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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2006

[   ] 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)

3F, Poonglim Tech-one B/D, 273-10, Seongsu-Dong 2ga,
Seongdong-Gu, Seoul Korea 133-120 (Tel: 82-2-2103-3300)(Address of
principal executive offices)

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

Title of Each Class: **None**

Name of each exchange on which registered: **Not
applicable**

Securities registered or to be registered pursuant to section
12(g) of the act:

Common shares with par value(Title of Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: **None**

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, 2006: 31,393,984

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
[   ]   No [X]

If this report is an annual report or transition report,
indicate by check mark if the registrant is not required to file reports
pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
[   ]   No [X]

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
[   ]

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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer [ 
 ]        Accelerated filer [ 
 ]        Non-accelerated filer [X]

Indicate by check mark which financial statement item the
registrant has selected to follow. Item 17 [   ]   Item 18
[X]

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes [   ] No [X]

2

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TABLE OF CONTENTS

References Currency Translation

|ITEM
      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                              | 4 
|------------------------------------------------------------------------------------------------ | --
|ITEM
      2. OFFER STATISTICS AND EXPECTED TIMETABLE                                            | 4 
|ITEM
      3. KEY INFORMATION                                                                    | 4 
|ITEM
      4. INFORMATION ON THE COMPANY                                                         | 11
|ITEM
      5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                       | 16
|ITEM
      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                         | 19
|ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                  | 22
|ITEM
      8. FINANCIAL INFORMATION                                                              | 22
|ITEM
      9. THE OFFER AND LISTING                                                              | 23
|ITEM
      10. ADDITIONAL INFORMATION                                                            | 24
|ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        | 29
|ITEM
      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.                           | 29
|ITEM
      13.DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES                                   | 29
|ITEM
      14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS | 29
|ITEM
      15. CONTROLS AND PROCEDURES                                                           | 29
|ITEM
      16. [RESERVED]                                                                        | 29
|ITEM
      16A. AUDIT COMMITTEE FINANCIAL EXPERT                                                 | 29
|ITEM
      16B. CODE OF ETHICS                                                                   | 30
|ITEM
      16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                           | 30
|ITEM
      16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                       | 30
|ITEM
      16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
      PURCHASERS     | 30
|ITEM
      17. FINANCIAL STATEMENTS                                                              | 30
|ITEM
      18. FINANCIAL STATEMENTS                                                              | 31
|ITEM
      19. EXHIBITS                                                                          | 51

3

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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 $0.09
at December 29, 2006 and US $0.09 at June 29, 2007).

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, 2004, 2005 and 2006. 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. 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 29, 2006,
which was Won 930 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 June 29, 2007 the noon
buying rate was Won 922.6 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 2. OFFER STATISTICS AND EXPECTED TIMETABLE

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, 2006 and 2005 and for the
years ended December 31, 2006, 2005 and 2004 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, 2006, 2005, 2004, 2003 and 2002 are derived from the
audited consolidated financial statements of Meridian, which have been audited
by Choi, Kim and Park LLP, independent accountants (for the fiscal year ended
December 31, 2006 and 2005), by ShinHan Accounting Corporation, independent
accountants (fiscal years ended December 31, 2004 and 2003), and by SamDuk
Accounting Corporation, independent accountants (fiscal years ended December 31,
2002).

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.

4

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Meridian Co., Ltd. and Subsidiaries 
  Condensed Consolidated Statements of Operations 
  For the years ended December 31, 2006, 2005, 2004, 2003 and 2002 
  (Korean Won (W) in thousands, except per share amounts)

|                                        |   | 2002       |   |   | 2003       |   |   | 2004       |   |   | 2005       |   |   | 2006       |   |   | 2006 (in USD) |  
|--------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ------------- | -
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |               |  
|Sales                                   | W | 4,373,897  |   | W | 3,441,119  |   | W | 2,204,234  |   | W | 1,434,519  |   | W | 1,526,828  |   | $ | 1,641,750     |  
|Cost of sales                           |   | 2,379,436  |   |   | 1,490,837  |   |   | 1,214,803  |   |   | 1,099,194  |   |   | 591,819    |   |   | 636,364       |  
|Gross profit                            |   | 1,994,462  |   |   | 1,950,282  |   |   | 989,431    |   |   | 335,325    |   |   | 935,009    |   |   | 1,005,386     |  
|Operating expenses                      |   | 3,892,035  |   |   | 3,460,603  |   |   | 2,461,664  |   |   | 2,293,172  |   |   | 1,186,416  |   |   | 1,275,715     |  
|Operating loss                          |   | (1,897,574 | ) |   | (1,510,322 | ) |   | (1,472,233 | ) |   | (1,957,847 | ) |   | (251,407   | ) |   | (270,329      | )
|Other income (expense)                  |   | (1,710,582 | ) |   | (641,349   | ) |   | (584,913   | ) |   | (1,424,510 | ) |   | (83,600    | ) |   | (89,892       | )
|Minority interest in net loss of        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |               |  
|consolidated subsidiaries               |   | -          |   |   | -          |   |   | 1,319      |   |   | 32,951     |   |   | 10,260     |   |   | 11,032        |  
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |               |  
|Income (loss) before income taxes       | W | (3,608,157 | ) | W | (2,151,672 | ) | W | (2,055,827 | ) | W | (3,349,406 | ) | W | (324,747   | ) | $ | (349,189      | )
|Income taxes                            |   | -          |   |   | -          |   |   | -          |   |   | -          |   |   | -          |   |   | -             |  
|Net income (loss)                       |   | (3,608,157 | ) |   | (2,151,672 | ) |   | (2,055,827 | ) |   | (3,349,406 | ) |   | (324,747   | ) |   | (349,189      | )
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |               |  
|Weighted average number of common       |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |               |  
|shares                                  |   | 16,472,700 |   |   | 18,094,211 |   |   | 22,199,701 |   |   | 31,603,847 |   |   | 31,393,984 |   |   | 31,393,984    |  
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |               |  
|Basic and diluted loss per common share | W | (219       | ) | W | (119       | ) | W | (93        | ) | W | (106       | ) | W | (10        | ) | $ | (0.011        | )

Condensed Consolidated Balance Sheets 
  As of December 31, 2006, 2005, 2004, 2003, and 2002 
  (Korean Won (W) in thousands)

|                                        |   | 2002       |   |   | 2003       |   |   | 2004       |   |   | 2005       |   |   | 2006       |   |   | 2006(1)(in USD) |  
|--------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | --------------- | -
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|Cash and cash equivalents               | W | 159,825    |   | W | 37,292     |   | W | 42,131     |   | W | 22,967     |   | W | 2,387      |   | $ | 2,566           |  
|Accounts receivable                     |   | 1,315,325  |   |   | 548,485    |   |   | 586,411    |   |   | 368,226    |   |   | 453,747    |   |   | 487,899         |  
|Inventories                             |   | 872,074    |   |   | 838,660    |   |   | 695,996    |   |   | 488,455    |   |   | 371,209    |   |   | 399,149         |  
|Other current assets                    |   | 390,455    |   |   | 38,011     |   |   | 188,614    |   |   | 1,749      |   |   | 21,337     |   |   | 22,943          |  
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|Total current assets                    |   | 2,737,679  |   |   | 1,462,448  |   |   | 1,513,152  |   |   | 881,397    |   |   | 848,680    |   |   | 912,557         |  
|Property, plant and equipment, net      |   | 1,793,937  |   |   | 1,542,335  |   |   | 1,491,667  |   |   | 23,804     |   |   | 16,546     |   |   | 17,791          |  
|Investments and other assets            |   | 239,076    |   |   | 170,398    |   |   | 162,109    |   |   | 50,636     |   |   | 104,792    |   |   | 112,678         |  
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|TOTAL ASSETS                            | W | 4,770,692  |   | W | 3,175,181  |   | W | 3,166,928  |   | W | 955,837    |   | W | 970,018    |   | $ | 1,043,026       |  
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|Trade accounts payable and current debt | W | 5,965,714  |   | W | 4,000,839  |   | W | 3,297,536  |   | W | 3,669,845  |   | W | 5,085,477  |   | $ | 5,468,251       |  
|Long-term borrowings                    |   | 1,732,840  |   |   | 3,774,904  |   |   | 4,591,176  |   |   | 5,072,441  |   |   | 3,984,116  |   |   | 4,283,995       |  
|Minority interest                       |   | -          |   |   | -          |   |   | 19,936     |   |   | -          |   |   | -          |   |   | -               |  
|Shareholders' deficiency                |   | (2,927,858 | ) |   | (4,600,560 | ) |   | (4,741,719 | ) |   | (7,786,449 | ) |   | (8,099,575 | ) |   | (8,709,220      | )
|                                        |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|TOTAL LIABILITIES AND                   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |   |   |                 |  
|SHAREHOLDERS' DEFICIENCY                | W | 4,770,692  |   | W | 3,175,181  |   | W | 3,166,928  |   | W | 955,837    |   | W | 970,018    |   | $ | 1,043,026       |  

(1) For convenience, the Korean Won amounts are expressed in
U.S. dollars at the rate of (Won) 930.0 to US$ 1.00, the noon buying rate in
effect on December 29, 2006 as quoted by the Federal Reserve Bank of New York.
This translation should not be construed as a representation that the Korean Won
amounts represent, have been or could be converted to U.S. dollars at that rate
or any other rate.

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.

AT DECEMBER 31
    
    
    
    ANNUAL
    
    ANNUALYEAR
    
    (Dec. 29 in 2006)
    
    ANNUAL AVERAGE RATE PER $1.00 US
    
    HIGH
    
    LOW2002
    
    1186
    
    1242.1
    
    1332
    
    1160.62003
    
    1192
    
    1193.0
    
    1262
    
    1146.02004
    
    1035.1
    
    1139.3
    
    1195.1
    
    1035.12005
    
    1010
    
    1023.8
    
    1059.8
    
    997


5

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2006
    
    930
    
    954.3
    
    1002.9
    
    913.7


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
restructuring plan for a total of 4,697,927,000 Won 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 4,697,927,000 Won of the
Company's debt.

In January 2005, Woori Bank exercised its security right on the
apartment owned by the Company. The total amount of 42,836,799 Won obtained from
disposition of the property was paid to Woori Bank: 30,271,035 Won for debt
principal, 12,565,764 Won for debt interest and other expense for the
disposition. After the disposition of this property, total amount in the debt
restructuring plan except 1,186,813 Won of accounts payable due to parties other
than financial institutions was 3,480,843,000 Won.

In December 2005, Chohung Bank (Chohung Bank has been merged in
Shinhan Bank as of April 1, 2006) exercised its security right on the land and
building of the Company which it obtained before the execution of the debt
restructuring plan. From 883,307,581 Won obtained from disposition of the land
and building, 423,186,652 Won was paid to pre-emptive creditors including
accrued wages, and 460,120,929 Won was paid to Chochung Bank for the debt
interest. The principal debt of 1,074,454,603 Won to Chohung Bank has been
included in the debt restructuring plan.

After the disposition of the land and building, total amount in
the debt restructuring plan except 1,186,813 Won of accounts payable due to
parties other than financial institutions was 4,555,298,225 Won.

The total amount of debt including principals and interests in
the restructuring plan is summarized below:

|          |   | 2007    |  |   | 2008    |  |   | 2009    |  |   | 2010    |  |   | 2011    |  |   | 2012    |  |   | 2013    |  |   | Total     | 
|--------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | --------- | 
|Principal | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,756 |  | W | 4,555,298 | 
|Interest  |   | 159,435 |  |   | 136,659 |  |   | 113,883 |  |   | 91,106  |  |   | 68,329  |  |   | 45,553  |  |   | 22,777  |  |   | 637,742   | 
|Total     | W | 810,192 |  | W | 787,416 |  | W | 764,640 |  | W | 741,863 |  | W | 719,086 |  | W | 696,310 |  | W | 673,533 |  | W | 5,193,040 | 

Note: 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. The Company, however, has not paid
882,343 thousand Won of accounts payable due to parties other than financial
institutions and 405,496 thousand Won of interest payment to financial
institutions which were due on December 31, 2006.

In June, 2004, the Company received funds of US$530,000.00 from
investors through an equity financing whereby, the Company issued 3,312,500
common shares of the Company to three non-U.S. investors at the price of US$0.16
per share.

In March 2007, the Company raised 517,000,000 Won from eighteen
non-U.S. investors for total 933,506 common shares at the price of 554 Won per
share and warrants to purchase133,358 common shares at 950 Won per share.

In June 2007, the Company raised US$350,000 from one non-U.S.
investor for 700,000 common shares at the price of US$0.50 per share.

6

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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, 2006 the Company had a net loss of 324,747 thousand
won ($349,189) and an accumulated deficit of 15,450,443 thousand won
($16,613,376). 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,

7

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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, restructuring 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

8

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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

9

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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; - volatile stock prices; and -
higher unemployment.

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.

Compliance with corporate governance regulations could
increase the cost of our operations As a result of changing laws,
regulations and standards relating to accounting, corporate governance and
public disclosure, the costs of being a public company in general have increased
in recent years. The Sarbanes-Oxley Act of 2002 requires changes in some of
corporate governance and securities disclosure or compliance practices. The
Company expects that the on-going implementation of these regulations will
further increase its legal compliance costs and will make some activities more
time consuming. The Company is presently planning and implementing regulatory
developments and cannot estimate the magnitude of additional costs it may incur
as a result of such developments in connection with its future implementation of
Section 404 of the Sarbanes-Oxley Act of 2002, which governs.

10

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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 3F, Poonglim
Tech-one B/D, 273-10, Seongsu-Dong 2ga, Seongdong-Gu, Seoul Korea 133-120.

In February 2004, the Company received an approval for a debt
restructuring plan for a total of 4,697,927,000 Won from Chooncheon District
Court, Korea. The adjusted period of payment is generally 7 years after 3 years
of grace period.

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 28.5 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 5 registered and pending patents, 2 design
rights and 7 trademarks and has received 4 FDA 510(k) clearances for their
medical devices. In order to distribute worldwide, Meridian has also gained 3
SDA approvals in China and 3 FIP approvals in South America. Successfully
marketed in Korea, USA and China, 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 five different products to
healthcare practitioners throughout the domestic and overseas market. These
include DPA (Digital Pulse Analyzer), Lapex-2000, Lapex-2000 LipoLaser,
ABR-2000, and 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

11

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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.

The Company identified the United States as a significant
market and incorporated Meridian America Medical Inc (MAMI) in the United States
as a 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. 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.

On February 15, 2005, in the capital increase of Meridian
America Medicals, Inc, Meridian Co., Ltd. waived its right to take over the new
stock. As a result of this transaction, Meridian Co., Ltd.s ownership was
decreased from 95.06% to 75.76% .

On September 29, 2005, the Company acquired 100.00% of the
share ownership in Rapha & Health Co., Ltd for 50 million Won in cash.

On June 7, 2006, Rapha & Health Co., Ltd changed its name
to Meitian Co., Ltd.

As of December 31, 2006, the Company achieved more than $2.8
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.

Products of the Company

MERIDIAN LINE OF PRODUCTS

The Meridian line of products includes DPA (Digital Pulse
Analyzer), Lapex-2000, Lapex-2000 LipoLaser, ABR-2000 and Meridian II.

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         

The DPA (Digital Arterial Pulsewave Analyzer) has the
additional feature of measuring heart rate variability(HRV), 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, SpO2 electrode, computer software with WINDOWS base.

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

12

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Structure: Point Laser Probe : Trigger Point Monitoring
Function and Applying Laser to Trigger Point Multi Laser Probe : To address
the largely affected parts at once LIB (Laser Irradiation of Blood) probe:
Non-invasive irradiation of venous blood, easy to operate, solid curative effect

LAPEX-2000 LIPOLASER

LipoLaser is a modified version of the Lapex-2000 specifically
to target the growing obesity market. The LipoLaser's non-invasive treatment is
considered one of the most innovative methods of body contouring to liquefy
adipose tissue under skin layer, and the demand for this type of treatment is
expected to grow rapidly, not only in the plastic surgery profession, but in any
clinical and aesthetic setting, such as spas and wellness centers, that treat
localized body fat deposits which may not have responded to diet and exercise.

It uses 2 multi-beam and 2 enhanced probes which irradiate a
powerful cold red laser (635  680nm/ 30mW) on adipose (fat cell)

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

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

13

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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
Acupuncture Point finder (ARC) / 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

Industry Background

The medical instruments industry is characterized by low-volume
production of various medical equipments 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.

Size of Industry

World Medical Device 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 $177 billion in 2005, of which $85
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 6.4 percent between 2005
and 2010. 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
over 50 percent. Latin America and Asia (excluding Japan) are the fastest
growing regions in medical devices. (Medical Market & Technology
Information, March 2007, Medical Device Intelligence)

Cardiovascular Device Market (U.S.)

According to US Medical Device Outlook, May 2005 published by
Frost & Sullivan, the total revenue generated from medical device market in
the U.S. was close to $68 billion in 2004. The revenue in the U.S. medical
device market is expected to grow average 11.7% annually until 2011. The revenue
from cardiovascular devices was the highest, $12.5 billion and it was more than
23% of the total revenue. With the expected annual growth rate at 16.8% until
2011, the cardiovascular device industry is expected to be remaining the biggest
industry in the U.S. medical device market for next several years. (Medical
Market & Technology Information, March 2007, Medical Device Intelligence)

Medical Laser Market

The global medical laser market was valued at $2.5 Billion in
2004. This market has the expected average annual growth rate at 8.9% between
2001 and 2010 and the expected market value in 2010 is $4.3 Billion. (Medical
Laser Systems, Aug.2005, Global Industry Analysts, Inc.)

The U.S. medical laser market was valued at $1.5 Billion in
2004. This market has the expected average annual growth rate at 8.87% between
2001 and 2010 and the expected market value in 2010 is $2.6 Billion.

The European medical laser market was valued at $606 Million in
2004. This market has the expected average annual growth rate at 9.33% between
2001 and 2010 and the expected market value in 2010 is $1 Billion.

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The Japanese medical laser market was valued at $221 Million in
2004. This market has the expected average annual growth rate at 7.63% between
2001 and 2010 and the expected market value in 2010 is $350 Million.

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 both corporate head office and manufacturing plant are
located at 3F, Poonglim Tech-one B/D, 273-10, Seongsu-Dong 2ga, Seongdong-Gu,
Seoul Korea 133-120.

The Company currently has two subsidiaries. The following table
reflects the acquisition dates and Meridian Co., Ltd.'s ownership percentages of
its consolidated subsidiaries as at December 31, 2004, 2005 and 2006:

|                                       |                          |                                                 | Acquisition              | Percentage ownership at December 31,
|-------------------------------------- | ------------------------ | ----------------------------------------------- | ------------------------ | ------------------------------------
|Subsidiary                             | Country of Incorporation | Primary Business                                | Date                     | 2004                                
|Meridian America 
      Medicals, Inc. | USA                      | Wholesale and
      retail of medical equipment | March 4, 2002            | 95.06%                              
|                                       |                          |                                                 |                          |                                     
|Meitian Co., Ltd                       | Korea                    | "                                               | September 29,
      2005 | -                                   

On February 15, 2005, in the capital increase of Meridian
America Medicals, Inc, Meridian Co., Ltd. waived its right to take over the new
stock. As a result of this transaction, Meridian Co., Ltd.s ownership was
decreased from 95.06% to 75.76% .

On September 29, 2005, the Company acquired 100.00% of the
share ownership in Rapha & Health Co., Ltd for 50 million Won in cash.

On June 7, 2006, Rapha & Health Co., Ltd changed its name
to Meitian Co., Ltd.

MANAGEMENT TEAM

HYEON-SEONG MYEONG, President, CEO and 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.

IN BEOM PARK, Secretary and Director 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.

SOON WOONG JANG, Director (appointed as a director on March,
2006) Mr. Jang graduated from Korea University in South Korea with
Agriculture as his major. From 1988 to 19892 he was the Business Manager for
Hyundai Department Store, subsidiary of KeumKang Development Industrial Co.,
Ltd. He established Samgong Distribution Co., Ltd., wholesale distributor, and
had been a CEO of Samgong until 2003. From 2001 he has been a vice president of
Korea E-commerce Association. On March 31, 2006, he was appointed a Director of
Meridian.

SUNGPIL HONG, (Director resigned on March, 2006) 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 March 2006, he was the Senior
Manager for Meridian. On March 29, 2003, he was appointed a Director of
Meridian.

D. Property, Plants and Equipment The Company relocated its
factory from Kangwon Province to Seoul in November 2005. The previous factory in
Kangwon Province (687-6, Sangohan-Ri, Hongchun-Eup, Hongchun-Kun, Kangwon-Do,
Korea) was disposed to repay its debts to pre-emptive creditors and Chohung
Bank.

The Company signed the lease contract for its new factory in
Seoul (3F, Poonglim Tech-One B/D, 273-10, Seongsu-dong 2ga, Seongdong-gu, Seoul,
Korea). The Company's products are assembled from purchased and manufactured
components at its factory 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
manufactured to its specifications.

In January 2005, the apartment owned by the Company was
disposed to repay its debt to Woori Bank.

15

---

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 Korean Won and presented in accordance with accounting
principles generally accepted in the United States.

A. Operating Results

Year comparisons between 2006, 2005, and 2004 For the year
ended December 31, 2006, the Company achieved sales revenue of 1,526,828
thousand Won ($1,641,750) resulting in a gross profit of 935,009 thousand Won
($1,005,386) compared with sales revenues of 1,434,519 thousand Won that
resulted in a gross profit of 335,325 thousand Won for the year ended December
31, 2005 and sales revenues of 2,204,234 thousand Won that resulted in a gross
profit of 989,431 thousand Won for the year ended December 31, 2004. Although
the sales revenue in 2006 has only 6.4% increase from 2005 and was still lower
than 2004, the gross profit in 2006 has increased by 179% from 2005 and has only
5.5% decrease from 2004. Moreover, the gross margin in 2006 was 61.2% compared
with 23.4% in 2005 and 44.9% in 2004. The large increases for gross profit and
gross margin were due to successful transition of the Companys target market
and its products that were generating higher margins. Sales of the Companys new
products, LipoLaser and DPA was 85% of the total sales revenue in 2006 compared
with 56% in 2005 and 18% in 2004.

The Company's operating loss has decreased to 251,407 thousand
Won ($270,329) in 2006 from a loss of 1,957,847 thousand Won in 2005 and from a
loss of 1,472,233 thousand Won in 2004. The decrease in the operating loss in
2006 from 2005 and 2004 was due primarily to increase in sales revenues and
gross margin and reduction in operating expenses. 48% decrease in total selling,
general and administrative expenses from 2005, in spite of the increase of sales
revenue by 6.4%, was mainly due to elimination of bad debt expenses and
reduction of commission and fees.

For the research and development, the Company has expensed
183,567 thousand Won, 100,202 thousand Won and 75,310 thousand Won during the
years ended December 31, 2004, 2005 and 2006, respectively. In the same period,
working capital decreased to 4,237,797 thousand Won in deficit in 2006 from
working capital of 2,788,448 thousand Won in deficit in 2005 and 1,784,384
thousand Won in deficit in 2004.

The Company has appropriated 267,608 thousand Won 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
for business rationalization.

B. Liquidity and capital resources

The following table sets forth the summary of our cash flows
for the periods indicated:

|                                                    |   | For
      the Years Ended December 31,      |  
|--------------------------------------------------- | - | ------------------------------------------- | -
|                                                    |   | 2004                                        |  
|                                                    |   | (in thousands of Korean Won and U.S Dollar) |  
|Net cash provided by (used in) operating activities | W | (976,289                                    | )
|Net cash provided by (used in) investing activities |   | 14,716                                      |  
|Net cash provided by (used in) financing activities |   | 966,412                                     |  
|Net increase(decrease) in cash                      |   | 4,839                                       |  
|Cash at beginning of period                         |   | 37,292                                      |  
|Cash at end of period                               |   | 42,131                                      |  

Note:

(1) For the convenience of the reader, the Won amounts are
expressed in U.S. dollars at the rate of Won 930.0 to U.S.$1.00, the noon buying
rate announced by the Federal Reserve Bank of New York on December 29, 2006.

Our primary source of liquidity is cash flow from financing
activities.

Net cash used in operating activities was Won 165,145 thousand
in 2006, Won 1,108,499 thousand in 2005 and Won 976,289 thousand in 2004. We
have not been able to generate positive cash flow from operating activities over
the last three years as we have recorded net losses in each year.

Net cash provided by investing activities was Won 125,565
thousand in 2006, mainly due to the decrease in short-term loans. We generated
positive cash flow from investing activities of Won 923,606 thousand in 2005,
primarily from proceeds from the sale of our plant and equipment in 2005. Net
cash provided by investing activities was Won 14,716 thousand in 2004.

16

---

Net cash provided by financing activities was Won 19,000
thousand in 2006 and Won 165,729 thousand in 2005, mainly due to the issuance of
short-term borrowings. Net cash provided by financing activities was Won 966,412
million in 2004, reflecting the increase in our capital stock.

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 5 registered and pending patents, 2 design rights and 7
trademarks at the Korea Industrial Property Office. The Company also has 1
pending patent under the Patent Cooperation Treaty as well as in the United
States and Japan. 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             
|Automatic detection of                 |  |                           |  |                           
|meridians by probe
      device        |  | 210233                    |  | April
      - 99          
|Pulse formation analysis
      device  |  | 0368021                   |  | December - 02             
|Laser beam
      irradiation device    |  | 0457964                   |  | January - 03              
|Adipose Resolve Apparatus for          |  |                           |  |                           
|Low-Power LASER: Korea                 |  | 0653441                   |  | March
       06          
|Adipose Resolve Apparatus for          |  |                           |  |                           
|Low-Power LASER:
      PCT (pending)   |  | PCT 
      KR20061000694 |  | May 
      06            
|Adipose Resolve Apparatus for          |  |                           |  |                           
|Low-Power LASER: USA
      (pending)   |  | 11-577356                 |  | May 
      07            
|Adipose Resolve Apparatus for          |  |                           |  |                           
|Low-Power LASER:
      Japan (pending) |  | 50700808042               |  | May -
      07            
|                                       |  |                           |  |                           
|(DESIGN)                               |  |                           |  |                           
|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              
|Meridian CI Logo                       |  | 0685047                   |  | November 06               

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.

17

---

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 (LipoLaser), Digital Pulse Analyzer                         
|China         | SDA                           | Meridian-II, ABR  2000,
      Lapex-2000                                                           
|U.S.A         | FDA                           | Meridian-II,
      Lapex-2000, ABR-2000, Digital Pulse Analyzer Lapex-2000 LipoLaser
      (pending)
|South America | FIP                           | Meridian-II, ABR - 2000,
      Lapex-2000                                                           
|EU            | CE EMC, CE LVD                | Lapex-2000 (Lapex
      BCS)                                                                        
|International | ISO13485:2003 ISO13485:CMDCAS | Quality Assurance System for DPA
      and Laser Therapy Device                                     

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 from 2003
to 2005. The Company is actively seeking to expand its sales into new markets,
principally the United States. From 2005, the Company is in transition of its
target market, mainly preventive medicine and medical laser market with
LipoLaser and DPA. In 2006 these two products contributed 85% of the total sales
revenue.

E. Off-balance sheet arrangements

Not applicable

F. Tabular disclosure of contractual obligations

Payments due (by period) (Korean Won (W)
        in thousands)Less than
      
      
      
      
      
      
      
      
      more thanContractual Obligations
      
      Total
      
      
      one year
      
      
      1-3 years
      
      
      3-5 years
      
      
      5 yearsLong-term debt obligations (1)
      W
      3,055,298
      
      W
      436,471
      
      W
      872,942
      
      W
      872,942
      
      W
      872,943Debentures(2)
      
      1,500,000
      
      
      214,286
      
      
      428,571
      
      
      428,571
      
      
      428,572Long-term accounts payable
      
      465,149
      
      
      465,149
      
      
      -
      
      
      -
      
      
      -


(1) See Note 12. Long-Term Borrowings

(2) The Company had issued two series of non-guaranteed
corporate bonds in 2001. The Company received an approval for debt restructuring
plan including debentures. As a result, 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).

18

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

See Item 4.C.

B. Compensation

Name & Principal Position
    Year
    Salary ($)
    Bonus ($)
    Other Annual Compensation ($)
    All Other CompensationMyeong, Hyeon-Seong (Director,
      President, CEO)
    2001 2002 2003 2004
      2005 2006
    45,500 47,541 49,329
      51,342 58,217 63,548
    Nil Nil Nil Nil
      Nil Nil
    Nil Nil Nil Nil
      Nil Nil
    Stock Option Nil Nil
      Nil Nil NilPark, In Beom (Director, General Manager)
    2005 2006
    19,196 28,710
    Nil Nil
    Nil Nil
    Nil NilSoon Woong Jang (Director, appointed on
      March,06)
    2006
    Nil
    Nil
    Nil
    NilHong, Sung Phil (Director, resigned on March,06)
    2004 2005 2006
    23,168 23,168 Nil
    Nil Nil Nil
    Nil Nil Nil
    Nil Nil NilYeon Moon Kang (Statutory Auditor, appointed
      on March 07)Min, Jae -Ki (Statutory Auditor, resigned on March 07))
    2004 2005
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil


*Hyeon Seong Myeong was granted options for 4,130 shares of the
Company's common stock at the price of 1000 Won in February 2000 (expired in
January 2007) and for 2,218 shares at the price of 680 Won in March 2001
(expiring in February 2008).

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 20 employees in the following areas:

Department
      Team Name
    Number of StaffAdministration Department
    The ministry of Finance and
      Economy
    4Business Headquarters
    Sales Department
    4Customer Support Team
    2Business administration team
    1


19

---

Research Institute
    
    3Production Department
    Manufacturing Technical Team
    4Purchasing Team
    1Quality Guarantee Team
    1Total
    
    20


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                                                                                                                                     

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 1000 Won 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 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,
2006 and June 30, 2007, 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:

20

---

|Name and address of beneficial owner                                                                        | Amount Stock          | Percentage of           | Percentage of            
|----------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | -------------------------
|and position with the company                                                                               | Beneficially Owned    | Class as of Dec.31,2006 | Class as of June 30, 2007
|                                                                                                            |                       |                         |                          
|                                                                                                            |                       |                         |                          
|Myeong, Hyeong-seong.
      (President, CEO and Director) #997-4 Daechi-dong Gangnam-gu,
      Seoul, Korea | 971,500 common shares | 3.09%                   | 2.94%                    
|In Beom Park (Director) #603 605, JungSan
      town, Ilsan-dong, Ilsan-gu, Goyang-city, KyungKi-do, Korea  | Nil                   | Nil                     | Nil                      
|Soon Woong Jang (Director)
      #122-75 Noranggin dong, Dongjak-gu, Korea,                                 | Nil                   | Nil                     | Nil                      
|                                                                                                            |                       |                         |                          
|All officers and Directors as a Group                                                                       | 971,500               | 3.09%                   | 2.94%                    

In March 2007, the Company raised 517,000,000 Won from eighteen
non-U.S. investors for total 933,506 common shares at the price of 554 Won per
share and warrants to purchase133,358 common shares at 950 Won per share.

In June 2007, the Company raised US$350,000 from one non-U.S.
investor for 700,000 common shares at the price of US$0.50 per share.

21

---

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, 2006 and June 30, 2007), 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 ofBeneficially Owned
      of Dec.31, 2006
      of June 30,2007
      Stock Option HeldTerasource Fundsincluding:Terasource Kosdaq Venture Investment(2,066,700 common shares);.
      5,470,600 common shares
      17.43%
      16.56%
      NilTerasource 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. 141-30Samseong-dong, Kangnam-gu Seoul, KoreaThe Hong Group of Companiesincluding:Serome Investment Co. Ltd. (1,085,675shares),151-7 Samseong-Dong ;
      3,325,900 common shares
      10.59%
      10.07%
      NilKangnam-Gu Seoul KoreaMok-Won Assets Management Co. Ltd(1,375,000 shares),2004 Ho, Anam tower 702-10Yuksam-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


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 or on 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.

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 restructuring plan for a total of 4,697,927,000 Won
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
4,697,927,000 Won of the Company's debt. An application for the restructuring
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

22

---

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$0.20 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.

In March 2007, the Company raised 517,000,000 Won from eighteen
non-U.S. investors for total 933,506 common shares at the price of 554 Won per
share and warrants to purchase133,358 common shares at 950 Won per share.

In June 2007, the Company raised US$350,000 from one non-U.S.
investor for 700,000 common shares at the price of US$0.50 per share.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Price History

The common shares of the Company began trading on the OTC
Bulletin Board on February 13, 2002 under the symbol MRDAF. The following table
sets forth the high and low sales of prices of our common shares on the OTC
Bulletin Board for the periods indicated.

OTC Bulletin BoardHigh (U.S.$)
    Low (U.S.$)Annual Highs and Lows2002
    2.57
    0.0252003
    0.51
    0.0652004
    0.58
    0.22005
    0.48
    0.22006
    0.74
    0.11Quarterly Highs and Lows2005First Quarter
    0.48
    0.26Second Quarter
    0.46
    0.27Third Quarter
    0.35
    0.21Fourth Quarter
    0.4
    0.22006First Quarter
    0.26
    0.17Second Quarter
    0.31
    0.17Third Quarter
    0.55
    0.11Fourth Quarter
    0.74
    0.35Monthly Highs and Lows2007January
    0.55
    0.4February
    0.59
    0.45March
    0.82
    0.5April
    0.8
    0.72May
    0.79
    0.7June
    0.87
    0.7


23

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The transfer of our common shares is managed by our transfer
agent, Pacific Corporate Trust Company, 3rd Floor  510 Burrard Street,
Vancouver, British Columbia, V6C 3B9 (Telephone: 604.689.9853; Facsimile:
604.689.8144) .

B. Plan of Distribution

Not applicable.

C. Markets

Our common shares are quoted on the Over-the-Counter Bulletin
Board (as they have been quoted since February 13, 2002). Our symbol is "MRDAF"
and our CUSIP number is Y6020X 10 3.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issuer

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

24

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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.

25

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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

26

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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."

27

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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;                                                                                                                                                                                                                                                                                                                                                                                                   
|- | raders 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                                                                                                                                                                                                            

28

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|- | 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

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, 2006, the Company had an aggregate 597,996 thousand Won export
sales, accounting for 39.1% 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, 2006, 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, 2006, the Company estimates that the payment receivable from its overseas
customers will decrease by approximately 59,800 thousand Won ($64,300) in 2006.
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, 2006, 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 currently has the default tax payment of
365,430,354 Won ($392,936) to the federal tax office and the default interest
payment of 412,395,921 Won ($443,436).

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 TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDSNot Applicable

ITEM 15. CONTROLS AND PROCEDURES Based on
their evaluation as of December 31, 2006, 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 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not yet have an audit committee financial expert.

29

---

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: For the fiscal year 2005, the Company was charged 58,654,200
Won ($60,500) for professional services rendered by its auditors for the audit
of the Company's annual financial statements or services normally provided in
connection with statutory and regulatory filings for the fiscal year 2005.

(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. FINANCIAL STATEMENTSThe
Company has responded to Item 18 in lieu of this item.

ITEM 18. FINACIAL STATEMENTS

Meridian Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS

For the Years ended December 31, 2006, 2005 and 2004

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                

30

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Meridian Co.,
Ltd.

We have audited the accompanying consolidated balance sheets of
Meridian Co., Ltd., and subsidiaries (the Company) as of December 31, 2006 and
2005, and the related consolidated statements of operations, shareholders
deficiency, and cash flows for the years ended December 31, 2006 and 2005. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of Meridian Co., Ltd.
and subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and cash flows for the years ended December 31, 2006 and 2005, in
conformity with accounting principles generally accepted in the United States of
America.

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's
significant operating losses and working capital deficit 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.



/s/ Choi, Kim & Park LLP

Los Angeles, California Certified Public Accountants

June 28, 2007

31

---

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 two 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 fro m 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. How ever,
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.

Except for the 12,485,069 common shares issued through S-8
registrations, for acquisition of By George Holdings. and the October 21, 2004
shares for debt, which have not been included in the Korean Commercial
Registration Office due to the different share issuance requirements between the
US and Korean Commercial Laws.

As discussed in Note 27 to the consolidated financial
statements, after the issuance of our report on such consolidated financial
statements, management discovered certain errors in cash flows statement and
revenue recognition policy in the note 2. As a result of correcting action by
managements, the Company revised cash flow statement and accounting policy for
revenue recognition. There were no income effects in the consolidated financial
statements as a result of the adjustments to correct these errors.

/s/ SHINHAN ACCOUNTING CORPORATION Certified Public
Accountant Republic of Korea May 13, 2005, except for Note 25 and 27, as
to which the date is June 20, 2005 and Sep 16, 2005, respectively

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

32

---

Meridian Co., Ltd. and Subsidiaries 
  Consolidated Balance SheetsAs of December 31, 2005 and 2006 
  (Korean Won (W) in thousands)

2006 (in USD)A S S E T S
    
    2005
    
    
    2006
    
    
    (Note 3)Current assets :Cash and cash equivalents (Note 2)
      W
    22,967
    
      W
    2,387
    
    $
    2,566Trade accounts receivable -
      less allowance for doubtful accountsof 856,698 in 2005 and 571,968
      (USD 615,019) in 2006 (Notes 2 and 5)
    
    333,683
    
    
    413,228
    
    
    444,331Short-term loans - less
      allowance for doubtful accountof 339,760 in 2005 and 218,485
      (USD 234,930) in 2006 (Notes 4 and 20)
    
    18,069
    
    
    -
    
    
    -Other accounts receivable -
      less allowance for doubtful accountof 67,143 in 2005 and 3,020 (USD
      3,247) in 2006 (Note 5)
    
    16,474
    
    
    40,519
    
    
    43,568Inventories (Notes 2 and 6)
    
    488,455
    
    
    371,209
    
    
    399,149Other current assets (Note 7)
    
    1,749
    
    
    21,337
    
    
    22,943Total current assets
    
    881,397
    
    
    848,680
    
    
    912,557Property, plant and equipment, net (Notes 2
      and 9) :
    
    23,804
    
    
    16,546
    
    
    17,791Investments and other assetsInvestments (Notes 2 and 8)
    
    29,327
    
    
    27,316
    
    
    29,372Security deposits
    
    20,103
    
    
    76,533
    
    
    82,293Patents and trademarks, net of amortization
      (Note 2 and 10)
    
    1,206
    
    
    943
    
    
    1,013Total investments and other
      assets
    
    50,636
    
    
    104,792
    
    
    112,678TOTAL ASSETS
      W
    955,837
    
      W
    970,018
    
    $
    1,043,026LIABILITIES AND
      SHAREHOLDERS' DEFICIENCYCurrent liabilitiesAccounts payable - trade
      W
    283,184
    
      W
    242,482
    
    $
    260,733Short-term borrowings (Note 11)
    
    311,216
    
    
    330,216
    
    
    355,070Accounts payable - other
    
    1,164,041
    
    
    1,509,461
    
    
    1,623,076Current portion of long-term accounts payable
    
    919,649
    
    
    1,278,761
    
    
    1,375,011Current portion of long-term
      borrowings (Note 12)
    
    -
    
    
    650,757
    
    
    699,738Other current liabilities
    
    958,521
    
    
    1,035,343
    
    
    1,113,272Deferred warranty revenue
    
    33,234
    
    
    38,457
    
    
    41,351Total current
      liabilitie
    
    3,669,845
    
    
    5,085,477
    
    
    5,468,251Long-term accounts payable
    
    466,613
    
    
    1,464
    
    
    1,574Long-term borrowings (Note 12)
    
    4,555,298
    
    
    3,904,541
    
    
    4,198,431Accrued severence benefits (Notes 2 and 13)
    
    50,530
    
    
    78,111
    
    
    83,990Total liabilitie
    
    8,742,286
    
    
    9,069,593
    
    
    9,752,246Minority interest
    
    -
    
    
    -
    
    
    -Shareholders' deficiency (Notes 14 and 15)Common stock - par value 100
      WON per share; 50 million shares authorized31,394 thousand shares
      issued and outstanding at December 31, 2005 and 2006
    
    3,139,398
    
    
    3,139,398
    
    
    3,375,696Additional paid-in capita
    
    3,929,900
    
    
    3,929,900
    
    
    4,225,698Appropriation for business rationalization
      (Note 15
    
    267,608
    
    
    267,608
    
    
    287,750Accumulated deficit
    
      (15,125,696
      )
    
      (15,450,443
      )
    
      (16,613,376
      )Accumulated other comprehensive income
    
    2,341
    
    
    13,962
    
    
    15,012Total shareholders' deficiency
    
      (7,786,449
      )
    
      (8,099,575
      )
    
      (8,709,220
      )TOTAL LIABILITIES ANDSHAREHOLDERS' DEFICIENCY
      W
    955,837
    
      W
    970,018
    
    $
    1,043,026


The accompanying notes are an integral part of these
Consolidated Financial Statement

---

Meridian Co., Ltd. and Subsidiaries 
  Consolidated Statements of OperationsFor the Years Ended December 31, 2004, 2005 and 2006 
  (Korean Won (W) in thousands, except per share amounts

|                                                                 |   |            |   |   |            |   |   |            |   |   | 2006 (in USD) |  
|---------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ------------- | -
|                                                                 |   | 2004       |   |   | 2005       |   |   | 2006       |   |   | (Note 3)      |  
|                                                                 |   |            |   |   |            |   |   |            |   |   |               |  
|Sales (Notes 2 and 22)                                           | W | 2,204,234  |   | W | 1,434,519  |   | W | 1,526,828  |   | $ | 1,641,750     |  
|Cost of sales                                                    |   | 1,214,803  |   |   | 1,099,194  |   |   | 591,819    |   |   | 636,364       |  
|Gross profit                                                     |   | 989,431    |   |   | 335,325    |   |   | 935,009    |   |   | 1,005,386     |  
|Selling, general and administrative expenses (Notes 2 and 16)    |   | 2,278,097  |   |   | 2,192,971  |   |   | 1,111,107  |   |   | 1,194,738     |  
|Research and development (Note 2)                                |   | 183,567    |   |   | 100,201    |   |   | 75,309     |   |   | 80,977        |  
|Operating loss                                                   |   | (1,472,233 | ) |   | (1,957,847 | ) |   | (251,407   | ) |   | (270,329      | )
|Other income (expense)                                           |   |            |   |   |            |   |   |            |   |   |               |  
|Interest income                                                  |   | 563        |   |   | 2,307      |   |   | 30         |   |   | 32            |  
|Interest expense                                                 |   | (404,848   | ) |   | (806,908   | ) |   | (246,523   | ) |   | (265,078      | )
|Foreign transaction gain(loss), net                              |   | 133        |   |   | 1,758      |   |   | (9,029     | ) |   | (9,708        | )
|Other, net                                                       |   | (180,761   | ) |   | (621,667   | ) |   | 171,922    |   |   | 184,862       |  
|Total other income (expense)                                     |   | (584,913   | ) |   | (1,424,510 | ) |   | (83,600    | ) |   | (89,892       | )
|Minority interest in net loss of consolidated
      subsidiaries |   | 1,319      |   |   | 32,951     |   |   | 10,260     |   |   | 11,032        |  
|Loss before income taxes                                         |   | (2,055,827 | ) |   | (3,349,406 | ) |   | (324,747   | ) |   | (349,189      | )
|Income taxes (Notes 2 and 17)                                    |   | -          |   |   | -          |   |   | -          |   |   | -             |  
|Net loss                                                         | W | (2,055,827 | ) | W | (3,349,406 | ) | W | (324,747   | ) | $ | (349,189      | )
|                                                                 |   |            |   |   |            |   |   |            |   |   |               |  
|Weighted average number of common shares                         |   | 22,199,701 |   |   | 31,603,847 |   |   | 31,393,984 |   |   | 31,393,984    |  
|Loss per common share (Notes 2 and 19)                           |   |            |   |   |            |   |   |            |   |   |               |  
|- Basic and diluted                                              | W | (93        | ) | W | (106       | ) | W | (10        | ) | $ | (0.011        | )

The accompanying notes are an integral part of these
Consolidated Financial Statemen

---

Meridian Co., Ltd. and Subsidiaries 
  Consolidated Statement of Changes in Shareholders' DeficiencyFor the Years Ended December 31, 2004, 2005 and 2006 
  (Korean Won (W) in thousands, except shares data)

AccumulatedCommon
        Stock Issued
      
      
      Additional
      
      
      
      
      
      OtherPaid-in
      
      
      Accumulated
      
      
      ComprehensiveShares
      
      
      Amount
      
      
      Capital
      
      
      Deficit
      
      
      Income (Loss)
      
      
      TotalBalance at January 1, 2004
      19,151,484
      
      
      3,830,296
      
      
      982,909
      
      
      (9,408,168
      )
      
      (5,601
      )
      
      (4,600,564
      )Reduction of capital stock
      -
      
      
      (1,915,148
      )
      
      1,915,148
      
      
      -
      
      
      -
      
      
      -Issuance of common shares
      10,842,500
      
      
      1,084,250
      
      
      826,853
      
      
      -
      
      
      -
      
      
      1,911,103Net income (loss)
      -
      
      
      -
      
      
      -
      
      
      (2,055,827
      )
      
      -
      
      
      (2,055,827
      )Other comprehensive income (loss):Cumulative translation adjustment
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3,566
      
      
      3,566Balance at December 31, 2004
      29,993,984
      
      
      2,999,398
      
      
      3,724,910
      
      
      (11,463,995
      )
      
      (2,035
      )
      
      (4,741,722
      )Issuance of common shares
      2,400,000
      
      
      240,000
      
      
      243,936
      
      
      -
      
      
      -
      
      
      483,936Return to treasury of shares of common stock
      (1,000,000
      )
      
      (100,000
      )
      
      (70,656
      )
      
      -
      
      
      -
      
      
      (170,656
      )Capital transaction by an equity method investee
      -
      
      
      -
      
      
      31,710
      
      
      -
      
      
      -
      
      
      31,710Net income (loss)
      -
      
      
      -
      
      
      -
      
      
      (3,349,406
      )
      
      -
      
      
      (3,349,406
      )Losses in excess of minority interests
      -
      
      
      -
      
      
      -
      
      
      (44,687
      )
      
      -
      
      
      (44,687
      )Other comprehensive income (loss):Cumulative translation adjustment
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      4,376
      
      
      4,376Balance at December 31, 2005
      31,393,984
      
      
      3,139,398
      
      
      3,929,900
      
      
      (14,858,088
      )
      
      2,341
      
      
      (7,786,449
      )Net income (loss)
      -
      
      
      -
      
      
      -
      
      
      (324,747
      )
      
      -
      
      
      (324,747
      )Other comprehensive income (loss):Cumulative translation adjustment
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      11,621
      
      
      11,621Balance at December 31, 2006
      31,393,984
      
      W
      3,139,398
      
      W
      3,929,900
      
      W
      (15,182,835
      )
      W
      13,962
      
      W
      (8,099,575
      )Balance at December 31, 2005 (in U.S. Dollar) (Note 3)
      31,393,984
      
      $
      3,375,696
      
      $
      4,225,698
      
      $
      (15,976,437
      )
      $
      2,516
      
      
      (8,372,527
      )Net income (loss)
      -
      
      
      -
      
      
      -
      
      
      (349,189
      )
      
      -
      
      
      (349,189
      )Other comprehensive income (loss):Cumulative translation adjustment
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      12,496
      
      
      12,496Balance at December 31, 2006
      31,393,984
      
      $
      3,375,696
      
      $
      4,225,698
      
      $
      (16,325,626
      )
      $
      15,012
      
      $
      (8,709,220
      )


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

---

Meridian Co., Ltd. and Subsidiaries 
  Consolidated Statements of Cash FlowsFor the Years Ended December 31, 2004, 2005 and 2006
  (Korean Won (W) in thousands)

|                                                                     |   |            |   |   |            |   |   |          |   |   | 2006 (in USD) |  
|-------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | -------- | - | - | ------------- | -
|                                                                     |   | 2004       |   |   | 2005       |   |   | 2006     |   |   | (Note 3)      |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|CASH FLOWS FROM OPERATING ACTIVITIES :                               |   |            |   |   |            |   |   |          |   |   |               |  
|Net income
      (loss)                                              | W | (2,055,827 | ) | W | (3,349,406 | ) | W | (324,747 | ) | $ | (349,189      | )
|Adjustments to reconcile loss from operations
      to net cash used |   |            |   |   |            |   |   |          |   |   |               |  
|for operating
      activities                                       |   |            |   |   |            |   |   |          |   |   |               |  
|Depreciation                                                         |   | 61,790     |   |   | 25,150     |   |   | 8,763    |   |   | 9,423         |  
|Provision for severance benefits                                     |   | 51,222     |   |   | 4,900      |   |   | 36,710   |   |   | 39,473        |  
|Bad debt
      expenses(recovery), net                               |   | (16,629    | ) |   | 541,642    |   |   | (201,352 | ) |   | (216,508      | )
|Inventory write-down due to decline in market value                  |   | 98,491     |   |   | 374,812    |   |   | -        |   |   | -             |  
|Amortization of intangible assets                                    |   | 546        |   |   | 263        |   |   | 263      |   |   | 283           |  
|Loss on disposal of property, plant and equipment                    |   | -          |   |   | 502,195    |   |   | -        |   |   | -             |  
|Equity in
      loss(gain) of investee                               |   | 2,002      |   |   | (14,071    | ) |   | 483      |   |   | 519           |  
|Service fee paid with issuance of stock                              |   | 563,164    |   |   | 483,936    |   |   | -        |   |   | -             |  
|Cancellation of service fee paid with issuance of stock              |   | -          |   |   | (170,656   | ) |   | -        |   |   | -             |  
|Other                                                                |   | 51,011     |   |   | (30,392    | ) |   | 5,223    |   |   | 5,616         |  
|Changes in operating assets and
      liabilities                    |   |            |   |   |            |   |   |          |   |   |               |  
|Decrease (increase) in trade accounts receivable                     |   | (41,181    | ) |   | (167,706   | ) |   | (69,745  | ) |   | (74,995       | )
|Decrease
      (increase) in other accounts receivable               |   | (7,443     | ) |   | (11,706    | ) |   | 40,078   |   |   | 43,095        |  
|Decrease (increase) in inventory                                     |   | 44,172     |   |   | (167,272   | ) |   | 117,246  |   |   | 126,071       |  
|Decrease
      (increase) in other current assets                    |   | (150,603   | ) |   | 186,865    |   |   | (19,588  | ) |   | (21,062       | )
|Increase (decrease) in accounts payable - trade                      |   | 93,059     |   |   | 75,200     |   |   | (40,701  | ) |   | (43,765       | )
|Increase
      (decrease) in accounts payable - other                |   | 199,035    |   |   | 72,520     |   |   | 307,420  |   |   | 330,559       |  
|Increase (decrease) in other current liabilities                     |   | 158,039    |   |   | 756,994    |   |   | (106,036 | ) |   | (114,017      | )
|Severance
      payments                                             |   | (38,261    | ) |   | (228,746   | ) |   | -        |   |   | -             |  
|Other                                                                |   | 11,124     |   |   | 6,979      |   |   | 80,838   |   |   | 86,920        |  
|Sub-total                                                            |   | 1,079,538  |   |   | 2,240,907  |   |   | 159,602  |   |   | 171,612       |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|                                                                     |   | (976,289   | ) |   | (1,108,499 | ) |   | (165,145 | ) |   | (177,577      | )
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|CASH FLOWS FROM INVESTING ACTIVITIES :                               |   |            |   |   |            |   |   |          |   |   |               |  
|Decrease in
      short-term loans                                   |   | 28,783     |   |   | -          |   |   | 145,500  |   |   | 156,452       |  
|Decrease in long-term financial
      instruments                    |   | -          |   |   | 41,084     |   |   | -        |   |   | -             |  
|Proceeds from
      sales of property, plant and equipment           |   | 3,442      |   |   | 946,751    |   |   | -        |   |   | -             |  
|Increase in short-term loans                                         |   | (1,453     | ) |   | (144,046   | ) |   | -        |   |   | -             |  
|Acquisition of
      property, plant and equipment                   |   | (14,564    | ) |   | (6,233     | ) |   | (1,505   | ) |   | (1,618        | )
|Changes in investments and other
      assets                        |   | (1,492     | ) |   | 86,050     |   |   | (18,430  | ) |   | (19,817       | )
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|                                                                     |   | 14,716     |   |   | 923,606    |   |   | 125,565  |   |   | 135,017       |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|CASH FLOWS FROM FINANCING ACTIVITIES :                               |   |            |   |   |            |   |   |          |   |   |               |  
|Proceeds from
      issuance of common stocks                        |   | 607,804    |   |   | -          |   |   | -        |   |   | -             |  
|Proceeds from short-term
      borrowings                            |   | 756,898    |   |   | 196,000    |   |   | 30,000   |   |   | 32,258        |  
|Repayment of
      short-term borrowings                             |   | (398,290   | ) |   | -          |   |   | (11,000  | ) |   | (11,828       | )
|Repayment of long-term
      borrowings                              |   | -          |   |   | (30,271    | ) |   | -        |   |   | -             |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|                                                                     |   | 966,412    |   |   | 165,729    |   |   | 19,000   |   |   | 20,430        |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|NET INCREASE (DECREASE) IN
      CASH AND CASH EQUIVALENT            |   | 4,839      |   |   | (19,164    | ) |   | (20,580  | ) |   | (22,130       | )
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|CASH AND CASH EQUIVALENTS AT
      BEGINNING OF YEAR                 |   | 37,292     |   |   | 42,131     |   |   | 22,967   |   |   | 24,696        |  
|                                                                     |   |            |   |   |            |   |   |          |   |   |               |  
|CASH AND CASH EQUIVALENTS AT
      END OF YEAR                       | W | 42,131     |   | W | 22,967     |   | W | 2,387    |   | $ | 2,566         |  

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

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

1. Nature of Operation and Going Concern

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

The accompanying consolidates financial statements include the
accounts of Meridian Co., Ltd., the parent company, and its consolidated
subsidiaries, Meridian America Medicals, Inc. and Meitian Co., Ltd. (hereinafter
collectively referred to as the Company).

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, 2006, the Company
incurred a net loss of W 324,747 (W 3,349,406 for 2005 and W 2,055,827 for 2004)
and net negative cash flow from operating activities of W 165,144 (W 1,108,499
for 2005 and W 976,289 for 2004). On August 4, 2003, Meridian Co., Ltd.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, Meridian Co., Ltd. received
approval for a debt restructuring plan for a total of W 4,697,927 from the
Chooncheon District Court, Korea, whereby a group of creditors of the Meridian
Co., Ltd. and a representative of the Meridian Co., Ltd. agreed to restructure
the payments on W 4,697,927 of its debt which constituted approximately 68% of
the total outstanding accounts payable and borrowings of the Meridian Co., Ltd..
An application for the restructuring plan was filed with Chooncheon District
Court and approved by the court on the same day. The group of creditors who have
agreed to the debt restructuring at the date of approval includes the following:

Account
    
      Creditor
    
    
      AmountBorrowing
    
      Woori Bank
    
      W
      391,787SMIa ABS Specialty Co., Ltd
    
    
      1,000,000Rainbow Specialty Securitization
        Co., Ltd
    
    
      500,000Korea Technology Credit Guarantee Fund
    
    
      1,151,884Small Business Corporation
    
    
      300,000Korea Foreign Exchange Bank
    
    
      125,831Shinhan Bank
    
    
      41,612Accounts payable
    
      Other
    
    
      1,186,813Total
    
      W
      4,697,927


Of the  W 4,697,927,  W 34,200 is secured debt to a
financial institution and will now be repaid over 7 years from 2007 to 2013; the
Meridian Co., Ltd. will be exempt from paying interest already accrued, and
future interest will accrue at 3.5% interest per annum. Of the W 4,697,927,
W 3,476,914 due to financial institutions is unsecured and will be repaid over 7
years from 2007 to 2013; the Meridian Co., Ltd. will be exempted from paying
interest already accrued, and the future interest will accrue at the rate of
3.5% 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.

Meridian Co., Ltd., however, has not paid W 882,343 of accounts
payable due to parties other than financial institutions and W 405,496 of
interest payments to financial institutions due on December 31, 2006.

In January 2005, Woori Bank exercised its security right on the
apartment owned by the Meridian Co., Ltd.. The total amount of W 42,837 obtained
from disposition of the property was paid to Woori Bank: W 30,271 for debt
principal, W 12,566 for debt interest and other expense for the disposition.

Separate from debt restructuring, Meridian Co., Ltd. had a
borrowing from Chohung Bank (Chohung Bank has been merged into Shinhan Bank as
of April 1, 2006) which had not agreed to debt restructuring and had security
right on the Meridian Co., Ltd.s property and plant. W 1,074,455 due to Chohung
Bank would be paid over 5 years from 2006 to 2010. However, in December 2005,
Chohung Bank exercised its

38

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

security right on the land and building of the Meridian Co.,
Ltd. which it obtained before the execution of the debt restructuring plan. Out
of the W 883,308 obtained from disposition of the land and building, W 423,187
was paid to preemptive creditors and W 460,121 was paid to Chochung Bank for the
debt interest. As a result of executing security right, the principal debt of W
1,074,455 to Chohung Bank has been included in the debt restructuring plan and
the condition of redemption of the debt to Chohung Bank is as same as those
unsecured borrowings to other financial institutions and the total amount of
debt restructured increased. The total balance of principals and interests due
to financial institutions in the restructuring plan as of December 31, 2006 is
summarized below :

|          |   | 2007    |  |   | 2008    |  |   | 2009    |  |   | 2010    |  |   | 2011    |  |   | 2012    |  |   | 2013    |  |   | Total     | 
|--------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | --------- | 
|Principal | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,757 |  | W | 650,756 |  | W | 4,555,298 | 
|Interest  |   | 159,435 |  |   | 136,659 |  |   | 113,883 |  |   | 91,106  |  |   | 68,329  |  |   | 45,553  |  |   | 22,777  |  |   | 637,742   | 
|Total     | W | 810,192 |  | W | 787,416 |  | W | 764,640 |  | W | 741,863 |  | W | 719,086 |  | W | 696,310 |  | W | 673,533 |  | W | 5,193,040 | 

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 restructuring to the Court. The Court does
not have any authorities such as having Meridian Co., Ltd. cease operations and
liquidate the assets. Meridian Co., Ltd. does not need to get an approval from
the Court for additional borrowing from financial institutions. The new
borrowing of the Meridian Co., Ltd. depends Meridian Co., Ltd.s credit
evaluated by the creditors. Above arrangements do not allow the creditors
obtaining new common shares or other rights in respect of management or
strategic control of Meridian Co., Ltd.

Meridian Co., Ltd. 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 Meridian Co., Ltd. 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 Meridian Co., Ltd. be unable to continue as a
going concern.

Meridian Co., Ltd. had realized that the growth of its revenue
would be difficult in its existing market and planned to develop new markets
with new products. After receiving approval for a debt restructuring plan,
Meridian Co., Ltd. was able to secure fund by raising capital to develop new
products. In October 2005, Meridian Co., Ltd. introduced its new product,
LipoLaser, in the market.

2. Summary of Significant Accounting Policies

The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP). Significant accounting policies followed by the Company
in the preparation of the accompanying consolidated financial statements are
summarized below.

Principles of Consolidation

The consolidated financial statements include the accounts of
the Company. All significant inter-company balances and transactions have been
eliminated.

Changes of Ownership in Consolidated Subsidiaries

The following table reflects the acquisition dates and Meridian
Co., Ltd.'s ownership percentages of its consolidated subsidiaries as of
December 31, 2004, 2005 and 2006:

Acquisition
    Percentage ownership at December 31,Subsidiary
    Primary Business
    Date
    2004
    2005
    2006Meridian America Medicals, Inc.
    Wholesale and retail of
      medical equipment
    March 4,
      2002
    95.06%
    75.76%
    75.76%Meitian Co., Ltd
    "
    September 29, 2005
    -
    100.00%
    100.00%


On February 15, 2005, in the capital increase of Meridian
America Medicals, Inc, Meridian Co., Ltd. waived its right to take over the new
stock. As a result of this transaction, Meridian Co., Ltd. s ownership was
decreased from 95.06% to 75.76% .

On September 29, 2005, the Company acquired 100.00% of the
share ownership in Rapha & Health Co., Ltd for W 50 million in cash.

39

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

On June 7, 2006, Rapha & Health Co., Ltd changed its name
to Meitian Co., Ltd.

Translation of Foreign Currencies

The financial position and results of operations of the
Companys subsidiary in America, Meridian America Medicals, Inc.,(MAMI), are
measured using the US Dollar as its functional currency and Meridian Co., Ltd.
and Meitian Co., Ltd. use the Korean WON as functional currency. The financial
statements of MAMI are translated into Korean WON using the current exchange
rate method. All the assets and liabilities are translated into Korean WON at
the end-of-period exchange rate. Capital accounts are translated using
historical exchange rates. Revenues and expenses are translated using average
exchange rates. Translation adjustments arising from differences in exchange
rates are included in the cumulative translation adjustment account in other
comprehensive income of shareholders deficiency. Foreign currency transaction
gains and losses are included as a component of other income (expense).

The exchange rates 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

The Company generates revenue principally through the sale of
alternative medical equipment products and merchandises. The Company recognizes
revenue when persuasive evidence of an arrangement exists, delivery has occurred
and title and risk of loss have been transferred to the customer, the sales
price is fixed or determinable, and collectibility is probable.

Revenue from sales of products is recognized when the products
are received by customers based on the free-on board destination sales term.
With regards to sales of alternative medical equipment products, the Companys
policy is not to accept product returns unless the products are defective. The
conditions of acceptance are governed by the terms of the contract or customer
arrangement and those not meeting the predetermined conditions are not recorded
as revenue.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly
liquid investments, including term deposits and short-term bonds which are
readily convertible into known amounts of cash and have an original maturity of
three months or less. For the purposes of the statements of cash flows, the
Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.

There are W 214 included in cash which are restricted in use
for pledging to Hongchun Tax Collectors Office as of December 31, 2006.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is estimated based on analyses
of individual accounts and past experience of collection. When circumstances
indicate that collection of an accounts receivable is doubtful, an allowance and
a charge against earnings are recognized. When circumstances indicate that
collection of an accounts receivable is not to be realized, the outstanding
accounts receivable and the associated allowance are written off.

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 VAT") and
collects VAT from its customers equal to 10% of revenue("output VAT"). The net
amount is recorded as prepaid VAT, if the input VAT is greater than the output
VAT, or VAT payable if the output VAT is greater than the input VAT.

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 average cost method.

40

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

Investment in Affiliate

Investment in affiliated company owned 20% or more over which
Meridian Co., Ltd. has significant management control is stated at an amount as
determined using the equity method.

Under the equity method of accounting, Meridian Co., Ltd.s
initial investment is recorded at cost and is subsequently increased to reflect
Meridian Co., Ltd.s share of the investee income and reduced to reflect
Meridian Co., Ltd.s share of the investee losses or dividends received.

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, preferred shares and long-term
receivables and loans.

Concentrations of credit risk

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 an unusual
extent. 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 using
rates based on useful lives of 4 years.

Impairment of Long-Lived Assets

The Company reviews for the impairment of long-lived assets,
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.

No impairment loss was recognized in 2004, 2005 and 2006.

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.

Accrued 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 accrued severance benefits liability. Since April 1999,
however, a new regulation applies and such transfers to the National Pension
Fund are no longer required.

Shipping and Handling Costs

The Company includes shipping and handling costs in selling,
general and administrative costs. Shipping and handling costs for the years
ended December 31, 2004, 2005 and 2006, amounted to W 12,870, W 12,180 and W
6,483, respectively.

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

41

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

development costs are expensed as incurred. The Company has
expensed W 183,567, W 100,201 and W 75,309 during the years ended December 31,
2004, 2005 and 2006, respectively.

Advertising Costs

The Company expenses advertising costs as they are incurred.
Advertising expense for the years ended December 31, 2004, 2005 and 2006 are W
30,749, W 40,266 and W 35,671, 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. As of December 31, 2006, the Company has net operating loss
of W 11,707,828.

Other Comprehensive Income

Other comprehensive income refers to revenues, expenses, gains
and losses that, under U.S GAAP are included in comprehensive income, but are
excluded from net income as these amounts are recorded directly as an adjustment
to shareholders deficiency. The Companys other comprehensive income is
primarily comprised of foreign currency translation gain (loss).

The Company appliesFASB No. 52, Foreign Currency
Translation, for translating foreign currency into Korean WON in our
consolidation of the financial statements. Upon consolidation of the Companys
foreign subsidiaries into the Companys consolidated financial statements, any
balances with the subsidiaries denominated in the foreign currency are
translated at the exchange rate at year end. The financial statements of
Meridian America Medicals, Inc. (MAMI) have been translated based upon US
Dollar as the functional currency. MAMIs assets and liabilities were translated
using the exchange rate at year end and income and expense items were translated
at the average exchange rate for the year. The resulting translation adjustment
was included in other comprehensive income (loss).

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).

Outstanding stock options are not included in the calculation
of diluted loss per share as their effect would be anti-dilutive.

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.

In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25). SFAS 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. Under
SFAS 123R, the Company is required to measure the cost of employee services
received

42

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

in exchange for stock options and similar awards based on the
grant-date fair value of the award and recognize this cost in the income
statement over the period during which an employee is required to provide
service in exchange for the award. The pro forma disclosures previously
permitted under SFAS 123 are no longer an alternative to financial statement
recognition. This new rule is effective from the annual reporting period
beginning after June 15, 2005. However, the Company did not recognize
compensation cost related with stock options for the year ended December 31,
2006 as the vesting period was completed up prior to 2004 for all outstanding
options.

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
295 Won and 607 Won respectively (See note 18).

Recent Accounting Pronouncements

In June 2006, the FASB issued FAS No. 155, Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109. Fin
48 is applicable to all income tax positions accounted for under FAS 109. Fin 48
addresses the determination of whether tax benefits (whether permanent or
temporary) claimed or expected to be claimed on a tax return should be recorded
in the financial statements. It provides a two-step structured approach to
accounting for uncertainty in income taxes that provides specific guidance on
recognition, measurement, and other aspect reporting and disclosing uncertain
tax positions. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company assesses tax positions taken in the financial statements and
evaluates quarterly for realizability on a more likely than not basis. The
Company does not believe adoption of FIN 48 will have a material effect on our
consolidated financial position, results of operations or cash flow.

In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157(SFAS 157), Fair Value Measurements, which
defines fair value, establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. SFAS 157 does not require any new
fair value measurements but rather eliminates inconsistencies in guidance found
in various prior accounting pronouncements. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. Earlier adoption is permitted, provided
the company has not yet issued financial statements, including for interim
period, for that fiscal year. The Company is currently evaluating the impact of
SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact
on our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans-An
Amendment of FASB No. 87, 88, 106 and 132(R)(SFAS 158). SFAS 158 requires
that the funded status of defined benefit postretirement plans be recognized on
the companys balance sheet, and changes in the funded status be reflected in
comprehensive income, effective for fiscal years ending after December 15, 2006.
The standard also requires companies to measure the funded status of the plan as
of the date of its fiscal year-end, effective for fiscal years ending after
December 15, 2008. The adoption of SFAS 158 did not have a material impact on
our consolidated financial positions, results of operations or cash flows.

In September 2006, the SEC issued SAB No. 108, Guidance re:
the Use of a Cumulative Effect Adjustment to Correct Immaterial Misstatements
(SAB 108). Registrants are required to apply the provisions of SAB 108 no
later than the annual financial statements for their first fiscal year ending
after November 15, 2006. The adoption of SAB 108 is not expected to have a
material impact on the Companys financial statements.

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 W 930.0: US$1, the US Federal Reserve Bank of New York noon buying
exchange rate in effect on December 29, 2006. 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.

43

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

4. Short-Term Loans

Short-term loans as of December 31, 2005 and 2006 are as
follows :

2005
    
    
    2006Sales Agent
      W
    212,329
    
      W
    218,485Others
    
    145,500
    
    
    -357,829
    
    
    218,485Allowance for doubtful accounts
    
    (339,760
    )
    
    (218,485
    )W
    18,069
    
      W
    -


5. Accounts Receivable

The following table presents trade and other accounts
receivable as at December 31, 2005 and 2006:

2005
    
    
    2006Trade
      W
    1,190,381
    
      W
    985,196Others
    
    83,617
    
    
    43,5391,273,998
    
    
    1,028,735Allowance for doubtful accounts
    
    (923,841
    )
    
    (574,988
    )Accounts Receivable, net
      W
    350,157
    
      W
    453,747


6. Inventories

Inventories are comprised of the following as at December 31,
2005 and 2006:

2005
    
    
    2006Merchandise
      W
    306,540
    
      W
    311,195Finished goods
    
    140,046
    
    
    73,112Work-in-process
    
    184,437
    
    
    116,598Raw material
    
    330,736
    
    
    266,293961,759
    
    
    767,198Reserves
    
    (473,304
    )
    
    (395,989
    )W
    488,455
    
      W
    371,209


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, 2005 and 2006 are as
follows:

2005
    
    
    2006Advance payments
      W
    691
    
      W
    21,337Prepaid income taxes
    
    4
    
    
    -Other
    
    1,054
    
    
    -W
    1,749
    
      W
    21,337


44

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

8. Investments

The Companys ownership percentages in an affiliate as of
December 31, 2005 and 2006 are as follows:

2005
      
      2006Beijing Meridian Medicals Equipment Co.,Ltd.
      25.0%
      
      25.0%


On November 10, 2001, the Company acquired 45% of the share
ownership in Beijing Meridian Medicals Equipment Co., Ltd. ("Beijing Meridian")
for W 76,956 in cash. The changes of ownership percentage occurred in 2002 and
2003 when Beijing Meridian issued additional capital stocks. The carrying
amounts of investments in Beijing Meridian as of December 31, 2005 and 2006 are
W 29,327 and W 27,316, respectively.

9. Property, Plant and Equipment

Property, plant and equipment are comprised of the following at
December 31, 2005 and 2006:

2005
    
    
    2006Machinery
      W
    54,661
    
      W
    54,254Vehicles
    
    54,084
    
    
    52,219Tools
    
    47,900
    
    
    47,900Furniture and fixtures
    
    795,798
    
    
    797,304952,443
    
    
    951,677Less accumulated depreciation
    
    (928,639
    )
    
    (935,131
    )Property, plant and equipment, net
      W
    23,804
    
      W
    16,546


Depreciation expenses for the years ended December 31, 2004,
2005 and 2006 are W 61,790, W 25,150 and W 8,763, respectively.

10. Patents and Trademarks

Patents and trademarks are comprised of the following at
December 31, 2005 and 2006:

2005
    
    
    2006Acquisition cost
      W
    5,466
    
      W
    5,466Less accumulated amortization
    
    (4,260
    )
    
    (4,523
    )Intangible assets, net
      W
    1,206
    
      W
    943


Amortization expenses for the years ended December 31, 2004,
2005 and 2006 are W 546, W 263 and W 263, respectively.

11. Short-Term Borrowings

Short-term borrowings as of December 31, 2005 and 2006 are as
follows:

AnnualCreditor
    
    interest rate
    
    
    2005
    
    
    2006Medison Co., Ltd.
    
    -
    
      W
    1,216
    
      W
    1,216Other (third party individuals )
    
      15 ~ 36%
    
    
    310,000
    
    
    329,000W
    311,216
    
      W
    330,216


45

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

12. Long-Term Borrowings

Long-term borrowings as of December 31, 2005 and 2006 are as
follows:

AnnualCreditor
    
    interest rate
    
    
    Final maturity
    
    
      2005
      
      
      2006Chohung Bank (Note a)
    
    3.5 %
    
    
    December 31, 2013
    
      W
    1,074,455
    
      W
    1,074,455Korea Technology CreditGuarantee Fund
    
    3.5 %
    
    
    December 31, 2013
    
    
    1,151,884
    
    
    1,151,884Korea Exchange Bank
    
    3.5 %
    
    
    December 31, 2013
    
    
    125,831
    
    
    125,831Woori Bank
    
    3.5 %
    
    
    December 31, 2013
    
    
    361,516
    
    
    361,516Small BusinessCorporation
    
    3.5 %
    
    
    December 31, 2013
    
    
    300,000
    
    
    300,000Shinhan Bank
    
    3.5 %
    
    
    December 31, 2013
    
    
    41,612
    
    
    41,612SMI a ABS SpecialtyCo., Ltd. (Note b)
    
    3.5 %
    
    
    December 31, 2013
    
    
    1,000,000
    
    
    1,000,000Rainbow Specialty SecCo., Ltd. (Note b)
    
    3.5 %
    
    
    December 31, 2013
    
    
    500,000
    
    
    500,0004,555,298
    
    
    4,555,298Less current portion
    
    
    
    
    
    
    
    -
    
    
    (650,757
    )W
    4,555,298
    
      W
    3,904,541


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

(Note a) Chohung Bank has been merged into Shinhan Bank as of
April 1, 2006.

(Note b) The Company had issued two series of non-guaranteed
corporate bonds in 2001. As explained in Note 1, the Company received an
approval for debt restructuring plan including debentures. As a result, 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, 2006, are as follows:

Restructured
      
      OriginalAmount
      
      Interest rate
      
      Maturity
      
      Interest rate
      
      Maturity1stdebentures
      W
      1,000,000
      
      3.5%
      
      December 
        31, 2013
      
      12.15%
      
      January 31, 
        20032nddebentures
      
      500,000
      
      3.5%
      
      December 
        31, 2013
      
      13.92%
      
      August 14, 
        2004W
      1,500,000


The repayment schedule for long-term borrowings as of December
31, 2006 is as follows:

Year
    
    Amount2007
      W
    650,7572008
    
    650,7572009
    
    650,7572010
    
    650,7572011
    
    650,7572012 and
      thereafter
    
    1,301,513W
    4,555,298


46

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

13. Accrued Severance Benefits

Changes in accrued severance benefits for the years ended
December 31, 2005 and 2006 are summarized as follows:

2005
    
    
    2006Accrued severance benefits at
      beginning of year
      W
    278,440
    
      W
    54,594Provision
    
    36,400
    
    
    36,710Payments
    
    (260,247
    )
    
    -Transfer to National Pension Fund
    
    (4,063
    )
    
    (4,063
    )50,530
    
    
    87,241Less current portion
    
    -
    
    
    (9,130
    )Balance at end of year
      W
    50,530
    
      W
    78,111


14. Shareholders Deficiency

The Companys capital stock consists entirely of common stock
with a par value of 100 Won and the number of authorized, issued and outstanding
shares as of December 31, 2005 and 2006 are as follows:

2005
    
    
    2006Authorized shares
    
    50,000,000
    
    
    50,000,000Issued and outstanding shares
    
    31,393,984
    
    
    31,393,984


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.

On June 20, 2005, the Company issued 2,400,000 shares of common
stock (par value 100 Won) in exchange for investor relations and marketing
services with the fair value to the Company of W 483,936. 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 has legally issued its shares and complied with the
filing requirements pursuant to the SEC regulations. However, 13,885,159 common
shares issued through S-8 registrations, (i) for acquisition of By George
Holdings, (ii) debt-for-equity swap on October 21, 2004 and (iii) service fee
for IR and marketing activities, have not been included in the Korean Commercial
Registration Office due to the different requirements of the share issuance
between the US and Korean Commercial Laws. The number of outstanding shares and
capital stock as of December 31, 2006 in SEC and in Korean Commercial
Registration Office are as follows:

Korean CommercialSEC
    
    Registration OfficeNumber of outstanding shares
    31,393,984 shares
    
    17,508,825 sharesCapital Stock
      W                             
        3,139,398
    
      W                                
        1,750,883


However, regardless of registration in Korean Commercial
Registration Office, every shareholders right and interest is not different.

15. Appropriation for Business Rationalization

The Company has appropriated W 267,608 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 for business
rationalization.

47

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

16. Selling, General and Administrative Expenses

Details of selling, general and administrative expenses for the
years ended December 31, 2004, 2005 and 2006 are as follows:

|                                                      |   | 2004      |  |   | 2005      |  |   | 2006      | 
|----------------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
|Salaries                                              | W | 552,667   |  | W | 515,208   |  | W | 456,982   | 
|Provision for retirement and severance
      benefits |   | 33,175    |  |   | 28,683    |  |   | 19,280    | 
|Other employee benefits                               |   | 74,597    |  |   | 53,946    |  |   | 46,053    | 
|Travel                                                |   | 9,947     |  |   | 7,664     |  |   | 2,410     | 
|Entertainment                                         |   | 3,846     |  |   | 4,504     |  |   | 1,562     | 
|Advertising                                           |   | 30,749    |  |   | 40,266    |  |   | 35,671    | 
|Communications                                        |   | 21,964    |  |   | 16,847    |  |   | 17,401    | 
|Commissions and fees                                  |   | 1,170,015 |  |   | 869,622   |  |   | 169,935   | 
|Insurance                                             |   | 9,105     |  |   | 9,954     |  |   | 8,279     | 
|Transportation                                        |   | 66,734    |  |   | 39,313    |  |   | 33,565    | 
|Depreciation                                          |   | 21,991    |  |   | 8,740     |  |   | 3,696     | 
|Amortization                                          |   | 547       |  |   | 263       |  |   | 263       | 
|Taxes and dues                                        |   | 41,528    |  |   | 16,399    |  |   | 43,406    | 
|Bad debt expenses                                     |   | -         |  |   | 360,003   |  |   | -         | 
|Rents                                                 |   | 83,109    |  |   | 114,346   |  |   | 132,756   | 
|Miscellaneous                                         |   | 158,123   |  |   | 107,213   |  |   | 139,848   | 
|                                                      | W | 2,278,097 |  | W | 2,192,971 |  | W | 1,111,107 | 

17. Income Taxes

Income (loss) before income taxes and tax provision for the
years ended December 31, 2004, 2005 and 2006 comprises of the followings:

2004
    
    
      2005
    
    
      2006Income (loss) before income
      taxes
      W
      (-) 2,055,827
    
      W
      (-) 3,349,406
    
      W
      (-) 324,747Income taxes  Current
    
      -
    
    
      -
    
    
      -Income taxes  Deferred
    
      -
    
    
      -
    
    
      -Total income taxes
      W
      -
    
      W
      -
    
      W
      -


The Company is subject to corporate income tax and resident
surtax normally at an aggregate rate of 14.3% on taxable income up to W 100,000
and 27.5% on taxable income over that amount. However, there were no income
taxes-current because the Company had net operating losses for income tax
purposes for the years ended December 31, 2004, 2005 and 2006.

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 as of December 31, 2005 and 2006
are as follows:

2005
    
    
    2006Temporary differences
      W
    1,231,487
    
      W
    390,459Tax credit carry forwards
    
    131,448
    
    
    80,062Net operating loss carry
      forwards for tax purpose
    
    2,317,463
    
    
    3,219,653Total deferred income tax assets
    
    3,680,398
    
    
    3,690,174Less valuation allowance
    
    (3,680,398
    )
    
    (3,690,174
    )Net deferred income tax assets
      W
    -
    
      W
    -


As of December 31, 2006, the Company has W 11,707,828 of net
operating loss carryforwards for income tax purposes, tax credit carryforwards
and accumulated deductible temporary differences. Realization of the future tax
benefits related to the deferred tax asset is

48

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

dependent on many factors, including the Companys ability to
generate taxable income within the period during which the temporary differences
reverse, 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, 2005 and 2006. Therefore, the management concluded that 100% of
valuation allowance is recorded in the Companys financial statements based on
the remote possibility to generate future taxable income within the period
during which the all temporary differences reverse.

18. 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
Stock Option Plan). 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, and (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, 2006, are presented below (in Korean Won):

Grant
    
    Options
    
      Type of
    
    Exercise
    
    Fair
    
      Service
    
      ExercisableDate
    
    Outstanding
    
      Stock Option
    
    Price
    
    Value
    
      Period
    
      PeriodFebruary 23, 2000
    
    206,475
    
      Issuance of 
        Common stock
    
    W 500
    
    W 295
    
      February, 2000 
        to
      January, 2003
    
      February, 2003 
        to
      January, 2007March 19, 2001
    
    147,875
    
      Issuance of 
        Common stock
    
      W 340
    
      W 607
    
      March, 2001 to February, 2004
    
      March, 2004 to February, 2008354,350


19. Loss Per Share

Loss per share is computed by dividing net loss by the
weighted-average number of shares outstanding during the year.

Diluted loss per share is computed in a manner consistent with
that of basic loss per share while giving effect to all potentially dilutive
common shares that were outstanding during the period. The Company has
potentially dilutive common shares as of December 31, 2004 and 2005, however
there were no dilutive effects as of December 31, 2004, 2005 and 2006.
Therefore, loss per share is same as the diluted loss per share.

20. Related Party Transactions

Significant account balance with related company as of December
31, 2005 and 2006 are summarized as follows:

|Related party                     |  | Account balance                          |  |   | 2005 |  |   | 2006 | 
|--------------------------------- |  | ---------------------------------------- |  | - | ---- |  | - | ---- | 
|                                  |  |                                          |  |   |      |  |   |      | 
|Beijing Meridian                  |  | Short-term loans,
      net of allowance |  |   |      |  |   |      | 
|Medical
      Equipment Co., Ltd. |  | of W 37,791                              |  | W | -    |  | W | -    | 

21. Statement of Cash Flows

(a) Transactions not involving cash

49

---

Meridian Co., Ltd. and Subsidiaries 
  Notes to Consolidated Financial Statements 
  (Korean Won (W) in thousands)

Significant non-cash investing and financing activities for the
year ended December 31, 2006 are summarized as follows:

|Allowance for doubtful accounts offset with
      accounts receivable             | W | 274,931 | 
|--------------------------------------------------------------------------------- | - | ------- | 
|Long-term borrowings transferred to current portion of
      long-term borrowings |   | 650,757 | 
|Long-term accounts payable transferred to
      current portion of long-term debt |   | 465,149 | 

(b) Interest paid

Interest paid in cash for the years ended December 31, 2004,
2005 and 2006 are as follows:

2004
    
    2005
    
    2006W          
         202,198
    
      W         
             649,382
    
      W          
         105,296


22. Segment Information

In 2006, the Company operated in one industry segment, the
development and manufacturing 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:

2004
    
    
    2005
    
    
    2006ExportU.S.A.
      W
    707,917
    
      W
    576,699
    
      W
    470,532Asia
    
    29,153
    
    
    -
    
    
    71,092Other
    
    946
    
    
    33,404
    
    
    56,372738,016
    
    
    610,103
    
    
    597,996Domestic Sales
    
    1,466,218
    
    
    824,416
    
    
    928,832W
    2,204,234
    
      W
    1,434,519
    
      W
    1,526,828


50

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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                 

51

---

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 13, 2007



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