20-F 1 form20f.htm ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 Filed by Automated Filing Services Inc. (604) 609-0244 - Meridian Co., Ltd. - Form 20F

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(MARK ONE)
¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2004

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ or __________

Commission file number: 0-32359

MERIDIAN CO., LTD.
(Exact name of registrant as specified in its charter)

The Republic of Korea
(Jurisdiction of incorporation or organization)

4F, Heungseong Bldg., 197-3, Jamsil-Dong, Songpa-Gu, Seoul, Korea
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

  NAME OF EACH EXCHANGE 
TITLE OF EACH CLASS  ON WHICH REGISTERED 
____________________________ ____________________________
____________________________ ____________________________

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Common shares
(Title of Class)

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

Common shares outstanding December 31, 2004: 29,993,894

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark which financial statement item the registrant has selected to follow. Item 17 ¨ Item 18 x

References

All references to "Korea" herein are references to The Republic of Korea. All references to "Meridian," the "Company", "we," "us" or "our" herein are references to Meridian Co., Ltd. All references to the "Government" are references to the government of Korea. All references to the "shares" are references to the Company's issued common shares of par value Won 100 (US $0.10 at December 31, 2004 and US $0.10 at June 18, 2004).

Currency Translation

In this annual report, references to "Won" or "W" are to the currency of Korea and all references to "Dollars," "$" or "US$" are to the currency of the United States of America. Our financial statements are prepared in Won, translated into U.S. dollars and presented in accordance with accounting principles generally accepted in the United States for the fiscal years ended December 31, 2002, 2003 and 2004. Solely for the convenience of the reader and to improve clarity, certain Items in this annual report contain translations of certain Won amounts into Dollars at specified rates(see also note 2 “Translation of Foreign Currencies” to the Company's audited financial statements, included in Item 18, for the Company's accounting policies with regard to foreign exchange conversion). All translations from Won to Dollars were made (unless otherwise indicated) at the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York in effect on December 31, 2004, which was Won 1,035.10 to US$1.00. No representation is made that the Won or US$ amounts referred to in this annual report could have been or could be converted into US$ or Won, as the case may be, at any particular rate or at all. See also Item 3, Key Information, Exchange Rates Information, for information regarding the rates of exchange between the Won and the Dollar. On July 12, 2005 the noon buying rate was Won 1,035.00 to US$1.00.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A. DIRECTORS AND SENIOR MANAGEMENT

See Item 4.C.

B. ADVISERS
Not Applicable

C. AUDITORS
Not Applicable

ITEM 3. KEY INFORMATION

A. Selected financial data

The selected consolidated financial and other data set forth below should be read in conjunction with the audited consolidated financial statements of Meridian Co., Ltd. as of December 31, 2004 2003 and 2002 including the notes thereto, and "Item 5 - Operating and Financial Review and Prospects" included in this annual report. The selected consolidated financial data set forth below for the fiscal years ended December 31, 2004, 2003, 2002, 2001 and 2000 are derived from the audited consolidated financial statements of Meridian, which have been audited by ShinHan Accounting Corporation, independent accountants (for the fiscal year ended December 31, 2004, 2003) and by SamDuk Accounting Corporation, independent accountants(fiscal years ended December 31, 2002, 2001 and 2000). The report of SamDuk Accounting Corporation covering the December 31, 2002 and 2001 financial statements contains an emphasis paragraph related to the adverse economic conditions in the Republic of Korea in recent years and in the Asia Pacific region in general. Especially, the auditors' report also describes the uncertainty about our ability to continue as a going concern, based on negative cash flows from operations, accumulated deficit and negative working capital. Our consolidated financial statements are compiled in Won, expressed in US dollars, and presented in accordance with accounting principles generally accepted in the United States.

MERIDIAN CO., LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in U.S. dollars)
For the years ended December 31, 2004, 2003, 2002, 2001 and 2000

  2004   2003   2002   2001   2000  
Sales  $ 2,129,489   $ 2,894,559   $ 3,521,657   $ 5,289,561   $ 5,304,040  
Cost of sales  1,173,609   1,253,544   1,915,811   2,478,106   2,978,975  
  -   -   -   -   -  
Gross profit.  955,880   1,641,015   1,605,846   2,811,455   2,325,065  
 
Operating expenses.  2,378,190   3,082,711   3,133,684   3,996,150   3,338,976  
 
Operating loss  -1,422,311   -1,441,696   -1,527,838   -1,184,695   -1,013,911  
Other income  673   11,886   699,711   188,925   400,473  
Other expenses  -391,120   -813,694   -1,461,698   -929,442   -445,877  
Minority interest in net loss of consolidated affiliates  -1,274   -   -   19,302   367,789  
Income tax expense  -   -     -   -11,551  
Extraordinary items.  -   -   -   -10,212   6,391  
Other comprehensive gain (loss)  -   100,780   -161,224   -26,326   -158,508  
 
Comprehensive loss  $ (1,986,116 )  $ (2,142,724 )  $ (2,451,049 ) $ (1,959,374)   $ (855,194)  
 
Weighted average number of common shares  22,199,701   18,094,211   16,472,700   15,703,850   14,071,325  
 
Basic and diluted loss per common share.  $ (0.09 )  $ (0.12 )  $ (0.14 )  $ (0.12 )  $ (0.05 ) 

CONSOLIDATED BALANCE SHEETS (in U.S. dollars)
As of December 31, 2005, 2003, 2002, 2001 and 2000

          2004  2003  2002  2001  2000   
Cash and cash equivalents.      $ 40,703    $ 31,557    $ 128,674    $ 105,216    $ 398,625   
Accounts receivable.- trade.    508,145  405,471  1,058,953  1,759,821  2,708,607   
Inventories.        672,395  709,894  702,097  1,187,989  1,093,137   
Other.          240,600  86,079  314,351  1,074,919  587,827   
 
Total current assets      1,461,843  1,227,001  2,204,075  4,127,945  4,788,196   
Investments and other assets    155,192  140,574  190,317  433,653  693,331   
Property, plant and equipment - net.  1,441,085  1,200,467  1,444,278  1,455,295  1,528,395   
Goodwill and other intangible assets - net  1,421  1,684  2,161  932  75,273   
 
TOTAL ASSETS        $ 3,059,541    $ 2,569,726    $ 3,840,831    $ 6,017,825    $ 7,085,195   
 
 
Trade accounts payable and current debt. .  $ 3,185,718    $ 3,583,856    $ 4,802,926    $ 3,653,326    $ 3,779,553   
Long-term borrowings      4,435,491  3,150,845  1,395,089  2,568,413  1,486,641   
                   -  -  -  -  -             
Total liabilities.        $ 7,621,209    $ 6,734,701  6,198,015  6,221,739  5,266,194   
 
Minority interest.        -  -  -  6,593  26,691   
Shareholders' equity      -4,580,928  -4,164,975  -2,357,184  -210,507  1,792,310   
 
TOTAL LIABILITIES AND                 
SHAREHOLDERS' EQUITY.      $ 3,059,541    $ 2,569,726  3,840,831    $ 6,017,825    $ 7,085,195   

Exchange rate information
The following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate of a U.S. dollar in Won. No representation is made that the Won or Dollar amounts referred to herein could have been or could be converted into Dollars or Won, as the case may be, at any particular rate, or at all.


YEAR    AT DECEMBER 31    ANNUAL AVERAGE RATE PER $1.00 US    ANNUAL HIGH   ANNUAL LOW 
2000    1267    1140.0    1267    1105.5 
2001    1314    1293.4    1369    1234.0 
2002    1186    1242.1    1332    1160.6 
2003    1192    1193.0    1262    1146.0 
2004    1035.1    1139.3    1195.1    1035.1 

B. Capitalization and indebtedness Not applicable

C. Reasons for the offer and use of proceeds Not applicable

D. Risk Factors

The following risks relate specifically to the Company's business and should be considered carefully. The Company's business, financial condition and results of operations could be materially and adversely affected by any of the following risks. In particular, the Company is a Korean Company and is governed by a legal and regulatory environment which in some respects may differ from that which prevails in other countries.

The Company's additional funding requirements
The Company has limited financial resources. The Company will require additional cash to implement its business strategies, including cash for (i) payment of long-term and short-term borrowings (ii) payment of operating expenses, (iii) costs associated with bringing new products to market, (iv) continued research and development and (v) further implementation of those business strategies. The Company anticipates raising such additional capital through public or private financings, as well as through loans and other resources. There is no assurance that the necessary funds would be available to the Company on terms acceptable to it. Failure to obtain such additional funding could result in a delay or an indefinite postponement in providing some or all of the Company's products to the market place, or the ability to supply sufficient product to the market place on a continual and profitable basis. Additional funds raised by the Company through the issuance of equity or convertible debt securities will cause the Company's current stockholders to experience dilution. Such securities may grant rights, preferences or privileges senior to those of the Company's common stockholders. The Company does not have any contractual restrictions on the Company's ability to incur debt and, accordingly, the Company could incur significant amounts of indebtedness to finance its operations. Any such indebtedness could contain covenants which would restrict the Company's operations.

In February 2004, the Company received approval for a debt rescheduling plan for a total of $3,589,271 from the Chooncheon District Court, Korea, whereby a group of creditors of the Company and a representative of the Company agreed to reschedule the payments on $3,589,271 of the Company's debt which constitute approximately 68% of the total outstanding accounts payable and borrowings of the Company.

The Company also received funds of US$530,000.00 from investors through an equity financing whereby, on June 8, 2004, the Company issued 3,312,500 common shares of the Company to three investors at the price of US$0.16 per share. The shares issued are restricted from trading for one year. The Company intends to raise additional financing through the issuance of debt or equity instruments. However, if the Company's efforts are not successful, the Company may not be able to realize its assets and discharge its liabilities in the normal course of operations.

The Company anticipates that losses may continue
For the year ended December 31, 2004 the Company had a net loss of $1,986,116 and an accumulated deficit of $11,333,786. The Company recognizes the possibility of incurring losses for the foreseeable future. The extent of future losses will depend, in part, on the amount of growth in revenues from the Company's products. The Company expects that operating costs will increase during the next several years, especially in the areas of sales and marketing, product development and general and administrative expenses as it pursues its business strategy. Thus, the Company will need to generate increased revenues faster than the rate of growth in costs to achieve profitability. To the extent that increases in its operating expenses precede or are not subsequently followed by corresponding increases in revenues, or if it is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition would be materially and adversely affected. There can be no assurance that the Company will sustain profitability or that its operating losses will not increase in the future.

Competition from larger companies
The markets in which the Company competes are intensely competitive and the Company competes and will compete with companies that have greater financial and technical resources. Therefore, to the extent that the Company is able to establish sales revenues, there is no assurance that it would be able to sustain such sales revenues. Moreover if, and when, the Company begins achieving its objectives, larger, better financed companies in peripheral businesses may be attracted to the Company's markets. They may be prepared to spend large sums quickly to develop competitive products and to mount major marketing campaigns. The risk to the Company's markets could impair the Company's growth and have a negative effect on the Company's business.

Need to upgrade products and develop new technologies
Continued participation by the Company in its market may require the investment of the Company's resources in upgrading of its products and technology for the Company to compete and meet regulatory and statutory standards. There can be no assurance that such resources will be available to the Company or that the pace of product and technology development established by management will be appropriate to the competitive requirements of the marketplace. The Company's success will depend to a substantial degree on its ability to develop and introduce in a timely manner new products and enhancements that meet changing customer requirements and emerging industry standards. The development of new, technologically advanced products and enhancements is a complex and uncertain process requiring high levels of innovation as well as the anticipation of technology and market trends.

The Company currently depends on a limited number of foreign suppliers to manufacture certain key components and these manufacturers may not be able to satisfy requirements and could cause the Company's potential revenues to decline
The Company currently buys certain key components from a limited number of suppliers. The Company anticipates that these suppliers will manufacture these key components in sufficient amounts to meet its production requirements. If these suppliers fail to satisfy the Company's requirements on a timely basis and at competitive prices, the Company could suffer manufacturing delays, a possible loss of revenues or higher than anticipated costs of revenues, any of which could seriously harm its operating results.

There can be no assurance that the Company will be able to identify, develop, manufacture, market, sell, or support new products and enhancements successfully, that new products or enhancements will achieve market acceptance, or that the Company will be able to respond effectively to technology changes, emerging industry standards or product announcements by competitors.

New product announcements by the Company could cause its customers to defer purchases of existing products or cause distributors to request price protection credits or stock rotations. Any significant deterioration in the general economic conditions would have an adverse effect on the Company's business, results of operations and financial condition. The success of the Company's operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions (and perceptions of such conditions by consumers) affecting disposable consumer income such as employment, wages, salaries, business conditions, interest rates, availability of credit and taxation for the economy as a whole and in regional and local markets where the Company operates. There can be no assurance that consumer spending will not be adversely affected by general economic conditions, which could negatively impact the Company's results of operations and financial conditions. Any significant deterioration in general economic conditions or increases in interest rates may inhibit consumers' use of credit and cause a material adverse effect on the Company's revenues and profitability. Any significant deterioration in general economic conditions that adversely affects these companies could also have a material adverse effect on the Company's business, results of operations and financial condition.

Sales and Distribution
The Company has yet to establish a significant distribution and support network in certain markets. Failure on the part of the Company to put into place an experienced and effective marketing infrastructure in a timely manner could act to delay or negate the realization of anticipated revenues.

Market Acceptance
The viability of the Company is dependent upon the market acceptance of its current and future products. There is no assurance that the Company's products will attain a level of market acceptance that will allow for continuation and growth of its business operations. In addition, the Company will need to develop new processes and products to maintain its operations in the longer term. The development and launching of such processes and products can involve significant expenditure. There can be no assurance that the Company will have sufficient financial resources to fund such programs and whether such undertaking will be commercially successful.

Adequate Labor and Dependence Upon Key personnel; No Employment Agreements
The Company will depend upon recruiting and maintaining qualified personnel to staff its operations. The Company believes that such personnel are currently available at reasonable salaries and wages. There can be no assurance, however, that such personnel will always be available in the future. The continuing development of the Company's products has been almost entirely dependent on the skills of management and certain key employees of the Company with which the Company has no employment agreements. Loss of the services of any of this management team and key employees could have a material adverse effect upon the Company.

The Company's growth depends on its ability to commercialize products
Currently a significant amount of the Company's revenue comes from the Meridian product line that is central to the Company's growth strategy. This line of products encounters competition and is price sensitive. While the Company is currently developing new products, the

Company cannot be assured that these products will reach the market on time, will satisfactorily address customer needs, will be sold in high volume, or will be sold at profitable margins.

The Company's operating expenses are anticipated to be relatively fixed and therefore the Company may have limited ability to reduce expenses quickly in response to any revenue shortfall
The Company anticipates that its operating expenses will be relatively fixed, and the Company therefore has limited ability to reduce expenses quickly in response to any revenue shortfalls. Consequently, the Company's operating results will be harmed if the Company's revenues do not meet its revenue projections. The Company may experience revenue shortfalls for the following reasons:

- significant pricing pressures that occur due to competition, over supply, or other reasons;
- sudden shortages of raw materials or fabrication, test or assembly capacity constraints that lead the Company's suppliers to allocate available supplies or capacity to other customers which, in turn, harm the Company's ability to meet its sales obligations; and
- the reduction, rescheduling or cancellation of customer orders.

The Company's markets are subject to rapid technological change and, therefore, its success depends upon the Company's ability to develop and introduce new products The markets for the Company's products are characterized by:

- rapidly changing technologies;
- evolving and competing industry standards
- changing customer needs; and
- frequent new product introductions and enhancements.

To develop new products for its target markets, the Company must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to expand its technical and design expertise. In addition, the Company must have its products designed into its customers' future products and maintain close working relationships with key customers in order to develop new products that meet their changing needs.

The Company cannot be assured that it will be able to identify new product opportunities successfully, develop and bring to market new products, achieve design wins or respond effectively to new technological changes or product announcements by its competitors. In addition, the Company may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. The pursuit of necessary technological advances may require substantial time and expense. Failure in any of these areas could harm the Company's anticipated operating results.

The Company's ability to compete successfully will depend, in part, on its ability to protect its intellectual property rights, which the Company may not be able to protect
The Company relies on a combination of patent, trade secrets, and copyright, nondisclosure agreements and other contractual provisions and technical measures to protect its intellectual property rights. Policing unauthorized use of the Company's products is difficult, especially in foreign countries. Litigations may continue to be necessary in the future to enforce its intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Litigation could result in substantial costs and diversion of resources and could harm its business, operating results and financial condition regardless of the outcome of the litigation.

The Company cannot be assured that any pending patent application will be granted
The Company has acquired ownership or exclusive license to a number of patents or patent applications related to its products. However, the Company cannot be assured that any pending patent application will be granted, or that all such patents can provide adequate protection for its intellectual property. The Company's operating results could be seriously harmed by the failure to protect its intellectual property. If the Company is accused of infringing the intellectual property rights of other parties, it may become subject to time-consuming and costly litigation. If the Company loses, it could suffer a significant impact on its business and it may be forced to pay damages. Third parties may assert that the Company's products infringe their proprietary rights, or may assert claims for indemnification resulting from infringement claims against it. Any such claims may cause the Company to delay or cancel shipment of its products or pay damages that could seriously harm its business, financial condition and results of operations. In addition, irrespective of the validity or the successful assertion of such claims, the Company could incur significant costs in defending against such claims. The Company's litigation may be expensive, may be protracted, and confidential information may be compromised. Whether or not the Company is successful in any litigation, the Company expects the litigation to consume substantial amounts of its financial and managerial resources. Further, because of the substantial amount of discovery required in connection with this type of litigation, there is a risk that some of the Company's confidential information could be compromised by disclosure.

The Company's business may suffer due to risks associated with international sales and operations
The Company anticipates that export products will account for most of its revenues. International business activities are subject to a number of risks, each of which could impose unexpected costs of the Company that would have an adverse effect on its operating results. These risks include:

-      difficulty in complying with regulatory requirements and standards;
-      tariffs and other trade barriers;


-      costs and risks of localizing products for foreign countries;
-      reliance on third parties to distribute the Company's products;
-      longer accounts receivable payment cycles;
-      potentially adverse tax consequences;
-      limits on repatriation of earnings; and
-      burdens of complying with a wide variety of foreign laws

The Company anticipates that it will have to continue to depend on manufacturers' representatives, agents, and distributors to generate substantial amounts of its revenues
The Company anticipates that it will have to continue to rely on manufacturers' representatives, agents, and distributors to sell a significant portion of its products, and these entities could discontinue selling its products at any time. The loss of any significant agent could seriously harm the Company's operating results.

The Company's success may be affected by unusual growth of competing new products
There may be new products being introduced by competitors in the future which meet unusually high global demands. If the new products' customer base overlaps a substantial portion of the Company's products' customer base, or that the new products use the same key component as the Company's products, the demand for the Company's products or the supply of their key component may be reduced, which may seriously harm the Company's operations.

Its officers, directors and entities affiliated with them control the Company
In the aggregate, ownership of the Company's shares by management and entities affiliated with the Company own collectively 33.13% of the Company's issued and outstanding shares of common stock. These stockholders, if acting together, will be able to significantly influence all matters requiring approval by the Company's stockholders, including the election of directors and the approval of mergers or other business combination transactions.

Conflicts of Interest of certain directors and officers of the Company
From time to time certain of the directors and executive officers of the Company may serve as directors or executive officers of other companies and, to the extent that such other companies may participate in the industries in which the Company may participate, the directors of the Company may have a conflict of interest. In addition, the Company's dependence on directors and officers who devote time to other business interests may create conflicts of interest, i.e. that the fiduciary obligations of an individual to the other company conflicts with the individual fiduciary obligations to the Company and vice versa. Directors and officers must exercise their judgment to resolve all conflicts of interest in a manner consistent with their fiduciary duties to the Company. In the event t hat such a conflict of interest arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. The Company is not aware of the existence of any conflict of interest as described herein.

Forward Looking Statements
All statements, other than statements of historical facts, included in this registration statement, including, without limitation, the statements under and located elsewhere herein regarding industry prospects and the Company's financial position are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectation will prove to have been correct. A shareholder or prospective shareholder should bear this in mind when assessing the Company's business.

Shares Eligible for Future Sales
There has been no sustained market for the Company's shares, and there can be no assurance that a significant market will develop or be sustained. Future sales of substantial amounts of the Company's shares (including shares issued upon exercise of options and warrants) in the public market could adversely affect market prices prevailing from time to time and could impair the Company's ability to raise capital through sales of the Company's equity securities.

Country Risks
There are unique economic and political risks associated with investing in companies from Korea. Some of Korea's recent financial and economic difficulties have included:
-      exchange rate fluctuations;
-      interest rate fluctuations;
-      reduced credit from foreign banks;
-      reduced liquidity in the economy;
-      volatile stock prices; and
-      higher unemployment.

The Korean Consumer Price Index ("CPI") published by the central Bank of Korea (the Korean equivalents of the U.S. Federal Reserve Board) for the period between 1996 (base year) and 2004 is as follows:


Year CPI  Annual increase (%) 
1996 (Base) 86.4  - 
1997 90.2  4.4 
1998 97.0  7.5 
1999 97.8  0.8 
2000 100.0  2.3 
2001 104.1  4.1 
2002 106.9  2.7 
2003 110.7  3.6 
2004 114.7  3.6 

The Asia Pacific region, including Korea, has been experiencing significant economic difficulties. The operations of the Company, and those of other companies in Korea, have been significantly affected, and could continue to be affected for the foreseeable future, by the general unstable economic conditions in the country and in the Asia Pacific region. The continuing weakness of the Japanese economy and recent volatility of the Japanese Yen against the Dollar increases the uncertainty of economic stability in Asia in general and may hinder Korea's ability to recover quickly from its own economic difficulties. Future adverse developments in Southeast Asia, Japan and elsewhere in the world could worsen Korea's economic difficulties. Other developments that could occur in Korea include social and labor unrest resulting from economic difficulties and higher unemployment, a substantial increase in the Government's expenditures for unemployment compensation and other costs for social programs. Korea may need to increase reliance on exports to service foreign currency debts, which cause friction with Korea's trading partners. In addition, the economies of neighboring countries, including Japan, China and Russia, could deteriorate further. Any such developments would hurt Korea's plans for economic recovery.

Relations between South Korea and North Korea have been tense over most of Korea's history. The level of tension between the two Koreas has fluctuated and may increase or change abruptly as a result of current or future events. The occurrence of such events could have a material adverse effect on the Company's operations and the price of its shares.

Ownership of shares may be subject to certain restrictions under Korean law
Prior to making an investment in 10% or more of the outstanding shares of a Korean company, foreign investors are generally required under Foreign Investment Promotion Law of Korea to submit a report to a Korean bank pursuant to a delegation by the Ministry of Commerce, Industry and Energy of Korea. Failure to comply with this reporting requirement may result in the imposition of criminal sanctions. Subsequent sales by such investors of its shares in such company will also require a prior report to such bank.

The Company may not be able to convert and remit dividends in Dollars if the Government imposes certain emergency measures
The Company does not intend to pay dividends on its shares in the foreseeable future. However, if it declares cash dividends, such dividends will be declared in Won. In order for the Company to pay such dividends outside Korea, such dividends will be converted into Dollars and remitted to the shareholders, subject to certain conditions. Fluctuations in the exchange rate between the Won and the Dollar will affect, among other things, the amounts a holder of shares of the Company will receive as dividends. Under Korean law, if the Government deems that certain emergency circumstances are likely to occur it may impose necessary restrictions. Emergency circumstances include, but are not limited to, sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments, or a substantial disturbance in the Korean financial and capital markets. The restrictions imposed by the Korean government could include requiring foreign investors to obtain prior approval from the Ministry of Finance and Economy for the acquisition of Korean securities or for the repatriation of interest, dividend or sales proceeds arising from Korean securities or from disposition of such securities, including the Company's shares.

The Company cannot give any assurance that it can secure such prior approval from the Ministry of Finance and Economy for payment of dividends to foreign investors in the future when the Government deems that there are emergency circumstances in the Korean financial market.

The Company's ability to raise money in equity offerings may be constrained by the need to register those offerings with the SEC
The Commercial Code of Korea and the Company's Articles of Incorporation require the Company, with certain exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. The Company cannot exclude U.S. holders of shares from these offers, and must thus register those offers with the SEC. If the Company cannot, or chooses not to register these offerings, the Company will be unable to consummate them, which will restrict the range of capital raising options available to the Company.

Exchange rate fluctuations may adversely affect the Company's results of operations
As a result of such sharp depreciation, the Government was forced to effectively suspend its efforts to support the value of the Won, and on December 16, 1997, the Government allowed the Won to float freely. Such depreciation of the Won relative to the Dollar increased the cost of imported goods and services and the Won revenue needed by Korean companies to service foreign currency denominated debt. Since then, however, the Won, while it has fluctuated, has generally appreciated relative to the Dollar and other major foreign currencies.

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY The Company was incorporated in Korea on April 19, 1994 for the purpose of developing and manufacturing medical devices, particularly to the integrative medical markets. In July 1998, the Company completed the acquisition of Hippo Medical Devices Co. Ltd. ("Hippo"), a Korean company that was engaged in selling medical equipment. The acquisition of Hippo by Meridian was a synergistic union whereby the sales and distribution offices of Hippo were consolidated with the research and manufacturing divisions of the Company.

On August 30, 1999, the Company agreed to sell, in an arm's length transaction, certain assets amounting to $1,284,556 relating to two product lines acquire in the 1998 acquisition of Hippo, to Medicore Co. Ltd., an unrelated Korean company. In return, Medicore assumed certain liabilities, primarily attributed to the two product lines, of the Company in the same amount. These product lines are the Urea Breath Test Device (UBT) and Infra-Red Imaging System (IR-2000). This transaction was completed on December 31, 1999.

Pursuant to an Agreement and Plan of Reorganization (the Merger Agreement) dated February 6, 2001, The Company acquired all the outstanding shares of common stock of By George Holding, Corp. (By George), a Georgia corporation, from the shareholders thereof in an exchange of an aggregate of 68,142 shares (equivalent to 1,703,550 post split shares) of common stock of the Company and other consideration of payments of certain fees and expenses. Immediately following the Acquisition, ABR Meridian (Georgia) Inc. (Subco), a Georgia corporation and a wholly-owned subsidiary of the Company, merged with By George (the Merger) in a transaction in which the Subco became the surviving corporation.

Upon effectiveness of the Acquisition and Merger, pursuant to Rule 12g-13(a) of the General Rules and Regulations of the Securities and Exchange Commission (SEC), the Company elected to become the successor issuer to By George for reporting purposes under the Securities Exchange Act of 1934, as amended (the 1934 Act) and elects to report under the 1934 Act effective February 12, 2001.

On February 13, 2002, the Company's common stock was accepted for quotation by the NASD on the OTC Bulletin Board under the symbol MRDAF.

The Company's Corporate head office is located at 4F, Heungseong Bldg., 197-3, Jamsil-Dong, Songpa-gu, Seoul, Korea.

In February 2004, the Company received an approval for a debt rescheduling plan for a total of $3,589,271 from Chooncheon District Court, Korea. The adjusted period of payment is 3 to 7 years.

B. Business Overview
Meridian is an established leader in the research, development, manufacturing, and marketing of integrative medical devices in the healthcare industry. Integrative medicine combines both Western and Eastern expertise in order to obtain the highest quality and standard. The Company has grown substantially and has established subsidiaries in China and Los Angeles and in 2004 signed an exclusive distribution agreement with a corporation in Vancouver, B.C., Canada. With over 25 million dollars in revenue to date, Meridian continues to expand and secure its position as a global leader of integrative medical devices.

With a dynamic research and development team, Meridian is at the forefront in the development of cutting edge medical technologies. The Company presently holds a total of 17 technology patents and has received 5 FDA approvals for their medical devices. In order to distribute worldwide, Meridian has also gained regulatory approval in Canada for the Meridian Portable, 4 CE approvals in Europe, 2 SDA approvals in China, and 4 FIP approvals in South America. Successfully marketed in Korea, USA, China and Europe, Meridian continues to provide its superior product line to a growing number of clients worldwide. Meridian has over 1500 clients, which include physicians, hospitals, healthcare professionals, medical device manufacturers, and health and fitness centers.

The Company currently sells four different products to healthcare practitioners throughout the domestic and overseas market. These include the DPA (Digital Pulse Analyzer), the Lapex-2000, the ABR-2000 and the Meridian II.
The Company believes that blending together a combination of intrinsic medical knowledge with superior software and technology it can create high quality physiological monitoring applications that capitalize on the growing wellness market.
Meridian’s strength lies in the unique knowledge base and skills of our team who possess medical backgrounds, software engineering skills, and a sincere passion for preventative medicine that can improve the quality of one’s life.
During 2002, the Company completed the development of the Composition Corpulence Curer as an aid in the reduction of body fat.

On September 26, 2001 the Beijing Meridian Medical Equipment Co., Ltd. (hereafter BMMEC) was established to further pursue the Company's business in China. BMMEC is a joint corporation formed by Meridian Co., Ltd. and Mr. Trigon Jung, investor and president of BMMEC. The main business of BMMEC is publicity activities and setting up dealership networks for sales in China. Also, Meridian is planning to give BMMEC a manufacturing license for its products in the future. Meridian has made over US $600,000 direct sales in China since 1999, including $2,330 during 2002. Expected sales in China have not materialized according to the Company's expectations, however, the Company will continue to market their product to the Chinese market and is currently designing two more products for release in 2004.

The Company identified the United States as a significant market and incorporated Meridian America Medical Inc (MAMI) in the United States as a 100% owned subsidiary of the Company, in February 2002, in preparation for the launch of the Meridian products into the US market.

In 2004, Meridian Co. Ltd. entered into an exclusive distribution agreement with a corporation in Vancouver, BC, Canada, Meridian Medical Inc. Medical Inc. has been fully concentrating on the marketing and sales of the Digital Pulse Analyzer. Meridian Medical has secured valuable strategic relationships since its inception and is expected to continue its success in the market adding further value to Meridian Co. Ltd.

For the year ended December 31, 2004, the Company achieved more than $1.2 Million in sales to the U.S. market through its Los Angeles subsidiary and expects a further significant increase in sales to the United States in the next year.

The CE (Conformities European) Marking is the unification standard of the European Union (EU) for products concerning the safety of the human body, health and the protection of the environment. The CE Marking is the certification necessary to sell the Meridian products in the EU market. These approvals increase the product line the Company is able to market to the different world markets, and will hopefully in turn increase sales.

Products of the Company

MERIDIAN LINE OF PRODUCTS

The Meridian line of products includes the Meridian-II, ABR 2000, Digital Pulse Analyzer, Lapex-2000 and the Venus 21C.

MERIDIAN-II

The Meridian-II is a computer assisted assessment and diagnostic device, which is based on the analysis technique, pioneered by Dr. Reinhold Voll, a German medical doctor. Termed Electro-Acupuncture according to Voll (E.A.V.), the assessment process incorporates elements of Western science and principles of traditional Chinese medicine. Practitioners use electrical, magnetic, sonic, acoustic, microwave and infrared devices to screen for or treat health conditions by detecting imbalances in the body's energy field and then correcting them. E.A.V. works by measuring the meridian lines on the hands and feet that correspond to the different organs in the body. The purpose of E.A.V. is to establish a functional testing of organs and tissues by measuring their respective acupuncture points. The conductance (capacity to let the stimulation current through) of an organ or a tissue is measured in order to discover any energetically unbalanced points. It is believed that the energetic equilibrium of a human is altered, among other things, by the negative ambiance influence exercised by some medications, stress, poisons, insecticides, viruses, bacteria, harmful electromagnetic fields and inflammations as well as certain ailments.

The Meridian-II is a computer assisted assessment and diagnostic device that establishes a functional testing of organs and tissues by measuring their respective acupuncture points and delivers a complete computer drafted evaluation for analysis. If stress or imbalance is detected in a patient, the Meridian-II can identify the meridian imbalances in a person's body and also assist the practitioner in recommending a course of treatment or therapy to alleviate the stress or to restore balance to the body's meridian systems. This provides the health practitioner with the ability to detect a potential health problem early and to treat it before the problem manifests itself. Using the Meridian-II, the practitioner can monitor the progress of corrective therapies. The device is in the structure of a cart that includes a touch screen monitor, computer, printer, a set of medical instruments and supplemental parts including hand and foot electrodes.

ASPECTS MERIDIAN-II DESCRIPTION

Features
Point finder (ARC)
MS WINDOWS 98
Better curative effect (UPM)
Easy operation (TOUCH SCREEN)
Single body design

Structure
Main body: CART in exclusive use PC:
CPU: P-233MHz, MEMORY: 32MB, HDD: 6.4GB
OS: WINDOWS 98, CD ROM: 40X, VGA AGP 4MB


             15 inch Colour Monitor (Speaker inside),  HP  930 C
             Inkjet Printer 
 
A set of medical instruments: 
             PB-Electrode: DR/R/L/ST/TS 
             Cable Set 
             Band: S.L. 2ea 
 
Parts: 
             Hand electrode (BAZ 2ea, CMP 1ea): 3  ea
             Foot electrodes (left, right, foot stool): 1  set 
             Upper limited frequency of cable: 1set 
             ARC PB: 1ea 
             OPERATIONAL MANUAL: 1sheet 
             MULTI TAP: 1 set 
             MOUSE PAD: 1 ea 

ABR-2000

The ABR-2000 is a whole body screening stress assessment and diagnostic device that identifies the areas of the human body which are experiencing trauma due to the effects of stress. The device traces autonomic responsive conditions of the different types of stress-related diseases.

The device sends a low-frequency impulse throughout the human body and detects minute physical changes by measuring electrophysiological responses of the autonomic nervous system. Irregular responses may indicate areas where organs or parts of the body are deteriorating due to stress. The patient stress analysis report is automatically produced in 5 minutes, allowing the health practitioner to quickly make recommendations to the patient.

The device comes equipped with a one-touch assessment and diagnostic system and a printer.

ASPECTS ABR-2000 DESCRIPTION

Features
To diagnose the differentiation of pathological conditions in accordance with the eight principal syndromes Easy to operate One-touch automatic system allows the beginner to operate it easily A medical assistant is able to measure it for the medical specialist Very Positive Response from the Patients Right after measurement, the results print out in real time Automatic measurement in 5 minutes No stress, non-invasive, and comfortable diagnosis Print paper is reusable - available for chart storage and patient's chart

Structure
Body: Single body
A set of electrodes: Copper electrodes (a set of head, hand, and foot electrodes)
Plotter: Magnetic
Pen: Red, blue, black
Print paper: 300 papers

LAPEX-2000

The LAPEX-2000 is a semiconductor laser therapeutic device, which applies a laser to the foci of the human body without damaging the skin tissue and in turn, promotes healing of any damaged skin tissue. The use of laser therapy facilities increases blood flow, vitalization of cells, and increases protein synthesis which can assist in the treatment of soft tissue damage, acute and chronic joint diseases, chronic pain, and improvement of circulation.

The LAPEX-2000 comes equipped with an advanced digital semiconductor laser.

ASPECT LAPEX-2000 DESCRIPTION

Features
Advanced digital semiconductor laser, solid curative effect, semi-permanent No other supplies are necessary Non-invasive laser Practical for small spaces, easy to move

Structure
Single Laser Probe (PW: Pulsed Wave): Trigger Point Monitoring Function and Applying Laser to Trigger Point Multi Laser Probe (CW: Continuous Wave): To address the largely affected parts
Non-LIB/LIB Laser Probe (Intra/vascular Laser Irradiation of Blood):
Non-invasive/Invasive venous blood, easy to operate, solid curative effect

DIGITAL PULSE ANALYZER
The DPA uses pulse waveform analysis to measure arterial compliance. The pulse wave is the arterial pressure change that originates from the heart and transmits through an artery. The pulse wave is changed by the systolic power of the heart, the vascular condition (the arterial elasticity, resistance, etc.), and the functional status of cardio-vascular circulation. DPA irradiates IR (infrared) through the finger-tip and obtains pulse wave information with the light absorbing characteristics of HbO2 of arterial blood. All measurements, calculations, analysis, and printouts can be performed automatically in less than a minute with a fully non-invasive method.

AUTOMATED DIGITAL PULSE WAVEFORM EXAM

-      Useful device in detecting early signs of cardiovascular dysfunction.
-      Loss of arterial compliance, can be detected in early stages.
-      Uses pulse wave analysis.
-      Completely non-invasive
-      Diagnosis can be done in a little as one minute.
-      Results are immediate and can be saved to a patient database

DPA
The DPA (Digital Arterial Pulsewave Analyzer) has the additional feature of measuring heart rate variability, which gives a good indication of the condition of the autonomic nervous system. The software has the capability to store all of the patient's data. The structure is configured with a DPA console, EKG electrodes, computer software with WINDOWS base, and cart.

VENUS 21C - COMPOSITION CORPULENCE CURER
Obesity Treatment Machine
This product's target market includes anti-aging and wellness clinics, fitness centers, health spas etc. This product obtained the manufacturing approval in Korea in February 2004.

Features: - Supersonic waves, low frequency
- Various computer-programming modes to control frequency and intensity for sebaceous decomposition (Medical treatment solution)
- The product includes a 10 x 4 inch color TFT LCD Touch Screen Display (safe and convenient)

Industry Background

The medical instruments industry is characterized by low-volume production of various medical equipment and apparatus. It contains components from a diverse range of industries such as electronics, advanced materials and information technology and includes the fields of physics, chemistry, biology and medicine. In many countries, government support is provided in the medical instruments industry as a priority industry. This industry tends to be technology-intensive, low energy consuming and non-polluting.

Industry Trends
Preventative medicine is a growing trend in the medical industry, particularly in the 50+ market, where consumers are more as risk for developing chronic disease.

"Today's mature adults (boomers) control more than $7 trillion in wealth in the United States" (Harvard Business Review, March 2004), "or 70% of all U.S. wealth. In addition, they bring in $2 trillion in annual income, and account for 50% of all discretionary spending", notes Ken Dychtwald PhD (Associated Press, March 7, 2004).

In the US the 50+ age group numbers 74 million and growing - every eight seconds another person turns 50. This makes mature consumers the fastest growing segment of the population. By 2010 the 50+ segment in the US will grow by 21 million while the 18-34 age segment will grow by just five million. The mature market is sophisticated and has unprecedented buying power. The number of baby boomers and seniors on the Internet grew by 18.4 % in 2001, making them the fastest growing Internet population. The spending habits of older Americans make them one of the most desired markets on the Internet today. (marketresearch.com)

The baby boomers demand for healthcare products and services is expected to continue for the next 20-30 years as the boomers get older and life expectancies increase.

The World Health Organization (WHO) Strategy for Traditional Medicine (alternative/complimentary) for 2002-2005 has published some very supportive statistics.

  • The global market for traditional therapies stands at US$ 60 billion a year and is steadily growing.
  • In the USA, expenditure on complementary or alternative medicine stands at US$ 2.7 billion per year.

Size of Industry

United States Market
The demand for medical devices is influenced by an increasing patient population and the focus on health care cost containment and preventative therapies. Medical devices include a broad range of surgical devices and equipment used in cardiovascular, orthopedics, respiratory, ophthalmic, neurology, urinary, disposable, infection and more. The global medical device market was valued at over $100 billion, of which $43 billion was generated from the U.S. market.

The U.S. is still the largest medical device market and leads the world in advanced medical technologies. The U.S. medical device industry is expected to grow at a compound annual growth rate of 9 percent between 1999 and 2004. It will continue to develop new innovative devices in minimal invasive surgery, cardiovascular, and orthopedic implants. However, cost containment constraints in the healthcare system have contributed to hospital cutbacks in medical device purchases.

The medical device industry outside of the U.S. has grown significantly in recent decades. During the 1980s, foreign markets accounted for less than 25 percent of the global medical device industry. Today, it represents about 60 percent. Latin America and Asia (excluding Japan) are the fastest growing regions in medical devices. (Frost & Sullivan)

Korean Market
According to a report by Korea Medical Devices Industry Association, the size of the Korean medical instrument industry was $976 million in 2000, showing a huge increase from $325 million in 1991, and was estimated to be approximately $1,600million in 2002. In 2001, over 750 companies manufactured medical instruments in Korea and generated export revenue of $402million.A recent report by the Korean Institute of Oriental Medicine states that until 2005, the trend of the Korean medical instrument market is anticipated to show 10% annual growth and the size of the market in 2005 is expected to be about $1.8 trillion.

C. ORGANIZATIONAL STRUCTURE Meridian Co., Ltd. was incorporated under the laws of Korea on April 19, 1994 as a private company. The Company operates from its corporate headquarters located at4F, Heungseong Bldg., 197-3, Jamsil-Dong, Songpa-Gu, Seoul, Korea and has a manufacturing plant in Kangwon Province.

MANAGEMENT TEAM
HYEON-SEONG MYEONG, President, CEO and a Director Mr. Myeong graduated from the Seoul National University in 1982 with a degree in Electronic Engineering. From 1983 to 1988 he was Section Chief of Research Center for the GoldStar (LG Electronics) Company. From 1990 to 1991 Mr. Myeong was Division Chief of Research for Medison Co. Ltd., a large Korean medical device company. From 1992 to 1993 he was the Chief of the International Technical Corporation and the Vice President of a Joint Corporation with Russia (Ultramed). Since 1994, Mr. Myeong has been the President and CEO of the Company and was the founder of the Company.

SUNGPIL HONG, Secretary and a Director
Mr. Hong graduated from Sin-Gu University in South Korea with Physiotherapy as his major. From 1993 to 1995 he was the Business Manager for Dasin Medical Ltd.. From 1996 to 1998 he managed Hippo Medica Ltd.. From 1998 to the present, he was the Senior Manager for Meridian. On March 29, 2003, he was appointed a Director of Meridian.

IN BEOM PARK, Director. (appointed as a director on March, 2005)
Mr. Park graduated from the Seoul University in South Korea with a degree in Sociology. From 1991 to 1998 he was the head of the Development & Planning Department of Kia Techono Co., Ltd. He was the Founder of Eduevision Korea Co., Ltd. In 1999, Mr. Park joined Meridian in 2002 as the head of the Development & Planning Department.

D. Property, Plants and Equipment
The Company's products are assembled from purchased and manufactured components at its factory in Kangwon Province (687-6, Sangohan-Ri, Hongchun-Eup, Hongchun-Kun, Kangwon-Do, Korea). Virtually all of the components making up the Company's products are readily available from outside domestic suppliers. Some of the components have been designed by the Company and/or are custom

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is based on and should be read in conjunction with the Company's audited consolidated financial statements, including the notes thereto, and other financial information appearing elsewhere herein. The audited consolidated financial statements have been prepared using US dollars and presented in accordance with accounting principles generally accepted in the United States.

A. Operating Results

Year comparisons between 2004, 2003, and 2002 For the year ended December 31, 2004, the Company achieved sales revenues of $2,129,489 resulting in a gross margin of $ 955,880 compared with sales revenues of $2,894,559 that resulted in a gross margin of $1,641,015 for the year ended December 31, 2003 and sales revenues of $3,521,657 that resulted in a gross margin of $1,605,846 for the year ended December 31, 2002. The Company's operating loss decreased to $1,422,311 in 2004 from a loss of $1,441,696 in 2003 and from a loss of $1,527,838 in 2002. The decrease in the operating loss in 2004 from 2003 and 2002, in spite of the decreased sales revenue, was due primarily to a reduction in cost of sales and operating expenses. The increase in commissions is a reflection of the Company's increased selling and marketing efforts. Total selling, general and administrative expenses decreased to $2,378,190 for the year ended December 31, 2004 from $3,082,711 for the year ended December 31, 2003 and from $3,133,684 for the year ended December 31, 2002. The Company spent $177,342 on research and development for the year ended December 31, 2004 as compared to $227,078 in 2003 and $379,059 in the year 2002. For the year ended December 31, 2004 the Company recorded an inventory write-down due to a decline in market value amounting to $95,151 as compared to $4,188 for 2002 and $0 for 2002. In the same period, working capital increased to $1,723,875 in deficit in 2004 from working capital of $2,356,855 in deficit in 2003 and $2,598,851 in deficit in 2002. The increase in working capital was due primarily to US$530,000.00 financing on June 8, 2004 and a debt rescheduling plan that included part of short-term borrowings. As of the year ended December 31, 2004, the Company had an accumulated deficit of $11,333,786.

B. Liquidity and capital resources

The Company's sources of liquidity have historically been cash from operations, capital working lines of credit, debt and equity financing. The Company has generated revenues since 1998 but expanding the operations of the Company has required significant amounts of cash in excess of cash generated from operations. Therefore, the Company has continued to seek additional debt and equity financing opportunities. The Company's land and buildings were pledged as collateral for the Company's short-term and long-term borrowings. At December 31, 2004, the Company has a working capital deficiency of $1,723,875 (December 31, 2003 working capital deficit of $2,356,855).

C. Research and development, patents and licenses, etc.

Research and Development
It is the goal of the Company to continually make enhancements and improvements to its products. Costs incurred to make routine enhancements or improvements, design changes to existing products and trouble shooting in production are excluded from research and development expenses.

Proprietary Technology and Other Intellectual Properties
The Company has 10 registered and pending patents, 2 utility model rights, 6 design rights and 10 trademarks at the Korea Industrial Property Office. The Company believes that Korean intellectual property laws and regulations afford owners of intellectual property protections similar to those enjoyed by owners of intellectual property in the United States. Korean intellectual property laws were amended at the end of 1995 to harmonize them with the Trade-Related Aspects of Intellectual Property Rights Agreement.

The Company's registered patents are summarized in the following table:

TECHNOLOGY DESCRIPTION    REGISTRATION NUMBER     DATE OF REGISTRATION 
         
(PATENTS)         
Diagnostic device using the electric         
features of the human body    130791     November - 97 
Insulation device of meridian         
remedial apparatus    144993     April - 98 
Medicament energy information         
Transferring system    171667     October - 98 
Automatic detection of         
meridians by probe device    210233     April - 99 
Electrode clamp device for         
home 99 treatment    236276     September - 99 
Electrode ring device for home         
99 treatment    236277     September - 99 
Pulse formation analysis device    0368021     December - 02 


         
Laser beam irradiation device    0457964     January - 03 
Lipolytic low laser device (pending)    2005-17330     March – 05 
Remote Bio-monitoring system (pending) 2005-45139         May - 05 
         
(UTILITY MODEL)         
Acupoint measuring device with         
pressure control    144725     February - 99 
Acupoint measuring device with         
Pressure display    169502     November - 99 
         
(DESIGN)         
Diagnostic probe    165377     June - 95 
Medical measuring electrode    215383     February - 98 
Electrode for self-treatment    228575     September – 98 
Electrode for self-treatment    228576     September - 98 
Electrode holder for         
laser treatment    0302314     June - 02 
Electrode for laser treatment    0302315     June - 02 
         
(TRADEMARK)         
BRIEF    345494     August - 96 
BRD    409677     July - 98 
Lapex    500915     September - 01 
Biomeridian    0522196     June - 02 
Pulsecare    0538120     December - 02 
Mcview    0531965     October - 02 
McPulse (pending)    2002-29908     June - 02 
Hemoscope (pending)    2001-38478     August - 01 
Pulseview (pending)    2001-21430     May - 01 
Pulsetron (pending)    2001-21431     May - 01 

The Company relies on a combination of patent and trade secrets to establish and protect the proprietary rights in its products. In order to protect and support current and future development of its products, the Company expects that it will continue to make application for patents at the Korea Industrial Property Office. The Company believes that the ownership of patents will be a significant factor in contributing to its business. However, the success of the Company will depend primarily on the innovative skills, technical competence and marketing abilities of its personnel. In addition, there can be no assurances that the Company's current and future patent applications will be granted, or if granted, that the claims covered by the patents will not be reduced from those included in the Company's applications. Claims by third parties that the Company's current or future products infringe upon their intellectual property rights may have a material adverse effect on the Company. Intellectual property litigation is complex and expensive and the outcome of this litigation is difficult to predict. Any future litigation, regardless of outcome, may result in substantial expense to the Company and significant diversion of the Company's management and technical personnel.

Regulatory Restrictions
Use of the Company's products internationally is subject to various government regulatory requirements on a country-by-country basis. Europe,

the U.S., Canada, Australia, Japan and China each have their own product certification systems. As a result, this has slowed the process for the Company to expand in the world market. Even if there are no technical difficulties, its products are directly involved with human life, and require that the Company obtain government approval of clinical safety for the products through various analysis and testing procedures. As noted above, the Meridian-II received FDA approval to be sold as Class 2 products in the U.S. The table below includes all the regions in the world where Meridian's products have been approved for sale.

REGION  REGULATION  PRODUCTS APPROVED 
     
Korea  KFDA  Meridian-II, ABR-2000, Lapex–2000, Digital Pulse Analyzer, Venus 21C 
China  SDA  Meridian-II, ABR - 2000 
U.S.A  FDA  Meridian-II, Lapex-2000, ABR-2000, Digital Pulse Analyzer 
Canada.  CSA  Applications for approval began in 2005. 
South America  FIP  Meridian-II, ABR - 2000, Lapex-2000 
EU.  IEC(CE)  MERIDIAN-II, ABR-2000, LAPEX - 2000 

D. Trend information

The operations of the Company have been significantly affected, and may continue to be affected for the foreseeable future, by the general unstable economic conditions in Korea and in the Asia Pacific region. The curtailed economic activity in the Company's traditional markets resulted in a significant decline in the Company's sales, production and inventory. The Company is actively seeking to expand its sales into new markets, principally the United States.

E. Off-balance sheet arrangements Not applicable

F. Tabular disclosure of contractual obligations

Payments due (by period)
    Less than      more than 
Contractual Obligations  Total  one year  1-3 years  3-5 years  5 years 
Long-term debt obligations  $  2,107,855  $ 96,741  $ 510,387  $  1,007,086  $ 493,641 
Debentures  $  1,500,000  -  -  -  $ 1,500,000 
Long-term accounts payable  $  903,572  -  $ 903,572  -  - 
Retirement and severance indemnities.  $  139,865  unknown*  unknown*  unknown*   unknown* 

*The Company's estimated liability under the plan, equal to the amount which would be payable if all employees were to terminate at the balance sheet date, has been accrued according to the National Pension Law of Korea for employees with more than one year of service and who are entitled to receive severance indemnities, based on length of service and rate of pay, upon termination of their employment.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

See Item 4.C.

B. Compensation


Name & Principal  Year  Salary ($) Bonus ($)  Other Annual  All Other 
Position        Compensation ($)  Compensation 
           
Myeong, Hyeon-Seong           
(Director,           
 President, CEO)  2001  45,500  Nil  Nil  Stock Option 
  2002  47,541  Nil  Nil  Nil 
  2003  49,329  Nil  Nil  Nil 
  2004  51,342  Nil  NIl  Nil 
           
Park, Sang - Yeul           
(Director of Manufacturing Affairs,       
 resigned on March,05)           
  2001  39,000  Nil  Nil  Stock option 
  2002  37,357  Nil  Nil  Nil 
  2003  42,282  Nil  Nil  Nil 
  2004  44,008  Nil  Nil  Nil 
           
Hong, Sung Phil           
(Director and Secretary)         
  2003  39,262  Nil  Nil  Nil 
  2004  40,865  Nil  Nil  Nil 
           
Min, Jae -Ki           
(Statutory Auditor)  2001  Nil  Nil  Nil  Nil 
  2002  Nil  Nil  Nil  Nil 
  2003  Nil  Nil  Nil  Nil 
  2004  Nil  Nil  Nil  Nil 

*Hyeon Seong Myeong was granted options for 4,130 shares of the Company's common stock at the price of $0.88 in February 2000 and for 2,218 shares at the price of 680 Won (approximately $0.52) in March 2001. Sang Yeul Park was granted options for 3,097 shares at the price of 1,000 Won in February 2000 and for 1,849 shares at the price of 680 Won in March 2001.

Compensation of Directors
Directors and directors who are also employees of the Company receive no extra compensation for their service on the Board of Directors of the Company.

Employment Contracts with employees and officers The Company has not entered into any employment contracts, but anticipates entering into employment contracts with certain management and other key personnel.

C. Board practices

Not applicable

D. Employees

The Company has 19 employees in the following areas:

Area  Department  Team Name  Number of Staff 
Seoul, Korea  Administration department  The ministry of Finance and Economy  3 
  Business Headquarters  sales Department  2 
    Customer Support Team  2 
    Marketing Team  1 
    Clinical Team  1 
    Business administration team  1 
  Research Institute    2 
Hong Chun, Korea  Production Department  Manufacturing Technical Team  5 
    Purchasing Team  1 
    Quality Guarantee Team  1 
Total      19 
The president excepted in employee's number, and head count is 20 with Hyeon-Seong Myeong 

E. Share Ownership

Stock Option Plans
Under the Company's Articles of Incorporation, the Company may grant options for the purchase of its shares to certain qualified officers and employees. Set forth below are the details of the Company's stock option plan as currently contained in its Articles of Incorporation (the "Stock Option Plan"). In order to qualify for participation in the Stock Option Plan, officers and employees must have the ability to contribute to, the establishment, development or technological innovation of the Company. Notwithstanding the foregoing, the following criteria shall not be eligible to receive options under the Stock Option Plan; (i) the Company's largest shareholder and its specially related parties, as defined in the Securities and Exchange Act of Korea (the "Securities Act of Korea"), (ii) major shareholders and their specially related parties, as defined in the Securities Act of Korea, and (iii) any shareholder who would become a major shareholder upon exercise of stock options granted under the Stock Option Plan. Under the Securities Act of Korea, a major shareholder is defined as a shareholder who (i) holds 10% or more of shares issued and outstanding or (ii) has actual control over major management decisions. Under the Securities Act of Korea the largest shareholder of a company is the person who holds the largest number of issued and outstanding shares of the company. The specific terms and conditions of stock options granted under the Stock Option Plan shall be approved at a duly convened shareholders' meeting. Under the Company's Articles of Incorporation, stock options shall be offered through (i) issuance of new shares, or (ii) payment in cash or treasury stock held by the Company of the difference between the market price of its shares and the option exercise price. The maximum aggregate number of the Company's shares available for issuance under the Stock Option Plan shall not exceed 15% of the total number of its shares outstanding. The stock options may not be granted to all officers and employees at the same time. Any single officer or employee may not be granted stock options for the shares exceeding 10% of the shares issued and outstanding. Stock options granted under the Stock Option Plan will have a minimum exercise price equal to the arithmetic mean of (i) the weighted average of the daily market share prices for the two-month period prior to the date on which the stock options are granted, (ii) the weighted average of the daily market share prices for the one-month period prior to such date and (iii) the weighted average of the daily market share prices for the one-week period prior to such date. When new shares are issued upon the exercise of the stock options, the option exercise price shall not be less than the par value of the Company's shares. Stock options granted under the Stock Option Plan may be exercised after the third anniversary date of the shareholders' meeting at which the grant of stock options under the Stock Option Plan is approved but prior to the seventh anniversary date thereof, unless otherwise revoked by the board of directors. The board of directors may revoke stock options granted under the Stock Option Plan if (i) a beneficiary resigns prior to the exercise of the stock options, (ii) the beneficiary causes significant loss to the Company by his or her negligence or wilful misconduct, or (iii) an event of termination specified in the Stock Option Plan occur. Shares purchased upon the exercise of stock options granted under the Stock Option Plan will not, at the time of their issuance, be registered with the Securities and Exchange Commission but may be salable in the public market in the United States in accordance with Rule 144 under the Securities Act and applicable Korean laws and regulations.

The Company adopted the following material changes with respect to its Stock Option Plan:

-
persons entitled to receive stock options has been expanded to include researchers, faculty members of a university, practising lawyers, certified public accountants who possess technological or managerial capabilities and Universities and Research Institutes;
 
-
the number of stock options granted at any one time cannot exceed 50% of the total issued and outstanding shares of the Company;
 
-
stock option holders shall be entitled to exercise their stock options only after having served in the Company for two (2) years; and
 
-
the exercise price per share upon exercise of stock options shall not be less than the greater of the market price of shares valued as of the date of the grant of the stock options or the par value of the shares concerned.

On February 23, 2000, the Company granted stock options to its executive officers, directors and 16 employees to purchase 496,850 shares of its common stock at a price of $0.88 per share. Stock options granted to its executive officers and directors will vest on February 23, 2003 and

are exercisable until February 22, 2007. On March 19, 2001, the Company granted stock options to its executive officers, directors and 13 employees to purchase 425,250 common shares at an exercise price of Won 680 (equivalent to $0.53 at the spot exchange rate of Won 1,298 to $1) per share. The options will vest on March 19, 2004 and are exercisable until March 18, 2008.

Share ownership
The following table sets forth certain information regarding the beneficial ownership of the common stock of the Company as of December 31, 2004, after taking into effect the Acquisition and the Stock Split of: (a) each of the Company's directors and officers, and (b) all directors and officers of the Company, as a group:

Name and address of beneficial owner  Amount Stock  Percentage of Percentage of
and position with the company  Beneficially Owned  Class as of Dec.31,2004 Class as of June 30, 2005
       
       
Myeong, Hyeong-seong.  971,500 common shares  3.24% 3.09%
(President, CEO and Director)   
#997-4 Daechi-dong   
Gangnam-gu, Seoul, Korea   
       
Hong, Sung Phil.  80,450 common shares  0.27% 0.26%
(Director and Secretary)   
4274 Kum Kwang-dong, Jungwon-gu   
SungNam city, KyungKi-do, Korea   
       
Park, Sang-yeul  87,500 common shares  0.29% 0.28%
(Director resigned on March, 2004)   
687-6 Sangoan-ri, Hongchun-eup,   
Hongchun- kun, Kangwon-do, Korea   
       
In Beom Park  Nil  Nil Nil
(Director)   
#603 605, JungSan town, Ilsan-dong,   
Ilsan-gu, Goyang-city, KyungKi-do, Korea 
       
Min, Jae-ki  Nil  Nil Nil
(Statutory Auditor)   
#997-4 Daechi-dong   
Gangnam-gu Seoul, Korea   
       
       
All officers and Directors as a Group   1,139,450  3.80% 3.63%

On May 2, 2005, the board of directors of the Company authorized the return to treasury of 1,000,000 common shares issued to Edward Fitzpatrick.

On , June 20, 2005, the Company issued 2,400,000 common shares in exchange for consulting services. The total number of issued and outstanding shares is 31,393,984.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS The following table sets forth information with respect to the beneficial ownership of our shares as of December 31, 2004 and June 30, 2005), by each person known to us to own beneficially more than five percent (5%) of our shares.


Name and address  Amount Stock    Percentage of Class   Percentage of Class   Number of 
  Beneficially Owned    of Dec.31, 2004   of June 30,2005   Stock Option Held 
               
Terasource Funds           
including:           
Terasource Kosdaq Venture Investment           
(2,066,700 common shares);.  5,470,600 common shares    18.24%   17.43%    Nil 
Terasource Venture Investment Capital           
(403,900 common shares);           
Terasource Venture Capital Fund 2           
(1,070,270 common shares);           
Terasource Venture Capital Fund 3           
(1,551,350 common shares);           
Terasource Venture Capital Fund 4           
(378,380 common shares)           
8FR Dongshin Bldg. 141-30           
Samseong-dong, Kangnam-gu Seoul, Korea           
               
               
The Hong Group of Companies           
including:           
Serome Investment Co. Ltd. (1,085,675shares),           
151-7 Samseong-Dong ;  3,325,900 common shares    11.09%   10.59%    Nil 
Kangnam-Gu Seoul Korea           
Mok-Won Assets Management Co. Ltd           
(1,375,000 shares),2004 Ho, Anam tower 702-10           
Yuksam-dong Kangnam-ku, Seoul, Korea;           
Bio & Medical Research Co. Ltd. (524,425 shares),           
702-10 Yuksam-dong, Kangnam-ku, Seoul, Korea;           
Ki-tae Hong (127,800 shares) and Hye-sook Lee           
(213,000 shares)151-7 Samseong-Dong, Kangnam-Gu,          
Seoul, Korea           
               
Hsiu Chen Cheng.  1,450,000 common shares    4.83%   5.89%    Nil 
12F, No. 388 Chun Shan E. Rd.,  (1,850,000 common shares        
Taipei, Taiwan  as of June 30, 2005)         

Related party transactions
There is no known relationship between any of the Directors and Officers of the Company with major clients or provider of essential products and technology.

In the event conflicts do arise the Company will attempt to resolve any such conflicts of interest in favor of the Company. The officers and directors of the Company are accountable to the Company and its shareholders as fiduciaries, which requires that such officers and directors exercise good faith and integrity in handling the Company's affairs. A shareholder may be able to institute legal action on behalf of the Company on or behalf of that shareholder and all other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts in any manner prejudicial to the Company.
The transactions between the Company and its subsidiaries are disclosed in the Note 14 to the consolidated financial statements, page 67.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information See "Item 18- Financial Statements"

Legal Proceedings
On February 27, 2004, the Company received approval for a debt rescheduling plan for a total of $3,589,271 from the Chooncheon District Court, Korea, whereby a group of creditors of the Company and a representative of the Company agreed to reschedule the payments on $3,589,271 of the Company's debt which constitute approximately 68% of the total outstanding accounts payable and borrowings of the Company. An application for the rescheduling plan was subsequently filed with Chooncheon District Court and approved by the court on the same day.

Dividend Policy
We intend to retain any earnings for use in our business. We do not intend to pay dividends on our shares for the foreseeable future. Dividends, if any, on the outstanding shares are recommended by the board of directors and must be approved at our annual general meeting of shareholders. This meeting is generally held in March each year, and the dividend in respect of the preceding year is generally paid shortly thereafter. The declaration of dividends is subject to the discretion of the shareholders, and consequently, no assurance can be given to the amount of dividends per share or that any such dividends will be declared. Future cash dividends, if any, will also depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as may deem relevant. Loan agreements and contractual arrangements entered into by Meridian may also restrict distributions of dividends.

B. Significant Changes
At an extraordinary general meeting of shareholders of the Company, on April 27, 2004, it was approved that the par value of the common stock of the Company be reduced from 200 Korean Won per share (equivalent to US$0.17 per share) to 100 Korean Won per share (equivalent to US$0.10 per share). The new par value was registered with the Korean registrar of companies on June 1, 2004 and will be effective as of July 1, 2004.
The Company received funds of US$530,000.00 from investors through an equity financing whereby, on June 8, 2004 the Company issued 3,312,500 shares of common stock ($ 0.16 per share). Share issue costs of $ 26,500 were paid in connection with the financing. The stock issued is restricted from trading for one year.

Item 9. The Offer and Listing
Not Applicable

Item 10. Additional Information

A. Share Capital
The Company had 567,853 shares of common stock issued and outstanding prior to the Acquisition of By George, and 635,995 shares issued and outstanding following the Acquisition. Effective February 15, 2001 the Company forward split all of its outstanding common shares on the basis of 10 new shares of common stock of the Company for each issued share of common stock of the Company resulting in a total of 6,359,950 shares of common stock par value 500 Won per share in the capital stock of the Company being issued and outstanding (the "First Stock Split"). Effective March 19, 2001 the Company forward split all of its outstanding common shares on the basis of 5 new shares of common stock of the Company for every 2 issued shares of common stock of the Company resulting in a total of 15,899,875 shares of common stock par value 200 Won per share in the capital stock of the Company being issued and outstanding (the "Second Stock Split") (the First Stock Split and the Second Stock Split collectively referred to as the "Stock Split"). Effective July 1, 2004, the Company reduced the par value of the common stock of the Company from (won) 200 per share to (won) 100 per share. As a result, the Company’s capital stock was changed from (won) 3,830,297 thousand to (won) 1,915,148 thousand.

B. Memorandum and Articles of Association General
The Company is authorized to issue 50,000,000 shares of common stock, each share of common stock having equal rights and preferences, including voting privileges. The Company is not authorized to issue shares of preferred stock. As of December 31, 2004 there were 29,993,984 shares of the Company's stock issued and outstanding, and as of June 30, 2005, there are 31,393,984 shares of the Company's stock issued and outstanding. The shares of common stock of the Company constitute equity interests in the Company entitling each shareholder to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of the Company's common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to election of directors of the Company or any other matter, with the result that the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of the Company's common stock are entitled to receive dividends when, as and if declared by the Company's Board of Directors from funds legally available therefore; provided, however, that cash dividends are at the sole discretion of the Company's Board of Directors. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities of the Company and after provision has been made for each class of stock, if any, having preference in relation to the Company's common stock. Holders of the shares of the Company's common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Company's common stock. All of the outstanding shares of the Company's common stock are duly authorized, validly issued, fully paid and non-assessable.

Dividends
Dividends are distributed to shareholders in proportion to the number of shares of capital stock owned by each shareholder following approval by the shareholders at a general meeting of shareholders. Under the Commercial Code and the Company's Articles of Incorporation, the Company will pay, to the extent declared, full annual dividends on newly issued shares. The Company may declare dividends annually ("annual dividends") at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. Shortly after the annual general meeting, the annual dividend is paid to the shareholders of record as of the end of the preceding fiscal year. Annual dividends may be distributed either in cash or in shares provided that shares must be distributed at par value and dividends in shares may not exceed one-half of the annual dividend. Under the Commercial Code and the Company's Articles of Incorporation, the Company does have an obligation to pay any annual dividend unclaimed for five years from the payment date. The Commercial Code provides that a company shall not pay an annual dividend unless it has set aside in its legal reserve an amount equal to at least one-tenth of the cash portion of such annual dividend or has a legal reserve of not less than one-half of its stated capital. The Commercial Code also provides that a company may pay an annual dividend out of the excess of its net assets over the sum of (i) its stated capital, (ii) the aggregate amount of its capital surplus reserve and legal reserve which have been accumulated up to the end of the relevant dividend period, and (iii) the legal reserve to be set aside in respect of such annual dividend. Such reserves are not available for payment of cash dividends but may be transferred to capital stock or used to reduce an accumulated deficit through a shareholder action.

Distribution of Free Shares
In addition to dividends in the form of shares to be paid out of retained or current earnings, the Commercial Code permits a company to

distribute to is shareholders an amount transferred form the capital surplus or legal reserve to stated capital in the form of free shares. Such distribution must be made pro rata.

Preemptive Rights and Issuance of Additional Shares The authorized but unissued shares may be issued at such times and, unless otherwise provided in the Commercial Code, upon such terms as the board of directors of a company may determine. The new shares must be offered on uniform terms to all shareholders who have preemptive rights and who are listed on the shareholders' register as of the record date. The Company's shareholders are entitled to subscribe for any newly issued shares in proportion to their existing shareholdings, provided that pursuant to the Articles of Incorporation, new share that are (i) issued by public offering in accordance with the Securities and Exchange Law of Korea, (ii) represented by depositary receipts, (iii) issued to foreigners in accordance with the Foreign Investment Promotion Law of Korea within 33% of the total number of shares outstanding, (iv) issued to the Company's employee stock ownership association up to 20% of the newly issued shares (to the extent the total number of shares so subscribed and held by th e members of the employee stock ownership association does not exceed 20% of the total number of shares), (v)issued outside Korea for listing on a foreign stock exchange or foreign securities market trading securities by means of an electronic or a quotation system, (vi) issued according to a stock option plan, (vii) issued to a domestic corporation having a strategic relationship with the Company in connection with the Company's management or technology of up to 5% of the total number of issued and outstanding shares after such issuance, (viii)issued as consideration for the acquisition of the stock or assets of another company up to less than 20% of the total number of issued and outstanding shares, or (ix) issued through general public offering in accordance with the Securities and Exchange Law of Korea may be issued pursuant to a resolution of the board of directors to persons other than existing shareholders. Under the Commercial Code, a company may vary, without shareholder approval, the terms of such preemptive rights for different classes of shares. Public notice of the preemptive rights to new shares and the transferability thereof must be given not less than two weeks (excluding the period during which the shareholders' register is closed) prior to the record date. The Company will notify the shareholders who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks prior to such deadline. If a shareholder fails to subscribe on or before such deadline, such shareholder's preemptive rights will lapse. The board of directors may determine how to distribute shares in respect of which preemptive rights have not been exercised or where fractions of shares occur. If the Company adopts the New Articles of Incorporation newly issued shares can be issued pursuant to a resolution of the board of directors of the Company to persons other than existing shareholders of the Company under the following cases (i) the Company offers new shares or allows underwriters to underwrite new shares in accordance with Article 2 and Article 8 of the Securities Exchange Act of Korea;(ii) the Company issues new shares through a public offering by the resolution of the Board of Directors in accordance with Article 189-3 of the Securities Exchange Act of Korea; (iii) the Company issues new shares through exercises of stock options in accordance with Article 16-3 of the Venture Company Promotion Special Measures Act of Korea; (iv) the Company issues new shares for the purpose of listing or registration on or with a foreign securities exchange or market;(v) the Company issues new shares for foreign direct investments in accordance with the Foreign Investment Promotion Act as needed for business purposes, including but not limited to improvement of the financial structure;(vi) the Company issues new shares to another company with which the Company forms or intends to form a business alliance relationship for the purpose of technology transfer; or (vii) the Company issues new shares for consideration for the acquisition of the shares or assets of another company or the assets of a person.

General Meeting of Shareholders
Under the Commercial Code, the ordinary general meeting of shareholders is held within three months after the end of each fiscal year and, subject to board resolution or court approval, an extraordinary general meeting of shareholders may be held as necessary or at the request of holders of an aggregate of 3% or more of the outstanding shares of a company or at the request of a company's statutory auditor or audit committee. Under the Commercial Code, written notices setting forth the date, place and agenda of the meeting must be given to shareholders at least two weeks prior to the date of the general meeting of shareholders. Currently, the Company uses The Korean Economic Daily for the purpose of providing public notices. Shareholders not on the shareholders' register as of the record date are not entitled to receive notice of the annual general meeting o f shareholders or attend or vote at such meeting. The agenda of the general meeting of shareholders is determined at the meeting of the board of directors. In addition, shareholders holding an aggregate of 3% or more of the outstanding shares may propose an agenda for the general meeting of shareholders. Such proposal should be made in writing at least six weeks prior to the meeting. The board of directors may decline such proposal if it is in violation of the relevant laws and regulations of the Company's Articles of Incorporation. The general meeting of shareholders is held at the Company's headquarters or, if necessary, may be held anywhere in the vicinity of the Company's headquarters.

Voting Rights

Holders of the Company's shares are entitled to one vote for each share, except that voting rights with respect to shares held by the Company and shares held by a corporate shareholder, more than one-tenth of whose outstanding capital stock is directly or indirectly owned by the Company, may not be exercised. Cumulative voting is precluded in the Company's Articles of Incorporation. Under the Commercial Code, for the purpose of electing the Company's statutory auditors, a shareholder holding more than 3% of the total shares may not exercise voting rights with respect to such shares in excess of such 3% limit. The Commercial Code also provides that in order to amend the Company's Articles of Incorporation (which is required for any change to the Company's authorized share capital) and for certain other instances, including removal of any of the Company's director and statutory auditor, dissolution, merger or consolidation, transfer of the whole or a significant part of the Company's business, acquisition of all of the business of any other company or issuance of new shares at a price lower than their par value, an approval from holders of at least two-thirds of those shares present or represented at such meeting is required, provided that such

super-majority also represents at least one-third of the total issued and outstanding shares. A shareholder may exercise his voting by proxy given to any person. The proxy must present a document evidencing the power of attorney prior to the start of the general meeting of shareholders.

Registration of Shareholders and Record Date Pacific Corporate Trust Company of Vancouver BC Canada ("Pacific Corporate") is the Company's sole transfer agent. Pacific Corporate maintains the register of the Company's shareholders and register of transfers of registered shares traded. For the purpose of determining the holders of the Company's shares entitled to annual dividends, the register of shareholders is closed for a period following December 31 and ending on the close of the ordinary general shareholders' meeting for such fiscal year. The record date for annual dividends is December 31. Further, the Commercial Code and the Company's Articles of Incorporation permit the Company, upon at least two weeks' public notice, to set a record date and/or close the register of shareholders entitled to certain rights pertaining to the Company's shares. The trading of the Company's shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed.

Annual and Periodic Reports
At least one week prior to the annual general meeting of shareholders, the Company's annual report and audited non-consolidated financial statements must be made available for inspection at the Company's principal office and at all branch offices. Copies of annual reports, the audited consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to the Company's shareholders. In addition, the Company will dispatch the copies of its financials and statements and business report to its shareholders at least two weeks prior to the date of the annual general meeting of shareholders.

Transfer of Shares
Under the Commercial Code, the transfer of shares is effected by delivery of share certificates but, in order to assert shareholders' rights against the Company, the transferee must have his name and address registered on the register of shareholders. For this purpose, shareholders are required to file their name, address and seal or specimen signature with the Company. Under the regulations of the Financial Supervisory Commission of Korea, non-resident shareholders may appoint a standing proxy and may not allow any person other than such standing proxy to exercise rights regarding the acquired shares or perform any task related thereto on his behalf, subject to certain exceptions. Under current Korean regulations, securities companies and banks in Korea (including licensed branches of non-Korean securities companies and banks), investment management companies in Korea, internationally recognized foreign custodians and the Korean Securities Depository are authorized to act as agents and provide related services.

Acquisition by the Company of Shares
The Company generally may not acquire its own shares except in certain limited circumstances, including, without limitation, a reduction in capital. Under the Commercial Code, except in case of a reduction in capital, any of the Company's own shares acquired by it must be sold or otherwise transferred to a third party within a reasonable time.

Liquidation Rights
In the event of a liquidation of the Company remaining after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to the number of the Company's shares held.

Inspection of Books and Records
Under the Commercial Code, any individual shareholder or shareholders having at least 3% of all outstanding shares (irrespective of voting or non-voting shares) of a Korean corporation may inspect books and records of the corporation.

C. Material contracts None

D. Exchange Controls General

The Foreign Exchange Transaction Law of Korea and the Presidential Decree and regulations established thereunder (collectively the "Foreign Exchange Transaction Laws") regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only to the extent specifically allowed by such laws or otherwise permitted by the Ministry of Finance and Economy. The Financial Supervisory Commission also has adopted, pursuant to the delegated authority under the Securities and Exchange Law of Korea, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances are likely to occur, it may require certain investors to obtain prior approval for certain Capital Transactions as defined in the Foreign Exchange Transaction Laws from the relevant Korean authority or to deposit a certain portion of the investors' holdings in Korea. Such emergency circumstances include sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or a substantial disturbance in the Korean financial and capital markets.

Government Reporting Requirements
In order for the Company to issue its shares outside of Korea, the Company is required to file a prior report of such issuance with the Ministry of Finance and Economy. No further approval from the Government is necessary fort he issuance of the Company's shares. Furthermore, prior to making an investment to 10% or more of the outstanding shares of a Korean company, foreign investors are generally required under the

Foreign Investment Promotion Law to submit a report to a Korean bank pursuant to a delegation by the Ministry of Commerce, Industry and Energy. Subsequent sale by such investor of the shares will also require a prior report to such bank

Dividend to be declared in Won
The Company currently is not in the position to pay dividends on its shares for the foreseeable future. However, if the Company declares cash dividends, such dividends will be declared in Won. In order for the Company to pay such dividends outside Korea, such dividends will be converted into Dollars and remitted to the shareholders, subject to certain conditions. The Company will convert dividend amount in foreign currency and remit them to shareholders abroad. No governmental approval is required for foreign investors to receive dividends. However, in order for the Company to convert the Won amount in foreign currency and to remit such amount abroad, relevant documents must be submitted to the foreign exchange bank to verify (i) that the amount being paid conforms to the amount required to be paid and (ii) whether all necessary legal procedures have been completed.

E. Taxation

Korean Taxation
The following is a summary of the principal Korean tax consequences to owners of our shares that are non-resident individuals or non-Korean corporations without a permanent establishment in Korea to which the relevant income is attributable ("non-resident holders"). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax consideration which may apply to a particular investor and prospective investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of our shares, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.

Taxation of Dividends
For the purposes of Korean taxation of distributions of profits either in cash or shares made on the Company's shares, a non-resident holder will be treated as the owner of the Company's shares. Dividends paid (whether in cash or in shares) to a non-resident holder are generally subject to withholding tax at a rate of 27.5% or such lower rate as is applicable under a treaty between Korean and such non-resident holder's country of tax residence. Such tax is required to be deducted from such dividends and only the net amount is paid to the non-resident holder of the Company's shares. Under the U.S. - Korea Tax Treaty, the maximum rate of withholding on dividends paid to United States residents eligible for treaty benefits and beneficial owners of such dividend generally is 15% (10% if the recipient of the dividends is a U.S. corporation and owned at least 10% of the outstanding shares of voting stock of the relevant Korean company during any part of its taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year {if any} and certain other conditions are satisfied) which does not include withholding of local tax. In addition, a local surtax will be included in the withholding, therefore the maximum rate of withholding is generally 16.5% . The aforementioned maximum rate on withholding of dividends does not apply if the United States resident has a permanent establishment in Korea and the shares to which the dividends are paid are connected with such permanent establishment.
Distribution of free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital may be treated as dividends subject to Korean tax. However, stock splits, if any, will not be treated as dividends.

Taxation of Capital Gains
A non-resident holder will be subject to Korean taxation on capital gains realized on a sale of our shares unless the non-resident holder is eligible for the benefits of an applicable tax treaty exempting such capital tax. In addition, the capital gains realized from the transfer of shares listed on certain foreign stock exchanges (including the Nasdaq National Market), insofar as the transfer is completed through such stock exchange, are exempted from Korean income taxation by virtue of the Tax Exemption and Limitation Law. Under the U.S.-Korea tax treaty, capital gains realized by holders that are residents of the United States eligible for treaty benefits will not be subject to Korean taxation upon the disposition of our shares, with certain exceptions. In the absence of any applicable treaty or the exemption under the Tax Exemption and Limitation Law, a non-resident holder will generally be subject to Korean taxation on capital gains realized on a sale of our shares at the rate of the lesser of 27.5% of the gains or 11% of the gross sales proceeds until December 31, 2000 and the lesser of 26 7/8% of the gains and 10 3/4% of the gross sales proceeds thereafter. See "-Withholding of Taxes."

Application of the U.S.-Korea Tax Treaty Under the U.S.-Korea tax treaty, a resident of the United States means (i) a United States corporation and, (ii) any other person (except a corporation or any entity treated under United States law as a corporation) resident in the United States for purposes of its tax, but in the case of a person acting as partner or fiduciary only to the extent that the income derived by such person is subject to United States tax as the income of a resident. Further, the reduced Korean withholding tax rate on dividends and capital gains under the U.S.-Korea Tax Treaty would not be available if (a) the U.S. resident holders are certain investment or holding companies or (b) the dividends or capital gains derived by residents of the United States from our shares are effectively connected with the United States residents' permanent establishment in Korea or, in the case o f capital gains derived by an individual, (i) such United States resident maintains a fixed base in Korea for a period aggregating 183 days or more during the taxable year and our shares are effectively connected with such fixed base or (ii) such United States resident is present in Korea for 183 days or more during the taxable year.

Securities Transaction Tax

Under the Securities Transaction Tax Law of Korea, securities transaction tax to be imposed at the rate of 0.5% (this rate may be reduced to 0.3%, including other surtax, if traded through the Korea Stock Exchange or KOSDAQ) will not be imposed on the trading of shares through a foreign stock exchange on which the shares are listed. Although there has been no established precedent on the point of whether the Nasdaq National Market will be included in the definition of "foreign stock exchange" for the purpose of Securities Transaction Tax Law, it is likely that the securities transaction tax will not be imposed on the trading through the Nasdaq National Market. Further, securities transaction tax will not be applied if the sale is executed between non-residents without permanent establishments in Korea and the non-resident holder (together with our shares held by any entity which has a certain special relationship with such non-resident) did not own 10% or more of the total issued and outstanding shares at any time during the five years before the year within which the transfer occurs and the non-resident holder did not sell such shares through a securities broker in Korea.

Inheritance Tax and Gift Tax
Under Korean inheritance and gift tax laws, shares issued by Korean corporations are deemed located in Korea irrespective of where they are physically located or by whom they are owned. Therefore, Korean inheritance tax and gift tax are imposed with respect to our shares. The taxes are imposed currently at the rate of 10% to 50%, if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved. At present, Korea has not entered into any tax treaty with respect to inheritance or gift tax.

Withholding of Taxes
Under Korean tax law, holders of our shares in the United States will generally be subject to Korean withholding taxes on the capital gains and dividend payments by us in respect of those shares, unless exempted by a relevant tax treaty or the Tax Exemption and Limitation Law. Failure to withhold Korean taxes may result in the imposition of the withholding tax itself and 10% penalty tax, and, if prosecuted, a criminal penalty of an imprisonment up to one year and/or a fine up to the tax amount, on the relevant withholding agent. We, as payer of dividends, will act as withholding agent for the collection of Korean tax on such dividend payment. The capital gains realized from the transfer of shares listed and traded on the Nasdaq National Market are exempt from Korean income taxation by virtue of the Tax Exemption and Limitation Law. Korean tax law provides that, in case of transfer of Korean shares, the Korean securities broker broking such transfer, or if there is no such securities broker, the purchaser is required to withhold the relevant Korean capital gains taxes.

UNITED STATES FEDERAL INCOME TAXATION
The following is a general discussion of the material United States federal income tax consequences of purchasing, owning, and disposing the common shares if you are a U.S. Holder (as defined below) and hold the common shares as capital assets for United States federal income tax purposes. This discussion does not address all of the tax consequences relating to the ownership of the common shares, and does not take into account U.S. Holders subject to special rules including:

-      dealers in securities or currencies;
-      financial institutions;
-      tax-exempt entities;
-      banks;
-      life insurance companies;
-      traders in securities that elect to mark-to-market their securities;
-      persons that hold common shares as a part of a straddle or a hedging, or conversion transaction;
-      persons liable for the alternative minimum tax;
- persons that actually or constructively owns 10% or more of our voting stock; or 
-
persons whose "functional currency" is not the U.S. dollar. This discussion is based on the Internal Revenue Code of 1986, as amended, its legislative history, final, temporary, and proposed Treasury regulations, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. You are a "U.S. Holder" if you are: 
- a citizen or resident of the United States; 
-
a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof; 
- an estate the income of which is subject to United States federal income taxation regardless of its source; 
- a trust: 
-
if a United States court can exercise primary supervision over the trust's administration and one or more United States persons are authorized to control all substantial decisions of the trust; or 
-
that has elected to be treated as a United States person under applicable Treasury regulations. This discussion addresses only United States federal income taxation. 

F. DIVIDENDS AND PAYING AGENT
Not Applicable

G. STATEMENTS BY EXPERTS
Not Applicable

H. DOCUMENTS ON DISPLAY
Not Applicable

I. SUBSIDIARY INFORMATION
See Item 18. Notes to Financial Statements

I. SUBSIDIARY INFORMATION See Item 18. Notes to Financial Statements

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosure
Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in market rates of interest and foreign exchange. The Company's primary market risk exposures are fluctuations in exchange rates, interest rates and equity prices. The Company is exposed to foreign exchange risk related to export sales denominated in foreign currency. All of the Company's export sales are denominated in U.S. Dollars, regardless of the currencies of the countries/regions in which the purchasers are located. For the year ended December 31, 2004, the Company had an aggregate $601,650 export sales, accounting for 28.2% of the Company's total revenues. The Company has no other significant foreign currency denominated revenue. As a result, changes in the foreign exchange rate between the Won and the Dollar may significantly affect the Company due to the effect of such changes on the amount of payment, denominated in Won, the Company receives from foreign purchasers on the export sales. As of December 31, 2004, all of the Company's liabilities are denominated in Won. Therefore, if the Won depreciates against the Dollar by 10% and all other variables are held constant from their levels for the year ended December 31, 2004, the Company estimates that the payment receivable from its overseas customers will decrease by approximately $60,165 in 2005. The Company is exposed to interest rate risk due to significant amounts of short-term and long-term debt. Upward fluctuations in interest rates increase the cost of additional debt. However, as of December 31, 2004, the Company had no floating rate borrowings. Currently the Company does not use any derivatives or other financial instruments to mitigate these risks discussed above.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
The Company is not currently in default, arrears or delinquent with respect to any of its debt obligations or other responsibilities. The details of the debt restructuring of the Company, which is disclosed in Item 8. and Note 1 to the consolidated financial statements in this report, were reported in the form 6-K filed on March 28, 2004.

ITEM 14. MATERIAL MODIFICATIONS TOTHE RIGHTS OFSECURITY HOLDERS AND USE OF PROCEEDS
Not Applicable

ITEM 15. Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 20-F, the principal executive officers and directors of the Company have concluded that the disclosure controls and procedures of the Company as defined in 240.13a -15(c) and 240.15d -15(c) of the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission's rules and forms.
There were no significant changes in internal controls or in other factors of the Company that could significantly affect these controls subsequent to the date of their evaluation and up to the filing date of this Annual Report on Form 20-F. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken or may occur and not be detected.

ITEM 16. Audit Committee Financial Expert
The Company does not yet have an audit committee financial expert.

Item 16B. Code of Ethics
The Company does not have in place a written code of ethics that applies to its executive, financial or accounting officers or to persons performing similar functions. The Company is dependent upon its president to lead by example and has faith in his ability to do so. The Company does not plan to grant any waiver, including an implicit waiver, from a provision of the code of business conduct and ethics to any person.

Item 16C. Principal Accountant Fees and Services
(a)Audit Fees During the last two fiscal years, the Company paid $80,602.31 for professional services rendered by the former auditors for the audit of the Company's annual financial statements or services normally provided in connection with statutory and regulatory filings for those fiscal years.

(b)Audit-Related Fees During the last two fiscal years, the Company paid $nil for professional services rendered by the current or former auditors for audit-related services..

(c)Tax Fees During the last two fiscal years, the Company paid $nil for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.

(d)All Other Fees During the last two fiscal years, the Company paid $nil for professional services rendered by the principal accountant for services other than those described under (a) through (c).

(e) The Company's board of directors is currently acting as the audit committee. The board approves all of the services provided by the principal accountants.

(f)Percentage of work performed by persons other than the principal accountant's full-time, permanent employees: 0%

Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable

Part III

ITEM 17.
Not Applicable

ITEM 18. FINANCIAL STATEMENTS

Meridian Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS

For the Years ended December 31, 2004, 2003 and 2002

Table of Contents

Independent Auditors' Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Shareholders' Equity

Consolidated Statements of Cash Flows

Notes to consolidated Financial Statements

MERIDIAN CO., LTD.

CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2004, 2003 and 2002

with

INDEPENDENT AUDITORS' REPORT

Shinhan Accounting Corporation

AUDITORS' REPORT TO THE DIRECTORS OF:
MERIDIAN Co., Ltd.

We have audited the accompanying consolidated balance sheets of Meridian Co., Ltd. and its subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The accompanying financial statements for the year ended December 31, 2002 was audited by other auditor whose report dated May 14, 2003, expressed an unqualified opinion thereon, including an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Meridian Co., Ltd. and its subsidiary at December 31, 2004 and 2003, and the consolidated results of their operations, the changes in shareholder’s equity and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

Without qualifying our opinion, we draw your attention to the following matters.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations since inception and has current liabilities which significantly exceed its current assets that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's plans in regards to these matters are described in Note 1.

The Company has observed SEC regulations and U.S generally accepted accounting principles in the process of issuance of shares. However, as discussed in Note 15 to the consolidated financial statements, accounting principles generally accepted in Korea vary in this respect from U.S. generally accepted accounting principles. 12,485,159 common shares (capital stock amount (won) 1,248,515 thousand) issued through S-8 registrations, for acquisition of By George Holdings Corp. and debt-for-equity swap on October 21, 2004. have not been yet included in the Korean Commercial Registration Office due to the different requirements of the share issuance between the US and Korean Commercial Laws.

Certified Public Accountant
Republic of Korea
May 13, 2005, except for Note 25, as to which the date is June 20, 2005

Il-Heung bldg. Suite #8
126-1 ChungMu-Ro 4Ka, Chung-Ku
Seoul, Korea

Meridian Co., Ltd.
Consolidated balance sheets
As of December 31, 2003 and 2004
(in Korean Won)

      (Note 3)  
A S S E T S    2003   2004   2004 (in USD)  
                 
Current assets :       
     Cash and cash equivalents    37,292,198   42,131,238   $ 40,703  
     Trade accounts and notes receivable - less allowance for doubtful accounts    484,798,681   525,980,674   508,145  
     of won 1,803,178,811 in 2003 and won 476,269,309(USD 460,119) in 2004       
     Short-term loans receivable, net    62,795,868   55,661,875   53,774  
     Other accounts receivable, net    891,320   4,768,645   4,607  
     Inventories    838,660,330   695,996,105   672,395  
     Other current assets    38,011,479   188,614,870   182,219  
                 
         Total current assets    1,462,449,876   1,513,153,407   1,461,843  
                 
Investments and other assets       
     Investment securities    22,634,827   13,400,744   12,946  
     Long-tem and restricted bank deposits    40,064,819   41,084,873   39,692  
     Guaranty deposits    105,681,580   106,153,940   102,554  
                 
         Total investmets and other assets    168,381,226   160,639,557   155,192  
                 
Property, plant and equipment       
     Land    928,107,490   928,107,490   896,636  
     Buildings    688,533,484   688,533,484   665,185  
     Furniture and fixture    779,256,776   793,821,678   766,903  
     Others    161,031,345   157,588,521   152,245  
    2,556,929,095   2,568,051,173   2,480,969  
     Less accumulated depreciation    (1,014,593,512 )  (1,076,383,667 )  (1,039,884 ) 
                 
         Property, plant and equipment, net    1,542,335,583   1,491,667,506   1,441,085  
                 
Intangible assets       
     Patents and trademarks    2,017,238   1,470,612   1,421  
                 
                 
         TOTAL ASSETS    3,175,183,923   3,166,931,082   3,059,541  

(Continued)

Meridian Co., Ltd.
Consolidated balance sheets
As of December 31, 2003 and 2004
(in Korean Won)

           (Note 3)  
LIABILITIES AND SHAREHOLDERS' EQUITY    2003   2004   2004 (in USD)  
               
Current liabilities       
     Accounts payable - trade    779,043,995   207,983,876   200,931  
     Short-term borrowings    1,474,455,978   1,092,929,813   1,055,869  
     Accounts payable - other    1,497,858,677   1,091,521,244   1,054,508  
     Current portion of long-term debt    96,740,790   557,282,037   538,385  
     Others    152,739,951   347,819,964   336,025  
               
         Total current liabilities    4,000,839,391   3,297,536,934   3,185,718  
               
Long-term accounts payable    126,336,978   935,287,781   903,572  
Long-term borrowings    3,480,040,213   3,511,114,657   3,392,054  
Accured severence benefits, net    168,527,418   144,773,769   139,865  
               
         Total liabilities    7,775,744,000   7,888,713,141   7,621,209  
               
Commitments and contingencies    -   -   -  
               
Minority interest    -   19,936,965   19,261  
               
Shareholders' equity       
     Common stock - par value 100 (won) per share; authorized 50,000 thousand share   3,830,296,800   2,999,398,400   2,897,689  
         issued and outstanding 19,151 thousand shares and 29,994 thousand shares       
         at December 31, 2003 and December 31,2004, respectively       
     Capital Surplus    982,908,797   3,724,910,262   3,598,599  
     Appropriation for business rationalization    267,608,937   267,608,937   258,534  
     Accumulated deficit    (9,675,773,315 )  (11,731,601,637 )  (11,333,785 ) 
     Accumulated other comprehensive income (loss)    (5,601,296 )  (2,034,986 )  (1,966 ) 
               
               
         Total shareholders' equity    (4,600,560,077 )  (4,741,719,024 )  (4,580,929 ) 
               
         TOTAL LIABILITIES AND       
                  SHAREHOLDERS' EQUITY    3,175,183,923   3,166,931,082   3,059,541  

The accompanying notes are an integral part of these Consolidated Financial Statements.

Meridian Co., Ltd.
Consolidated statements of income
For the years ended December 31, 2002, 2003 and 2004
(in Korean Won)

        (Note 3)  
  2002   2003   2004   2004 (in USD)  
                   
Sales  4,373,897,866   3,441,119,294   2,204,234,179   $ 2,129,489  
                 
Cost of sales  2,379,436,814   1,490,837,684   1,214,803,149   1,173,609  
                 
Gross profit  1,994,461,052   1,950,281,610   989,431,030   955,880  
                 
Selling, general and administrative expenses  3,892,035,837   3,460,603,690   2,461,664,811   2,378,190  
                 
Operating Income (loss)  (1,897,574,785 )  (1,510,322,080 )  (1,472,233,781 )  (1,422,311 ) 
         
Other income(expense)         
     Interest income  33,870,851   2,455,770   563,502   544  
     Interest expense  (488,277,745 )  (181,974,055 )  (404,848,608 )  (391,120 ) 
     Foreign exchange gain, net  (7,060,198 )  (690,769 )  133,300   129  
     Other, net  (1,249,115,693 )  (461,140,940 )  (180,761,770 )  (174,632 ) 
                 
     Total other income(expense)  (1,710,582,785 )  (641,349,994 )  (584,913,576 )  (565,079 ) 
                 
Minority interest in net loss of consolidated affiliates  -   -   (1,319,035 )  (1,274 ) 
                 
Income (loss) before income taxes  (3,608,157,570 )  (2,151,672,074 )  (2,055,828,322 )  (1,986,116 ) 
                 
Income taxes  -   -   -   -  
                 
Net Income (loss)  (3,608,157,570 )  (2,151,672,074 )  (2,055,828,322 )  (1,986,116 ) 
                   
         
Net loss per common share         
     - Basic  (219 )  (119 )  (93 )  (0.089 ) 
                 
     - Diluted  (219 )  (119 )  (93 )  (0.089 ) 

The accompanying notes are an integral part of these Consolidated Financial Statements.

Meridian Co., Ltd.
Consolidated statement
of changes in shareholder's equity
For the years ended December 31, 2002, 2003 and 2004
(in Korean Won)

          Accumulated    
  Common Stock Issued   Additional    Other    
      Paid-in  Accumulated   Comprehensive    
  Shares  Amount   Capital  Deficit   Income (Loss)   Total  
                         
Balance at December 31, 2001  15,899,875  3,179,975,000   886,083,841  (3,648,334,734 )  -   417,724,107  
Issuance of common shares  1,282,708  256,541,600   91,638,400      348,180,000  
Net Income (loss)        (3,608,157,570 )    (3,608,157,570 ) 
Other comprehensive income (loss):          (31,974,847 )  (31,974,847 ) 
     Foreign currency translation gain (loss)           -  
Others      5,186,556      5,186,556  
                         
                         
Balance at December 31, 2002  17,182,583  3,436,516,600   982,908,797  (7,256,492,304 )  (31,974,847 )  (2,869,041,754 ) 
Issuance of common shares  1,968,901  393,780,200         393,780,200  
Net Income (loss)        (2,151,672,074 )    (2,151,672,074 ) 
Other comprehensive income (loss):          26,373,551    
     Foreign currency translation gain (loss)                 -  
                         
                         
Balance at December 31, 2003  19,151,484  3,830,296,800   982,908,797  (9,408,164,378 )  (5,601,296 )  (4,600,560,077 ) 
Reduction of capital stock    (1,915,148,400 )  1,915,148,400      -  
Issuance of common shares  10,842,500  1,084,250,000   826,853,065       
Net Income (loss)        (2,055,828,322 )    (2,055,828,322 ) 
Other comprehensive income (loss):             
     Foreign currency translation gain (loss)         3,566,310   3,566,310  
                         
Balance at December 31, 2004  29,993,984  2,999,398,400   3,724,910,262  (11,463,992,700 )  (2,034,986 )  (4,741,719,024 ) 
                         
(Note 3) (in U.S. Dollar)             
Balance at December 31, 2003  19,151,484    $3,700,412   $949,578    ($9,089,135 )  ($5,411 )  ($4,444,556 ) 
Reduction of capital stock    (1,850,206 )  1,850,206      -  
Issuance of common shares  10,842,500  1,047,483   798,815      1,846,298  
Net Income (loss)        (1,986,116 )    (1,986,116 ) 
Other comprehensive income (loss):             
     Foreign currency translation gain (loss)         3,445   3,445  
                         
Balance at December 31, 2004  29,993,984  2,897,689   3,598,599  (11,075,251 )  (1,966 )  (4,580,929 ) 

The accompanying notes are an integral part of these Consolidated Financial Statements.

Meridian Co., Ltd.
Consolidated statements of cash flows
For the years ended December 31, 2002, 2003 and 2004
(in Korean Won)

           (Note 3)  
  2002   2003   2004   2004 (in USD)  
CASH FLOWS FROM OPERATING ACTIVITIES :         
     Net income (loss)  (3,608,157,570 )  (2,151,672,074 )  (2,055,828,322 )  ($1,986,116 ) 
     Add (deduct) items not using (providing) cash         
         Depreciation  156,129,739   153,923,984   61,790,155   59,695  
         Provision for severance benefits  111,670,769   75,101,496   51,222,136   49,485  
         Provision for doubtful accounts  1,870,482,079   1,464,577,793   (16,629,671 )  (16,066 ) 
         Inventory write-down due to decline in market value  -   4,992,000   98,491,235   95,151  
         Amortization of intangible assets  -   546,626   546,626   528  
         Valuation loss using equity method  21,642,309   25,910,007   2,002,543   1,935  
         Other  348,180,000   -   51,011,409   49,282  
     Changes in operating assets and liabilities, and other         
         Decrease (increase) in accounts receivable - trade  421,880,269   (301,663,358 )  (41,181,993 )  (39,786 ) 
         Decrease (increase) in accounts receivable - other  (66,152,505 )  (1,362,740 )  (7,443,975 )  (7,192 ) 
         Decrease (increase) in inventory  379,860,453   (10,754,100 )  44,172,990   42,675  
         Decrease (increase) in other current assets  66,699,457   10,636,649   (150,603,391 )  (145,496 ) 
         Increase (decrease) in accounts payable - trade  (452,603,345 )  36,902,587   93,059,052   89,903  
         Increase (decrease) in accounts payable - other  441,109,491   282,868,152   199,035,446   192,286  
         Increase (decrease) in other current liabilities  (1,150,140 )  (166,687,764 )  158,039,246   152,680  
         Retirement and severance payment  (236,345,021 )  (73,901,562 )  (38,261,718 )  (36,964 ) 
         Other  57,881,066   96,376,231   11,124,550   10,747  
                           Sub-total  3,119,284,621   1,597,466,001   516,374,640   498,864  
                 
  (488,872,949 )  (554,206,073 )  (1,539,453,682 )  (1,487,251 ) 
                 
CASH FLOWS FROM INVESTING ACTIVITIES :         
     Decrease in short-term financial instruments  879,795,257   222,500,000   -   -  
     Decrease in short-term loans  -   23,500,000   28,783,968   27,808  
     Decrease in long-term financial instruments  92,500,000   -   -   -  
     Proceedd from sales of investment securities    2,612,000     -  
     Proceeds from sales of property, plant and equipment  29,086,964   28,171,609   3,442,824   3,326  
     Increase in short-term loans  (210,526,062 )  (384,608,871 )  (1,453,654 )  (1,404 ) 
     Acquisition of property, plant and equipment  (58,923,271 )  (11,084,762 )  (14,564,902 )  (14,071 ) 
     Cash held by former subsidiaries    6,461,718      
     Changes in investments and other assets, and other  (80,753,240 )  26,295,681   (1,492,414 )  (1,442 ) 
                 
  651,179,648   (86,152,625 )  14,715,822   14,217  
                 
CASH FLOWS FROM FINANCING ACTIVITIES :         
     Proceeds from issuance of common stocks  -   393,780,200   1,170,968,800   1,131,262  
     Proceeds from issuance of short-term borrowings  197,105,010   1,414,254,438   756,898,530   731,232  
     Repayment of short-term borrowings  -   (849,898,501 )  (398,290,430 )  (384,784 ) 
     Repayment of current portion of long-term debt  (328,595,000 )  (142,068,662 )  -   -  
     Repayment of long-term borrowings  -   (291,062,577 )  -   -  
                 
  (131,489,990 )  525,004,898   1,529,576,900   1,477,709  
                 
NET INCREASE (DECREASE) IN CASH  30,816,709   (115,353,800 )  4,839,040   4,675  
                 
CASH AT BEGINNING OF THE PERIOD  121,829,289   152,645,998   37,292,198   36,028  
                 
CASH AT END OF THE PERIOD  152,645,998   37,292,198   42,131,238   40,703  

The accompanying notes are an integral part of these Consolidated Financial Statements.


1. Going Concern

Meridian Co., Ltd. (the "Company") was incorporated on April 19, 1994 under the laws of the Republic of Korea ("Korea") and is currently engaged in the manufacture of alternative medical equipment for sale in domestic and overseas markets.

The Company has suffered recurring losses and negative cash flows from operations since inception and has current liabilities which significantly exceed its current assets that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

For the fiscal year ended December 31, 2004, the Company incurred a net loss of (won) 2,055,828 thousand ((won) 2,151,672 thousand for 2003 and (won) 3,608,158 thousand for 2002) and net negative cash flow from operating activities of (won) 1,539,454 thousand ((won) 554,206 thousand for 2003 and (won) 488,873 thousand for 2002). On August 4, 2003, the Company's banking privileges were suspended on its accounts of credit/bill by the KFTC (Korea Financial Telecommunications & Clearings Institute), which was established as a non-profit organization to build up and operate the Financial Information Network Systems (FINS) by integrating the Korea Clearing & Credit Reporting Center in charge of check clearing systems and the Korea Bank Giro Center in charge of bank giro systems.

Subsequently on February 27, 2004, the Company received approval for a debt rescheduling plan for a total of (won) 4,697,927 thousand from the Chooncheon District Court, Korea, whereby a group of creditors of the Company and a representative of the Company agreed to reschedule the payments on (won) 4,697,927 thousand of the Company's debt which constitute approximately 68% of the total outstanding accounts payable and borrowings of the Company. An application for the rescheduling plan was subsequently filed with Chooncheon District Court and approved by the court on the same day. The group of creditors who have agreed to the debt rescheduling includes the following (in thousand of Korean won).

Creditor    Amount of debt rescheduled 
Woori Bank    391,787 
SMI II UABS Specialty Co., Ltd    1,000,000 
Rainbow Specialty Securitization Co., Ltd    500,000 
Korea Technology Credit Guarantee Fund    1,151,884 
Small Business Corporation    300,000 
Korea Foreign Exchange Bank    125,831 
Shinhan Bank    41,612 
Other    1,186,813 
     
Total    4,697,927 

Of the (won) 4,697,927 thousand, (won) 34,200 thousand is secured debt to a financial institution and will now be repaid over 7 years from 2007 to 2013; the Company will be exempt from paying interest already accrued, and future interest will accrue at 3.5% interest per annum. Of the (won) 4,697,927 thousand, (won) 813,933 thousand due to financial institutions is unsecured and will be repaid over 5 years from 2006 to 2010. The Company will be exempted from paying interest already accrued, and the future interest will accrue at the rate of 5% per annum. Accounts payable due to parties other than financial institutions will be repaid over 3 years from January 2005 to December 2007 and will be exempt from paying any interest.

Progress on the execution of the plan will be reported to Chooncheon District Court, Korea every quarter. Except for this, there are no further obligations relating to debt rescheduling to the court. . The court does not have any authorities such as having the Company cease operations and liquidate the assets. The Company does not need to get an approval from the court when additionally borrowing from financial institutions. The new borrowing of the company depends on the Company's credit evaluated by the creditors. Above arrangement do not allow the creditors obtaining new common shares or other rights in respect of management or strategic control.

The Company believes that future shares issuance, launch of new merchandise and certain sales related efforts will provide sufficient cash flow for it to continue as a going concern in its present form. However, there can be no assurances that the Company will achieve such results. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

2. Summary of Significant Accounting Policies

The parent company and its subsidiary in Korea maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Korea. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States of America.

Significant accounting policies after reflecting adjustments for the above are as follows:

Basis of Consolidation

The consolidated financial statements include the accounts of the parent company and its subsidiaries. All significant inter-company transactions and accounts have been eliminated. Investments in affiliated companies in which Meridian exercises significant influence, but which it does not control, are stated at cost plus equity in undistributed earnings. Consolidated net income includes Meridian’s equity in current earnings of such companies, after elimination of unrealized inter-company profits.

Changes of Consolidated Subsidiary

The consolidated financial statements include the accounts of the Company and its subsidiaries. The following table reflects the Company's ownership percentages and acquisition dates of its consolidated subsidiaries as at December 31, 2002, 2003 and 2004:

        Acquisition    Percentage ownership
Subsidiary    Primary Business    Date    2002   2003   2004
Meridian America    wholesaler, retailer of    March 4, 2002    100%   100%   95.06%
Medicals, Inc.    medical equipment         
Pusan Meridian Inc    ”   March 3, 2000    54.5%   -   -

Translation of Foreign Currencies

The Company maintains its books of accounts in Korean Won. Transactions involving foreign currencies are recorded in the accounts at the exchange rate prevailing at the time the transactions are made. Assets and liabilities denominated in foreign currencies are translated into Korean Won at exchange rates in effect at year-end. The resulting foreign currency exchange gains/losses are credited/charged to current operations.

The exchange rates we used in this report were announced by The Korea Financial Telecommunications & Clearings Institute as basic rates.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. The most significant estimates and assumptions relate to the allowance for doubtful accounts, inventory write-down due to decline in market value and deferred tax valuation allowance. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates.

Revenue recognition

Product and merchandise revenues are recognized upon shipment or delivery to the purchaser and when all significant contractual obligations have been satisfied and collection is reasonably assured. Revenues from software sales contracts are recognized upon delivery and when collection is reasonably assured. The Company's software sales contract does not provide for significant production, modification or customization work to the software after sale. Service fees are recognized when delivered in accordance with all terms and conditions of customer contracts, upon acceptance by the customer, and when collection is reasonably assured. The Company's contracts generally provide for return of products within three months from the date of sales. The Company's past experience indicates that returns are negligible, less than 1% of total sales, and accordingly the Company does not provide an allowance for returned products.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments, including time deposits and short-term bonds which are readily convertible into known amounts of cash and have an original maturity of three months or less.

Financial Instruments

Long-term financial instruments are time deposit handled by financial institutions, which are restricted for withdrawals. The time deposit as of December 31, 2003 and 2004 is (won) 40,064 and (won) 40,454 thousand, respectively. In addition, the company has special deposit for the security of its checking account.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection.

Value - Added Taxes

Under the Korean value-added tax ("VAT") law, the Company pays a 10% VAT on each purchase of VAT-taxable goods or services("input

tax") and collects VAT from its customers equal to 10% of revenue("output tax"). The net amount is recorded as prepaid value-added taxes, if the input tax is greater than the output tax. However, if the output tax is greater than the input tax, the net amount is recorded as a current liability.

Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling cost. The cost of inventories is determined on the specific identification method for materials in transit and on the average cost method for all other inventories.

Investments in Affiliates

Investments in affiliated companies owned 20% or more or over which the Company has significant management control are stated at an amount as determined using the equity method.

Under the equity method of accounting, the Company’s initial investment is recorded at cost and is subsequently increased to reflect the Company’s share of the investee income and reduced to reflect the Company’s share of the investee losses or dividends received. Any excess in the Company’s acquisition cost over the Company’s share of the investee’s identifiable net assets is considered as goodwill.

Losses that reduce the investment below zero are applied against any long-term interests that, in substance, form part of the investor’s net investment in the affiliate; for example, preference shares and long-term receivables and loans.

Concentrations of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash. The Company maintains cash accounts at two financial institutions. The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions, thereby minimizing exposure for deposits in excess of federally insured amounts. The Company believes that credit risk associated with cash is remote.

Credt risk associated with trade accounts receivable arises from the potential for customers and other debtors to default on their contractual obligations to the Company. The Company does not anticipate customers and other debtors will default on their obligations to any greater extent than that currently provided for. The Company limits its credit risk by granting credit only to customers and other debtors that are considered to be of high quality.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred.

Depreciation is computed by the declining-balance method (buildings, structures: straight-line method) using rates based on useful lives of the respective assets as follows:

  Useful lives (years) 
Buildings  40 
Structures  20 
Machinery and equipment  8 
Tools  4 
Furniture and fixtures  4 
Vehicles  4 

The Company reviews for the impairment of property, plant and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Intangible Assets

Intangible assets, which consist of patents and trademarks, are stated at cost less accumulated amortization computed using the straight-line method over their estimated useful lives of 10 years.

Retirement and Severance Benefits

Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company's estimated liability under the plan which would be payable if all employees left

on the balance sheet date is accrued in the accompanying balance sheets.

Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefit amount to be payable to the employees when they leave the Company and is accordingly reflected in the accompanying financial statements as a reduction from the retirement and severance benefit liability. Since April 1999, however, a new regulation applies and such transfers to the National Pension Fund are no longer required.

Research and Development Costs

Certain costs incurred in connection with the purchase of equipment and facilities used in the Company’s research and development activities are capitalized into property, plant and equipment, to the extent that they have alternative future uses. However, all other research and development costs are expensed as incurred. The Company has expensed (won) 470,792 thousand, (won) 57,378 thousand and (won) 183,567 thousand during the years ended December 31, 2002, 2003 and 2004, respectively.

Advertising costs

The Company expenses advertising costs as they are incurred. Advertising expense for the years ended December 31, 2002, 2003 and 2004 are (won) 78,176 thousand, (won) 53,042 thousand and (won) 30,749 thousand, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Earnings (Loss) Per Share

In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share (SFAS 128), which established new standards for computing and presenting earnings per share effective for fiscal years ending after December 15, 1997.

With SFAS 128, primary earnings per share is replaced by basic earnings per share, which is computed by dividing income available to common shareholders by the weighted average number of shares outstanding for the period. In addition, SFAS 128 requires the presentation of diluted earnings per share, which includes the potential dilution that could occur if dilutive securities were exercised or converted into common stock. The computation of diluted EPS does not assume the conversion or exercise of securities if their effect is anti-dilutive. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible loan notes and special warrants (using the if-converted method) and incremental shares issuable upon the exercise of stock options and share purchase warrants (using the treasury stock method).

Stock Option Plan

The Company applies the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its fixed stock option plan. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS 123 "Accounting for Stock-Based Compensation" established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, the Company elected to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirement of SFAS 123.

The Company has adopted the disclosure-only provisions of SFAS 123. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date consistent with the provisions of SFAS123, the Company's net loss and loss per share for 2003 would have been increased to the pro forma amounts indicated below (in Korean won):

    2004   
  Net income (loss)     
     As reported  (-) 2,057,147,357   
     Pro forma  (-) 2,068,339,483   
  Basic earnings per share     
     As reported  (-) 93   
     Pro forma  (-) 93   

The fair value of stock options granted were estimated on the dates of grant using the Black-Scholes option pricing model with the following assumptions:

dividend yield and expected volatility of nil for all years, risk-free interest rate of 5.64% to 9% and expected lives of 4 years. The weighted average fair value per stock option granted during 2000 and 2001 was (won) 295 and (won) 607 respectively.

New accounting pronouncements

In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”). The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. In FASB Staff Position on EITF 03-1, the Board directed the FASB staff to delay the effective date for the measurement and recognition guidance contained in EITF 03-1. The disclosure requirements are effective only for annual periods ending after June 15, 2004. The Company does not believe that the impact of adopting EITF 03-1 will be significant to the Company’s overall results of operations or financial position.

In December 2004, the Financial Accounting Standards Board issued Statement No. 123R (SFAS 123R), Share-Based Payment , which replaces SFAS 123 and APB 25 and requires the Company to measure compensation cost for all share-based payments at fair value. The Company plans to adopt SFAS 123R as of July 1, 2005. The Company will recognize share-based employee compensation cost from July 1, 2005, as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and for any awards that were not fully vested as of the effective date. Based on currently existing share-based compensation plans, the Company does not expect the adoption of SFAS 123R to have a material impact on its financial position or results of operations.

3. United States Dollar Amounts

The Company operates primarily in Korea and its financial accounting records are maintained in Korean Won. These translations should not be construed as a representation that the Korean Won amounts shown could be converted, realized or settled in US dollars at this or any other rate. The US dollar amounts are provided herein as supplemental information solely for the convenience of the reader. Korean Won amounts are expressed in US dollars at the rate of (Won) 1,035.1: US$1, the US Federal Reserve Bank of New York noon buying exchange rate in effect on December 31, 2004. The US dollar amounts are unaudited and are not presented in accordance with generally accepted accounting principles in either Korea or the United States of America.

4. Short term loans receivable

Short-term loans receivable as of December 31, 2003 and 2004 are as follows (in thousands of Korean won):

      Interest      
  Maturity year  rate   2003   2004  
             
Sales Agent  -    -   -   43,387  
Others  2005    0%   128,322   39,245  
      128,322   82,632  
Allowance for doubtful accounts      (65,526 )  (26,970 ) 
Net      62,796   55,662  

5. Accounts Receivable

The following table presents accounts receivable at December 31, 2003 and 2004 (in thousands of Korean won):

Account    2003   2004  
Trade    2,287,978   1,002,250  
Others    158,211   71,912  
           
Sub total    2,446,189   1,074,162  
Allowance for doubtful accounts    (1,960,499 )  (543,412 ) 
Accounts Receivable, net    485,690   530,750  

6. Inventories

Inventories comprise the following at December 31, 2003 and 2004 (in thousands of Korean Won):

  2003    2004 
Merchandise  243,651    297,888 
Finished goods  175,259    105,395 
Work-in-process  169,609    125,293 
Raw material  250,141    167,420 
  838,660    695,996 

Merchandise consists of medical equipment, medical supplies and electronic equipment purchased and held for resale by the Company. Finished goods are comprised principally of oriental and alternative medical equipments manufactured by the Company.

7. Other Current Assets

Other current assets as of December 31, 2003 and 2004 are as follows (in thousands of Korean won):

Account    2003    2004 
Advanced payment    30,031    180,897 
Prepaid income taxes    7,980    69 
Prepaid expenses    -    3,653 
Other    -    3,996 
Total    38,011    188,615 

8. Investments in Nonconsolidated Affiliates

The Company accounts for investments in which it exerts significant influence over using the equity method. The Company’ ownerships as of December 31, 2003 and 2004 are as follows:

  2003   2004
Beijing Meridian Medicals Equipment Co.,Ltd  25.00%   25.00%

On November 10, 2001, the Company acquired 45% of the share ownership in Beijing Meridian Medicals Equipment Co., Ltd. ("Beijing Meridian") for (won) 76,955,623 in cash. The changes of ownership percentage occurred in 2003 and 2002 when Beijing Meridian increased its issued capital stock. The carrying amounts of investments as of December 31, 2003 and 2004 are as follows (in thousands of Korean won):

  2003    2004 
Beijing Meridian Medicals Equipment Co.,Ltd  22,635    13,401 

9. Pledge Assets

The following assets are pledged as collateral for short-term borrowings as of December 31, 2004 (in thousands of Korean won):

Assets    Book value    Lender    Collateralized amount 
Land    928,107    ChoHung Bank    520,000 
Buildings    688,533    ChoHung Bank and Woori Bank    568,000 
    1,616,640        1,088,000 

10. Property, Plant and Equipment

Property, plant and equipment comprise the following at December 31, 2003 and 2004 (in thousands of Korean won):

  2003   2004  
Land  928,107   928,107  
Buildings  693,733   693,733  
Machinery  49,716   49,716  
Vehicles  58,216   54,773  
Tools  47,900   47,900  
Furniture and fixtures  779,257   793,822  
         
      Less accumulated depreciation  (1,014,593 )  (1,076,383 ) 
Property, plant and equipment, net  1,542,336   1,491,668  

Depreciation expenses for the years ended December 31, 2002, 2003 and 2004 are (won) 156,130 thousand, (won) 153,924 thousand and (won) 61,790 thousand.

11. Intangible Assets

Intangible assets comprise the following at December 31, 2004 (in Korean won):

  Patents and trademarks 
Acquisition cost  5,466,260 
Accumulated amortization  3,995,648 
Intangible assets, net  1,470,612 

Amortization expenses for the year ended December 31, 2004 amounted to (won) 546,626.

12. Short-Term Borrowings

Details of Company’s short-term borrowings as of December 31, 2003 and 2004 are as follows (in thousands of Korean won):

  Annual        
  interest rate   2003    2004 
Creditor         
Chohung Bank  5.0%   977,615    977,714 
Medison Co.,Ltd  -   1,216    1,216 
Other  -   495,625    114,000 
    1,474,456    1,092,930 

13. Long-Term Debt

Details of Company’s long-term debts as of December 31, 2003 and 2004 are as follows (in thousands of Korean won):

  Annual        
  interest rate   Final maturity  2003  2004 
Creditor         
Chohung Bank  5.0%   December 31, 2004  96,741  96,741 
Korea Technology Credit Guarantee Fund  3.5%   December 31, 2013  1,120,810  1,151,884 
Korea Foreign Exchange Bank  3.5%   December 31, 2013  125,831  125,831 
Woori Bank  3.5%   December 31, 2013  391,787  391,787 
Small/Medium Industrial Bank  3.5%   December 31, 2013  300,000  300,000 
Shinhan Bank  3.5%   December 31, 2013  41,612  41,612 
SMI ‡UABS Specialty Co., Ltd (note a)  3.5%   December 31, 2013  1,000,000  1,000,000 
Rainbow Specialty Sec Co., Ltd (note a)  3.5%   December 31, 2013  500,000  500,000 
               
Less portion due within one year        (-) 96,741    (-) 96,741 
Long-term portion      3,480,040  3,511,115 

In accordance with a court-approved rescheduling plan, the above rescheduled long-term borrowings are to be repaid over 10 years beginning 2007 to 2013, after a 3-year grace period.

(Note a) The Company had issued two series of non-guaranteed corporate bonds in 2001. As discussed in Note 1, the Company received an approval for debt rescheduling plan including debentures. According to that approval, two series of debentures were reclassified to long-term borrowings and the Company extended the maturity date of those long-term borrowings to December 31, 2013 with a reduced interest rate (3.5% per annum). Details of debentures (reclassified to long-term debt) as of December 31, 2004, are as follows (in thousands of Korean Won):

    Rescheduled  Original 
  Amount  Interest rate   maturity    Interest rate   Maturity 
1st debentures  1,000,000  3.5%   December 31, 2013    12.15%   January 31, 2003 
2nd debentures  500,000  3.5%   December 31, 2013    13.92%   August 14, 2004 

The repayment schedule for long-term debts as of December 31, 2004 is as follows (in thousands of Korean Won):

2005    2006    2007    2008    Thereafter 
96,741    6,844    503,543    503,543    2,497,184 

14. Retirement and Severance Benefits

Changes in retirement and severance benefits for the years ended December 31, 2003 and 2004 are summarized as follows (in Korean won):

  2003  2004 
Estimated severance liability at beginning of year  279,276,661  265,480,042 
Provision  75,101,496  51,222,136 
Payments  (-) 73,901,562    (-) 38,261,718 
Belonged to formal subsidiary  (-) 14,996,553  - 
Transfer to National Pension Fund  (-) 20,934,247    (-) 20,607,547 
       
(-) Less current portion  76,018,377  113,059,144 
Net balance at end of year  168,527,418  144,773,769 

15. Shareholder’s Equity

The Company’s capital stock consists entirely of common stock with a par value of (won) 100 and the number of authorized, issued and outstanding shares as of December 31, 2003 and 2004 are as follows (in Korean won):

  2003    2004 
Authorized shares  50,000 thousand    50,000 thousand 
Issued and outstanding shares  19,151 thousand    29,994 thousand 
Par value  200    100 

At an extraordinary general meeting of shareholders of the Company, on April 27, 2004, it was approved that the par value of the common stock of the Company be reduced from (won) 200 per share to (won) 100 per share. The new par value was registered with the Korean registrar of companies on June 1, 2004 and was effective as of July 1, 2004. As a result, the Company’s capital stock was changed from (won) 3,830,297 thousand to (won) 1,915,148 thousand.

On June 8, 2004, the Company issued 3,312,500 shares of common stock (par value won 100) at won 183.49 per share for cash. The stock issued is restricted from trading for one year.

On October 21, 2004, the Company experienced debt-for-equity swap. As a result, the Company issued 4,230,000 shares of common stock at won 174.97.

On November 24, 2004, the Company issued 3,300,000 shares of common stock (par value won 100) in exchange for investor relations and marketing services with the fair value to the Company of won 563,164,800. The shares issued were valued at the trading price of the company's common stock as of the date of authorization for the issuance.

The Company legally has issued its shares and complied with the filing requirements pursuant to the SEC regulations. 12,485,159 common shares issued through S-8 registrations, for acquisition of By George Holdings and debt-for-equity swap on October 21, 2004 Corp. have not been yet included in the Korean Commercial Registration Office due to the different requirements of the share issuance between the US and

Korean Commercial Laws. The numbers of outstanding shares and capital stock as of December 31, 2004 in SEC and in Korean Commercial Registration Office are as follows (in thousands of Korean won, except for number of outstanding shares):

      Korean Commercial 
  SEC    Registration Office 
Number of outstanding shares  29,993,894    17,508,825 
Capital Stock  2,999,389    1,750,883 

However, the right and interest of the holders of these shares are not different from those of other shareholders.

16. Appropriation for Business Rationalization

The Company has appropriated (won) 267,608,937 of retained earnings for future investment and business rationalization. The appropriation was a legal requirement in Korea until 2001 when the applicable statute was repealed. There are presently no restrictions on the use of the appropriation.

17. Contingencies and Commitments:

As of December 31, 2004, the Company is contingently liable for promissory notes of (won) 9,010 thousand guaranteed to banks for consumers' loan. The Company's management believes that, based upon its past history of similar transactions, the possibility of the consumer's defaults on the bank-loan is remote.

18. Selling, General and Administrative Expenses

Details of selling, general and administrative expenses for the years ended December 31, 2003 and 2004 are as follows (in Korean won):

  2003    2004 
Salaries  559,840,321    552,666,633 
Provision for retirement and severance benefits  39,775,276    33,175,384 
Other employee benefits  85,822,375    74,597,350 
Travel  19,551,365    9,947,114 
Entertainment  26,450,872    3,845,815 
Advertising  53,041,650    30,749,116 
Research and development  57,378,180    183,567,322 
Communications  25,236,125    21,964,125 
Commissions and fees  1,014,455,776    1,170,015,502 
Insurance  5,561,016    9,104,835 
Transportation  73,018,763    66,733,649 
Depreciation  134,434,884    21,991,546 
Amortization  546,626    546,626 
Taxes and dues  31,569,878    41,528,220 
Bad debt expenses  1,073,100,085    - 
Rent  94,174,610    83,108,735 
Miscellaneous  166,645,888    158,122,839 
       
         Total  3,460,603,690    2,461,664,811 

19. Income Taxes

Income (loss) before income taxes and tax provision comprises the followings (in thousands of Korean won):

  2002  2003  2004 
Income (loss) before income taxes  (-) 3,608,158    (-) 2,151,672    (-) 2,057,147 
Income taxes – Current  -  -  - 
Income taxes – Deferred  -  -  - 
           
Total income taxes  -  -  - 

The Company is subject to corporate income tax and resident surtax normally at an aggregate rate of 14.3% on taxable income up to (won) 100,000,000 and 27.5% on taxable income over that amount. However, there was no income taxes-current because of consecutive accumulative deficits for tax purposes as of December 31, 2002, 2003 and 2004.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets (liabilities) as of December 31, 2003 and 2004 are as follows (in thousands of Korean won):

  2003  2004 
Temporary differences  1,396,048  1,088,245 
Tax credit carry forwards  1,198,609  1,971,580 
Net loss carry forwards for tax purpose  315,212  315,212 
Total deferred income tax assets (liabilities)  2,909,869  3,375,037 
Less – Valuation allowance for deferred tax assets  (-) 2,909,869    (-) 3,375,037 
       
Net deferred tax assets (liabilities)  -  - 

As of December 31, 2004, the Company has net operating loss carryforwards for income tax purposes, tax credit carryforwards and deductible accumulated temporary differences as showed above table. Realization of the future tax benefits related to the deferred tax asset is dependent on many factors, including the Company’s ability to generate taxable income within the period during which the temporary differences reserves, the outlook for the Korean economic environment and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion and has determined that valuation allowance was required as of December 31, 2004 and 2003. Therefore, the management concluded that 100% of valuation allowance is recorded in the Company’s financial statements with the reason for the remote possibility to generate future taxable income within the period during which the all temporary differences reserve due to the continuing loss from its inception.

20. Stock Options

Under the Company's Articles of Incorporation, the Company's Board of Directors may grant stock options to officers and key employees. The maximum aggregate number of shares available for issuance under the Stock Option Plan may not exceed 50% of the total number of shares outstanding. Stock options may not be granted to all officers and employees at the same time. Any single officer or employee may not be granted stock options for shares exceeding 10% of shares issued and outstanding.

Stock options granted under the Stock Option Plan will have a minimum exercise price equal to the arithmetic mean of (i) the weighted average of the daily market prices for the two-month period prior to the date of grant, (ii) the weighted average of the daily market prices for the one-month period prior to such date, (iii) the weighted average of the daily market prices for the one-week period prior to such date. When new shares are issued upon the exercise of the stock options, the option exercise price shall not be less than the greater of the market price of shares valued as of the date of the grant or the par value of the shares concerned.

Details of stock option rights granted by the Company as of December 31, 2004, are presented below (in Korean won):

Grant    Options    Type of stock    Exercise    Fair    Service    Exercisable 
date    Outstanding    Options    Price    Value    Period    Period 
February        Issuance of            February, 2000    February, 2003 
23, 2000    322,625    common stock    500    295    to January, 2003    to January, 2007 
                         
                         
March        Issuance of            March, 2001    March, 2004 
19, 2001    258,825    common stock    340    607    to February, 2004    to February, 2008 
    581,450                     

21. Earnings (loss) Per Share

Earnings (loss) per share is computed by dividing net income by the weighted-average number of shares outstanding during the year.

Diluted earnings (loss) per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period. The Company has any potentially dilutive common shares as of December 31 2003 and 2004, however there was no dilutive effects as of December 31, 2002, 2003 and 2004. Therefore, earnings per share is the same as diluted earnings per share.

Earnings (loss) per share for the years ended December 31, 2002, 2003 and 2004 are calculated as follows (in thousands of Korean won, except for per share amount and number of shares):

  2002  2003  2004 
Net income (loss) as reported       
   on the income statements  (-)3,608,158    (-)2,151,672    (-)2,057,147 
Weighted-average number       
   of common shares outstanding  16,472,700  18,094,211  22,199,701 
Earnings (loss) per share  (-)219    (-)119    (-)93 

22. Related Party Transactions

Significant transactions and account balances which occurred in the normal course of business with related companies, Beijing Meridian Medicals Equipment Co., Ltd and Meridian Asia Co., Ltd. as of and for the years ended December 31, 2003 and 2004 are summarized as follows (in thousands of Korean won):

    Transaction or             
Related party    Account balance    2003    2004    Description 
Beijing Meridian    Account receivable             
Medical Equipment    – trade    31,921    27,817     
Co., Ltd    Short-term loans    37,791    37,791     
                 
Meridian Asia  Co.,Ltd    Sales    4,091    346    Sales of product 

23. Statement of Cash Flows

(a) Transactions Not Involving Cash

Significant non-cash investing and financing activities for the year ended December 31, 2004 are summarized as follows (in thousands of Korean won):

Reduction of capital stock  1,915,148 
Debt – equity swap  740,134 

(b) Interest and Income Taxes Paid and Received

Interest and income taxes paid and received in cash for the years ended December 31, 2002, 2003 and 2004 are as follows (in thousands of Korean won):

  2002    2003    2004 
Cash paid for interest  446,234    151,799    202,198 
Cash refunded (paid) for income tax  -    -    - 
Cash received for interest  33,762    2,456    462 

24. Segment Information

In 2004, the Company operated in a one industry segment, the development and manufacture of alternative medical equipments. The Company's identifiable assets are located in one geographic area, the Republic of Korea (also known as South Korea). Sales revenue is attributable to geographic locations based on the location of the customer, as follows (in thousands of Korean won):

  2003    2004 
Export       
          U.S.A  304,577    707,917 
          South Asia  4,091    - 
          China  -    29,153 
          Other  -    946 
  308,668    738,016 
       
Domestic Sales  3,132,451    1,466,218 
  3,441,119    2,204,234 

25. Subsequent Events

On May 2, 2005, the board of directors of the Company authorized the return to treasury of 1,000,000 shares of common stock issued to Edward Fitzpatrick (the “Shares”). The Shares had been issued to Mr. Fitzpatrick pursuant to a consulting agreement entered into between Fitzpatrick and the Company, on February 5th, 2004 (the “Agreement”). The Agreement was terminated by the Company due to lack of performance by Fitzpatrick of his obligations under the Agreement, and the Shares were subsequently returned to the Company’s treasury, effected by resolution of the Company’s Board of Directors. As a result, the total outstanding shares of the Company have decreased to 28,993,984.

On June 20, 2005, the Company issued 2,400,000 shares of common stock (par value won 100) in exchange for investor relations and marketing services with the fair value to the Company of won 485,174,884. The shares issued were valued at the trading price of the company's common stock as of the date of authorization for the issuance.

26. Risk and Uncertainties

The Asia-Pacific regions, including the Republic of Korea, are experiencing economic difficulties. The recoverability of the Company's assets and ability of the Company to pay its debts as they mature are dependent to a large extent on the efficacy of the fiscal measures and other actions, beyond the Company's control, undertaken to achieve economic stability. The Company is exposed to credit risk in the event of nonperformance by financial institutions with which it conducts business. The Company minimizes exposure to such risk, however, by dealing only with major Korean banks and financial institutions.

Item 19. Exhibits

Exhibit  
12.1 Section 302 Certification of the CEO
12.2 Section 302 Certification
13.1 Section 906 Certification of the CEO
13.2 Section 906 Certification

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

By: /s/ Hyeon Seong Myeong
Name: Myeong, Hyeon Seong
Title: President, CEO, Director
Date: July 14, 2005