized a gross revenue of
$1,392,919. This revenue was mostly from healthcare transactions management. It
is envisioned that the Company will earn revenues in the form of commissions,
management fees and advertising fees. It is anticipated that vendors will remit
to the Company commissions ranging between 8% and 15% for product sales through
the Company's website. In addition, banner advertising and website links are
projected to generate revenues of $10.6 million per year by the fifth year
of the Company's operations. Operating costs, including staff, technology,
maintenance and selling and administrative are expected to be $1.0 million by
the fifth year of the Company's operations.
As a result of the Company's limited operating history and the emerging nature
of the markets in which it competes, the Company is unable to accurately
forecast its revenues. The Company's current and future expense levels are
based largely on its investment plans and estimates of future revenues are to a
large extent fixed. Sales and operating results generally depend on the volume
of, timing of and ability to fulfill orders received, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to
changes in the competitive environment, the Company may from time to time make
certain pricing, service, marketing or acquisition decisions that could have a
material adverse effect on its business, prospects, financial condition and
results of operations. For example, the Company has agreed in certain of its
promotional arrangements with Internet aggregators to make significant fixed
payments. There can be no assurance that these arrangements will generate
adequate revenues to cover the associated expenditures and any significant
shortfall would have a material adverse effect on the Company's financial
condition and results of operations.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include: (i) the Company's ability to retain
existing customers, attract new customers at a steady rate and maintain customer
satisfaction; (ii) the Company's ability to acquire product, to maintain
appropriate inventory levels and to manage fulfillment operations; (iii) the
Company's ability to maintain gross margins in its existing business and in
future product lines and markets; (iv) the development, announcement or
introduction of new sites, services and products by the Company and its
competitors; (v) price competition or higher wholesale prices in the industry;
<PAGE>
(vi) the level of use of the Internet and online services and increasing
consumer acceptance of the Internet and other online services for the purchase
of consumer products such as those offered by the Company; (vii) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner; (viii) the level of traffic on the
Company's Web site; (ix) technical difficulties, system downtime or Internet
brownouts; (x) the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and infrastructure;
(xi) the number of popular high technology products introduced during the
period; (xii) the level of merchandise returns experienced by the Company;
(xiii) governmental regulation and taxation policies; (xiv) disruptions in
service by common carriers due to strikes or otherwise; and (xv) general
economic conditions and economic conditions specific to the Internet, online
commerce and the high technology products industry.
The Company expects that it will experience seasonality in its business,
reflecting a combination of seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Internet usage and the rate of
Internet growth may be expected to decline during the summer. Further, sales in
the traditional retail high technology industry are significantly higher in the
fourth calendar quarter of each year than in the preceding three quarters. For
the healthcare transaction business, the company anticipates seasonal variation
in memberships of the contracted health plans, especially at the beginning of
the fiscal year, during the period of open enrollments.
Due to the foregoing factors, in one or more future quarters the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the common stock would likely be
materially adversely affected.
Item 2. Properties
The Company's corporate offices are located at 900 Wilshire Boulevard, Suite
500, Los Angeles, California 90017. The Company is required to pay $2,270.67
per month rental. The Company was required to make a lease deposit of
$4,541.34. The lease expires on February 28, 2001. The telephone number is
(213) 627-8878. The Company has additional office space located at 1601
Centinela Avenue, Inglewood, California 90302. The Company is required to pay
$2,300.00 per month rental. The Company was not required to make a lease
deposit. This lease is on a three-month renewal basis.
Other property 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, 1999 and
1998 and is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
===== =====
<S> <C> <C>
Computer Equipment $56,419 $ -
Leasehold Improvements 6,500 -
Office Furniture & Fixtures 36,603 825
Office Equipment 7,169 -
Software 6,756 -
Medical Equipment 5,391 -
Less: Accumulated Depreciation 96,126 -
------- -------
$22,712 $ 825
======= =======
</TABLE>
Item 3. Legal Proceedings
The Company knows of no litigation pending, threatened or contemplated, or
unsatisfied judgments against it, or any proceedings in which the Company is a
party. The Company knows of no legal actions pending or threatened or judgment
entered against any officer or director of the Company in his capacity as such.
There has been to date no petition under the bankruptcy act or any state
insolvency law filed by or against the Company or its officers, directors or
other key personnel.
Item 4. Submission of Matters to a Vote of Security Holders
Annual shareholders meeting has been scheduled for January 7, 2000. The agenda
items includes among other things, the election of new board of directors,
approval of the registrant's Stock Option Plan, and the appointment of Andrew M.
Smith, CPA, as the registrant's independent auditor for the year.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
<PAGE>
The Common Stock is currently quoted on the OTC Bulletin Board, maintained by
the National Association of Security Dealers, Inc. ("NASDAQ") under the Symbol:
MEHO, 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 $7.50 and a low bid of $0.125 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.
At December 31, 1999, the company had approximately 125 shareholders of record
for its common stock, not including shareholders whose Common Stock is held in
"Street" names. The preferred shares have never been offered to the public,
therefore have never been publicly traded.
Item 6. Selected Financial Data
Cash and cash equivalents totaled $144,890 at December 31, 1999 compared to
$6,176 at December 31, 1998. The increase in cash was due to business growth,
expansion of Capnet Healthcare Transaction Management contract with the County
of Los Angeles and consolidation of 51% interest in Intercare Diagnostics, Inc.
The Company had net working capital of $740,452 at December 31, 1999 compared to
$517,287 as at September 30, 1999. This increase in working capital was due to
restructuring of long-term liabilities and the reduction of accounts receivable.
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 financial statements notes thereto.
Item 7. 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 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.
Liquidity and Capital Resources of the Company.
With the completion of the acquisition of the Capnet Group of Companies into the
Company, the operations have changed significantly. Prior to the acquisition,
the Company was in the capital formation stages and did not have any business
operations. With the increased operations, however, there is also an increase
in commitments and cash requirements. On September 18, 1999, the company
acquired 51% of all the outstanding Common Stock of Intercare Diagnostics, Inc.,
in exchange for assumption of debt and services. This acquisition is accounted
for in the current consolidated financial statement. On June 29, 1999, Dr.
Anthony C. Dike joined the Company as Chairman and Chief Executive Officer.
Under his employment agreement, the Company was to pay Dr. Dike a base salary
of $12,000 per month. To date, the Company has not paid Dr. Dike any portion of
his base salary that was calculated to $72,000.00 as of December 31, 1999. For
the year ended, 1999, the Company has not accrued the salary payable to Dr.
Dike, since he has agreed to forgive the liability. Anthony C. Dike, intends to
begin collecting his salary beginning January 1, 2000. This could be in the form
of common stock by exercising any of his available stock options, upon approval
of the 1999 Stock Option plan by the shareholders.
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 is no assurance that such funds will be available,
and even when available, the terms may be very prohibitive.
Results of Operations
The Company generated revenues from operations of $1,392,919 during the year
ended December 31, 1999. The acquisition of 51% of Intercare Diagnostics, Inc.,
was completed on September 18, 1999. The Company recorded a net profit from
operations of $85,733 during the year ended December 31, 1999. For the three
months ended December 31, 1999, the company generated a gross revenue of
$416,385 as compared to gross revenue of $336,642 for the period ended in
September 30, 1999. This represents a 123% increase in gross revenue during the
fourth quarter of 1999.
Management anticipates that both the gross revenue and general operating
expenses will increase, as it pursues vigorously its acquisition of new business
opportunities and the integration of the existing ones.
There are no seasonal aspects of the Company's business that had, or are
<PAGE>
expected to have, a material effect on the financial conditions or results of
operations.
Plan of Operations
The Company has undertaken the completion of a Private Placement pursuant to
Regulation D, Rule 506 of the Securities and Exchange Commission. As of December
31 1999, no unit of the offering has been sold, nor has any warrant been issued.
On September 3, 1999, Capnet IPA, a division of Meridian Holdings Inc.,
announced that it has renewed its contracts with the County of Los Angeles -
Department of Health Services Community Health Plan.
The agreements, No. H207146-1, No. H207148-1 and No. H207190-1, provide that
Capnet IPA provide services regarding health-care transactions and management
for the County of Los Angeles - Department of Health Services Community Health
Plan's contracted members, through Capnet's network of affiliated physicians,
hospitals and other ancillary services providers within the greater Los Angeles
County.
The agreements were extended for a 12-month period. These agreements are
evaluated and extended on an annual basis. The company projects that its
agreements with the County of Los Angeles - Department of Health Services
Community Health Plan will provide revenue in the range of $1,500,000 to
$1,800,000 during the extension period.
On September 10 1999, CAPNET.com, a division of Meridian Holdings Inc.,
announced that it has officially released the Version 5.0 of ``The Mirage
Systems Internet-based Healthcare Transaction Management Software Program.''
This program has been under development since 1994, and has undergone rigorous
testing prior to current deployment. The software program was originally
developed in 1993 as a cross-platform software program (Microsoft Windows and
Macintosh) by Intercare Diagnostics Inc. (A world-renowned biomedical software
development company) utilizing Microsoft FoxPro Software Development tool.
The development of the Internet Version of the Program was started in 1994,
under joint development efforts between Intercare Diagnostics Inc., A Microsoft
Developer Network ISV Member, and CAPNET.com, an Internet-based E-commerce
transactions and management division of Meridian Holdings, utilizing Microsoft
Corporation software development tools.
The current software was developed with Microsoft Visual Interdev 6.0, and it is
100% compatible with Microsoft Windows NT 4.0, Microsoft Exchange Server 5.5,
Microsoft SQL 7.0, Microsoft Access 7.0 and above, Microsoft Internet Explorer
4.0 and above, and Netscape 4.0 and above. The estimated street value of this
program is over $5 million and expected to appreciate in value, when all the
program features are fully implemented in subsequent versions.
Under the joint development agreement, Meridian Holdings has an exclusive
license to use this software program to conduct healthcare transactions over the
Internet, including but not limited to claims and encounter data submission,
eligibility verifications, outcome analysis and drug utilization analysis, etc.
So far the following contracted health plan partners, LA Care Health Plan,
County of Los Angeles Community Health Plan, Blue Cross of California, Care1st
Health Plan and Molina Medical Centers, have been connected to the Network as of
January 1999. This newly released version will allow Capnet contracted
physicians and hospitals to utilize the program at no cost, while other
non-affiliated healthcare providers can only log on to the network on fee-based
transaction arrangements.
In the future, the company intends to market this program to other
non-affiliated healthcare organizations on a fee-based transaction module. As of
this report, no sales agreement for use of the software have been signed by any
non-affiliated healthcare organization, and there can be no assurance that any
such market exists for the software.
On September 18 1999, the Company acquired 51% of Intercare Diagnostics, Inc., a
United States FDA-registered, world renowned biomedical software manufacturing
and publishing company with over 5-Multimedia software titles in the market,
namely:
a). The Mirage Systems Body Pain Trigger Points Software programs
(Both Macintosh and Windows versions)
b). The Mirage Systems Multimedia Biofeedback Software Programs
(Both Macintosh and Windows versions)
c). The Mirage Systems Internet-based Healthcare Transaction Management
Software Program
d). The Mirage Systems Stress Profiling Software Programs
(Both Macintosh and Windows versions)
e). The Mirage Systems Electro-Diagnostics Scan Site Program
(Both Macintosh and Windows versions)
This acquisition was consummated in exchange for certain debts to be assumed by
the company and other services to be performed by the company as contained in
the Stock Purchase Agreement dated September 18 1999, filed with SEC on the Form
8K submitted on September 20, 1999 and Form 8-K/A submitted in October 25, 1999.
On September 27, 1999, Intercare Diagnostics, Inc., a subsidiary of Meridian
Holdings, Inc., announced that it has executed an electronic commerce agreement
with Netsales, Inc., in which Netsales will distribute Intercare's software
programs through more than 140,000 loyal reseller customers in 130 countries of
Ingram Micro, the largest provider of computer technology products and services
in the world.
NetSales, Inc., one of the oldest and most trusted providers of outsourced
e-commerce services, enables companies to do business via the Internet by
developing secure, client-branded e-commerce sites. Under the exclusive ESD
services agreement with Ingram Micro, Netsales will work directly with software
publishers who are not currently part of the Ingram Micro channel to ESD-enable
products for distribution through Ingram Micro's channel of participating online
resellers, including some of the Internet's largest and most popular online
stores.
Ingram Micro, Inc. (NYSE: IM - news), headquartered in Santa Ana, Calif., is the
-- ----
world's largest wholesale distributor of technology products and services, and a
leading provider of assembly and integration services with sales of $25.5
billion for the past four reported quarters. The company and its subsidiaries
operate in 34 countries and distribute more than 225,000 products to more than
140,000 resellers in 130 countries.
The company had entered into similar agreement earlier, with DigitalRiver, Inc.,
in which DigitalRiver will market the company's software program through major
retailers such as CompUSA, WalMart, and other Internet software resellers. As of
this writing, there has not been any significant sales reported, but management
believes that such sales will occur as soon as more funds are committed to
promotion and marketing of the software program. There can be no assurance that
the company will be able to sustain an extensive marketing campaign, if it is
unable to raise additional capital for such an effort, and even if the funds
were to be available, there can be no assurance that the terms for such level of
funding will be favorable to the Company or could be consummated without
incurring an additional dilution of the Company's Common Stock.
On October 8 1999, a term-sheet for a funding agreement was signed with Charter
Financial Corp., located in Lakewood, Colo., to provide funding for the
company's accounts receivable with regard to an anticipated acquisition. Charter
Financial will provide approximately $15 million to the company. The amount is
based upon a formula determined by the value of the accounts receivable. The
discount rate will range from 7.75% to 11%, depending upon payers and timeliness
of payments. The agreement will cover all accounts receivable with contract
terms of 30 days or more, free and clear of all liens and encumbrances. All
terms are subject to due diligence review. The Company entered into a minimum of
a one-year contract with Charter Financial.
On November 26, 1999, CAPNET.com Electronic Drugstore, a division of Meridian
Holdings, Inc., executed an exclusive electronic commerce agreement with
BioSynergy Nutriceuticals, Inc. Under the terms of this agreement BioSynergy
will become the exclusive supplier of all the dietary supplements relating to
CAPNET.com's natural foods and vitamins business line. CAPNET.com intends to
become a leader in the $25.8 billion natural foods industry. The industry has
enjoyed a better than 20% annual growth rate for five consecutive year,
according to Nutrition Business Journal.
BioSynergy Nutriceuticals Inc. (http://www.bio-synergy.com), based in Sausalito
--------------------------
California, is a supplier of raw materials and secondary ingredients to the
dietary supplement industry. The company has recently developed strategic
relationships with scientists at VA Medical Center, UCLA and Harvard in addition
to food science labs, that will help the company patent nutriceuticals for its
own line.
On December 10, 1999 the Company announced a 1 to 100 dividend distribution of
Intercare.com shares of common stock to all its existing shareholders of record
as of December 30, 1999. Also on the same day, the company announced the
acquisition of 20% interest in CGI Communications Services, Inc., a specialized
Internet and Intranet services provider.
On December 31, 1999, the Company announced that on behalf of its subsidiaries
and affiliated companies, it has submitted a proposal to the National
Aeronautics and Space Administration (NASA) for commercialization of NASA's
state-of-the-art Video Image Stabilization and Registration (VISAR) technology
and video game biofeedback software technology.
The Company intends to utilize the VISAR technology in various Internet
applications to enhance clarity and registration of electronically transmitted
photographs and graphics, and the biofeedback technology initially to complement
its proprietary technology for use in Internet-based biofeedback,
self-regulation training, neuromuscular reeducation, and telemedicine.
Additional applications of both technologies are contemplated, with
approximately $1 million having been allocated for product development.
The Company's proposal to NASA represents an excellent opportunity to make
'highest and best use' of a technology that dovetails elegantly and seamlessly
with our existing technologies, the demand for which is increasing steadily with
the proliferation of the Internet. We are exceptionally enthusiastic about the
potential and look forward to a determination by NASA during the first half of
2000.
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.
Item 7A. 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 8. Financial Statements and Supplementary Data
See Exhibit A "Independent Accountant's Report" incorporated by
reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial
Disclosures.
There have been no changes in, or disagreement with, the Company's independent
accountant. The company's principal independent accountant has not resigned or
been dismissed. During January 1999, Mr. Andrew M. Smith, Certified Public
Accountant, was engaged as the principal accountant to audit the Company's
financial statements. Mr. Andrew M. Smith, CPA, has been recommended by the
board of Directors to serve as the Company's independent auditor for the year
ended 1999. The matter has been presented to the shareholders for a vote, and he
is assured to be elected by the majority of the shareholders during the next
coming annual meeting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Board of Directors, which consists of five directors, three of which are
outside members and two of which are officers of the Company, establishes the
general compensation policies of the Company and the compensation plans and
specific compensation levels for executive officers. The Company does not have a
separate Compensation Committee of its Board of Directors. The Company's
objective is to ensure that executive compensation be directly linked to ongoing
improvement in corporate performance and increasing shareholder value. The
following objectives are guidelines for compensation decisions: Job
Classification. The Company assigns a job grade to each salaried position, and
each job grade has a salary range, which is based on national salary surveys.
These salary ranges are reviewed annually to determine parity with national
compensation trends, and to ensure that the Company maintains a competitive
compensation structure. Competitive Salary Base. Actual salaries are based on
individual performance contributions within a competitive salary range for each
position established through job evaluation and market comparisons. The salary
of each corporate officer is reviewed annually by the Board of Directors. Stock
Option Programs. The purposes of the Company's ESOP and SOP are to provide
additional incentives to employees to work to maximize shareholder value. The
ESOP is open to all full-time employees of the Company and the SOP is open to
participation by key employees and other persons as determined by the Board,
based upon a subjective evaluation of the key employee's ability to influence
the Company's long-term growth and profitability. Stock options under the ESOP
may be granted at the current market price at the time of the grant or under the
SOP at prices as determined by the Board. With specific reference to the Chief
Executive Officer, the Board attempts to exercise great latitude in setting
salary and bonus levels and granting stock options. Philosophically, the Board
attempts to relate executive compensation to those variables over which the
individual executive generally has control. The Chief Executive Officer has the
primary responsibility for improving shareholder value for the whole Company.
The Board believes that its objectives of linking executive compensation to
corporate performance results in alignment of compensation with corporate goals
and shareholder interest. When performance goals are met or exceeded,
shareholder value is increased and executives are rewarded commensurately. The
Board believes that compensation levels during 1998/1999 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 $400 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 2000
Annual Meeting, unless they earlier resign or are removed as provided in
the Bylaws.
At present, the Board of Directors has no standing committees. The Board may, at
its discretion, designate one or more standing committees as are necessary in
the future to help manage the business and affairs of the Company.
The following is the list of members of the board of directors scheduled to be
elected during the shareholders annual meeting scheduled for January 7, 2000.
Anthony C. Dike, MD., age 45 years--Dr. Dike has been the Chairman of the
Board, Chief Executive Officer and President of the Company since May 25,
1999. Dr. Dike is a physician by training and an entrepreneur who has funded
and developed various start-up high technology businesses from inception
to fruition through his private investment firm, MMG Investments, Inc., a
California Corporation. He is the founder of CGI Communications Services,
Inc. , a specialized Internet, Intranet and Extranet services provider;
Bolingo.Com, the world's largest high technology store; Capnet.Com, and Capnet
Gateway Online Services, an Internet Portal that provides a one-stop-center for
information regarding Healthcare, High-Technology and Humanity; Bdifair.com
, an Internet auction website, PricePickers.Com, and Internet-based general
merchandise store, Capnet IPA- an Internet-based healthcare transaction
management company. Capnet IPA has service agreements in place with over seven
payors, 15 community hospitals, four teaching hospitals and 500 participating
physicians in the Greater Los Angeles County. Dr. Dike is also the founder of
Meridian Medical Enterprises Corporation, Meridian Health Systems P.C, and
Meridian Medical Group, P.C. In 1991, Dr. Dike founded Intercare Diagnostics,
Inc., a United States Food and Drug Administration (USFDA) registered
Biomedical software manufacturing company, with over five multimedia
healthcare related software programs in the market. He also pioneered the
design and development of the Mirage Systems Biofeedback Software program, the
first United States Food and Drug Administration approved software-only program
for biofeedback, self-regulation and relaxation training. Dr. Dike has served
in various capacities as a consultant to the United States Department of
Education Office of Special Education grant applications peer review panel,
where he was recently appointed to serve in the standing panel for the next
three years. Dr. Dike served as a consultant to the United Nations
"TOKTEN" (Transfer of Knowledge by Foreign Nationals) Program for the
United Nations "Sustainable Human Development Projects" in Africa in 1997.
James L. Kyle III, MD. M-Div, Dr. Kyle III, age 42 years--- Dr. Kyle has been
the Director and Secretary of the Company since August 9, 1999. Dr. Kyle is
currently the Interim Dean of Charles R. Drew University of Medicine and
Science, Los Angeles, California. Prior to this appointment, he was the Chief
Medical Officer and Director of Clinical Business Development of the University
since March 1996. Dr. Kyle was the President and Chief Executive Officer of
Sharp Health Plan and a Vice President, Community Care Division of Sharp
Healthcare from March 1994 through March 1996. During the period from June 1990
through March 1994, Dr. Kyle started and maintained a private practice of
internal medicine in Long Beach, California. Dr. Kyle received his Bachelor
of Arts degree in Religion from Loma Linda University and his Masters of
Divinity from Andrews Theological Seminary. Dr. Kyle received his Medical
Degree from UCLA in 1987. Dr. Kyle performed his residency at UCLA, Department
of Medicine and received his California Medical License in 1988.
James W. Truher. Mr. Truher, age 63 years---Mr. Truher has been a Director of
the Company since August 19, 1999. Mr. Truher has over 40 years management and
<PAGE>
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. Mr. Truher also serves as a
principal of Sanga International, Inc., one of the top five leading Java
Software Partners of Sun Microsystems, Inc. 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.
Scott W. Wellman, Esq---Mr. Wellman, age 46, became a director of the
Company in October 1999, Mr. Wellman is a senior partner of a law firm Wellman &
Warren, LLP in Irvine, California, specializing in business law and complex
business litigation with particular emphasis in securities matters, regulatory
enforcement matters, unfair competition, real estate, and international business
transactions. A graduate of University of California, Los Angeles, with BA in
Mathematics, Scott Wellman received his Juris Doctor as well as his Masters
degree in Economics in 1978 from the University of Southern California. Mr.
Wellman serves as an Adjunct Professor of Law at Whittier Law School, where he
teaches international business litigation and international transactions. Mr.
Wellman has been a lecturer and/or guest panelist for numerous seminars, and
has authored several publications.
Marcellina Offoha, Ph.D.---Ms. Offoha, age 45, became 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.
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.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1999, the Company's Board of
Directors acted seven times by a unanimous written consent in lieu of a
meeting.
Executive Officers
The executive officers of the Company are as follows:
Anthony C. Dike, M.D. Chairman/CEO and CFO
Russ A. Lyon Chief Technology Officer
Item 11. 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
<TABLE>
<CAPTION>
Name Year Salary Bonus Stock Option All Other
Compensation
<S> <C> <C> <C> <C> <C>
Anthony C. Dike 1999 $144,000(F1) 0 0 0
Russ A. Lyon 1999 $100,000 $25,000(F2) 500,000(F3) 0
<FN>
F1: Payment of salary has been deferred until such time as the Company has
sufficient capital to commence such payment.
F2: Executive shall be entitled to earn a bonus with respect to each year of
the Term during which Executive is employed under the Employment Agreement up
to $25,000 (prorated for partial years) based upon the following criteria:
a) $15,000 if the Company meets its business plan as established by the
Board of Directors for the year in question (as established by the Board
of Directors) and does not exceed its capital budget for such year;
b) an additional $5,000 if the Company exceeds its business plan by at
least five percent (5%), and
c) the remaining $5,000 at the discretion of the Board. For purposes of
determining whether the Company has met its business plan, income and expense
relating to acquisitions and new projects made during the year shall be
disregarded unless such acquisitions or projects were included in the business
plan for the year and the plan shall be equitably adjusted for
divestitures made during the year not contemplated by the business
F3: As an additional element of compensation to Executive, in consideration of
the services to be rendered hereunder, the PARENT COMPANY shall grant to
Executive options to purchase 500,000 restricted shares of the PARENT
COMPANY'S common stock, 150,000 of which shall have an exercise price equal to
the fair market value of such stock on the date hereof, and the remaining
350,000 options which represents a signing bonus of 200,000 shares, and
the first year option of 150,000 restricted shares of common stock shall
have an exercise price of $0.50/share (175,000 Dollars). The terms and
conditions of such options shall be governed by a Stock Option Agreement
between the Company and Executive, as earlier filed in the proxy statement,
incorporated herein by reference.
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1999 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.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER TITLE BENEFICIAL OWNERSHIP STATUS PERCENT OF CLASS
- ------------------------------ -------- -------------------- -------- -----------------
<S> <C> <C> <C> <C>
ANTHONY C. DIKE, M.D. DIRECTOR 25,000,000 ACTIVE 80%
JAMES L. KYLE III, M.D. DIRECTOR - ACTIVE -
JAMES W. TRUHER DIRECTOR - ACTIVE -
SCOTT W. WELLMAN, ESQ. DIRECTOR - ACTIVE -
MARCELLINA OFFOHA, PH.D DIRECTOR 2,500 ACTIVE 0.001%
CGI COMMUNICATIONS SERVICES, INC. 4,000,000 12%
MMG INVESTMENTS, INC. 1,000,000 3%
ELIZABETH CAMPOS 211,000 0.6%
ALL DIRECTORS AND OFFICERS AS
A GROUP (FIVE PERSONS) 25,002,500 80%
CHARLES OKEHIE DIRECTOR 650,000 RESIGNED 2%
</TABLE>
Item 13. Certain Relationships and Related Transactions
On September 18, 1999, the board of directors approved the acquisition of 51% of
Intercare Diagnostics, Inc. This acquisition involved the registrant assuming
certain debts of Intercare Diagnostics, Inc. MMG Investments, Inc., was issued
1,000,000 shares of the registrants common stock as a form of payment for
$500,000 debt owed by Intercare Diagnostics, Inc. The fair market value of the
registrant's common stock on the date of said transaction was an average bid
price of $0.50 per share. Anthony C. Dike, the Chairman and CEO of the
registrant, is also the principal of MMG Investments, Inc.
On December 10, 1999, the board of directors approved the acquisition of 20% of
CGI Communications Services, Inc., in exchange for an equity investment of an
aggregate of $12,000,000, over a 5-year period. A fairness opinion was obtained
from Mr. Andrew M. Smith, CPA, an independent accountant for the registrant,
regarding the contemplated transaction. Anthony C. Dike, the Chairman and CEO of
the registrant, is also a principal shareholder of CGI Communications Services,
Inc.
On December 30, 1999, the board of directors authorized the issuance of
4,000,000 of the registrants shares of common stock in consideration for the
20% of the net interest in CGI Communication Services, Inc. At the date of the
transaction the company's shares opened at a price of $3 per share. Since
September 1, 1999 the company's shares have 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. The shareholders of CGI Communication services were also issued
warrants to purchase an additional one million shares of common stock at $2 per
share 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 expire on
December 30, 2004.
PART IV
<TABLE>
<CAPTION>
<S> <C>
Item Description
Exhibit A Independent Auditors Financial Statement and
Schedules
Exhibit B Reports of Form 8-K
On December 10, 1999, the registrant filed a
Form-8K with the SEC, reporting on Items 2 and
5.(Incorporated herewith by reference)
</TABLE>
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: December 31, 1999
By: /s/ Anthony C. Dike
----------------------
Anthony C. Dike
Chief Executive Officer and
Chief Financial Officer
<PAGE>
Exhibit A
Independent Auditors Financial Report and Schedules
Meridian Holdings, Inc.
Financial Statements
And Independent Auditor's Report
December 31, 1999
<PAGE>
Meridian Holdings, Inc.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Page
Independent Auditor's Report F-1
Audited Financial Statements:
Balance Sheet F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORTTo the Board of Directors
Meridian Holdings, Inc.We have audited the accompanying balance sheet of
Meridian Holdings, Inc., as of December 31, 1999 and the related statements of
stockholders' equity and cash flows for the year then ended. Our responsibility
is to express an opinion on these financial statements based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. 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, 1999 and the results of their operations and their cash flows for
the year then ended, in conformity with generally-accepted accounting
principles.
ANDREW M. SMITH
CERTIFIED PUBLIC ACCOUNTANT
3711 Long Beach Blvd, Suite 809
Long Beach, Ca 90807
(562) 427-3887
(562) 592-6927-Fax
[email protected]
February 11, 2000
<PAGE>
Meridian Holdings, Inc.
Balance Sheet
As At December 31
<TABLE>
<CAPTION>
1999 1998
====== ======
<S> <C> <C>
ASSETS
Current assets
cash 144,890 6,176
Accounts Receivable (Note 4 ) 237,466 -
Less: Allowance for Doubtful Accounts (77,194) -
-------- ------
Total Current Assets 160,272 -
Inventories 4,806 -
Prepaid Expenses 4,541 -
--------- ------
Total Current Assets 314,510 6,176
========= ======
Property, Plant, and Equipment
Net Accumulated Depreciation (Note 5) 22,712 825
Other Assets
Organizational Cost - 10,524
Investments (Note 3). . . . . . . . . . . . . . . 3,880,000 -
----------- -------
Total Assets $ 4,217,222 $ 17,525
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued liabilities 100,047 2,000
------- ------
Total Current Liabilities 100,047 2,000
Long term liabilities 143,970 2,000
-------- ------
Total Liabilities 244,017 -
======== ======
Liabilities and Stockholders' Equity
Stockholders' Equity
Common stock (50,000,000 shares authorized
par value 0.001 ; 31,157,500 shares issued and
Outstanding) (Note 2) 31,157 650
Additional paid-in capital 3,856,315 2,874
Common Stock Subscribed 12,000
Retained Earnings 85,733 -
---------- -------
Total Stockholders' Equity 3,973,205 15,524
---------- -------
Total Liabilities & Equity $ 4,217,222 17,524
========= =======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Meridian Holdings, Inc.
Statement of Income
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998
====== =====
<S> <C> <C>
Revenues . . . . . . . . $ 1,392,919 $ -
Less: Cost of Revenues . (652,467) -
--------- -------
Gross Margin . 740,452 -
Operating Expense. . . . 638,526 -
Other Income and Expense (16,194) -
-------- -------
Net Income . . $ 85,733 -
========= =======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Meridian Holdings, Inc.
Statement of Changes in Stockholders Equity
For the period ended December 31, 1999
<TABLE>
<CAPTION>
Common
Retained Common Paid in Stock
Earnings Stock Capital Subscribed Total
========== ======= ======== ========== =======
<S> <C> <C> <C> <C> <C>
Bal October 13, 1998. $ - $ - $ - $ - $ -
Net Income. . . . . . - - - - -
Common Shares Issued 650 2,874 - 3,524
Subscribed Shares . . - - - 12,000 12,000
----------- -------- --------- --------- ---------
Bal December 31, 1998 $ - $ 650 $ 2,874 $ 12,000 $ 15,524
=========== ======== ========= ========= =========
Net Income. . . . . . 85,733 85,733
Common Shares Issued. - 30,508 3,910,326 (12,000) 3,928,834
------- -------- --------- ---------- ---------
Bal December 31, 1999 85,733 31,158 3,913,200 - 4,030,090
======= ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Meridian Holdings, Inc.
Statement of Cash Flow
For the Year ended December 31
<TABLE>
<CAPTION>
<BTB> 1999 1998
==== ====
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss). . . . . . . . . . . . . . . $ 85,733 $ -
Adjustments to reconcile net loss to net cash
used in operating activities:
(Increase) Decrease in
Accounts receivables . . . . . . . . . . . . . (160,272) (900)
Inventories. . . . . . . . . . . . . . . . . . (4,806) -
Prepaid Expenses . . . . . . . . . . . . . . . (4,541) -
Increase(Decrease) in
Accounts Payables. . . . . . . . . . . . . . . 98,047 1,000
-------- -------
NETCASH USED IN OPERATING ACTIVITIES . . . . . . . . 14,160 100
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of Fixed Assets. . . . . . . . . . (21,887) (825)
Organization Costs . . . . . . . . . . . . . . 10,524 (9,524)
--------- -------
NET CASH USED IN INVESTING ACTIVITES . . . . . . . . (11,363) (10,349)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of stock . . . . . . . . . . - 16,424
Repayment of debt . . . . . . . . . . . . . . . (8,052) -
Proceeds from long term debt. . . . . . . . . . 143,970 -
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . 135,918 16,424
Increase (Decrease) in cash . . . . . . . . . . 138,715 6,175
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . 6,175 -
---------- ----------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . $ 144,890 $ 6,175
========== ==========
<FN>
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Fair value of common stock to acquire investee $3,880,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Meridian Holdings, Inc.
Notes to Financial Statements
December 31, 1999
NOTE 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies of Meridian Holdings, Inc. (the
"Company") is presented to assist in understanding the Company's financial
statements. These financial statements and notes are the representation of the
Company's management, which is responsible for the integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Nature of Operations
Meridian Holdings, Inc. (NASDAQ: Bulletin Board - MEHO) was incorporated under
the laws of the State of Colorado on October 13, 1998. The Company is an
Internet based company with special emphasis on e-commerce. The Company's
activities have been limited to capital formation and the development of a
business plan. The Company became fully reporting under Securities & Exchange
Commission guidelines on March 31, 1999. Meridian Holdings, Inc., acquired the
Capnet Group of Companies on May 25, 1999. Meridian Holdings, Inc., is a
technology and Internet-centric holding company which identifies, acquires,
operates and manages business-to-business companies . Meridian Holdings, Inc.,
currently focuses on companies engaged in e-commerce, e-communication, and
e-business services. The Company generally acquires ownership interests in
companies that allow it to have a significant influence over their direction and
management over the long-term. Meridian Holdings, Inc., assigns a dedicated team
to each partner company and actively assists its partner companies 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.
Use of Estimates
Management will use estimates and assumptions in preparing financial statements
(e.g. depreciation). Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and reported revenues and expenses.
Fiscal Year
The Company operates on a December 31st year end.
Income Recognition
The Company prepares its financial statements and federal income taxes on the
accrual basis of accounting. The nature of the business is such that the Company
receives stock and other necessary materials from the customers for processing.
As such no inventories of any significance are maintained.
NOTE 2 - Capitalization
The Company is authorized to issue 10,000,000 shares of Preferred Stock, per
value $.001, and 50,000,000 shares of Common Stock, par value $.001.
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 Warrants
issued or options outstanding as of December 31, 1999.
The Common Shares each have voting rights, with par value $0.001 per share and
no preference rights. As of December 31, 1999, there were 31,157,500 Common
Shares of the Company issued and outstanding. There were no Preferred Shares
issued or outstanding. One million shares of Company's Common Stock were issued
to MMG Investments, Inc., at the fair market value of $0.5 per share on the day
of excise, to satisfy the debt of $500,000 incurred from the acquisition of 51%
of Intercare Diagnostics, Inc. On August 26th, pursuant to 1998 Stock Option
Plan, the board of directors authorized the issuance of 200,000 restricted
shares of common stock to one of it's employees at $0.125 per share being the
fair market value of the Company's common stock on the date of exercise.
NOTE 3 - Business Combinations
The Company completed the acquisition of the Capnet Group of Companies on May
25, 1999. On September 18th 1999, the Company acquired 51% of all the
outstanding Common Stock of Intercare Diagnostics, Inc., a California
Corporation, in exchange for services and assumption of certain debts of
Intercare Diagnostics, Inc. The financial statements for the year ended
December 31, 1999 have been prepared to reflect a consolidation of the 51%
equity interest in Intercare Diagnostics, Inc.
<PAGE>
On December 10, 1999, the company agreed to acquired 20% equity interest in CGI
Communications Services, Inc., for common stock. On December 30, 1999, the
board of directors authorized the issuance of 4,000,000 of the registrants
shares of common stock in consideration for the 20% of the net interest in CGI
Communication Services, Inc. At the date of the transaction the company's shares
opened at a price of $3 per share. Since September 1, 1999 the company's
shares have 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. The shareholders
of CGI Communication services were also issued warrants to purchase an
additional one million shares of common stock at $2 per share 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 expire on December 30, 2004.
NOTE 4 - Accounts Receivable
As at December 31, 1999, accounts receivable represented (1) the residual amount
of fees earned and reasonably expected to be collected. One of the registrant's
major contracted Health Plan, has made some payments on behalf of the registrant
for services rendered to the assigned members of the contracted Health Plan,
without the knowledge of the registrant under the "Incurred But Not Reported"
(IBNR) clause in the contract. Included in the allowance for doubtful accounts
of $77,194, is the "Incurred But Not Report" expense. Management is making
every effort possible to collect the outstanding fees.
NOTE 5 - Property Plant & Equipment
Property 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, 1999 and
1998 and is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
===== =====
<S> <C> <C>
Computer Equipment . . . . . . $ 56,419 -
Leasehold Improvements . . . . 6,500 -
Office Furniture & Fixtures. . 36,603 $ 825
Office Equipment . . . . . . . 7,169 -
Software . . . . . . . . . . . 6,756 -
Medical Equipment. . . . . . . 5,391 -
Less: Accumulated Depreciation 96,126 -
------- -------
$ 22,712 $ 825
======= =======
</TABLE>
NOTE 7 - INCOME TAXES
Operating Loss and Tax Credit Carryforwards
The Company has loss carryforwards totaling $906,336 that may be offset against
future taxable income. If not used, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
Year 2011 $329,768
Year 2012 576,568
--------
Total $906,336
========
</TABLE>
As a result of the above carryforwards, there is no provision for income tax for
the year ended December 31, 1999.
NOTE 8 - EARNINGS PER SHARE
The Company has calculated the income per common share based upon 31,157,500
shares issued and outstanding. The net income per share was $0.0.
<PAGE>
EX-27.1
FINANCIAL DATA SCHEDULE
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from the December
31st, 1999 consolidated financial statements] and is qualified in its entirety
by reference to such financial statements and the notes thereto.
[/LEGEND]
[RESTATED]
[MULTIPLIER] 1
<TABLE>
<CAPTION>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] DEC-31-1999
[CASH] 144,890
[SECURITIES] 3,888,000
[RECEIVABLES] 237,466
[ALLOWANCES] 77,194
[INVENTORY] 4,806
[CURRENT-ASSETS] 314,510
[PP&E] 118,838
[DEPRECIATION] 96,126
[TOTAL-ASSETS] 4,217,222
[CURRENT-LIABILITIES] 100,047
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 31,157
[OTHER-SE] 3,973,205
[TOTAL-LIABILITY-AND-EQUITY] 4,217,222
[SALES] 1,392,919
[TOTAL-REVENUES] 1,392,919
[CGS] 652,467
[TOTAL-COSTS] 638,526
[OTHER-EXPENSES] 16,194
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 85,733
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 85,733
[EPS-BASIC] 0
[EPS-DILUTED] 0
</TABLE>
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