---

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, 2007

[ ] 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 BLDG, 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 S

ecurities 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, 2007:
35,004,156

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 [ ]

---

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 basis of accounting the registrant
has used to prepare the financial statements included in this filing:

|U.S. GAAP [X] | International Financial Reporting Standards as
issued
by the International Accounting Standards Board [ ] | Other [ ]
|------------- | --------------------------------------------------------------------------------------------------------- | ---------

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                                       | 15
|ITEM
      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                         | 19
|ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                  | 21
|ITEM
      8. FINANCIAL INFORMATION                                                              | 22
|ITEM
      9. THE OFFER AND LISTING                                                              | 22
|ITEM
      10. ADDITIONAL INFORMATION                                                            | 23
|ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        | 28
|ITEM
      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.                           | 28
|ITEM
      13.DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES                                   | 28
|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 $0.10
at June 20, 2008 and US $0.09 at December 31, 2007).

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.

Currency Translation

In this annual report, references to "Won" or "\" 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 and presented in accordance with accounting principles generally accepted
in the United States for the fiscal years ended December 31, 2007, 2006 and
2005. Solely for the convenience of the reader and to improve clarity, certain
items in this annual report were expressed in US$ at specified rates. Those US$
amounts are not audited. All translations from Won to US$ were made (unless
otherwise indicated) at the noon buying rate in The City of New York for cable
transfers in Won per US$1.00 as certified for customs purposes by the Federal
Reserve Bank of New York in effect on December 31, 2007, which was Won 935.8 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 US$. On June 20, 2008 the exchange rate was Won 1031.5
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. ADVISERSNot Applicable

C. AUDITORSNot 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, 2007 and 2006 and for the
years ended December 31, 2007, 2006 and 2005 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, 2007, 2006, 2005, 2004 and 2003 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

4

---

December 31, 2007, 2006 and 2005) and by ShinHan Accounting
Corporation, independent accountants (for the fiscal years ended December 31,
2004 and 2003).

Our consolidated financial statements are compiled in Won and
presented in accordance with accounting principles generally accepted in the
United States.

|Meridian Co., Ltd. and Subsidiaries                                   
|----------------------------------------------------------------------
|Condensed Consolidated Statements of Operations                       
|For the years ended December 31, 2007, 2006, 2005, 2004
      and 2003
|(Korean Won (\) in thousands, except per share amounts)               

|                                        |   | 2007(1)(in US$) |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|--------------------------------------- | - | --------------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                        |   | (unaudited)     |   |   | 2007       |   |   | 2006       |   |   | 2005       |   |   | 2004       |   |   | 2003       |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Sales                                   | $ | 2,783,224       |   | \ | 2,604,541  |   | \ | 1,526,828  |   | \ | 1,434,519  |   | \ | 2,204,234  |   | \ | 3,441,119  |  
|Cost of sales                           |   | 875,634         |   |   | 819,418    |   |   | 591,819    |   |   | 1,099,194  |   |   | 1,214,803  |   |   | 1,490,837  |  
|Gross profit                            |   | 1,907,590       |   |   | 1,785,123  |   |   | 935,009    |   |   | 335,325    |   |   | 989,431    |   |   | 1,950,282  |  
|Operating expenses                      |   | 2,508,516       |   |   | 2,347,469  |   |   | 1,186,416  |   |   | 2,293,172  |   |   | 2,461,664  |   |   | 3,460,603  |  
|Loss from operations                    |   | (600,926        | ) |   | (562,346   | ) |   | (251,407   | ) |   | (1,957,847 | ) |   | (1,472,233 | ) |   | (1,510,322 | )
|Other expenses                          |   | (48,426         | ) |   | (45,317    | ) |   | (83,600    | ) |   | (1,424,510 | ) |   | (584,913   | ) |   | (641,349   | )
|Noncontrolling interest                 |   | -               |   |   | -          |   |   | 10,260     |   |   | 32,951     |   |   | 1,319      |   |   | -          |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Loss before income taxes                | $ | (649,352        | ) | \ | (607,663   | ) | \ | (324,747   | ) | \ | (3,349,406 | ) | \ | (2,055,827 | ) | \ | (2,151,672 | )
|Income taxes                            |   | -               |   |   | -          |   |   | -          |   |   | -          |   |   | -          |   |   | -          |  
|Net loss                                |   | (649,352        | ) |   | (607,663   | ) |   | (324,747   | ) |   | (3,349,406 | ) |   | (2,055,827 | ) |   | (2,151,672 | )
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Weighted average number of common       |   | 32,553,528      |   |   | 32,553,528 |   |   | 31,393,984 |   |   | 31,603,847 |   |   | 22,199,701 |   |   | 18,094,211 |  
|shares                                  |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Basic and diluted loss per common share | $ | (0.020          | ) | \ | (19        | ) | \ | (10        | ) | \ | (106       | ) | \ | (93        | ) | \ | (119       | )

|Condensed Consolidated Balance Sheets              
|---------------------------------------------------
|As of December 31, 2007, 2006, 2005, 2004, and 2003
|(Korean Won (\) in thousands)                      

|                                        |   | 2007(1)(in US$) |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|--------------------------------------- | - | --------------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                        |   | (unaudited)     |   |   | 2007       |   |   | 2006       |   |   | 2005       |   |   | 2004       |   |   | 2003       |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Cash and cash equivalents               | $ | 110,991         |   | \ | 103,865    |   | \ | 2,387      |   | \ | 22,967     |   | \ | 42,131     |   | \ | 37,292     |  
|Accounts receivable                     |   | 1,277,178       |   |   | 1,195,182  |   |   | 453,747    |   |   | 368,226    |   |   | 586,411    |   |   | 548,485    |  
|Inventories                             |   | 587,516         |   |   | 549,798    |   |   | 371,209    |   |   | 488,455    |   |   | 695,996    |   |   | 838,660    |  
|Other current assets                    |   | 25,532          |   |   | 23,893     |   |   | 21,337     |   |   | 1,749      |   |   | 188,614    |   |   | 38,011     |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Total current assets                    |   | 2,001,217       |   |   | 1,872,738  |   |   | 848,680    |   |   | 881,397    |   |   | 1,513,152  |   |   | 1,462,448  |  
|Property, plant and equipment, net      |   | 54,034          |   |   | 50,565     |   |   | 16,546     |   |   | 23,804     |   |   | 1,491,667  |   |   | 1,542,335  |  
|Investments and other assets            |   | 141,151         |   |   | 132,090    |   |   | 104,792    |   |   | 50,636     |   |   | 162,109    |   |   | 170,398    |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|TOTAL ASSETS                            | $ | 2,196,402       |   | \ | 2,055,393  |   | \ | 970,018    |   | \ | 955,837    |   | \ | 3,166,928  |   | \ | 3,175,181  |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|Trade accounts payable and current debt | $ | 4,762,910       |   | \ | 4,457,132  |   | \ | 5,085,477  |   | \ | 3,669,845  |   | \ | 3,297,535  |   | \ | 4,000,838  |  
|Long-term borrowings                    |   | 3,936,310       |   |   | 3,683,599  |   |   | 3,984,116  |   |   | 5,072,441  |   |   | 4,591,176  |   |   | 3,774,903  |  
|Shareholders deficiency                |   | (6,502,818      | ) |   | (6,085,338 | ) |   | (8,099,575 | ) |   | (7,786,449 | ) |   | (4,741,719 | ) |   | (4,600,560 | )
|Noncontrolling interest                 |   | -               |   |   | -          |   |   | -          |   |   | -          |   |   | 19,936     |   |   | -          |  
|                                        |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|TOTAL LIABILITIES AND                   |   |                 |   |   |            |   |   |            |   |   |            |   |   |            |   |   |            |  
|SHAREHOLDERS' DEFICIENCY                | $ | 2,196,402       |   | \ | 2,055,393  |   | \ | 970,018    |   | \ | 955,837    |   | \ | 3,166,928  |   | \ | 3,175,181  |  

(1) For convenience, 2007 financial statements in Won are also
expressed in US$ at the rate of (Won) 935.8 to US$ 1.00. The exchange rate in
effect on December 31, 2007 was published by the Federal Reserve Bank of New
York. This translation should not be construed as a representation that the Won
amounts represent, have been or could be converted to US$ at that rate or any
other rate.

5

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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.

|     |                      |                                  | ANNUAL | ANNUAL
|---- | -------------------- | -------------------------------- | ------ | ------
|YEAR | AT
      DECEMBER 31 | ANNUAL AVERAGE RATE PER $1.00 US | HIGH   | LOW   
|2007 | 935.8                | 929                              | 950.2  | 903.2 
|2006 | 930                  | 954.3                            | 1002.9 | 913.7 
|2005 | 1010                 | 1023.8                           | 1059.8 | 997   
|2004 | 1035.1               | 1139.3                           | 1195.1 | 1035.1
|2003 | 1192                 | 1193                             | 1262   | 1146  

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 may require additional funding, which may not be
available on favorable terms or at all.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 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 Meridian. The proceeds of 42,837 thousand Won from
foreclosure were used to pay debt principal, interest and other direct expenses
related to foreclosure.

Aside from the debt restructuring, Meridian had a borrowing
from Chohung Bank (Chohung Bank has been merged into Shinhan Bank as of April 1,
2006), which was not included in the original restructuring plan, as the bank
did not agreed to the terms. In December 2005, Chohung Bank exercised its
security right on the land and building, which had been provided as collaterals
by Meridian. The proceeds of 883,308 thousand Won from the foreclosure, was paid
to preemptive other creditors and Chochung Bank. Subsequent to the foreclosure,
the original debt restructuring plan was modified to include the outstanding
principal of 1,074,455 thousand Won to Chohung Bank.

The future payment schedule related to the above explained debt
restructuring including both principals and interests is summarized as follows
(Korean Won (\) in thousands):

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


6

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However, due to the recurring losses from operations, Meridian
was not able to meet the 2007 repayment schedule. As of December 31, 2007,
Meridian has not paid 650,757 thousand Won of principal and 487,388 thousand Won
of accrued interest outstanding to financial institutions, and 940,123 thousand
Won of accounts payable to various vendors.

In June, 2004, the Company received funds of US$530,000 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 twenty
non-U.S. investors for total 933,506 common shares at the price of 554 Won per
share and warrants to purchase 133,358 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.

In December 2007, the Company raised 1,779,000,000 Won from
forty nine non-U.S. investors for total 1,976,666 common shares at the price of
900 Won per share.

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 incurred significant operating losses in the
past and may not be able to achieve or sustain profitability in the
future.For the year ended December 31, 2007 the Company had a net loss
of 607,663 thousand won ($649,352) and an accumulated deficit of 16,058,106
thousand won ($17,159,764). 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.

The Company expects increasing 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.

The Company may need to upgrade products and develop new
technologies to be competitive in the market.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.

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.

The Company currently depends on a limited number of
domestic 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.

Macroeconomic factors in regional markets may adversely
affect the business.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

7

---

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 affect these companies could also have a
material adverse effect on the Company's business, results of operations and
financial condition.

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

Adequate Labor and Dependence upon Key personnel; No
Employment AgreementsThe 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.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

8

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achieve market acceptance. The pursuit of necessary
technological advances may require substantial time and expense. Failure in any
of these areas could harm the Company's anticipated operating results.

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

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

A limited number of customers generate a significant portion
of the Companys revenue.The Company's accounts receivable are derived
primarily from revenue earned from customers located in the U.S., Canada,
Europe, Japan and Korea. In fiscal 2007, 2006 and 2005, sales to the Company's
top 5 customers accounted for approximately 75%, 52% and 40% of net revenues,
respectively. As of December 31, 2007, 2006 and 2005, the Companys top 5
customers accounted for approximately 85%, 73% and 51% of trade accounts
receivable, respectively. A reduction, delay, or cancellation of orders from one
or more of these customers or the loss of one or more customer relationships
could significantly reduce the revenue.

Expansion of the Companys operations abroad is important to
its long-term successs, and its limited experience in the operation outside
Korea increases the risk that each international expansion efforts would not be
successful.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.

Shares Eligible for Future SalesThere has been no
sustained market for the Company's shares, and there can be no assurance that a
significant market will develop or be

9

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sustained. Future sales of substantial amounts of the Company's
shares (including shares issued upon exercise of options and warrants) in the
public market could adversely affect market prices prevailing from time to time
and could impair the Company's ability to raise capital through sales of the
Company's equity securities.

Country RisksThere 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.

Compliance with corporate governance regulations could
increase the cost of our operationsAs 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

Meridian Co., Ltd. (Meridian or the Company) was
incorporated in the Republic of 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 acquired 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 BLDG, 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.

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, Japan, EU, Turkey, Middle East, USA, Canada, and China,
Meridian continues to provide its superior product line to a growing number of
clients worldwide. Meridian has over 5,000 clients, which include physicians,
hospitals, healthcare professionals, medical device manufacturers, beauty salons
and health and fitness centers.

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. As a part of Companys continuing effort, the Company completed the
development of the Composition Corpulence Curer as an aid in the reduction of
body fat during 2002.

On September 26, 2001 the Beijing Meridian Medical Equipment
Co., Ltd. (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. 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.

11

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On March 4, 2002, Meridian acquired 100% ownership of Meridian
America Medicals, Inc. located in the city of Irvine, California, USA to
establish distribution post for the North American market. On December 13, 2004
and February 15, 2005, Meridian America Medicals, Inc. issued new common stock,
of which the shares were entirely subscribed by a non-controlling shareholder,
Meridian Medical, Inc. Consequently; the ownership by Meridian was diluted from
100% to 75.76% .

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 DPA
and Lapex-2000. 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 September 29, 2005, Meridian acquired 100% ownership of
Rapha & Health Co., Ltd. for 50 million Won in cash to systemize its sales
process in domestic (Korea) market. On June 7, 2006, Rapha & Health Co.,
Ltd. changed its name to Meitian Co., Ltd. However, Meitian Co., Ltd. closed
down in April 2008, so that Meridian could concentrate its resources on the
overseas markets.

As of December 31, 2007, the Company achieved more than $3.5
Million in sales to the U.S. market through MAMI and expects a further
significant increase in sales to the United States in the next year.

The Company currently sells four different products to
healthcare practitioners throughout the domestic and overseas market. These
include DPA (Digital Pulse Analyzer), Lapex-2000, Lapex BCS (Lapex-2000
LipoLaser), and Meridian II.

Products of the Company

The Meridian line of products includes DPA (Digital Pulse
Analyzer), Lapex-2000, LAPEX BCS (Lapex-2000 LipoLaser), 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, and 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

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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 BCS (Lapex-2000 LipoLaser)

LAPEX BCS is a modified version of the Lapex-2000 specifically
to target the growing obesity market. The LAPEX BCS'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/ 40mW) on adipose (fat) Cell.

Meridian-II

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

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

ASPECTS MERIDIAN-II DESCRIPTION

| | Features:                                                          
| | -------------------------------------------------------------------
| | Point finder (ARC)                                                 
| | MS WINDOWS 98                                                      
| | Acupuncture Point finder (ARC) / Better
      curative effect (UPM)
| | Easy operation (TOUCH SCREEN)                                      
| | Single body design                                                 
| |                                                                    
| | Structure:                                                         
| | Main body - CART in exclusive use PC:                              
| | P-233MHz CPU, 32MB MEMORY, 6.4GB HDD                               
| | WINDOWS 98 OS, 40X CD-ROM, AGP 4MB VGA                             

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Revenue by Geographic Market

Sales revenue is attributable to geographic locations based on
the location of the customer, as follows: (Korean Won (\) in thousands)

2007
    
    
    2006
    
    
    2005ExportU.S.A.
    \
    779,307
    
    \
    470,532
    
    \
    576,699Asia
    
    1,109,121
    
    
    71,092
    
    
    26,304Europe
    
    266,629
    
    
    -
    
    
    7,100Other
    
    111,036
    
    
    56,372
    
    
    -2,266,093
    
    
    597,996
    
    
    610,103Domestic Sales
    
    338,448
    
    
    928,832
    
    
    824,416\
    2,604,541
    
    \
    1,526,828
    
    \
    1,434,519


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 Electronic Device Market

The demand for medical electronic 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. In the fact,
World Medical Market reported that the global medical electronic device market
was valued at $176 billion in 2006, of which $97 billion was generated from the
U.S. market.

The U.S. is still the largest electronic 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 5.2 percent
between 2006 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 electronic device industry outside of the U.S. has
grown significantly in recent decades. In 2006, foreign markets accounted for 47
percent of the global medical device industry. Among these countries, Serbia
(12.4%), Russia (9.7%) and Ukraine (8.9%) have the highest growth rates while
top 3 markets, the US, Japan and Germany have 5.9%, 2.5% and 2.1% respectively.
(KHDI, Medical Device Industry Research, December 2006)

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

In 2007, Global Industry Analysts, Inc. reported that the
estimated size of the world medical laser system market US$4 billion in 2007.
United States is the largest market for medical laser systems worldwide at an
estimated US$2.4 billion in 2007. Europe is the second largest market followed
by Japan at a distant third. United States and Europe together account for about
82 percent of the global share. The global and regional markets are expected to
grow at CAGRs ranging between 9% and 13%. The expected global market value in
2010 is $5.8 billion.

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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 Bldg, 273-10, Seongsu-Dong 2ga, Seongdong-Gu, Seoul Korea 133-120.

As of December 31, 2007, the Company had two subsidiaries. The
acquisition dates and Meridian Co., Ltd.'s ownership percentages of its
consolidated subsidiaries as at December 31, 2007, 2006 and 2005 are as
follows:

|                 |                          |                         | Acquisition   | Percentage ownership at December 31,
|---------------- | ------------------------ | ----------------------- | ------------- | ------------------------------------
|Subsidiary       | Country of Incorporation | Primary Business        | Date          | 2007                                
|Meridian America |                          | Wholesale and retail of | March 4,      |                                     
|Medicals, Inc.   | USA                      | medical equipment       | 2002          | 75.76%                              
|                 |                          |                         | September 29, |                                     
|Meitian Co., Ltd |                          | "                       |               | 100.00%                             
|                 | Korea                    |                         | 2005          |                                     

On March 4, 2002, Meridian acquired 100% ownership of Meridian
America Medicals, Inc. located in the city of Irvine, California, USA to
establish distribution post for the North American market. On December 13, 2004
and February 15, 2005, Meridian America Medicals, Inc. issued new common stock,
of which the shares were entirely subscribed by a non-controlling shareholder,
Meridian Medical, Inc. Consequently; the ownership by Meridian was diluted from
100% to 75.76% .

On September 29, 2005, Meridian acquired 100% ownership of
Rapha & Health Co., Ltd. for 50 million Won in cash to systemize its sales
process in domestic (Korea) market. On June 7, 2006, Rapha & Health Co.,
Ltd. changed its name to Meitian Co., Ltd. However, Meitian Co., Ltd. closed
down in April 2008, so that Meridian could concentrate its resources on the
overseas markets.

Directors and Senior 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 Coordination and the Vice President of a Joint Corporation with Russia
(Ultramed) as a director of Medison Co., Ltd. Since 1994, Mr. Myeong has been
the President and CEO of the Company and is the founder of the Company.

IN BEOM PARK, Secretary and Director

Mr. Park graduated from the Seoul National University 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
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 1992 he was the Business Manager for
Hyundai Department Store, a subsidiary of KeumKang Development Industrial Co.,
Ltd. He established Samgong Distribution Co., Ltd., a 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.

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 current office
and factory at 3F, Poonglim Tech-One Bldg, 273-10, Seongsu-dong 2ga,
Seongdong-gu, Seoul, Korea in June 2006. 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 domestic
suppliers. Some of the components have been designed by the Company and/or are
custom manufactured to its specifications.

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

15

---

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 2007, 2006, and 2005

For the year ended December 31, 2007, the Company achieved
sales revenue of 2,604,541 thousand Won ($2,783,224) resulting in a gross profit
of 1,785,123 thousand Won ($1,907,590) compared with sales revenues of 1,526,828
thousand Won that resulted in a gross profit of 935,009 thousand Won for the
year ended December 31, 2006 and 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.

The sales revenue in 2007 has increased by 70.6% from 2006 and
was 81.6% higher than 2005, the gross profit in 2007 has increased by 90.9% from
2006 and has increased 432.4% from 2005. Moreover, the gross margin in 2007 was
68.5% compared to 61.2% in 2006 and 23.4% in 2005. The significant increases of
gross profit and gross margin in 2007 and 2006 were due to successful transition
of the Companys target market and its products that were generating larger
sales and higher margins. Sales of the Companys new products, Lapex BCS and DPA
was 93.8% of the total sales revenue in 2007 and 89.5% in 2006 compared with
59.8% in 2005. Especially, in 2007, the Company has successfully launched Lapex
BCS to Japan and Europe. As a result, the sales generated from oversea market
were 2,266,093 thousand Won ($2,421,557) and 87% of the total sales revenue of
the Company in 2007.

The Companys operating loss has increased to 562,346 thousand
Won ($600,926) in 2007 from the loss of 251,407 thousand Won in 2006 and from a
loss of 1,957,847 thousand Won in 2005. The increase in the operating loss in
2007 from 2006 and 2005 was due primarily to the increase of selling, general
and administrative expenses. The total operating expense in 2007 was 2,042,162
thousand Won ($2,182,264), 83.8% increase from 2006, due to increases in
salaries, and commissions and fees for the expansion of the Companys operations
and new market (region) preparation.

For the research and development, the Company has expensed
305,307 thousand Won ($326,252), 75,309 thousand Won and 100,201 thousand Won
during the years ended December 31, 2007, 2006 and 2005, respectively. In the
same period, working capital deficit has decreased to 2,584,394 thousand Won
($2,761,693) at December 31, 2007 from working capital deficits of 4,237,797
thousand Won and 2,788,448 thousand Won at December 31, 2006 and 2005,
respectively.

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, |  
|--------------------------------------------------------- | --- | -------------------------------- | -
|                                                          |     | 2007(1)                          |  
|                                                          |     |                                  |  
|Net cash provided by (used in) operating
      activities | US$ | (2,082,805                       | )
|Net cash provided by (used in) investing activities       |     | (102,574                         | )
|Net cash provided by (used in) financing
      activities |     | 2,293,818                        |  
|Net increase(decrease) in cash                            |     | 108,439                          |  
|Cash at beginning of period                               |     | 2,552                            |  
|Cash at end of period                                     |     | 110,991                          |  

Note:     For the convenience of
the reader, the Won amounts are expressed in US$ at the rate of Won 935.8 to
US$1.00, the exchange rate announced by the Federal Reserve Bank of New York on
December 31, 2007.

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

Net cash used in operating activities was Won 1949,090 thousand
($2,082,805) in 2007, Won 165,145 thousand in 2006 and Won 1,108,499 thousand in
2005. 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.

16

---

Net cash used in investing activities was Won 95,988 thousand
($102,574) in 2007, mainly due to the increase of the tangible asset
acquisitions. We generated positive cash flow from investing activities of Won
125,565 thousand in 2006, mainly from the decrease in short-term loans. Net cash
provided by investing activities was Won 923,606 thousand in 2005, primarily due
to proceeds from the sale of our plant and equipment in 2005.

Net cash provided by financing activities was Won 2,146,556
thousand ($2,293,818) in 2007, reflecting the increase in our capital stock. 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.

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 and Japan Industrial Property Office. The
Company also has 1 pending patent under the Patent Cooperation Treaty as well as
the United States and EU, China, Canada. 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              | PCT  KR20061000694 | May  06                  
|Adipose Resolve Apparatus for Low-Power LASER: Japan                  | 2008-511428         | May  08                  
|Adipose Resolve Apparatus for Low-Power
      LASER: USA (pending)    | 11-577356           | May  07                  
|Adipose Resolve Apparatus for Low-Power LASER: EU
      (pending)     | -                   | September  07            
|Adipose Resolve Apparatus for Low-Power
      LASER: Canada (pending) | 200680004048        | August  07               
|Adipose Resolve Apparatus for Low-Power LASER: China
      (pending)  | -                   | August  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            

17

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|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.
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. 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), DPA (Digital Pulse Analyzer)                                                           
|China         | SDA                                 | Meridian-II, ABR  2000,
      Lapex-2000                                                                                                   
|U.S.A.        | FDA                                 | Meridian-II,
      Meridian Portable, Lapex-2000, ABR-2000, Digital Pulse Analyzer
      Lapex-2000 LipoLaser (pending), Lapex-BCS (pending)
|Canada        | Health Canada                       | DPA (Digital Pulse Analyzer),
      Lapex-2000 LipoLaser                                                                                    
|South America | FIP                                 | Meridian-II, ABR
       2000, Lapex-2000                                                                                                   
|EU            | CE EMC, CE LVD CE MDD               | Lapex-2000 (Lapex BCS): CE LVD,
      CE EMC DPA: CE MDD                                                                                    
|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, Europe and Japan. From 2005, the Company is in
transition of its target market, mainly preventive medicine and medical laser
market with Lapex-BCS (LipoLaser) and DPA. These two products contributed 94% of
the total sales revenue in 2007 and 90% in 2006. In 2007, the sales portions
from the US, Europe and Asia (excluding Korea) were 30%, 10% and 43% of the
total revenue of the Company.

E. OFF-BALANCE SHEET ARRANGEMENTS

Not applicable.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

|                               |   | Payments due (by period) (Korean
      Won (\) in thousands) | 
|------------------------------ | - | ------------------------------------------------------------ | 
|                               |   |                                                              | 
|Contractual Obligations        |   | Total                                                        | 
|Long-term accounts payable     | \ | 1,252,017                                                    | 
|Lease obligations              |   | 55,616                                                       | 
|                               |   |                                                              | 
|Long-term debt obligations (1) |   | 3,055,298                                                    | 

18

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|Debentures(2)         |   | 1,500,000 |  |   | 428,572   |  |   | 428,571   |  |   | 428,570   |  |   | 214,287 | 
|--------------------- | - | --------- |  | - | --------- |  | - | --------- |  | - | --------- |  | - | ------- | 
|Subtotal  borrowings |   | 4,555,298 |  |   | 1,301,514 |  |   | 1,301,513 |  |   | 1,301,512 |  |   | 650,759 | 
|Grand total           | \ | 5,862,931 |  | \ | 2,297,253 |  | \ | 1,613,407 |  | \ | 1,301,512 |  | \ | 650,759 | 

(1) See Note 11. Long-Term Borrowings of consolidated
financial statements.

(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).

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

See Item 4.C.

B. COMPENSATION

|Name & Principal (Position)                          |  | Year |  |  | Salary |  |  | Bonus |  |  | Accrued Severance |  |  | All Other    | 
|---------------------------------------------------- |  | ---- |  |  | ------ |  |  | ----- |  |  | ----------------- |  |  | ------------ | 
|                                                     |  |      |  |  | (US$)  |  |  | (US$) |  |  | Benefits (US$)    |  |  | Compensation | 
|Myeong, Hyeon-Seong (Director, President,
      CEO) |  | 2007 |  |  | 62,834 |  |  | Nil   |  |  | 68,808            |  |  | Nil          | 
|Park, In Beom (Director, General Manager)            |  | 2007 |  |  | 53,858 |  |  | Nil   |  |  | 9,724             |  |  | Nil          | 
|Soon Woong Jang                                      |  | 2007 |  |  | Nil    |  |  | Nil   |  |  | Nil               |  |  | Nil          | 

*Hyeon Seong Myeong was granted options for 2,218 shares of the
Companys common stock at the price of 680 Won in March 2001 (expired in
February 2008).

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

Employment Contracts with employees and officersThe
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 21 employees in the following areas:

Department
    Number of EmployeesFinance and Accounting
    4Sales
    4Customer Support
    2Business Administration
    1Research and Development
    3Technical Support
    4Purchasing
    1Quality Control
    2Total
    21


There were no significant changes in number of employees during
the past three years.

E. SHARE OWNERSHIP

19

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The following table sets forth certain information regarding
the beneficial ownership of the common stock of the Company as of December 31,
2007 and June 20, 2008, (a) each of the Companys directors and officers, and
(b) all directors and officers of the Company, as a group:

|Name and address of beneficial owner                                                                       | Amount Stock          | Percentage of           | Percentage of            
|---------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | -------------------------
|and position with the company                                                                              | Beneficially Owned    | Class as of Dec.31,2007 | Class as of June 20, 2008
|                                                                                                           |                       |                         |                          
|Myeong, Hyeong-seong. (President, CEO
      and Director) #997-4 Daechi-dong Gangnam-gu, Seoul, Korea      | 971,500 common shares | 2.78%                   | 2.78%                    
|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               | 2,78%                   | 2.78%                    

Stock Option PlansUnder 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 willful 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, practicing 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; and.

20

---

- stock option holders shall be entitled to exercise their stock options
  only after having served in the Company for two (2) years.

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.

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, 2007 and June 20, 2008),
by each person known to us to own beneficially more than five percent (5%) of
our shares.

|Name and address                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Amount Stock                  | Percentage of Class | Percentage of Class | Number of        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | ------------------- | ------------------- | -----------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Beneficially Owned            | of Dec.31, 2007     | of June 20,2008     | Stock Option Held
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                               |                     |                     |                  
|Terasource Funds (Muhan Investment Co.,
      Ltd.) including: Terasource Kosdaq Venture Investment
      (2,066,700 common shares); Terasource Venture Investment Capital
      (403,900 common shares); Terasource Venture Capital Fund 2
      (1,070,270 common shares); Terasource Venture Capital Fund 3
      (1,551,350 common shares); Terasource Venture Capital Fund 4
      (378,380 common shares); 8FR Dongshin Bldg. 141-30
      Samseong-dong, Kangnam-gu Seoul, Korea                      | 5,470,600 common
      shares | 15.63%              | 15.63%              | Nil              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                               |                     |                     |                  
|The Hong Group of Companies including:
      Serome Investment Co. Ltd. (1,085,675shares), 151-7 Samseong-Dong
      Kangnam-Gu Seoul Korea; Mok-Won Assets Management Co. Ltd
      (1,375,000 shares),2004 Ho, Anam tower 702-10 Yuksam-dong
      Kangnam-ku, Seoul, Korea; Bio & Medical Research Co. Ltd. (524,425
      shares), 702-10 Yuksam-dong, Kangnam-ku, Seoul, Korea; Ki-tae Hong
      (127,800 shares) and Hye-sook Lee (213,000 shares)151-7 Samseong-Dong,
      Kangnam-Gu, Seoul, Korea | 3,325,900
      common shares | 9.50%               | 9.50%               | Nil              
|Note: Every shareholders right and interest is
      not different.                                                                                                                                                                                                                                                                                                                                                                                                                                         |                               |                     |                    

Securities held in the host countryThe 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, 2007 in SEC and in Korean Commercial Registration Office are as
follows: (Korean Won (\) in thousands,)

Korean CommercialSEC
    
    
    Registration OfficeNumber of outstanding shares
    
    35,004,156 shares
    
    
    19,421,182 sharesCapital Stock
    \
    3,500,4156
    
    \
    1,942,118


21

---

Related party transactionsThere 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 20 to the consolidated financial statements.

ITEM 8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION

See Item 18- Financial Statements

Legal ProceedingsOn 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.

Meridian America Medical Inc., a subsidiary of Meridian Co.,
Ltd. was served in October 2007 as a defendant in a lawsuit claiming trademark
infringement and false advertising filed by Therapy Products, Inc. d/b/a
Erchonia Medical to the United States District Court for the Southern District
of New York. Fact discovery has been ongoing and is scheduled to be completed
June 30, 2008. We anticipate making summary judgment motions in October 2008
that we hope will result in a ruling that Erchonias claims will be dismissed.
We are also scheduled for court-ordered mediation on July 1, 2008.

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

B. SIGNIFICANT CHANGES

On April 30, 2008, Meitian Co., Ltd., a subsidiary in Korea,
closed down and discontinued its operations. The decision was made by management
to concentrate the Companys resources on growing overseas markets.

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 Lows2006
    0.74
    0.112005
    0.48
    0.22004
    0.58
    0.2


22

---

2003
    0.51
    0.065Quarterly Highs and Lows2007Fourth Quarter
    1.45
    1.15Third Quarter
    1.54
    0.83Second Quarter
    0.87
    0.7First Quarter
    0.82
    0.42006Fourth Quarter
    0.74
    0.35Third Quarter
    0.55
    0.11Second Quarter
    0.31
    0.17First Quarter
    0.26
    0.17Monthly Highs and Lows2008May
    1.15
    0.72April
    0.75
    0.65March
    0.99
    0.6February
    1.2
    0.96January
    1.35
    1.102007December
    1.32
    1.15


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

Not applicable.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

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, 2007 there were 35,004,156

23

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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.

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

Distribution of Free SharesIn 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
SharesThe 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

24

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

Voting RightsHolders 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 ReportsAt 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 SharesUnder the Commercial Code, the
transfer of shares is affected 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 SharesThe 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.

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Liquidation RightsIn 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 RecordsUnder 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

Not applicable.

D. EXCHANGE CONTROLS

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

Government Reporting RequirementsIn 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 WonThe 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 TAXATIONThe 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 DividendsFor 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

26

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

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

Securities Transaction TaxUnder 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 TaxUnder 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 TaxesUnder 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;

27

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

F. DIVIDENDS AND PAYING AGENTNot applicable.

G. STATEMENTS BY EXPERTSNot applicable.

H. DOCUMENTS ON DISPLAYNot applicable

I. SUBSIDIARY INFORMATIONSee Note 2 of the
Consolidated Financial Statements.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Market Risk DisclosureMarket 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, 2007, the Company had an aggregate 2,266,093 thousand
Won export sales, accounting for 87% 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, 2007, 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, 2007, the Company estimates that the payment receivable from its
overseas customers will decrease by approximately 226,609 thousand Won
($242,155) in 2007. 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,
2007, 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 196,910
thousand Won ($210,419) to the federal tax office and the default interest
payment of 487,388 thousand Won ($520,825).

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Due to the recurring losses from operations, Meridian was not
able to meet the repayment schedule. As of December 31, 2007, Meridian has not
paid 650,757 thousand Won of principal and 487,388 thousand Won of accrued
interest outstanding to financial institutions, and 940,123 thousand Won of
accounts payable to various vendors.

The details of the debt restructuring of the Company, which is
disclosed in Item 8. and Note 2 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 PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

A. Disclosure Controls and ProceduresOur management
has evaluated, with the participation of our Chief Executive Officer and
Director, the effectiveness of our disclosure controls and procedures, as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of
December 31, 2007. There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives. Based upon our
evaluation, our Chief Executive Officer and Director concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this report. Our disclosure controls and procedures are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commissions rules and forms,
and that it is accumulated and communicated to our management, including our
Chief Executive Officer and Director, as appropriate to allow timely decisions
regarding required disclosure.

B. Managements Annual Report on Internal Control over
Financial ReportingOur management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our internal
control over financial reporting is a process designed by, and under the
supervision of, our principal executive, principal operating and principal
financial officers, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.

Our management has completed an assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2007 based
on criteria in Internal Control  Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, management concluded that our internal control over financial
reporting was effective as of December 31, 2007.

C. Attestation Report of the Independent Registered Public
Accounting FirmNot applicable.

D. Changes in Internal Control over Financial
ReportingThere has been no change in our internal control over financial
reporting that occurred during the year covered by this annual report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

29

---

The Company does not yet have an audit committee financial
expert.

ITEM 16B. CODE OF ETHICS

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

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

(a)Audit Fees: For the fiscal year 2006, the Company was
charged 57,543,620 Won ($61,750) 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 2006.

(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 STATEMENTS

The Company has responded to Item 18 in lieu of this item.

30

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ITEM 18. FINACIAL STATEMENTS

Meridian Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS

For the Years ended December 31, 2007, 2006 and 2005

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                      

31

---

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, 2007 and 2006, and the related consolidated statements of operations, shareholders’ deficiency, and cash flows for the years ended December 31, 2007, 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, 2007 and 2006, and the results of their operations and cash flows for the years ended December 31, 2007, 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 2 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 18, 2008

32

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|Meridian Co., Ltd. and Subsidiaries
|-----------------------------------
|Consolidated Balance Sheets        
|As of December 31, 2007 and 2006   
|(in thousands of Korean Won (\))   

|                                                                           |   | 2007 (in US$) |  |   |           |  |  |   |         | 
|-------------------------------------------------------------------------- | - | ------------- |  | - | --------- |  |  | - | ------- | 
|                                                                           |   | (Note 4)      |  |   |           |  |  |   |         | 
|A S S E T
      S                                                          |   | (unaudited)   |  |   | 2007      |  |  |   | 2006    | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|Current assets :                                                           |   |               |  |   |           |  |  |   |         | 
|Cash and cash equivalents (Note 3)                                         | $ | 110,991       |  | \ | 103,865   |  |  | \ | 2,387   | 
|Trade accounts receivable - less
      allowance for doubtful accounts     |   |               |  |   |           |  |  |   |         | 
|of 534,484 (USD 571,152) in 2007
      and 571,968 in 2006 (Notes 3 and 5) |   | 1,223,354     |  |   | 1,144,814 |  |  |   | 413,228 | 
|Short-term loans - less allowance
      for doubtful accounts              |   |               |  |   |           |  |  |   |         | 
|of 218,485 (USD 233,474) in 2007
      and 218,485 in 2006                 |   | 10,686        |  |   | 10,000    |  |  |   | -       | 
|Other accounts receivable - less
      allowance for doubtful accounts     |   |               |  |   |           |  |  |   |         | 
|of 3,020 (USD 3,227) in 2007 and
      3,020 in 2006                       |   | 43,138        |  |   | 40,368    |  |  |   | 40,519  | 
|Inventories (Note 6)                                                       |   | 587,516       |  |   | 549,798   |  |  |   | 371,209 | 
|Other current assets                                                       |   | 25,532        |  |   | 23,893    |  |  |   | 21,337  | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|Total current assets                                                       |   | 2,001,217     |  |   | 1,872,738 |  |  |   | 848,680 | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|Property, plant and equipment, net (Notes 3
      and 7)                   |   | 54,034        |  |   | 50,565    |  |  |   | 16,546  | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|Investments and other assets :                                             |   |               |  |   |           |  |  |   |         | 
|Investments (Note 8)                                                       |   | 30,900        |  |   | 28,917    |  |  |   | 27,316  | 
|Security deposits                                                          |   | 109,445       |  |   | 102,419   |  |  |   | 76,533  | 
|Patents and trademarks, net of amortization (Notes
      3 and 9)          |   | 806           |  |   | 754       |  |  |   | 943     | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|Total investments and other assets                                         |   | 141,151       |  |   | 132,090   |  |  |   | 104,792 | 
|                                                                           |   |               |  |   |           |  |  |   |         | 
|TOTAL ASSETS                                                               | $ | 2,196,402     |  | \ | 2,055,393 |  |  | \ | 970,018 | 

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

33

---

|(Continued)                        
|-----------------------------------
|Meridian Co., Ltd. and Subsidiaries
|Consolidated Balance Sheets        
|As of December 31, 2007 and 2006   
|(in thousands of Korean Won (\))   

|                                                                                |   | 2007 (in US$) |   |   |             |   |   |             |  
|------------------------------------------------------------------------------- | - | ------------- | - | - | ----------- | - | - | ----------- | -
|                                                                                |   | (Note 4)      |   |   |             |   |   |             |  
|LIABILITIES AND SHAREHOLDERS' DEFICIENCY                                        |   | (unaudited)   |   |   | 2007        |   |   | 2006        |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Current liabilities                                                             |   |               |   |   |             |   |   |             |  
|Accounts payable                                                                | $ | 1,299,221     |   | \ | 1,215,811   |   | \ | 1,751,943   |  
|Current portion of long-term accounts
      payable (Note 2)                    |   | 1,004,619     |   |   | 940,123     |   |   | 1,278,761   |  
|Short-term borrowings (Note 10)                                                 |   | 207,961       |   |   | 194,610     |   |   | 330,216     |  
|Current portion of long-term borrowings
      (Note 11)                         |   | 1,390,803     |   |   | 1,301,514   |   |   | 650,757     |  
|Other current liabilities                                                       |   | 790,574       |   |   | 739,819     |   |   | 1,035,343   |  
|Deferred warranty revenue                                                       |   | 69,732        |   |   | 65,255      |   |   | 38,457      |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Total current liabilities                                                       |   | 4,762,910     |   |   | 4,457,132   |   |   | 5,085,477   |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Long-term accounts payable (Note 2)                                             |   | 333,291       |   |   | 311,894     |   |   | 1,464       |  
|Long-term borrowings (Note 11)                                                  |   | 3,477,008     |   |   | 3,253,784   |   |   | 3,904,541   |  
|Accrued severence benefits (Note 12)                                            |   | 126,011       |   |   | 117,921     |   |   | 78,111      |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Total liabilities                                                               |   | 8,699,220     |   |   | 8,140,731   |   |   | 9,069,593   |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Commitments (Note 13)                                                           |   | -             |   |   | -           |   |   | -           |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Shareholders' deficiency (Notes 14 and 15)                                      |   |               |   |   |             |   |   |             |  
|Meridian Co. shareholders' equity                                               |   |               |   |   |             |   |   |             |  
|Common stock - par
      value 100 WON per share; 50 million shares authorized; |   |               |   |   |             |   |   |             |  
|issued and outstanding 35,004
      thousand shares and 31,394 thousand shares  |   | 3,740,560     |   |   | 3,500,415   |   |   | 3,139,398   |  
|at December 31,
      2007 and December 31, 2006, respectively                  |   |               |   |   |             |   |   |             |  
|Additional paid-in capital                                                      |   | 6,614,323     |   |   | 6,189,683   |   |   | 3,929,900   |  
|Appropriation for
      business rationalization (Note 15)                      |   | 285,968       |   |   | 267,608     |   |   | 267,608     |  
|Accumulated deficit                                                             |   | (17,159,764   | ) |   | (16,058,106 | ) |   | (15,450,443 | )
|Accumulated other
      comprehensive income (loss)                             |   | 16,095        |   |   | 15,062      |   |   | 13,962      |  
|Noncontrolling interest                                                         |   | -             |   |   | -           |   |   | -           |  
|                                                                                |   |               |   |   |             |   |   |             |  
|Total shareholders'
      deficiency                                            |   | (6,502,818    | ) |   | (6,085,338  | ) |   | (8,099,575  | )
|                                                                                |   |               |   |   |             |   |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS'
      DEFICIENCY                            | $ | 2,196,402     |   | \ | 2,055,393   |   | \ | 970,018     |  

34

---

|Meridian Co., Ltd. and Subsidiaries                             
|----------------------------------------------------------------
|Consolidated Statements of Operations                           
|For the Years Ended December 31, 2007, 2006 and 2005            
|(in thousands of Korean Won (\), except per share
      amounts)

|                                                                 |   | 2007 (in US$) |   |   |            |   |   |            |   |   |            |  
|---------------------------------------------------------------- | - | ------------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                 |   | (Note 4)      |   |   |            |   |   |            |   |   |            |  
|                                                                 |   | (unaudited)   |   |   | 2007       |   |   | 2006       |   |   | 2005       |  
|                                                                 |   |               |   |   |            |   |   |            |   |   |            |  
|Sales (Notes 3 and 22)                                           | $ | 2,783,224     |   | \ | 2,604,541  |   | \ | 1,526,828  |   | \ | 1,434,519  |  
|Cost of sales                                                    |   | 875,634       |   |   | 819,418    |   |   | 591,819    |   |   | 1,099,194  |  
|Gross profit                                                     |   | 1,907,590     |   |   | 1,785,123  |   |   | 935,009    |   |   | 335,325    |  
|Selling, general and administrative expenses (Note 16)           |   | 2,182,264     |   |   | 2,042,162  |   |   | 1,111,107  |   |   | 2,192,971  |  
|Research and development expenses                                |   | 326,252       |   |   | 305,307    |   |   | 75,309     |   |   | 100,201    |  
|Loss from operations                                             |   | (600,926      | ) |   | (562,346   | ) |   | (251,407   | ) |   | (1,957,847 | )
|Other income (expense)                                           |   |               |   |   |            |   |   |            |   |   |            |  
|Interest income                                                  |   | 92            |   |   | 87         |   |   | 30         |   |   | 2,307      |  
|Interest expense                                                 |   | (251,934      | ) |   | (235,760   | ) |   | (246,523   | ) |   | (806,908   | )
|Foreign transaction gain(loss), net                              |   | (11,140       | ) |   | (10,425    | ) |   | (9,029     | ) |   | 1,758      |  
|Other, net                                                       |   | 214,556       |   |   | 200,781    |   |   | 171,922    |   |   | (621,667   | )
|Total other expense                                              |   | (48,426       | ) |   | (45,317    | ) |   | (83,600    | ) |   | (1,424,510 | )
|Minority interest in net loss of consolidated
      subsidiaries |   | -             |   |   | -          |   |   | 10,260     |   |   | 32,951     |  
|Loss before income taxes                                         |   | (649,352      | ) |   | (607,663   | ) |   | (324,747   | ) |   | (3,349,406 | )
|Income taxes (Note 17)                                           |   | -             |   |   | -          |   |   | -          |   |   | -          |  
|Net loss                                                         | $ | (649,352      | ) | \ | (607,663   | ) | \ | (324,747   | ) | \ | (3,349,406 | )
|                                                                 |   |               |   |   |            |   |   |            |   |   |            |  
|Net loss per common share (Note 19)                              |   |               |   |   |            |   |   |            |   |   |            |  
|Basic and diluted                                                | $ | -0.020        |   | \ | (19        | ) | \ | (10        | ) | \ | (106       | )
|Weighted average number of common shares                         |   |               |   |   |            |   |   |            |   |   |            |  
|Basic and diluted                                                |   | 32,553,528    |   |   | 32,553,528 |   |   | 31,393,984 |   |   | 31,603,847 |  

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

35

---

|Meridian Co., Ltd. and Subsidiaries                                
|-------------------------------------------------------------------
|Consolidated Statement of Changes in Shareholders'
      Deficiency
|For the Years Ended December 31, 2007, 2006 and 2005               
|(in thousands of Korean Won (\), except per share
      amounts)   

|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   | Accumulated   |   |   |            |  
|------------------------------------------------ |  | ------------------- | - | - | ---------- | - | - | --------- | - | - | ----------- | - | - | ------------- | - | - | ---------- | -
|                                                 |  | Common Stock Issued |   |   | Additional |   |   |           |   |   | Other       |   |   |               |  
|                                                 |  |                     |   |   |            |   |   | Paid-in   |   |   | Accumulated |   |   | Comprehensive |   |   |            |  
|                                                 |  | Shares              |   |   | Amount     |   |   | Capital   |   |   | Deficit     |   |   | Income (Loss) |   |   | Total      |  
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Balance at January 1, 2005                       |  | 29,993,984          |   | \ | 2,999,398  |   | \ | 3,724,910 |   | \ | (11,463,996 | ) | \ | (2,034        | ) | \ | (4,741,722 | )
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Issuance of common shares                        |  | 2,400,000           |   |   | 240,000    |   |   | 243,936   |   |   | -           |   |   | -             |   |   | 483,936    |  
|Return 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    |   |   | -           |   |   | -             |   |   | 31,710     |  
|Net income (loss)                                |  | -                   |   |   | -          |   |   | -         |   |   | (3,349,406  | ) |   | -             |   |   | (3,349,406 | )
|Losses in excess of minority interests           |  | -                   |   |   | -          |   |   | -         |   |   | (41,909     | ) |   | -             |   |   | (41,909    | )
|Other comprehensive income (loss):               |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Cumulative translation adjustment                |  | -                   |   |   | -          |   |   | -         |   |   | -           |   |   | 4,376         |   |   | 4,376      |  
|Balance at December 31, 2005                     |  | 31,393,984          |   | \ | 3,139,398  |   | \ | 3,929,900 |   | \ | (14,855,311 | ) | \ | 2,342         |   | \ | (7,783,671 | )
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Net income (loss)                                |  | -                   |   |   | -          |   |   | -         |   |   | (324,747    | ) |   | -             |   |   | (324,747   | )
|Losses in excess of minority interests           |  | -                   |   |   | -          |   |   | -         |   |   | (2,777      | ) |   | -             |   |   | (2,777     | )
|Other comprehensive income (loss):               |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Cumulative translation adjustment                |  | -                   |   |   | -          |   |   | -         |   |   | -           |   |   | 11,620        |   |   | 11,620     |  
|Balance at December 31, 2006                     |  | 31,393,984          |   | \ | 3,139,398  |   | \ | 3,929,900 |   | \ | (15,182,835 | ) | \ | 13,962        |   |   | (8,099,575 | )
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Issuance of common shares                        |  | 3,610,172           |   |   | 361,017    |   |   | 2,259,783 |   |   | -           |   |   | -             |   |   | 2,620,800  |  
|Net income (loss)                                |  | -                   |   |   | -          |   |   | -         |   |   | (607,663    | ) |   | -             |   |   | (607,663   | )
|Other comprehensive income (loss):               |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Cumulative translation adjustment                |  | -                   |   |   | -          |   |   | -         |   |   | -           |   |   | 1,100         |   |   | 1,100      |  
|Balance at December 31, 2007                     |  | 35,004,156          |   | \ | 3,500,415  |   | \ | 6,189,683 |   | \ | (15,790,498 | ) | \ | 15,062        |   | \ | (6,085,338 | )
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Balance at December 31, 2006 (in US$) (Note 4)   |  | 31,393,984          |   | $ | 3,354,775  |   | $ | 4,199,509 |   | $ | (16,224,444 | ) | $ | 14,920        |   | $ | (8,655,240 | )
|                                                 |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Issuance of common shares                        |  | 3,610,172           |   |   | 385,785    |   |   | 2,414,814 |   |   | -           |   |   | -             |   |   | 2,800,599  |  
|Net income (loss)                                |  | -                   |   |   | -          |   |   | -         |   |   | (649,352    | ) |   | -             |   |   | (649,352   | )
|Other comprehensive income (loss):               |  |                     |   |   |            |   |   |           |   |   |             |   |   |               |   |   |            |  
|Cumulative translation adjustment                |  | -                   |   |   | -          |   |   | -         |   |   | -           |   |   | 1,175         |   |   | 1,175      |  
|Balance at December 31, 2007                     |  | 35,004,156          |   | $ | 3,740,560  |   | $ | 6,614,323 |   | $ | (16,873,796 | ) | $ | 16,095        |   | $ | (6,502,818 | )

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

36

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|Meridian Co., Ltd. and Subsidiaries                 
|----------------------------------------------------
|Consolidated Statements of Cash Flows               
|For the Years Ended December 31, 2007, 2006 and 2005
|(in thousands of Korean Won (\))                    

|                                                                     |   | 2007 (in US$) |   |   |            |   |   |          |   |   |            |  
|-------------------------------------------------------------------- | - | ------------- | - | - | ---------- | - | - | -------- | - | - | ---------- | -
|                                                                     |   | (Note 4)      |   |   |            |   |   |          |   |   |            |  
|                                                                     |   | (unaudited)   |   |   | 2007       |   |   | 2006     |   |   | 2005       |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|CASH FLOWS FROM OPERATING ACTIVITIES :                               |   |               |   |   |            |   |   |          |   |   |            |  
|Net income (loss)                                                    | $ | (649,352      | ) | \ | (607,663   | ) | \ | (324,747 | ) | \ | (3,349,406 | )
|Adjustments to reconcile loss
      from operations to net cash used |   |               |   |   |            |   |   |          |   |   |            |  
|for operating activities                                             |   |               |   |   |            |   |   |          |   |   |            |  
|Depreciation                                                         |   | 24,491        |   |   | 22,918     |   |   | 8,763    |   |   | 25,150     |  
|Provision for severance
      benefits                               |   | 82,234        |   |   | 76,955     |   |   | 36,710   |   |   | 4,900      |  
|Bad
      debt expenses, net (recovery income)                       |   | (42,437       | ) |   | (39,712    | ) |   | (201,352 | ) |   | 541,642    |  
|Amortization of intangible
      assets                              |   | 202           |   |   | 189        |   |   | 263      |   |   | 263        |  
|Loss
      on disposal of property, plant and equipment              |   | 3,428         |   |   | 3,656      |   |   | -        |   |   | 502,195    |  
|Equity in loss(gain)
      of investee                               |   | 586           |   |   | 548        |   |   | 483      |   |   | (14,071    | )
|Service
      fee paid with issuance of stock                        |   | -             |   |   | -          |   |   | -        |   |   | 483,936    |  
|Cancellation of service
      fee paid with issuance of stock        |   | -             |   |   | -          |   |   | -        |   |   | (170,656   | )
|Other                                                                |   | 18,790        |   |   | 26,797     |   |   | 5,223    |   |   | (30,392    | )
|Changes in operating assets and liabilities                          |   |               |   |   |            |   |   |          |   |   |            |  
|Decrease
      (increase) in accounts receivable                     |   | (739,178      | ) |   | (691,723   | ) |   | (29,667  | ) |   | (179,412   | )
|Decrease (increase)
      in inventory                               |   | (180,994      | ) |   | (178,588   | ) |   | 117,246  |   |   | 207,540    |  
|Decrease
      (increase) in other current assets                    |   | (2,730        | ) |   | (2,554     | ) |   | (19,588  | ) |   | 186,865    |  
|Increase (decrease)
      in accounts payable - trade                |   | (92,100       | ) |   | (86,187    | ) |   | (40,701  | ) |   | 75,200     |  
|Increase
      (decrease) in accounts payable - other                |   | (480,814      | ) |   | (449,945   | ) |   | 307,420  |   |   | 72,520     |  
|Increase (decrease)
      in other current liabilities               |   | 11,200        |   |   | 10,480     |   |   | (106,036 | ) |   | 756,994    |  
|Severance
      payments                                             |   | (34,966       | ) |   | (32,722    | ) |   | -        |   |   | (228,746   | )
|Other                                                                |   | (1,165        | ) |   | (1,539     | ) |   | 80,838   |   |   | 6,979      |  
|Sub-total                                                            |   | (1,433,453    | ) |   | (1,341,427 | ) |   | 159,602  |   |   | 2,240,907  |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|Net
      cash (used in) provided by operating activities            |   | (2,082,805    | ) |   | (1,949,090 | ) |   | (165,145 | ) |   | (1,108,499 | )
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES :                               |   |               |   |   |            |   |   |          |   |   |            |  
|Decrease in short-term loans                                         |   | -             |   |   | -          |   |   | 145,500  |   |   | -          |  
|Decrease in long-term financial instruments                          |   | -             |   |   | -          |   |   | -        |   |   | 41,084     |  
|Proceeds from sales of property,
      plant and equipment           |   | 10,892        |   |   | 10,193     |   |   | -        |   |   | 946,751    |  
|Increase in short-term loans                                         |   | (10,686       | ) |   | (10,000    | ) |   | -        |   |   | (144,046   | )
|Acquisition of property, plant
      and equipment                   |   | (75,119       | ) |   | (70,296    | ) |   | (1,505   | ) |   | (6,233     | )
|Changes in investments and other assets                              |   | (27,661       | ) |   | (25,885    | ) |   | (18,430  | ) |   | 86,050     |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|Net cash (used in)
      provided by investing activities            |   | (102,574      | ) |   | (95,988    | ) |   | 125,565  |   |   | 923,606    |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES :                               |   |               |   |   |            |   |   |          |   |   |            |  
|Proceeds from issuance of common stocks                              |   | 2,800,599     |   |   | 2,620,800  |   |   | -        |   |   | -          |  
|Proceeds from short-term borrowings                                  |   | 524,630       |   |   | 490,950    |   |   | 30,000   |   |   | 196,000    |  
|Repayment of short-term borrowings                                   |   | (669,541      | ) |   | (626,556   | ) |   | (11,000  | ) |   | -          |  
|Repayment of long-term borrowings                                    |   | (361,870      | ) |   | (338,638   | ) |   | -        |   |   | (30,271    | )
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|Net
      cash provided by (used in) financing activities            |   | 2,293,818     |   |   | 2,146,556  |   |   | 19,000   |   |   | 165,729    |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT                  |   | 108,439       |   |   | 101,478    |   |   | (20,580  | ) |   | (19,164    | )
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       |   | 2,552         |   |   | 2,387      |   |   | 22,967   |   |   | 42,131     |  
|                                                                     |   |               |   |   |            |   |   |          |   |   |            |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                             | $ | 110,991       |   | \ | 103,865    |   | \ | 2,387    |   | \ | 22,967     |  

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

37

---

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

Note 1. Nature of Operation

Meridian Co., Ltd. (Meridian), incorporated on April 19, 1994
under the laws of the Republic of Korea ("Korea"), and its subsidiaries
(hereinafter collectively referred to as the Company), are in the business of
developing, manufacturing and selling of integrated medical equipment in
domestic (Korea) and overseas markets.

On March 4, 2002, Meridian acquired 100% ownership of Meridian
America Medicals, Inc. located in the city of Irvine, California, USA to
establish distribution post for the North American market. On December 13, 2004
and February 15, 2005, Meridian America Medicals, Inc. issued new common stock,
of which the shares were entirely subscribed by a non-controlling shareholder,
Meridian Medical, Inc. Consequently; the ownership by Meridian was diluted from
100% to 75.76% .

On September 29, 2005, Meridian acquired 100% ownership of
Rapha & Health Co., Ltd. for \ 50 million in cash to systemize its sales
process in domestic (Korea) market. On June 7, 2006, Rapha & Health Co.,
Ltd. changed its name to Meitian Co., Ltd. However, Meitian Co., Ltd. closed
down in April 2008, so that Meridian could concentrate its resources on the
overseas markets.

Note 2. Liquidity and Going Concern

The Company has experienced losses from continuing operations
during the last three fiscal years and has an accumulated deficit of \
16,058,106 as of December 31, 2007. Net cash used for continuing operations for
the year ended December 31, 2007 was \ 1,949,090. At December 31, 2007, working
capital deficit was \ 2,584,394. As of December 31, 2007, the Companys
principal source of liquidity is \ 103,865 of cash and \ 1,195,182 of trade and
other accounts receivable. Such conditions raise substantial doubt that the
Company will be able to continue as a going concern. These operating results
occurred while the Company continues to develop and commercialize new products.
These factors have placed a significant strain on the financial resources of the
Company. The ability of the Company to overcome these challenges depends on its
ability to continue to generate higher revenue, and achieve positive cash flows
from continuing operations, profitability and continued sources of debt and
equity financing. The consolidated financial statements do not include any
adjustments that might result from the outcome of the uncertainties.

On August 4, 2003, when Meridian suffered deteriorated
liquidity, bank accounts of Meridian were suspended from the transactions such
as check clearing and direct deposits. In addition, on February 27, 2004,
Chooncheon District Court in Korea approved the Companys debt restructuring
plan (or composition) for the total debt of \ 4,697,927, which constituted
approximately 68% of the total outstanding borrowings and payables of Meridian
at that time. The creditors who have agreed to the debt restructuring include
the following:

Account
    
    Creditor
    
    
    AmountBorrowings
    
    Woori Bank
    
    \
    391,787SMI ABS Specialty Co., Ltd.
    
    
    1,000,000Rainbow Specialty
      Securitization Co., Ltd.
    
    
    500,000Korea Technology Credit Guarantee
      Fund
    
    
    1,151,884Small Business
      Corporation
    
    
    300,000Korea Exchange Bank
    
    
    125,831Shinhan Bank
    
    
    41,612Subtotal  financial institutions
    
    
    3,511,114Accounts payable
    
    Various vendors
    
    
    1,186,813Total
    
    \
    4,697,927


The original terms of the borrowings, which include secured \
34,200 and unsecured \ 3,476,914 of debts to various financial institutions,
were alleviated. The new terms require installment payments over 7 years through
2013 at the fixed interest rate of 3.5% per annum. All accrued and unpaid
interests on the borrowings were forgiven.

New terms were obtained for the accounts payable due to various
vendors, which require installment repayments over 3 years through 2007 at no
interest.

In January 2005, Woori Bank exercised its security right on the
apartment owned by Meridian. The proceeds of \ 42,837 from foreclosure were used
to pay debt principal, interest and other direct expenses related to
foreclosure.

38

---

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

Aside from the debt restructuring, Meridian had a borrowing
from Chohung Bank (Chohung Bank has been merged into Shinhan Bank as of April 1,
2006), which was not included in the original restructuring plan, as the bank
did not agreed to the terms. In December 2005, Chohung Bank exercised its
security right on the land and building, which had been provided as collaterals
by Meridian. The proceeds of \ 883,308 from the foreclosure, was paid to
preemptive other creditors and Chochung Bank. Subsequent to the foreclosure, the
original debt restructuring plan was modified to include the outstanding
principal of \ 1,074,455 to Chohung Bank. The repayments under the modified plan
are scheduled as follows:

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


However, due to the recurring losses from operations, Meridian
was not able to meet the repayment schedule. As of December 31, 2007, Meridian
has not paid \ 650,757 of principal and \ 487,388 of accrued interest
outstanding to financial institutions, and \ 940,123 of accounts payable to
various vendors.

The status of the restructuring plan is reported to Chooncheon
District Court, Korea every quarter. However, under the restructuring plan (or
composition), the Court does not have authorities to dictate or supervise
day-to-day financial activities, which is typical for court receivership.
Therefore, any additional debt or equity financing could be made with no
intervention from the Court.

Meridian believes that additional equity financing and
continued increase in sales of the new product line-up, recently launched in the
international markets will provide sufficient cash flow for it to continue as a
going concern. During 2007, Meridian was able to attract new investors,
increased its overseas revenue. Particularly, in 2007, Meridian attained the
sales approvals of Lapex-BCS (LipoLaser) and DPA in EU and Canadian markets, in
addition to Japan market, which will expedite its revenue growth.

Note 3. 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 accompanying consolidated financial statements include the
accounts of Meridian, the parent company, and its majority-owned subsidiary,
Meridian America Medicals, Inc. and its wholly-owned subsidiary, Meitian Co.,
Ltd. All significant inter-company balances and transactions have been
eliminated. Non-controlling interest in consolidated financial statements
represent the share of Meridian Medical Inc. who owns 24.24% of common stock of
Meridian America Medicals, Inc.

Revenue Recognition

Revenue is recognized pursuant to applicable accounting
standards including Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No. 101 (SAB 101), Revenue Recognition in Financial
Statements, and SAB 104, Revenue Recognition. SAB 101 as amended and SAB 104
summarize certain points of the SEC staffs views in applying generally accepted
accounting principles to revenue recognition in financial statements and provide
guidance on revenue recognition issues in the absence of authoritative
literature addressing a specific arrangement or a specific industry. The
Companys revenue recognition policy complies with the requirements of SAB 101
and SAB 104.

Revenue from sales of products is recognized when the products
are received and accepted by customers based on the FOB (free-on board)
destination term. For medical equipment, the Companys sales policy does not
allow returns unless the products are defective. The customers acceptance is
governed by the terms on the contract or arrangement, and any transactions not
meeting the predetermined conditions are not recorded as revenue.

39

---

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

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.

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 \ 227 included in cash which are restricted in use
for pledging to Seongdong District Tax Office as of December 31, 2007.

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.

Concentrations of credit risk

Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash, cash equivalents,
short-term and long-term investments and accounts receivable. The Company places
its cash primarily in deposit accounts with reputable financial institutions.
The Company's accounts receivable are derived primarily from revenue earned from
customers located in the U.S., Canada, Europe, Japan and Korea. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collaterals from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectability of accounts receivable. \ 992,089 of the Companys accounts
receivable was written off in the year ended December 31, 2005. There were no
write offs in the years ended December 31, 2007, and 2006. In fiscal 2007, 2006
and 2005, sales to the Company's top 5 customers accounted for approximately
75%, 52% and 40% of net revenues, respectively. At December 31, 2007, 2006 and
2005, the Companys top 5 customers accounted for approximately 85%, 73% and 51%
of trade accounts receivable, respectively.

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 sales ("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.

Investment in Affiliate

Investee entities, in which the Company may exercise
significant influence, but not control, are accounted for under the equity
method of accounting. Whether the Company exercises significant influence with
respect to an investee depends on an evaluation of several factors including,
among others, representation on the entitys board of directors and ownership
level, generally 20% to 50% interest in the voting securities of the entity
including voting rights associated with the Companys holdings in common,
preferred and other convertible instruments in the entity. Under the equity
method of accounting, the Companys share of the earnings or losses of these
entities is included in the equity income (loss) section of the consolidated
statements of operations.

A loss in value of an investment that is other than a temporary
decline is recognized as a charge to current operations. Evidence of a loss in
value might include, but would not necessarily be limited to, absence of an
ability to recover the carrying amount of the investment or inability of the
investee to sustain an earnings capacity that would justify the carrying amount
of the investment.

40

---

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

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 2007, 2006 and 2005.

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 Plan in Korea,
the Company was required to transfer 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 and
is accordingly reflected in the accompanying financial statements as a reduction
from the accrued severance benefits liability. Since April 1999, however, under
a new regulation, such transfers to the National Pension Fund became 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, 2007, 2006 and 2005, amounted to \ 12,421, \ 6,483 and \
12,180, 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
development costs are expensed as incurred. The Company has expensed \ 305,307,
\ 75,309 and \ 100,201 during the years ended December 31, 2007, 2006 and 2005,
respectively.

Advertising Costs

The Company expenses advertising expenses as they are incurred.
Advertising expenses for the years ended December 31, 2007, 2006 and 2005 are \
25,938, \ 35,671 and \ 40,266, respectively.

Fair Value of Financial Instruments

The estimated fair value of amounts reported in the
consolidated financial statements have been determined using available market
information and valuation methodologies, as applicable. The carrying amount of
cash and cash equivalents, accounts receivable, accounts payable, and all other
current assets and liabilities approximate their fair value because of their
short term maturities at December 31, 2007 and 2006, unless otherwise stated.
The fair value of non-current assets and liabilities approximate their carrying
value unless otherwise stated. The fair value of the Company's long-term debt is
based on interest rates that would be available to the Company for the issuance
of debt with similar terms.

Income Taxes

41

---

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

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.

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).

Translation of Foreign Currency

The Company appliesFASB No. 52, Foreign Currency
Translation, for translating foreign currency into Korean Won in its
consolidation of the financial statements. Upon consolidation of the Companys
foreign subsidiary into the Companys consolidated financial statements, any
balances with the subsidiary 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).

The Company used the exchange rates published by The Korea
Financial Telecommunications & Clearings Institute.

Earnings (Loss) Per Share

Basic earnings per share (EPS) is computed by dividing
earnings (losses) attributable to common shareholders by the weighted average
number of common shares outstanding for the periods. Diluted EPS is computed
using the weighted average number of common and redeemable common shares and
dilutive common equivalent shares outstanding during the year using the treasury
stock method for warrants.

Stock Option Plan

The Company previously applied 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 permitted, the Company had previously elected to adopt
provisions of Statement of Financial Accounting Standard (SFAS) No. 123,
Accounting for Stock-Based Compensation for options granted to non-employees who
perform services for the Company and the disclosure-only provisions of options
granted to employees.

In December 2004, the FASB issued SFAS No. 123R (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. 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 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 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 2001 was \607 (See
note 17).

Recent Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides
guidance on the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosures, and

42

---

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

transition. FIN 48 is effective for years beginning after
December 15, 2006. The Company does not expect the adoption of FIN 48 will have
a material impact on its financial statements.

In September 2006, the FASB issued Statement of Financial
Accounting Standard No. 157, or SFAS No. 157, Fair Value Measurements. SFAS
No. 157 provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 also responds to investors requests for expanded
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value and the effect of fair
value measurements on earnings. SFAS No. 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. SFAS No.
157 does not expand the use of fair value in any new circumstances. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007. FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157 delays the effective date of Statement 157 for all
nonrecurring fair value measurements of non-financial assets and non-financial
liabilities until fiscal years beginning after November 15, 2008. We are
currently evaluating whether the adoption of SFAS No. 157 will have a material
effect on our consolidated financial position, results of operations or cash
flows.

In February 2007, FASB, issued Statement of Financial
Accounting Standards No. 159, or SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No.
115. SFAS 159 provides companies with an option to report selected financial
assets and liabilities at fair value. It requires a company to provide
additional information that will help investors and other users of financial
statements to more easily understand the effect of the companys choice to use
fair value on its earnings. It also requires a company to display the fair value
of those assets and liabilities for which it has chosen to use fair value on the
face of the balance sheet. SFAS 159 is effective as of the beginning of a
companys first fiscal year beginning after November 15, 2007. We are currently
evaluating whether the adoption of SFAS 159 will have a significant effect on
our consolidated results of operations and financial position.

In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, or SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, to improves the relevance, comparability,
and transparency of financial information provided to investors by requiring all
entities to report noncontrolling interests in subsidiaries in the same way as
required in the consolidated financial statements. Moreover, SFAS 160 eliminates
the diversity that currently exists in accounting for transactions between an
entity and a noncontrolling interest holder by requiring that they be treated as
equity transactions. SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. We are currently evaluating whether the adoption of SFAS
160 will have a significant effect on our consolidated financial position,
results of operations or cash flows.

Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the AICPA and the SEC did not or are
not believed by management to have a material impact on our companys present or
future consolidated financial statements.

Note 4. 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 readers. Korean WON amounts are expressed in US dollars at
the rate of \ 935.8: US$1, the US Federal Reserve Bank of New York noon buying
exchange rate in effect on December 31, 2007. 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.

Note 5. Accounts Receivable

Trade and other accounts receivable at December 31, 2007 and
2006 are as follows:

2007
    
    
    2006Trade
    \
    1,679,298
    
    \
    985,196Others
    
    43,388
    
    
    43,5391,722,686
    
    
    1,028,735Allowance for doubtful accounts
    
    (537,504
    )
    
    (574,988
    )Accounts Receivable, net
    \
    1,185,182
    
    \
    453,747


Note 6. Inventories

Inventories are comprised of the following as of December 31,
2007 and 2006:

43

---

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

2007
    
    
    2006Merchandise
    \
    244,149
    
    \
    311,195Finished goods
    
    111,749
    
    
    73,112Work-in-process
    
    196,579
    
    
    116,598Raw material
    
    354,737
    
    
    266,293907,214
    
    
    767,198Reserves
    
    (357,416
    )
    
    (395,989
    )\
    549,798
    
    \
    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 alternative medical equipments manufactured
by the Company.

Note 7. Property, Plant and Equipment

Property, plant and equipment are comprised of the following at
December 31, 2007 and 2006:

2007
    
    
    2006Machinery
    \
    54,296
    
    \
    54,254Vehicles
    
    44,171
    
    
    52,219Tools
    
    47,900
    
    
    47,900Furniture and fixtures
    
    835,721
    
    
    797,304982,088
    
    
    951,677Less accumulated depreciation
    
    (931,523
    )
    
    (935,131
    )Property, plant and equipment, net
    \
    50,565
    
    \
    16,546


Depreciation expenses for the years ended December 31, 2007,
2006 and 2005 are \ 22,918, \ 8,763 and \ 25,150, respectively.

Note 8. Equity Method Investment

The Company accounts for its ownership interest in Beijing
Meridian Medicals Equipment Co., Ltd. ("Beijing Meridian") under the equity
method of accounting and adjusts its investment balance for its share of Beijing
Meridian income and losses. Beijing Meridians primary business is wholesale and
retail of medical equipment in China.

On November 10, 2001, the Company acquired 45% ownership of
Beijing Meridian for \ 76,956 in cash. The changes of ownership percentage
occurred in 2002 and 2003 when Beijing Meridian issued additional capital
stocks. The ownership percentage was 25% in 2007 and 2006.

The recognized loss on this investment was \ 548 and \ 483 in
2007 and 2006, respectively. And the carrying amount of the investment was \
28,917 and \ 27,316 as of December 31, 2007 and 2006, respectively.

Note 9. Patents and Trademarks

Patents and trademarks are comprised of the following at
December 31, 2007 and 2006:

2007
    
    
    2006Acquisition cost
    \
    5,466
    
    \
    5,466Less accumulated amortization
    
    (4,712
    )
    
    (4,523
    )Intangible assets, net
    \
    754
    
    \
    943


Amortization expenses for the years ended December 31, 2007,
2006 and 2005 are \ 189, \ 263 and \ 263, respectively.

Note 10. Short-Term Borrowings

44

---

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

Short-term borrowings as of December 31, 2007 and 2006 are as
follows:

AnnualCreditor
    
    interest rate
    
    
    2007
    
    
    2006Medison Co., Ltd.
    
    -
    
    \
    -
    
    \
    1,216Other (third party individuals)
    
    5 ~ 8%
    
    
    194,610
    
    
    329,000\
    194,610
    
    \
    330,216


Note 11. Long-Term Borrowings

Long-term borrowings as of December 31, 2007 and 2006 are as
follows:

AnnualCreditor
    
    interest rate
    
    
    Maturity Date
    
    
    2007
    
    
    2006Chohung Bank (Note a)
    
    3.5 %
    
    
    December 31, 2013
    
    \
    1,074,455
    
    \
    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 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
    
    
    
    
    
    
    
    (1,301,514
    )
    
    (650,757
    )\
    3,253,784
    
    \
    3,904,541


(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 entered into debt
restructuring plan including debentures. As a result, two series of debentures
were reclassified to long-term borrowings and the maturity date was extended to
December 31, 2013 with a reduced interest rate of 3.5% per annum. Details of
debentures as of December 31, 2007, are as follows:

|              |   |           |  |  | Restructured  |  |  | Original          | 
|------------- | - | --------- |  |  | ------------- |  |  | ----------------- | 
|              |   | Amount    |  |  | Interest rate |  |  | Maturity          | 
|              |   |           |  |  |               |  |  |                   | 
|1stdebentures | \ | 1,000,000 |  |  | 3.5%          |  |  | December 31, 2013 | 
|              |   |           |  |  |               |  |  |                   | 
|2nddebentures |   | 500,000   |  |  | 3.5%          |  |  | December 31, 2013 | 
|              | \ | 1,500,000 |  |  |               |  |  |                   | 

The repayment schedule for long-term borrowings as of December
31, 2007 is as follows:

Year
    
    Amount2008
    \
    1,301,5142009
    
    650,757


45

---

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

2010
    
    650,7572011
    
    650,7572012
    
    650,7572013
    
    650,756\
    4,555,298


Note 12. Accrued Severance Benefits

Changes in accrued severance benefits for the years ended
December 31, 2007 and 2006 are summarized as follows:

2007
    
    
    2006Accrued severance benefits at beginning of
      year
    \
    87,241
    
    \
    54,594Provision
    
    76,955
    
    
    36,710Payments
    
    (32,722
    )
    
    -Transfer to National Pension Fund
    
    -
    
    
    (4,063
    )131,474
    
    
    87,241Less current portion
    
    (13,553
    )
    
    (9,130
    )Balance at end of year
    \
    117,921
    
    \
    78,111


Note 13. Commitments

The Company leases its manufacturing and office facilities from
non-affiliates. Current lease will be expired in June 2008. Thereafter, the
management expects to renew its lease agreement on an annual basis. Total rent
expense were \154,217, \132,756 and \114,346 for the years ended December 31,
2007, 2006 and 2005, respectively.

Note 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, 2007 and 2006 are as follows:

2007
    
    
    2006Authorized shares
    
    50,000,000
    
    
    50,000,000Issued and outstanding shares
    
    35,004,156
    
    
    31,393,984


The Company received funds of US$530,000 from investors through
an equity financing whereby, on June 8, 2004 the Company issued 3,312,500 shares
of common stock ($ 0.16 per share). Share issue costs of $ 26,500 were paid in
connection with the financing.

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 \ 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.

In April 2007, the Company raised 517,000 Won from twenty
non-U.S. investors for total 933,506 common shares at the price of 554 Won per
share and warrants to purchase 133,358 common shares at 950 Won per share. The
warrant exercise period commences on April 4, 2008, 1 year after issuance of the
relevant common shares and warrants, and expires on October 4, 2008.

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.

In December 2007, the Company raised 1,779,000 Won from forty
nine non-U.S. investors for total 1,976,666 common shares at the price of 900 Won per share.

46

---

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

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, 2007 in SEC and in Korean Commercial
Registration Office are as follows:

Korean CommercialSEC
    
    
    Registration OfficeNumber of outstanding shares
    
    35,004,156 shares
    
    
    19,421,182 sharesCapital Stock
    \
    3,500,4156
    
    \
    1,942,118


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

Note 15. Appropriation for Business Rationalization

The Company has appropriated \ 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.

Note 16. Selling, General and Administrative
Expenses

Details of selling, general and administrative expenses for the
years ended December 31, 2007, 2006 and 2005 are as follows:

2007
    
    
    2006
    
    
    2005Salaries
    \
    602,504
    
    \
    456,982
    
    \
    515,208Provision for retirement and severance benefits
    
    58,776
    
    
    19,280
    
    
    28,683Other employee benefits
    
    60,972
    
    
    46,053
    
    
    53,946Travel
    
    2,825
    
    
    2,410
    
    
    7,664Entertainment
    
    515
    
    
    1,562
    
    
    4,504Advertising
    
    25,938
    
    
    35,671
    
    
    40,266Communications
    
    22,875
    
    
    17,401
    
    
    16,847Commissions and fees
    
    764,910
    
    
    169,935
    
    
    869,622Insurance
    
    34,683
    
    
    8,279
    
    
    9,954Transportation
    
    51,065
    
    
    33,565
    
    
    39,313Depreciation
    
    14,901
    
    
    3,696
    
    
    8,740Amortization
    
    187
    
    
    263
    
    
    263Taxes and dues
    
    47,185
    
    
    43,406
    
    
    16,399Bad debt expenses
    
    -
    
    
    -
    
    
    360,003Rents
    
    154,217
    
    
    132,756
    
    
    114,346Miscellaneous
    
    200,609
    
    
    139,848
    
    
    107,213\
    2,042,162
    
    \
    1,111,107
    
    \
    2,192,971


Note 17. Income Taxes

Income (loss) before income taxes and tax provision for the
years ended December 31, 2007, 2006 and 2005 comprises of the followings:

2007
    
    
    2006
    
    
    2005Income (loss) before income taxes
    \
    (-) 607,663
    
    \
    (-) 324,747
    
    \
    (-) 3,349,406Income taxes  Current
    
    -
    
    
    -
    
    
    -Income taxes  Deferred
    
    -
    
    
    -
    
    
    -Total income taxes
    \
    -
    
    \
    -
    
    \
    -


47

---

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

The Company is subject to corporate income tax and resident
surtax normally at an aggregate rate of 14.3% on taxable income up to \ 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, 2007, 2006 and 2005.

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, 2007 and 2006
are as follows:

2007
    
    
    2006Temporary differences
    \
    152,146
    
    \
    390,459Tax credit carry forwards
    
    31,991
    
    
    80,062Net operating loss carry forwards for tax
      purpose
    
    3,618,469
    
    
    3,219,653Total deferred income tax assets
    
    3,802,606
    
    
    3,690,174Less valuation allowance
    
    (3,802,606
    )
    
    (3,690,174
    )Net deferred income tax assets
    \
    -
    
    \
    -


As of December 31, 2007, the Company has \ 13,158,069 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 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, 2007 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.

Note 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, 2007, are presented below (in Korean Won):

Grant
    
    Options
    
    
    Type of
    
    
    Exercise
    
    
    Fair
    
    
    Service
    
    
    ExercisableDate
    
    Outstanding
    
    
    Stock Option
    
    
    Price
    
    
    Value
    
    
    Period
    
    
    PeriodMarch 19, 2001
    
    147,875
    
    
    Issuance of Common stock
    
    \
    340
    
    \
    607
    
    
    March, 2001 to February,
      2004
    
    
    March, 2004 to February,
      2008


Note 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, 2007, 2005 and 2004,
however there were no dilutive effects as of December 31, 2007, 2006 and 2005,
applying the treasury stock method.

48

---

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

Note 20. Related Party Transactions

Significant account balance with related company as of December
31, 2007 and 2006 are summarized as follows:

|Related party          |  | Nature of Relationship      |  |  | Account balance     |  |   | 2007    |  |   | 2006    | 
|---------------------- |  | --------------------------- |  |  | ------------------- |  | - | ------- |  | - | ------- | 
|                       |  |                             |  |  |                     |  |   |         |  |   |         | 
|                       |  |                             |  |  |                     |  |   |         |  |   |         | 
|Meridian Medical, Inc. |  | MAMIs minority shareholder |  |  | Account Receivables |  | \ | 968,838 |  | \ | 299,495 | 

Significant transactions with related company for the year
ended December 31, 2007, 2006 and 2005 are summarized as follows:

Related party
    
    Transactions
    
    
    2007
    
    
    2006
    
    
    2005Meridian Medical, Inc.
    
    Sales
    
    
    676,137
    
    
    327,265
    
    
    451,301Service fees
    
    
    124,736
    
    
    -
    
    
    -\
    800,873
    
    \
    327,265
    
    \
    451,301


In June 2004, the Company entered into an exclusive
distribution agreement with MMI. Under the agreement, MMI was entitled to an
exclusive distribution right in North American Market. On April 1, 2007, the
Company entered into service agreement with Meridian Medical, Inc ("MMI"). Based
on that agreement, MMI carries out sales, marketing and admin support service on
behalf of the Company in US market.

Note 21. Statement of Cash Flows

(a) Transactions not involving cash

Significant non-cash investing and financing activities for the
year ended December 31, 2007 are summarized as follows:

Long-term borrowings transferred to current
      portion of long-term borrowings
    \
    650,757Accrued severance benefits transferred to other current
      liability
    
    4,423


(b) Interest paid

Interest paid in cash for the years ended December 31, 2007,
2006 and 2005 are as follows:

2007
    
    
    2006
    
    
    2005\
    \
    155,137
    
    \
    105,296
    
    \
    649,382


Note 22. Segment Information

In 2007, 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:

2007
    
    
    2006
    
    
    2005ExportU.S.A.
    \
    779,307
    
    \
    470,532
    
    \
    576,699Asia
    
    1,109,121
    
    
    71,092
    
    
    26,304Europe
    
    266,629
    
    
    -
    
    
    7,100Other
    
    111,036
    
    
    56,372
    
    
    -2,266,093
    
    
    597,996
    
    
    610,103Domestic Sales
    
    338,448
    
    
    928,832
    
    
    824,416


49

---

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

| |   | 2007      |  |   | 2006      |  |   | 2005      | 
| | - | --------- |  | - | --------- |  | - | --------- | 
| | \ | 2,604,541 |  | \ | 1,526,828 |  | \ | 1,434,519 | 

Note 23. Subsequent Event

On April 30, 2008, Meitian Co., Ltd., a subsidiary in Korea,
closed down and discontinued its operations. The decision was made by management
to shift the Companys resources to growing overseas markets from domestic
market.

50

---

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: June 30, 2008            

52

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