---

UNITED STATESSECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

FORM 20

(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, 2005

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ or __________

Commission file number:0-32359

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

The Republic of Korea(Jurisdiction of
incorporation or organization)

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

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

|                    | NAME OF EACH EXCHANGE
|------------------- | ---------------------
|TITLE OF EACH CLASS | ON WHICH REGISTERED  

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

Common shares(Title of Class)

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

(Title of Class)

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

Common shares outstanding December 31, 2005: 31,393,984

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

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

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No
[   ]

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]

---



References

All references to "Korea" herein are references to The Republic
of Korea. All references to "Meridian," the "Company", "we," "us" or "our"
herein are references to Meridian Co., Ltd. All references to the "Government"
are references to the government of Korea. All references to the "shares" are
references to the Company's issued common shares of par value Won 100 (US $0.10
at December 31, 2005 and US $0.10 at June 18, 2006).

Currency Translation

In this annual report, references to "Won" or "W" are to the
currency of Korea and all references to "Dollars," "$" or "US$" are to the
currency of the United States of America. Our financial statements are prepared
in Won, translated into U.S. dollars and presented in accordance with accounting
principles generally accepted in the United States for the fiscal years ended
December 31, 2003, 2004 and 2005. Solely for the convenience of the reader and
to improve clarity, certain Items in this annual report contain translations of
certain Won amounts into Dollars at specified rates. All translations from Won
to Dollars were made (unless otherwise indicated) at the noon buying rate in The
City of New York for cable transfers in Won per US$1.00 as certified for customs
purposes by the Federal Reserve Bank of New York in effect on December 31, 2005,
which was Won 1,010 to US$1.00. No representation is made that the Won or US$
amounts referred to in this annual report could have been or could be converted
into US$ or Won, as the case may be, at any particular rate or at all. See also
Item 3, Key Information, Exchange Rates Information, for information regarding
the rates of exchange between the Won and the Dollar. On August 16, 2006 the
noon buying rate was Won 964.9 to US$1.00.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS

A. DIRECTORS AND SENIOR MANAGEMENT

See Item 4.C.

B. ADVISERS Not Applicable

C. AUDITORS Not Applicable

ITEM 3. KEY INFORMATION

A. Selected financial data

The selected consolidated financial and other data set forth
below should be read in conjunction with the audited consolidated financial
statements of Meridian Co., Ltd. as of December 31, 2005 2004 and 2003 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, 2005, 2004, 2003, 2002 and
2001 are derived from the audited consolidated financial statements of Meridian,
which have been audited by Choi, Kim and Park LLP, independent accountants (for
the fiscal year ended December 31, 2005), by ShinHan Accounting Corporation,
independent accountants (fiscal years ended December 31, 2004 and 2003), and by
SamDuk Accounting Corporation, independent accountants(fiscal years ended
December 31, 2002 and 2001).

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

---

MERIDIAN CO., LTD. 
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in Korean
  won) 
  For the years ended December 31, 2005, 2004, 2003 ,2002 and 2001

2005 (in2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    USD)Sales
    
    6,950,483,154
    
    
    4,373,897,866
    
    
    3,441,119,294
    
    
    2,204,234,179
    
    
    1,434,519,243
    
    $
    1,420,316Cost of sales
    
    3,256,231,284
    
    
    2,379,436,814
    
    
    1,490,837,684
    
    
    1,214,803,149
    
    
    1,099,194,829
    
    
    1,088,312Gross profit
    
    3,694,251,870
    
    
    1,994,461,052
    
    
    1,950,281,610
    
    
    989,431,030
    
    
    335,324,414
    
    
    332,004Operating expenses
    
    5,250,941,100
    
    
    3,892,035,837
    
    
    3,460,603,690
    
    
    2,461,664,811
    
    
    2,293,172,188
    
    
    2,270,468Operating loss
    
    -1,556,689,230
    
    
    -1,897,574,785
    
    
    -1,510,322,080
    
    
    -1,472,233,781
    
    
    -1,957,847,774
    
    
    -1,938,464Other income (expense)
    
    -973,039,338
    
    
    -1,710,582,785
    
    
    -641,349,994
    
    
    -584,913,576
    
    
    -1,424,510,457
    
    
    -1,410,406Minority interest in net loss
      of consolidatedaffiliates
    
    25,362,828
    
    
    0
    
    
    0
    
    
    -1,319,035
    
    
    -32,951,097
    
    
    -32,625Income tax expense
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Extraordinary items
    
    -48,010,932
    
    
    0
    
    
    0
    
    
    0
    
    
    0Comprehensive loss
    
    -2,574,617,436
    
    
    -3,608,157,570
    
    
    -2,151,672,074
    
    
    -2,055,828,322
    
    
    -3,349,407,134
    
    $
    -3,316,245Weighted average number of
      common shares
    
    15,703,850
    
    
    16,472,700
    
    
    18,094,211
    
    
    22,199,701
    
    
    31,603,847
    
    
    31,603,847Basic and diluted loss per
      common share
    
    -158
    
    
    -219
    
    
    -119
    
    
    -93
    
    
    -106
    
    $
    -0.105


CONDENSED CONSOLIDATED BALANCE SHEETS (in Korean won) As of
December 31, 2005, 2004, 2003, 2002, and 2001

2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2005 (in USD)Cash and cash equivalents
    
    136,086,374
    
    
    159,825,975
    
    
    37,292,198
    
    
    42,131,238
    
    
    22,967,573
    
    $
    22,740Accounts receivable
    
    2,276,152,481
    
    
    1,315,325,521
    
    
    548,485,869
    
    
    586,411,194
    
    
    368,228,192
    
    
    364,583Inventories
    
    1,536,544,973
    
    
    872,074,684
    
    
    838,660,330
    
    
    695,996,105
    
    
    488,455,654
    
    
    483,619Other
    
    1,390,300,235
    
    
    390,455,377
    
    
    38,011,479
    
    
    188,614,870
    
    
    1,749,446
    
    
    1,732Total current assets
    
    5,339,084,063
    
    
    2,737,681,558
    
    
    1,462,449,876
    
    
    1,513,153,407
    
    
    881,400,865
    
    
    872,674Investments and other assets
    
    560,886,790
    
    
    236,392,746
    
    
    168,381,226
    
    
    160,639,557
    
    
    49,430,432
    
    
    48,941Property, plant and equipment - net
    
    1,882,278,553
    
    
    1,793,937,704
    
    
    1,542,335,583
    
    
    1,491,667,506
    
    
    23,804,073
    
    
    23,569Intangible assets
    
    1,205,449
    
    
    2,684,178
    
    
    2,017,238
    
    
    1,470,612
    
    
    1,206,846
    
    
    1,195TOTAL ASSETS
    
    7,783,454,855
    
    
    4,770,696,185
    
    
    3,175,183,923
    
    
    3,166,931,082
    
    
    955,842,216
    
    $
    946,378Trade accounts payable and
      current debt
    
    4,725,211,848
    
    
    5,965,714,385
    
    
    4,000,839,391
    
    
    3,297,536,934
    
    
    3,669,846,158
    
    $
    3,633,511Long-term borrowings
    
    3,321,985,374
    
    
    1,732,840,047
    
    
    3,774,904,609
    
    
    4,591,176,207
    
    
    5,072,442,624
    
    
    5,022,220Minority interest
    
    8,527,386
    
    
    -
    
    
    0
    
    
    19,936,965Shareholders' equity
    
    -272,269,754
    
    
    -2,927,858,246
    
    
    -4,600,560,077
    
    
    -4,741,719,024
    
    
    -7,786,446,566
    
    
    -7,709,353TOTAL LIABILITIES ANDSHAREHOLDERS' EQUITY
    
    7,783,454,855
    
    
    4,770,696,185
    
    
    3,175,183,923
    
    
    3,166,931,082
    
    
    955,842,216
    
    $
    946,378


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

|     |  | AT DECEMBER 31    |  |                                  |  | ANNUAL |  | ANNUAL | 
|---- |  | ----------------- |  | -------------------------------- |  | ------ |  | ------ | 
|YEAR |  | (Dec. 30 in 2005) |  | ANNUAL AVERAGE RATE PER $1.00 US |  | HIGH   |  | LOW    | 
|2001 |  | 1314              |  | 1293.4                           |  | 1369   |  | 1234.0 | 
|2002 |  | 1186              |  | 1242.1                           |  | 1332   |  | 1160.6 | 
|2003 |  | 1192              |  | 1193.0                           |  | 1262   |  | 1146.0 | 
|2004 |  | 1035.1            |  | 1139.3                           |  | 1195.1 |  | 1035.1 | 
|2005 |  | 1010              |  | 1023.8                           |  | 1059.8 |  | 997    | 

---

B. Capitalization and
indebtedness           
Not applicable

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

D. Risk Factors

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

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

In February 2004, the Company received approval for a debt
rescheduling plan for a total of 4,697,927,000 Won ($4,651,413) 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 ($4,651,413) of the Company's debt.

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

In December 2005, Chohung Bank (Chohung Bank has been merged in
Shinhan Bank as of April 1, 2006) exercised its security right on the land and
building of the Company which it obtained before the execution of the debt
rescheduling plan. From 883,307,581 Won ($874,561) obtained from disposition of
the land and building, 423,186,652 Won was paid to pre-emptive creditors
including accrued wages, and 460,120,929 Won was paid to Chochung Bank for the
debt interest. The principal debt of 1,074,454,603 Won to Chohung Bank has been
included in the debt rescheduling plan.

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

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

|          |             |             |             |             |             |             | (in Korean Won)
|--------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ---------------
|          | 2007        | 2008        | 2009        | 2010        | 2011        | 2012        | 2013           
|Principal | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,891    
|Interest  | 159,435,438 | 136,658,947 | 113,882,456 | 91,105,965  | 68,329,473  | 45,552,982  | 22,776,491     
|Total     | 810,192,327 | 787,415,836 | 764,639,345 | 741,862,854 | 719,086,362 | 696,309,871 | 673,533,382    

Note: 1,186,813 Won of accounts payable due to parties other
than financial institutions will be repaid over 3 years from January 2005 to
December 2007 and will be exempt from paying any interest. The Company, however,
has not paid 261,378,503 Won of accounts payable due to parties other than
financial institutions which were due on December 31 2005.

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

The Company anticipates that losses may continue For
the year ended December 31, 2005 the Company had a net loss of 3,349,407,134 won
($3,316,245) and an accumulated deficit of 15,125,695,937 won ($14,975,937). The
Company recognizes the possibility of incurring losses for the foreseeable
future. The extent of future losses will depend, in part, on the amount of
growth in revenues from the Company's products. The Company expects that
operating costs will

---

increase during the next several years, especially in the areas
of sales and marketing, product development and general and administrative
expenses as it pursues its business strategy. Thus, the Company will need to
generate increased revenues faster than the rate of growth in costs to achieve
profitability. To the extent that increases in its operating expenses precede or
are not subsequently followed by corresponding increases in revenues, or if it
is unable to adjust operating expense levels accordingly, the Company's
business, results of operations and financial condition would be materially and
adversely affected. There can be no assurance that the Company will sustain
profitability or that its operating losses will not increase in the future.

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

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

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

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

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

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

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

Adequate Labor and Dependence Upon Key personnel; No
Employment Agreements The Company will depend upon recruiting and
maintaining qualified personnel to staff its operations. The Company believes
that such personnel are currently available at reasonable salaries and wages.
There can be no assurance, however, that such personnel will always be available
in the future. The continuing development of the Company's products has been
almost entirely dependent on the skills of management

---

and certain key employees of the Company with which the Company
has no employment agreements. Loss of the services of any of this management
team and key employees could have a material adverse effect upon the Company.

The Company's growth depends on its ability to commercialize
products Currently a significant amount of the Company's revenue comes
from the Meridian product line that is central to the Company's growth strategy.
This line of products encounters competition and is price sensitive. While the
Company is currently developing new products, the Company cannot be assured that
these products will reach the market on time, will satisfactorily address
customer needs, will be sold in high volume, or will be sold at profitable
margins.

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

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

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

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

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

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

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

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

---

The Company's business may suffer due to risks associated with
international sales and operations

The Company anticipates that export products will account for
most of its revenues. International business activities are subject to a number
of risks, each of which could impose unexpected costs of the Company that would
have an adverse effect on its operating results. These risks include:

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

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

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

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

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

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

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

Country Risks There are unique economic and
political risks associated with investing in companies from Korea. Some of
Korea's recent financial and economic difficulties have included:

|- exchange rate fluctuations;       
|------------------------------------
|- interest rate fluctuations;       
|- reduced credit from foreign banks;
|- reduced liquidity in the economy; 

---

|- volatile stock prices; and
|----------------------------
|- higher unemployment.      

The Asia Pacific region, including Korea, has been experiencing
significant economic difficulties. The operations of the Company, and those of
other companies in Korea, have been significantly affected, and could continue
to be affected for the foreseeable future, by the general unstable economic
conditions in the country and in the Asia Pacific region. Other developments
that could occur in Korea include social and labor unrest resulting from
economic difficulties and higher unemployment, a substantial increase in the
Government's expenditures for unemployment compensation and other costs for
social programs. Korea may need to increase reliance on exports to service
foreign currency debts, which cause friction with Korea's trading partners.

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

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

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

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

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

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

ITEM 4. INFORMATION ON THE COMPANY

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

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

Pursuant to an Agreement and Plan of Reorganization (the Merger
Agreement) dated February 6, 2001, The Company acquired all the outstanding
shares of common stock of By George Holding, Corp. (By George), a Georgia
corporation, from the shareholders thereof in an

---

exchange of an aggregate of 68,142 shares (equivalent to
1,703,550 post split shares) of common stock of the Company and other
consideration of payments of certain fees and expenses. Immediately following
the Acquisition, ABR Meridian (Georgia) Inc. (Subco), a Georgia corporation and
a wholly-owned subsidiary of the Company, merged with By George (the Merger) in
a transaction in which the Subco became the surviving corporation.

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

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

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

In February 2004, the Company received an approval for a debt
rescheduling plan for a total of 4,697,927,000 Won ($4,651,413) from Chooncheon
District Court, Korea. The adjusted period of payment is generally 7 years after
3 years of grace period.

B. Business Overview Meridian is an established leader in
the research, development, manufacturing, and marketing of integrative medical
devices in the healthcare industry. Integrative medicine combines both Western
and Eastern expertise in order to obtain the highest quality and standard. The
Company has grown substantially and has established subsidiaries in China and
Los Angeles and in 2004 signed an exclusive distribution agreement with a
corporation in Vancouver, B.C., Canada. With over 27 million dollars in revenue
to date, Meridian continues to expand and secure its position as a global leader
of integrative medical devices.

With a dynamic research and development team, Meridian is at
the forefront in the development of cutting edge medical technologies. The
Company presently holds a total of 10 registered and pending patents, 2 utility
model rights, 5 design rights and 10 trademarks and has received 4 FDA approvals
for their medical devices. In order to distribute worldwide, Meridian has also
gained 3 SDA approvals in China and 3 FIP approvals in South America.
Successfully marketed in Korea, USA and China, Meridian continues to provide its
superior product line to a growing number of clients worldwide. Meridian has
over 1500 clients, which include physicians, hospitals, healthcare
professionals, medical device manufacturers, and health and fitness centers.

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

The Company believes that blending together a combination of
intrinsic medical knowledge with superior software and technology it can create
high quality physiological monitoring applications that capitalize on the
growing wellness market.

Meridians strength lies in the unique knowledge base and
skills of our team who possess medical backgrounds, software engineering skills,
and a sincere passion for preventative medicine that can improve the quality of
ones life.

During 2002, the Company completed the development of the
Composition Corpulence Curer as an aid in the reduction of body fat.

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

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

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

As of December 31, 2005, the Company achieved more than $2.2
Million in sales to the U.S. market through its Los Angeles subsidiary and
expects a further significant increase in sales to the United States in the next
year.

Products of the Company

MERIDIAN LINE OF PRODUCTS

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

---

MERIDIAN-II

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

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

ASPECTS MERIDIAN-II DESCRIPTION

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

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

ABR-2000

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

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

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

ASPECTS ABR-2000 DESCRIPTION

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

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

---

LAPEX-2000

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

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

ASPECT LAPEX-2000 DESCRIPTION

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

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

LIPOLASER

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

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

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, which gives a good
indication of the condition of the autonomic nervous system. The software has
the capability to store all of the patient's data. The structure is configured
with a DPA console, EKG electrodes, computer software with WINDOWS base, and
cart.

VENUS 21C - COMPOSITION CORPULENCE CURER Obesity
Treatment Machine

This product's target market includes anti-aging and wellness
clinics, fitness centers, health spas etc. This product obtained the
manufacturing approval in Korea in February 2004.

Features: - Supersonic waves, low frequency

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

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Industry Background

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

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

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

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

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

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

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

Size of Industry

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

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

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

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

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

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MANAGEMENT TEAM

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

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

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

SUNGPIL HONG, (Director resigned on March, 2006) Mr. Hong
graduated from Sin-Gu University in South Korea with Physiotherapy as his major.
From 1993 to 1995 he was the Business Manager for Dasin Medical Ltd.. From 1996
to 1998 he managed Hippo Medica Ltd. From 1998 to March 2006, he was the Senior
Manager for Meridian. On March 29, 2003, he was appointed a Director of
Meridian.

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

The Company signed the lease contract for its new factory in
Seoul (3F, Poonglim Tech-One B/D, 273-10, Seongsu-dong 2ga, Seongdong-gu, Seoul,
Korea). The Company's products are assembled from purchased and manufactured
components at its factory Virtually all of the components making up the
Company's products are readily available from outside domestic suppliers. Some
of the components have been designed by the Company and/or are custom
manufactured to its specifications.

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

ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

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

A. Operating Results

Year comparisons between 2005, 2004, and 2003 For the year
ended December 31, 2005, the Company achieved sales revenues of 1,434,519,243
Won ($1,420,316) resulting in a gross margin of 335,324,414 Won ($ 332,004)
compared with sales revenues of 2,204,234,179 Won that resulted in a gross
margin of 989,431,030 Won for the year ended December 31, 2004 and sales
revenues of 3,441,119,294 Won that resulted in a gross margin of 1,950,281,610
Won for the year ended December 31, 2003. Continues decline of sales revenue is
due to the transition of the Company's target market and its products. Sales of
the Companys new products, LipoLaser and DPA was 56% of the total sales
revenues in 2005 compared with 18% in 2004 and 6% in 2003. The Company's
operating loss increased to 1,957,847,774 Won ($1,410,406) in 2005 from a loss
of 1,472,233,781 Won in 2004 and from a loss of 1,510,322,080 Won in 2003. The
increase in the operating loss in 2005 from 2004 and 2003 was due primarily to
reduction in sales revenues and gross margin rate and relatively high operating
expenses compared to the sales. Total selling, general and administrative
expenses decreased only by 6.8% from 2004, in spite of the decreased sales
revenue by 35%, was mainly due to bad debt expenses of 360,003,247 Won
($356,439) which was 0 Won in 2004. The Company spent 115,193,034 Won ($114,052)
on research and development for the year ended December 31, 2005 as compared to
183,567,322 Won in 2004 and 57,378,180 Won in the year 2003. In the same period,
working capital decreased to 2,788,445,239 Won ($2,760,837) in deficit in 2005
from working capital of 1,784,383,527 Won in deficit in 2004 and 2,538,389,515
Won in deficit in 2003.

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B. Liquidity and capital resources

The Company's sources of liquidity have historically been cash
from operations, capital working lines of credit, debt and equity financing. The
Company has generated revenues since 1998 but expanding the operations of the
Company has required significant amounts of cash in excess of cash generated
from operations. Therefore, the Company has continued to seek additional debt
and equity financing opportunities. The Company's land and buildings were
pledged as collateral for the Company's short-term and long-term borrowings. At
December 31, 2004, the Company has a working capital deficiency of 2,788,445,239
Won ($2,760,837) (December 31, 2004 working capital deficit of 1,784,383,527 Won
( $1,766,716)).

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. In 2005, the Company spent 115,193,034 Won ($114,052) on
research and development. The research and development expenses include labors
(19,913,480 Won), mold development (8,000,000 Won), depreciation (15,586,817)
and others. The research and development expenses were mostly spent for the
LipoLaser development and enhancement.

Proprietary Technology and Other Intellectual Properties
The Company has 10 registered and pending patents, 2 utility model rights, 5
design rights and 10 trademarks at the Korea Industrial Property Office. The
Company also has 1 pending patent under the Patent Cooperation Treaty. 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 - 97Medicament energy
      information Transferring system
    
    171667
    
    October - 98Automatic detection of meridians by probe device
    
    210233
    
    April - 99Electrode clamp
      device for home 99 treatment
    
    236276
    
    September - 99Electrode ring device for home 99 treatment
    
    236277
    
    September - 99Pulse formation
      analysis device
    
    0368021
    
    December - 02Laser beam irradiation device
    
    0457964
    
    January - 03Lipolytic low
      laser device (pending)
    
    2005-17330
    
    March  05Remote Bio-monitoring system (pending) 2005-45139
    
    2005-45139
    
    May - 05Adipose Resolve
      Apparatus for Low-Power LASER (pending)
    
    2006-155778
    
    March  06Adipose Resolve Apparatus for Low-Power LASER
      (pending)
    
    PCT  KR20061000694
    
    May  06(UTILITY MODEL)Acupoint measuring
      device with pressure control
    
    144725
    
    February - 99Acupoint measuring device with Pressure display
    
    169502
    
    November - 99(DESIGN)Diagnostic probe
    
    165377
    
    June -
      95


---

|Electrode for self-treatment         |  | 228575     |  | September  98 
|------------------------------------ |  | ---------- |  | ---------------
|Electrode for
      self-treatment   |  | 228576     |  | September - 98 
|Electrode holder for laser treatment |  | 0302314    |  | June - 02      
|Electrode for
      laser treatment  |  | 0302315    |  | June -
      02
|                                     |  |            |  |                
|(TRADEMARK)                          |  |            |  |                
|BRIEF                                |  | 345494     |  | August - 96    
|BRD                                  |  | 409677     |  | July - 98      
|Lapex                                |  | 500915     |  | September - 01 
|Biomeridian                          |  | 0522196    |  | June - 02      
|Pulsecare                            |  | 0538120    |  | December - 02  
|Mcview                               |  | 0531965    |  | October - 02   
|McPulse (pending)                    |  | 2002-29908 |  | June - 02      
|Hemoscope (pending)                  |  | 2001-38478 |  | August - 01    
|Pulseview (pending)                  |  | 2001-21430 |  | May - 01       
|Pulsetron (pending)                  |  | 2001-21431 |  | May - 01       

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

Regulatory Restrictions

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

|REGION        | REGULATION    | PRODUCTS APPROVED                                                                     
|------------- | ------------- | --------------------------------------------------------------------------------------
|              |               |                                                                                       
|Korea         | KFDA          | Meridian-II, ABR-2000,
      Lapex2000, Digital Pulse Analyzer, Venus 21C , LipoLaser
|China         | SDA           | Meridian-II, ABR  2000, Lapex-2000                                                   
|U.S.A         | FDA           | Meridian-II, Lapex-2000,
      ABR-2000, Digital Pulse Analyzer                       
|South America | FIP           | Meridian-II, ABR - 2000, Lapex-2000                                                   
|International | ISO13485:2003 | 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. The
Company is actively seeking to expand its sales into new markets, principally
the United States.

E. Off-balance sheet arrangements

Not applicable

F. Tabular disclosure of contractual obligations

---

Payments due (by period)Less than
    
    
    more thanContractual Obligations
    Total
    one year
    1-3 years
    3-5 years
    5 yearsLong-term debt obligations *
    (won) 3,055,298,225
    
    872,942,350
    872,942,350
    1,309,413,525Debentures
    (won) 1,500,000,000
    -
    428,571,428
    428,571,428
    642,857,144Long-term accounts payable
    (won) 466,613,432
    -
    466,613,432
    -
    -Accrued severance benefits
    (won) 50,530,967
    50,530,967* *
    unknown* *
    unknown**
    unknown* *


* See Note 12. Long-Term Borrowings

**The Company's estimated liability under the plan, equal to
the amount which would be payable if all employees were to terminate at the
balance sheet date, has been accrued according to the National Pension Law of
Korea for employees with more than one year of service and who are entitled to
receive severance indemnities, based on length of service and rate of pay, upon
termination of their employment. On October 31, 2005, all employees other than
Mr. Myeong, Hyeon Sung, CEO, were terminated and rehired on November 1, 2005. As
a result, accrued severance benefits as of December 31, 2005 is 50,530,967 Won
which represents the retirement allowance for the CEO. See Accrued severance
benefits in Note 1.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

See Item 4.C.

B. Compensation

Name & Principal
    Year
    Salary ($)
    Bonus ($)
    Other Annual
    All OtherPosition
    
    
    
    Compensation ($)
    CompensationMyeong, Hyeon-Seong
      2001
      45,500
      Nil
      Nil
      Stock Option(Director,
      2002
      47,541
      Nil
      Nil
      NilPresident, CEO)
      2003
      49,329
      Nil
      Nil
      Nil2004
      51,342
      Nil
      NIl
      Nil2005
      58,217Park, In Beom
    2005
    19,196
    Nil
    Nil
    Nil(Director, General Manager)Hong, Sung Phil
      2003
      39,262
      Nil
      Nil
      Nil(Director and Vice President
      2004
      40,865
      Nil
      Nil
      Nilof Sales, resigned on March,06)
      2005
      23,168Min, Jae -Ki
    2002
    Nil
    Nil
    Nil
    Nil(Statutory Auditor)
    2003
    Nil
    Nil
    Nil
    Nil2004
    Nil
    Nil
    Nil
    Nil2005
    Nil
    Nil
    Nil
    Nil


*Hyeon Seong Myeong was granted options for 4,130 shares of the
Company's common stock at the price of $0.88 in February 2000 and for 2,218
shares at the price of 680 Won (approximately $0.67) in March 2001. Sang Yeul
Park was granted options for 3,097 shares at the price of 1,000 Won in February
2000 and for 1,849 shares at the price of 680 Won in March 2001.

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

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

---

C. Board practices

Not applicable

D. Employees

The Company has 15 employees in the following areas:

Department
    Team Name
    Number of StaffAdministration Department
    The ministry of Finance and
      Economy
    2Business Headquarters
    Sales Department
    4Customer Support Team
    2Business administration team
    1Research Institute
    
    2Production Department
    Manufacturing Technical Team
    2Purchasing Team
    1Quality Guarantee Team
    1Total
    
    15


E. Share Ownership

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

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

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

---

On February 23, 2000, the Company granted stock options to its
executive officers, directors and 16 employees to purchase 496,850 shares of its
common stock at a price of $0.88 per share. Stock options granted to its
executive officers and directors will vest on February 23, 2003 and are
exercisable until February 22, 2007. On March 19, 2001, the Company granted
stock options to its executive officers, directors and 13 employees to purchase
425,250 common shares at an exercise price of Won 680 (equivalent to $0.53 at
the spot exchange rate of Won 1,298 to $1) per share. The options will vest on
March 19, 2004 and are exercisable until March 18, 2008.

Share ownership

The following table sets forth certain information regarding
the beneficial ownership of the common stock of the Company as of December 31,
2005, after taking into effect the Acquisition and the Stock Split of: (a) each
of the Company's directors and officers, and (b) all directors and officers of
the Company, as a group:

|Name and address of beneficial owner | Amount Stock          | Percentage of           | Percentage of            
|------------------------------------ | --------------------- | ----------------------- | -------------------------
|and position with the company        | Beneficially Owned    | Class as of Dec.31,2005 | Class as of June 30, 2006
|                                     |                       |                         |                          
|                                     |                       |                         |                          
|Myeong, Hyeong-seong.                | 971,500 common shares | 3.09%                   | 3.09%                    
|(President, CEO and Director)        |                       |                         |                          
|#997-4 Daechi-dong                   |                       |                         |                          
|Gangnam-gu, Seoul, Korea             |                       |                         |                          
|                                     |                       |                         |                          
|Hong, Sung Phil.                     | 80,450 common shares  | 0.26%                   | 0.26%                    
|(Director resigned on March,         |                       |                         |                          
|2006)                                |                       |                         |                          
|4274 Kum Kwang-dong,                 |                       |                         |                          
|Jungwon-gu                           |                       |                         |                          
|SungNam city, KyungKi-do,            |                       |                         |                          
|Korea                                |                       |                         |                          
|                                     |                       |                         |                          
|In Beom Park                         | Nil                   | Nil                     | Nil                      
|(Director)                           |                       |                         |                          
|#603 605, JungSan town,              |                       |                         |                          
|Ilsan-dong,                          |                       |                         |                          
|Ilsan-gu, Goyang-city,               |                       |                         |                          
|KyungKi-do, Korea                    |                       |                         |                          
|                                     |                       |                         |                          
|Soon Woong Jang                      | Nil                   | Nil                     | Nil                      
|(Director)                           |                       |                         |                          
|687-6 Sangoan-ri, Hongchun-eup,      |                       |                         |                          
|Hongchun- kun, Kangwon-do,           |                       |                         |                          
|Korea                                |                       |                         |                          
|                                     |                       |                         |                          
|Min, Jae-ki                          | Nil                   | Nil                     | Nil                      
|(Statutory Auditor)                  |                       |                         |                          
|#997-4 Daechi-dong                   |                       |                         |                          
|Gangnam-gu Seoul, Korea              |                       |                         |                          
|                                     |                       |                         |                          
|                                     |                       |                         |                          
|All officers and Directors as a      |                       |                         |                          
|Group                                | 1,051,950             | 3.35%                   | 3.35%                    

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

On June 20, 2005, the Company issued 2,400,000 shares of common
stock (par value won 100) in exchange for investor relations, marketing, and
business management consulting services with the fair value to the Company of
won 483,936,000. The shares issued were valued at the trading price of the
company's common stock as of the date of authorization for the issuance.

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, 2005 and June 30, 2006), by each person known to us to own
beneficially more than five percent (5%) of our shares.

---

Name and address
    Amount Stock
    Percentage of Class
    Percentage of Class
    Number ofBeneficially Owned
    of Dec.31, 2005
    of June 30,2006
    Stock Option HeldTerasource Fundsincluding:Terasource Kosdaq Venture Investment(2,066,700 common shares);.
    5,470,600 common shares
    17.43%
    17.43%
    NilTerasource Venture Investment Capital(403,900 common shares);Terasource Venture Capital Fund 2(1,070,270 common shares);Terasource Venture Capital Fund 3(1,551,350 common shares);Terasource Venture Capital Fund 4(378,380 common shares)8FR Dongshin Bldg. 141-30Samseong-dong, Kangnam-gu Seoul, KoreaThe Hong Group of Companiesincluding:Serome Investment Co. Ltd. (1,085,675shares),151-7 Samseong-Dong ;
    3,325,900 common shares
    10.59%
    10.59%
    NilKangnam-Gu Seoul KoreaMok-Won Assets Management Co. Ltd(1,375,000 shares),2004 Ho, Anam tower 702-10Yuksam-dong Kangnam-ku, Seoul, Korea;Bio & Medical Research Co. Ltd. (524,425
      shares),702-10 Yuksam-dong, Kangnam-ku, Seoul, Korea;Ki-tae Hong (127,800 shares) and Hye-sook Lee(213,000 shares)151-7 Samseong-Dong,
      Kangnam-Gu,Seoul, KoreaHsiu Chen Cheng.
    1,850,000 common shares
    5.89%
    5.89%
    Nil12F, No. 388 Chun Shan E. Rd.,Taipei, Taiwan


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

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

The transactions between the Company and its subsidiaries are
disclosed in the Note 14 to the consolidated financial statements.

Item 8. Financial Information

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

Legal Proceedings On February 27, 2004, the Company
received approval for a debt rescheduling plan for a total of 4,697,927,000 Won
($4,651,413) 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 ($4,651,413) of the Company's debt.
An application for the rescheduling plan was subsequently filed with Chooncheon
District Court and approved by the court on the same day.

Dividend Policy We intend to retain any earnings for use in
our business. We do not intend to pay dividends on our shares for the
foreseeable future. Dividends, if any, on the outstanding shares are recommended
by the board of directors and must be approved at our annual general meeting of
shareholders. This meeting is generally held in March each year, and the
dividend in respect of the preceding year is generally paid shortly thereafter.
The declaration of dividends is subject to the discretion of the shareholders,
and consequently, no assurance can be given to the amount of dividends per share
or that any such dividends will be declared. Future cash dividends, if any, will
also depend upon our future

---

operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions and other factors as may
deem relevant. Loan agreements and contractual arrangements entered into by
Meridian may also restrict distributions of dividends.

B. Significant Changes At an extraordinary general meeting
of shareholders of the Company, on April 27, 2004, it was approved that the par
value of the common stock of the Company be reduced from 200 Korean Won per
share (equivalent to US$0.20 per share) to 100 Korean Won per share (equivalent
to US$0.10 per share). The new par value was registered with the Korean
registrar of companies on June 1, 2004 and will be effective as of July 1, 2004.

The Company received funds of US$530,000.00 from investors
through an equity financing whereby, on June 8, 2004 the Company issued
3,312,500 shares of common stock ($ 0.16 per share). Share issue costs of $
26,500 were paid in connection with the financing.

Item 9. The Offer and Listing Not Applicable

Item 10. Additional Information

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

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

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

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

---

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

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

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

Voting Rights

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

---

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

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

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

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

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

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

C. Material contracts

None

D. Exchange Controls General

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

Government Reporting Requirements In order for the Company
to issue its shares outside of Korea, the Company is required to file a prior
report of such issuance with the Ministry of Finance and Economy. No further
approval from the Government is necessary fort he issuance of the Company's
shares. Furthermore, prior to making an investment to 10% or more of the
outstanding shares of a Korean company, foreign investors are generally required
under the Foreign Investment Promotion Law to submit a report to a Korean bank
pursuant to a delegation by the Ministry of Commerce, Industry and Energy.
Subsequent sale by such investor of the shares will also require a prior report
to such bank

Dividend to be declared in Won The Company currently is not
in the position to pay dividends on its shares for the foreseeable future.
However, if the Company declares cash

---

dividends, such dividends will be declared in Won. In order for
the Company to pay such dividends outside Korea, such dividends will be
converted into Dollars and remitted to the shareholders, subject to certain
conditions. The Company will convert dividend amount in foreign currency and
remit them to shareholders abroad. No governmental approval is required for
foreign investors to receive dividends. However, in order for the Company to
convert the Won amount in foreign currency and to remit such amount abroad,
relevant documents must be submitted to the foreign exchange bank to verify (i)
that the amount being paid conforms to the amount required to be paid and (ii)
whether all necessary legal procedures have been completed.

E. Taxation

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

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

Distribution of free shares representing a transfer of certain
capital reserves or asset revaluation reserves into paid-in capital may be
treated as dividends subject to Korean tax. However, stock splits, if any, will
not be treated as dividends.

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

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

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

---

total issued and outstanding shares at any time during the five
years before the year within which the transfer occurs and the non-resident
holder did not sell such shares through a securities broker in Korea.

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

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

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

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

F. DIVIDENDS AND PAYING AGENT Not Applicable

G. STATEMENTS BY EXPERTS Not Applicable

H. DOCUMENTS ON DISPLAY Not Applicable

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

Item 11. Quantitative and Qualitative Disclosures About
  Market Risk

Market Risk Disclosure Market risk generally represents the
risk that losses may occur in the value of financial instruments as a result of
movements in market rates of

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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, 2005, the Company had an aggregate 610,103,000 Won export sales,
accounting for 43% 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, 2005, 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, 2005, the Company estimates that the payment receivable from its overseas
customers will decrease by approximately 61,010,300 Won in 2005. The Company is
exposed to interest rate risk due to significant amounts of short-term and
long-term debt. Upward fluctuations in interest rates increase the cost of
additional debt. However, as of December 31, 2005, 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
303,958,480 Won ($300,940) and interest payment of 271,168,545 Won ($268,483) to
the federal tax office.

The details of the debt restructuring of the Company, which is
disclosed in Item 8. and Note 1 to the consolidated financial statements in this
report, were reported in the form 6-K filed on March 28, 2004.

ITEM 14. MATERIAL MODIFICATIONS TOTHE RIGHTS OFSECURITY
HOLDERS AND USE OF PROCEEDSNot Applicable

ITEM 15. Controls and Procedures Based on
their evaluation as of December 31, 2005, the principal executive officers and
directors of the Company have concluded that the disclosure controls and
procedures of the Company as defined in 240.13a -15(c) and 240.15d -15(c) of the
Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission's rules
and forms.

There were no significant changes in internal controls or in
other factors of the Company that could significantly affect these controls
subsequent to the date of their evaluation and up to the filing date of this
Annual Report on Form 20-F. There were no significant deficiencies or material
weaknesses, and therefore no corrective actions were taken or may occur and not
be detected.

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

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

Item 16C. Principal Accountant Fees and Services
(a)Audit Fees: For the fiscal year 2004, The Company was charged 29,828,199
Won ( $29,532) by the former auditors for the audit of the Company's annual
financial statements or services normally provided in connection with statutory
and regulatory filings for the fiscal year 2004.

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

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

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

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

---

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

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

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

Part III

ITEM 17. Not Applicable

ITEM 18. FINANCIAL STATEMENTS

Meridian Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS

For the Years ended December 31, 2005, 2004 and 2003

Table of Contents

Independent Auditors' ReportConsolidated Balance SheetsConsolidated Statements
        of IncomeConsolidated Statements
        of Changes in Shareholders' EquityConsolidated Statements
        of Cash FlowsNotes to Consolidated
        Financial Statements


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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 sheet of
Meridian Co., LTD., and subsidiaries (the Company) as of December 31, 2005,
and the related consolidated statements of operations and comprehensive loss,
shareholders deficiency, and cash flows for the year ended December 31, 2005.
Our responsibility is to express an opinion on the consolidated financial
statements based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides 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, 2005, and the results of their operations
and cash flows for the year ended December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company's
significant operating losses and working capital deficit raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Choi, Kim & Park LLP

/s/ Choi, Kim & Park LLP Certified Public Accountants
Los Angeles, California

August 9, 2006

---

MERIDIAN CO., LTD.

CONSOLIDATED FINANCIAL STATEMENTS

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

with

INDEPENDENT AUDITORS' REPORT

Shinhan Accounting Corporation

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

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

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

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

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

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

The Company has observed SEC regulations and U.S generally
accepted accounting principles in the process of issuance of shares. How ever,
as discussed in Note 15 to the consolidated financial statements, accounting
principles. generally accepted in Korea vary in this res pect from U.S.
generally accepted accounting principles.

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

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

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

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

---

Meridian Co., Ltd. 
  Consolidated Balance SheetsAs of December 31, 2004 and 2005 
  (in Korean Won)

|                                                                                           |  |                |  |  |              |  |   | (Note 3)            | 
|------------------------------------------------------------------------------------------ |  | -------------- |  |  | ------------ |  | - | ------------------- | 
|ASSETS                                                                                     |  | 2004           |  |  | 2005         |  |   | 2005
      (in USD) | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|Current assets :                                                                           |  |                |  |  |              |  |   |                     | 
|Cash and cash equivalents (Note 2)                                                         |  | 42,131,238     |  |  | 22,967,573   |  | $ | 22,740              | 
|Trade accounts and notes
      receivable - less allowance for doubtful accounts           |  | 525,980,674    |  |  | 333,683,893  |  |   | 330,380             | 
|of won 476,269,309 in 2004 and won 856,697,814(USD
      848,216) in 2005 (Notes 5 and 20) |  |                |  |  |              |  |   |                     | 
|Short-term loans receivable
      - less allowance for doubtful accounts                   |  | 55,661,875     |  |  | 18,069,407   |  |   | 17,891              | 
|of won 26,969,688 in 2004 and won 339,760,052(USD
      336,396) in 2005 (Notes 4 and 20)  |  |                |  |  |              |  |   |                     | 
|Other accounts receivable
      - less allowance for doubtful accounts                     |  | 4,768,645      |  |  | 16,474,892   |  |   | 16,312              | 
|of won 67,143,325 in 2004 and won 67,143,325(USD
      66,479) in 2005 (Note 5)            |  |                |  |  |              |  |   |                     | 
|Inventories (Note 6)                                                                       |  | 695,996,105    |  |  | 488,455,654  |  |   | 483,619             | 
|Other current assets (Note 7)                                                              |  | 188,614,870    |  |  | 1,749,446    |  |   | 1,732               | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|Total current assets                                                                       |  | 1,513,153,407  |  |  | 881,400,865  |  |   | 872,674             | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|Investments and other assets                                                               |  |                |  |  |              |  |   |                     | 
|Investments (Note 8)                                                                       |  | 13,400,744     |  |  | 29,327,328   |  |   | 29,037              | 
|Long-term and restricted bank deposits                                                     |  | 41,084,873     |  |  | -            |  |   | -                   | 
|Security deposits                                                                          |  | 106,153,940    |  |  | 20,103,104   |  |   | 19,904              | 
|                                                                                           |  |                |  |  |              |  |   | -                   | 
|Total investments
      and other assets                                                   |  | 160,639,557    |  |  | 49,430,432   |  |   | 48,941              | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|Property, plant and equipment (Notes 2 and
      9)                                        |  |                |  |  |              |  |   |                     | 
|Land                                                                                       |  | 928,107,490    |  |  | -            |  |   | -                   | 
|Buildings                                                                                  |  | 688,533,484    |  |  | -            |  |   | -                   | 
|Furniture and fixture                                                                      |  | 793,821,678    |  |  | 795,798,438  |  |   | 787,919             | 
|Others                                                                                     |  | 157,588,521    |  |  | 156,645,554  |  |   | 155,095             | 
|                                                                                           |  | 2,568,051,173  |  |  | 952,443,992  |  |   | 943,014             | 
|Less accumulated depreciation                                                              |  | -1,076,383,667 |  |  | -928,639,919 |  |   | 919,445             | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|Property,
      plant and equipment, net                                                   |  | 1,491,667,506  |  |  | 23,804,073   |  |   | 23,568              | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|Intangible assets                                                                          |  |                |  |  |              |  |   |                     | 
|Patents and trademarks (Note 10)                                                           |  | 1,470,612      |  |  | 1,206,846    |  |   | 1,195               | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|                                                                                           |  |                |  |  |              |  |   |                     | 
|TOTAL ASSETS                                                                               |  | 3,166,931,082  |  |  | 955,842,216  |  | $ | 946,378             | 

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

---

(Continued)Meridian Co., Ltd. 
  Consolidated Balance SheetsAs of December 31, 2004 and 2005 
  (in Korean Won)

|                                                                                       |  |                 |  |  |                 |  |   | (Note 3)     | 
|-------------------------------------------------------------------------------------- |  | --------------- |  |  | --------------- |  | - | ------------ | 
|LIABILITIES AND
      SHAREHOLDERS' DEFICIENCY                                         |  | 2004            |  |  | 2005            |  |   | 2005 (in USD | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Current liabilities                                                                    |  |                 |  |  |                 |  |   |              | 
|Accounts payable - trade                                                               |  | 207,983,876     |  |  | 283,184,066     |  |   | 280,380      | 
|Short-term borrowings (Note
      11)                                                  |  | 1,092,929,813   |  |  | 311,216,000     |  |   | 308,135      | 
|Accounts payable - other                                                               |  | 1,091,521,244   |  |  | 1,164,041,285   |  |   | 1,152,516    | 
|Current portion of long-term
      accounts payable                                    |  | 557,282,037     |  |  | 919,649,439     |  |   | 910,544      | 
|Other current liabilities                                                              |  | 347,819,964     |  |  | 958,521,286     |  |   | 949,031      | 
|Deferred warranty revenue                                                              |  | -               |  |  | 33,234,082      |  |   | 32,905       | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Total current
      liabilities                                                        |  | 3,297,536,934   |  |  | 3,669,846,158   |  |   | 3,633,511    | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Long-term accounts payable                                                             |  | 935,287,781     |  |  | 466,613,432     |  |   | 461,993      | 
|Long-term borrowings (Note 12)                                                         |  | 3,511,114,657   |  |  | 4,555,298,225   |  |   | 4,510,196    | 
|Accrued severence benefits, net (Note 13)                                              |  | 144,773,769     |  |  | 50,530,967      |  |   | 50,031       | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Total liabilities                                                                      |  | 7,888,713,141   |  |  | 8,742,288,782   |  |   | 8,655,731    | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Commitments and contingencies                                                          |  | -               |  |  | -               |  |   | -            | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Minority interest                                                                      |  | 19,936,965      |  |  | -               |  |   | -            | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Shareholders' deficiency (Notes 14 and 15)                                             |  |                 |  |  |                 |  |   |              | 
|Common stock - par value 100 (won) per
      share; authorized 50,000 thousand shares; |  | 2,999,398,400   |  |  | 3,139,398,400   |  |   | 3,108,315    | 
|issued and
      outstanding 29,994 thousand shares and 31,394 thousand shares         |  |                 |  |  |                 |  |   |              | 
|at December 31, 2004 and
      December 31,2005, respectively                          |  |                 |  |  |                 |  |   |              | 
|Additional paid-in capital                                                             |  | 3,724,910,262   |  |  | 3,929,900,586   |  |   | 3,890,991    | 
|Appropriation for business rationalization
      (Note 15)                             |  | 267,608,937     |  |  | 267,608,937     |  |   | 264,959      | 
|Accumulated deficit                                                                    |  | -11,731,601,637 |  |  | -15,125,695,937 |  |   | -14,975,937  | 
|Accumulated other comprehensive income
      (loss)                                    |  | -2,034,986      |  |  | 2,341,448       |  |   | 2,318        | 
|                                                                                       |  |                 |  |  |                 |  |   | -            | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|Total shareholders'
      deficiency                                                   |  | -4,741,719,024  |  |  | -7,786,446,566  |  |   | -7,709,353   | 
|                                                                                       |  |                 |  |  |                 |  |   |              | 
|TOTAL LIABILITIES
      AND                                                            |  |                 |  |  |                 |  |   |              | 
|SHAREHOLDERS' DEFICIENCY                                                               |  | 3,166,931,082   |  |  | 955,842,216     |  | $ | 946,378      | 

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

---

Meridian Co., Ltd.Consolidated Statements of OperationsFor the Years Ended December 31, 2003, 2004 and 2005 
  (in Korean Won)

|                                                             |  |                |  |  |                |  |  |                |  |   | (Note 3)     |  
|------------------------------------------------------------ |  | -------------- |  |  | -------------- |  |  | -------------- |  | - | ------------ | -
|                                                             |  | 2003           |  |  | 2004           |  |  | 2005           |  |   | 2005(in USD) |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Sales (Notes 2, 20, and 22)                                  |  | 3,441,119,294  |  |  | 2,204,234,179  |  |  | 1,434,519,243  |  | $ | 1,420,316    |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Cost of sales                                                |  | 1,490,837,684  |  |  | 1,214,803,149  |  |  | 1,099,194,829  |  |   | 1,088,312    |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Gross profit                                                 |  | 1,950,281,610  |  |  | 989,431,030    |  |  | 335,324,414    |  |   | 332,004      |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Selling, general and administrative expenses
      (Note 16) |  | 3,460,603,690  |  |  | 2,461,664,811  |  |  | 2,293,172,188  |  |   | 2,270,468    |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Operating income (loss)                                      |  | -1,510,322,080 |  |  | -1,472,233,781 |  |  | -1,957,847,774 |  |   | -1,938,464   |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Other income (expense)                                       |  |                |  |  |                |  |  |                |  |   |              |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Interest income                                              |  | 2,455,770      |  |  | 563,502        |  |  | 2,307,562      |  |   | 2,285        |  
|Interest expense                                             |  | -181,974,055   |  |  | -404,848,608   |  |  | -806,908,503   |  |   | -798,919     |  
|Foreign exchange gain, net                                   |  | -690,769       |  |  | 133,300        |  |  | 1,758,417      |  |   | 1,741        |  
|Other, net                                                   |  | -461,140,940   |  |  | -180,761,770   |  |  | -621,667,933   |  |   | -615,513     |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Total other income (expense)                                 |  | -641,349,994   |  |  | -584,913,576   |  |  | -1,424,510,457 |  |   | -1,410,406   |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Minority interest in net loss of consolidated affiliates     |  | -              |  |  | -1,319,035     |  |  | -32,951,097    |  |   | -32,625      |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Income (loss) before income taxes                            |  | -2,151,672,074 |  |  | -2,055,828,322 |  |  | -3,349,407,134 |  |   | -3,316,245   |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Net income (loss)                                            |  | -2,151,672,074 |  |  | -2,055,828,322 |  |  | -3,349,407,134 |  | $ | (3,316,245   | )
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Weighted average number of common shares                     |  | 18,094,211     |  |  | 22,199,701     |  |  | 31,603,847     |  |   | 31,603,847   |  
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|Net loss per common share (Note 19)                          |  |                |  |  |                |  |  |                |  |   |              |  
|- Basic                                                      |  | -119           |  |  | -93            |  |  | -106           |  | $ | (0.105       | )
|                                                             |  |                |  |  |                |  |  |                |  |   |              |  
|- Diluted                                                    |  | -119           |  |  | -93            |  |  | -106           |  | $ | (0.105       | )

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

---

Meridian Co., Ltd.Consolidated Statement of Changes in Shareholders' DeficiencyFor the Years Ended December 31, 2003, 2004 and 2005
  (in Korean Won)

AccumulatedCommon Stock Issued
      
      
      Additional
      
      
      
      
      
      OtherPaid-in
      
      
      Accumulated
      
      
      ComprehensiveShares
      
      
      Amount
      
      
      Capital
      
      
      Deficit
      
      
      Income (Loss)
      
      
      TotalBalance at December 31, 2002
      
      17,182,583
      
      
      3,436,516,600
      
      
      982,908,797
      
      
      -7,256,492,304
      
      
      -31,974,847
      
      
      -2,869,041,754Issuance of common shares
      
      1,968,901
      
      
      393,780,200
      
      
      
      
      
      
      
      
      
      
      
      393,780,200Net income (loss)
      
      
      
      
      
      
      
      
      
      
      -2,151,672,074
      
      
      
      
      
      -2,151,672,074Other comprehensive income (loss)Foreign currency translation gain (loss)
      
      
      
      
      
      
      
      
      
      
      
      
      
      26,373,551
      
      
      26,373,551Balance at December 31, 2003
      
      19,151,484
      
      
      3,830,296,800
      
      
      982,908,797
      
      
      -9,408,164,378
      
      
      -5,601,296
      
      
      -4,600,560,077Reduction of capital stock
      
      
      
      
      -1,915,148,400
      
      
      1,915,148,400
      
      
      
      
      
      
      
      
      -Issuance of common shares
      
      10,842,500
      
      
      1,084,250,000
      
      
      826,853,065
      
      
      
      
      
      
      
      
      1,911,103,065Net income (loss)
      
      
      
      
      
      
      
      
      
      
      -2,055,828,322
      
      
      
      
      
      -2,055,828,322Other comprehensive income (loss)Foreign currency translation gain
        (loss)
      
      
      
      
      
      
      
      
      
      
      
      
      
      3,566,310
      
      
      3,566,310Balance at December 31, 2004
      
      29,993,984
      
      
      2,999,398,400
      
      
      3,724,910,262
      
      
      -11,463,992,700
      
      
      -2,034,986
      
      
      -4,741,719,024Issuance of common shares
      
      2,400,000
      
      
      240,000,000
      
      
      243,936,000
      
      
      
      
      
      
      
      
      483,936,000Return to treasury of shares of common stock
      
      -1,000,000
      
      
      -100,000,000
      
      
      -70,656,000Capital transaction by an equity method
        investee
      
      
      
      
      
      
      
      31,710,324Net income (loss)
      
      
      
      
      
      
      
      
      
      
      -3,349,407,134
      
      
      
      
      
      -3,349,407,134Losses in excess of minority interests
      
      
      
      
      
      
      
      
      
      
      -44,687,166Other comprehensive income (loss)Foreign currency translation gain
        (loss)
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,376,434
      
      
      4,376,434Balance at December 31, 2005
      
      31,393,984
      
      
      3,139,398,400
      
      
      3,929,900,586
      
      
      -14,858,087,000
      
      
      2,341,448
      
      
      -7,786,446,566Balance at December 31, 2004
      
      29,993,984
      
      $
      2,969,701
      
      $
      3,688,030
      
      $
      -11,350,488
      
      $
      -2,015
      
      $
      -4,694,772Issuance of common shares
      
      2,400,000
      
      
      237,624
      
      
      241,521
      
      
      
      
      
      
      
      
      479,145Return to treasury of shares of common stock
      
      -1,000,000
      
      
      -99,010
      
      
      -69,956Capital transaction by an equity method
        investee
      
      
      
      
      
      
      
      31,396Net income (loss)
      
      
      
      
      
      
      
      
      
      
      -3,316,245
      
      
      
      
      
      -3,316,245Losses in excess of minority interests
      
      
      
      
      
      
      
      
      
      
      -44,245Other comprehensive income (loss)Foreign currency translation gain
        (loss)
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,333
      
      
      4,333Balance at December 31, 2005
      
      31,393,984
      
      $
      3,108,315
      
      $
      3,890,991
      
      $
      -14,710,978
      
      $
      2,318
      
      $
      -7,709,354


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

---

Meridian Co., Ltd.Consolidated Statements of Cash FlowsFor the Years Ended December 31, 2003, 2004 and 2005
  (in Korean Won)

(Note 3)2003
      
      
      2004
      
      
      2005
      
      
      2005(in USD)CASH FLOWS FROM OPERATING ACTIVITIES :Net income (loss)
      
      -2,151,672,074
      
      
      -2,055,828,322
      
      
      -3,349,407,134
      
      $
      (3,316,245
      )Add (deduct) items not using (providing) cashDepreciation
      
      153,923,984
      
      
      61,790,155
      
      
      25,150,457
      
      
      24,901Provision for severance
        benefits
      
      75,101,496
      
      
      51,222,136
      
      
      4,900,000
      
      
      4,851Provision
        for doubtful accounts
      
      1,464,577,793
      
      
      -16,629,671
      
      
      541,642,061
      
      
      536,279Inventory write-down
        due to decline in market value
      
      4,992,000
      
      
      98,491,235
      
      
      374,812,608
      
      
      371,102Amortization
        of intangible assets
      
      546,626
      
      
      546,626
      
      
      263,766
      
      
      261Loss on disposal
        of property, plant and equipment
      
      -
      
      
      -
      
      
      502,195,617
      
      
      497,223Equity
        in loss(gain) of investee
      
      25,910,007
      
      
      2,002,543
      
      
      -14,071,478
      
      
      -13,932Service fee paid
        with issuance of stock
      
      -
      
      
      563,164,800
      
      
      483,936,000
      
      
      479,145Cancellation
        of service fee paid with issuance of stock
      
      -
      
      
      -
      
      
      -170,656,000
      
      
      -168,966Other
      
      -
      
      
      51,011,409
      
      
      -30,392,479
      
      
      -30,092Changes in operating assets
        and liabilities, and otherDecrease (increase)
        in accounts receivable - trade
      
      -301,663,358
      
      
      -41,181,993
      
      
      -167,706,466
      
      
      -166,046Decrease
        (increase) in accounts receivable - other
      
      -1,362,740
      
      
      -7,443,975
      
      
      -11,706,247
      
      
      -11,590Decrease (increase)
        in inventory
      
      -10,754,100
      
      
      44,172,990
      
      
      -167,272,157
      
      
      -165,616Decrease
        (increase) in other current assets
      
      10,636,649
      
      
      -150,603,391
      
      
      186,865,424
      
      
      185,015Increase (decrease)
        in accounts payable - trade
      
      36,902,587
      
      
      93,059,052
      
      
      75,200,190
      
      
      74,456Increase
        (decrease) in accounts payable - other
      
      282,868,152
      
      
      199,035,446
      
      
      72,520,041
      
      
      71,802Increase (decrease)
        in other current liabilities
      
      -166,687,764
      
      
      158,039,246
      
      
      756,994,548
      
      
      749,500Retirement
        and severance payment
      
      -73,901,562
      
      
      -38,261,718
      
      
      -228,746,293
      
      
      -226,481Other
      
      96,376,231
      
      
      11,124,550
      
      
      6,978,190
      
      
      6,909Sub-total
      
      1,597,466,001
      
      
      1,079,539,440
      
      
      2,240,907,782
      
      
      2,218,721-554,206,073
      
      
      -976,288,882
      
      
      -1,108,499,352
      
      
      -1,097,524CASH FLOWS FROM INVESTING ACTIVITIES :Decrease in short-term financial instruments
      
      222,500,000
      
      
      -
      
      
      -
      
      
      -Decrease in short-term loans
      
      23,500,000
      
      
      28,783,968
      
      
      -
      
      
      -Decrease in long-term financial instruments
      
      -
      
      
      -
      
      
      41,084,873
      
      
      40678Proceeds from sales of investment
        securities
      
      2,612,000
      
      
      -
      
      
      -
      
      
      -Proceeds from sales of property, plant and
        equipment
      
      28,171,609
      
      
      3,442,824
      
      
      946,751,152
      
      
      937377Increase in short-term loans
      
      -384,608,871
      
      
      -1,453,654
      
      
      -144,046,346
      
      
      -142620Acquisition of property, plant and equipment
      
      -11,084,762
      
      
      -14,564,902
      
      
      -6,233,793
      
      
      -6172Cash held by former subsidiaries
      
      6,461,718
      
      
      -
      
      
      -
      
      
      -Changes in investments and other assets
      
      26,295,681
      
      
      -1,492,414
      
      
      86,050,836
      
      
      85199-86,152,625
      
      
      14,715,822
      
      
      923,606,722
      
      
      914,462CASH FLOWS FROM FINANCING ACTIVITIES :Proceeds from issuance of common stocks
      
      393,780,200
      
      
      607,804,000
      
      
      -
      
      
      -Proceeds from issuance of short-term
        borrowings
      
      1,414,254,438
      
      
      756,898,530
      
      
      196,000,000
      
      
      194059Repayment of short-term borrowings
      
      -849,898,501
      
      
      -398,290,430
      
      
      -
      
      
      -Repayment of current portion
        of long-term debt
      
      -142,068,662
      
      
      -
      
      
      -
      
      
      -Repayment of long-term borrowings
      
      -291,062,577
      
      
      -
      
      
      -30,271,035
      
      
      -29971525,004,898
      
      
      966,412,100
      
      
      165,728,965
      
      
      164,088NET INCREASE (DECREASE) IN CASH AND CASH
        EQUIVALENT
      
      -115,353,800
      
      
      4,839,040
      
      
      -19,163,665
      
      
      -18,974CASH AND CASH EQUIVALENTS AT BEGINNING OF
        THE YEAR
      
      152,645,998
      
      
      37,292,198
      
      
      42,131,238
      
      
      41,714CASH AND CASH EQUIVALENTS AT END OF THE
        YEAR
      
      37,292,198
      
      
      42,131,238
      
      
      22,967,573
      
      $
      22,740


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

---

1. Going Concern

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

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

For the fiscal year ended December 31, 2005, the Company
incurred a net loss of (WON) 3,349,407 thousand ((WON) 2,055,828 thousand for
2004 and (WON) 2,151,672 thousand for 2003) and net negative cash flow from
operating activities of (WON) 1,108,499 thousand ((WON) 976,289 thousand for
2004 and (WON) 554,206 thousand for 2003). On August 4, 2003, the Company's
banking privileges were suspended on its accounts of credit/bill by the KFTC
(Korea Financial Telecommunications & Clearings Institute), which was
established as a non-profit organization to build up and operate the Financial
Information Network Systems (FINS) by integrating the Korea Clearing &
Credit Reporting Center in charge of check clearing systems and the Korea Bank
Giro Center in charge of bank giro systems.

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

Creditor
    
    Amount of debt rescheduledWoori 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 Foreign Exchange Bank
    
    125,831Shinhan Bank
    
    41,612Other
    
    1,186,813Total
    
    4,697,927


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

The Company, however, has not paid 261,378,503 Won of accounts
payable due to parties other than financial institutions and 271,168,545 Won of
interest payment to financial institutions which were due on December 31 2005.

In January 2005, Woori Bank exercised its security right on the
apartment owned by the Company. The total amount of (Won) 42,836,799 obtained
from disposition of the property was paid to Woori Bank: (Won) 30,271,035 for
debt principal, (Won) 12,565,764 for debt interest and other expense for the
disposition.

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

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

|          |             |             |             |             |             |             | (in Korean Won)
|--------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ---------------
|          | 2007        | 2008        | 2009        | 2010        | 2011        | 2012        | 2013           
|Principal | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,889 | 650,756,891    
|Interest  | 159,435,438 | 136,658,947 | 113,882,456 | 91,105,965  | 68,329,473  | 45,552,982  | 22,776,491     
|Total     | 810,192,327 | 787,415,836 | 764,639,345 | 741,862,854 | 719,086,362 | 696,309,871 | 673,533,382    

---

Note: 1,186,813 Won of accounts payable due to parties other
than financial institutions will be repaid over 3 years from January 2005 to
December 2007 and will be exempt from paying any interest. The Company, however,
has not paid 261,378,503 Won of accounts payable due to parties other than
financial institutions which were due on December 31 2005.

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

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

The Company had realized that the growth of its revenue would
be difficult in its existing market and planned to develop new markets with new
products. In February 2004, the Company received approval for a debt
rescheduling plan and as a result, the Company was able secure fund by raising
capital to develop new product. In October 2005, the Company introduced its new
product, LipoLaser, in the market.

It has been only few months after it was introduced, but
LipoLaser is already gaining its reputation in domestic market and attracting
attention from many countries. LipoLaser is in the process for FDA clearance and
expected to be cleared in the 4th quarter of 2006. The Company already started
to sell LipoLaser in North American market through IRB (Institutional Review
Board).

Digital Pulse Analyzer (DPA) was developed in 2002, but it was
first recognized in the North American market from 2004. In 2004 and 2005, the
Company sold average 200 units of DPA annually in US market and started to sell
in domestic market in 2006.

With its new products, LipoLaser, and DPA, the Company targets
(Won) 5,000,000,000 in Sales and (Won) 2,000,000,000 in net profit from the
second half of 2006, and this will release the Company from cash flow pressure
from 2007.

Despite the continuous decline in sales, the Company has been
changing its business strategy. In the first half of 2006, sales of LipoLaser
and DPA contribute more than 90% of the total sales revenue. However, since the
size of new product sales is not large enough and the Company still lacks the
experience on the new markets, there is no assurance that the Company will
achieve its goal.

2. Summary of Significant Accounting Policies

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

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

Basis of Consolidation

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

Changes of Consolidated Subsidiary

The consolidated financial statements include the accounts of
the Company and its subsidiaries. The following table reflects the Company's
ownership percentages and acquisition dates of its consolidated subsidiaries as
at December 31, 2003, 2004 and 2005:

Subsidiary
    
    Primary Business
    
    Acquisition
    
    Percentage ownershipDate
    
    2003
    
    2004
    
    2005Meridian
      AmericaMedicals, Inc.
    
    wholesaler, retailer of medical equipment
    
    March
      4, 2002
    
    100.00%
    
    95.06%
    
    75.76%Rapha &
      HealthCo., Ltd
    
    "
    
    September 29, 2005
    
    -
    
    -
    
    100.00%


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

On September 29, 2005, the Company acquired 100.00% of the
share ownership in Rapha & Health Co., Ltd for (WON) 50,000,000 in cash.

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

---

Foreign Currency Transactions

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

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

Use of Estimates

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

Revenue recognition

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

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

Cash and Cash Equivalents

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

Financial Instruments

Long-term financial instruments are time deposits handled by
financial institutions, which are restricted for withdrawals. The time deposit
as of December 31, 2004 and 2005 is (WON) 40,454 thousand and nil, respectively.
In addition, the Company has special deposit for the security of its checking
account which is not being used as of December 31, 2005.

Allowance for Doubtful Accounts

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

Value - Added Taxes

Under the Korean Value-Added Tax ("VAT") law, the Company pays
a 10% VAT on each purchase of VAT-taxable goods or services("input tax") and
collects VAT from its customers equal to 10% of revenue("output tax"). The net
amount is recorded as prepaid VAT, if the input tax is greater than the output
tax, or VAT payable if the output tax is greater than the input tax.

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.

Investments in Affiliates

Investments in affiliated companies owned 20% or more or over
which the Company has significant management control are stated at an

---

amount as determined using the equity method.

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

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

Concentrations of credit risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company maintains cash
accounts at seven financial institutions. The Company periodically evaluates the
credit worthiness of financial institutions, and maintains cash accounts only in
large high quality financial institutions, thereby minimizing exposure for
deposits in excess of federally insured amounts. The Company believes that
credit risk associated with cash is remote. There are certain amounts included
in cash which are restricted in use for pledging to Hongchun Tax Collectors
Office as of December 31, 2005

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

Property, Plant and Equipment

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

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

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


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

On October 31, 2005, all employees other than Mr. Myeong, Hyeon
Sung, CEO, were terminated and rehired on November 1, 2005. As a result,

---

accrued severance benefits as of December 31, 2005 is
(WON)50,530,967 which represents the retirement allowance for the CEO.

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, 2003, 2004 and 2005, amounted to (WON) 9,754 thousand, (WON)
12,870 thousand and (WON) 12,180 thousand, 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 (WON)
57,378 thousand, (WON) 183,567 thousand and (WON) 100,202 thousand during the
years ended December 31, 2003, 2004 and 2005, respectively.

Advertising costs

The Company expenses advertising costs as they are incurred.
Advertising expense for the years ended December 31, 2003, 2004 and 2005 are
(WON) 53,042thousand, (WON) 30,749 thousand and (WON) 40,266
thousand, respectively.

Income Taxes

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

Other Comprehensive Income

Other comprehensive income refers to revenues, expenses, gains
and losses that, under accounting principles generally accepted in the United
States of America are included in comprehensive income, but are excluded from
net income as these amounts are recorded directly as an adjustment to
shareholders equity. The Companys other comprehensive income is primarily
comprised of foreign currency translation gain (loss).

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

Earnings (Loss) Per Share

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

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

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

Stock Option Plan

The Company applies the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to

---

Employees, and related interpretations, in accounting for its
fixed stock option plan. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. SFAS 123 "Accounting for Stock-Based Compensation"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS 123, the Company elected to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure requirement of SFAS
123.

The Company has adopted the disclosure-only provisions of SFAS
123. Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date consistent with the provisions of
SFAS123, the Company's net loss and loss per share for 2004 would have been
increased to the pro forma amounts indicated below (in Korean WON):

2005Net income (loss)As reported
    (-) 3,349,407,134Pro forma
    (-)
      3,290,788,638Basic earnings (loss) per shareAs reported
    (-) 106Pro forma
    (-) 104


The fair value of stock options granted were estimated on the
dates of grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield and expected volatility of nil for all years,
risk-free interest rate of 5.64% to 9% and expected lives of 4 years. The
weighted average fair value per stock option granted during 2000 and 2001 was
(WON) 295 and (WON) 607 respectively.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement No. 123R (SFAS
123R)  Share-Based Payment, which replaces SFAS 123 and APB 25 and requires
the Company to measure compensation cost for all share-based payments at fair
value. The Company plans to adopt SFAS 123R from January 1, 2006.

In November 2004, the FASB issued SFAS No. 151 Inventory Costs
- An Amendment of ARB No. 43, Chapter 4 (SFAS 151). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. Among other provisions, the new rule requires that
items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current-period charges regardless of whether
they meet the criterion of so abnormal as stated in ARB No. 43. Additionally,
SFAS 151 requires that the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005. The Company is
currently evaluating the effect that the adoption of SFAS 151 will have on its
results of operations and financial condition but does not expect it to have a
material impact.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes
(SFAS 154), and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements (FASB 3).The new statement changes the
requirements for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions, those
provisions should be followed. This statement is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005.

3. United States Dollar Amounts

The Company operates primarily in Korea and its financial
accounting records are maintained in Korean WON. These translations should not
be construed as a representation that the Korean WON amounts shown could be
converted, realized or settled in US dollars at this or any other rate. The US
dollar amounts are provided herein as supplemental information solely for the
convenience of the reader. Korean WON amounts are expressed in US dollars at the
rate of (WON) 1,010.0: US$1, the US Federal Reserve Bank of New York noon buying
exchange rate in effect on December 31, 2005. The US dollar amounts are
unaudited and are not presented in accordance with generally accepted accounting
principles in either Korea or the United States of America.

4. Short term loans receivable

Short-term loans receivable as of December 31, 2004 and 2005
are as follows (in thousands of Korean WON):

---

|                                |               |  |  | Interest |  |  |         |   |  |          |  
|------------------------------- | ------------- |  |  | -------- |  |  | ------- | - |  | -------- | -
|                                | Maturity year |  |  |          |  |  | 2004    |   |  | 2005     |  
|                                |               |  |  | rate     |  |  |         |   |  |          |  
|Sales Agent                     | -             |  |  | -        |  |  | 43,387  |   |  | 212,329  |  
|Others                          | 2005          |  |  | 0%       |  |  | 39,245  |   |  | 145,500  |  
|                                |               |  |  |          |  |  | 82,632  |   |  | 357,829  |  
|Allowance for doubtful accounts |               |  |  |          |  |  | (26,970 | ) |  | (339,760 | )
|Net                             |               |  |  |          |  |  | 55,662  |   |  | 18,069   |  

Interest income arising from these loans has been classified as
other income. Any provision for bad debts has been classified as non-trade bad
debt expense as a component of other expenses.

5. Accounts Receivable

The following table presents accounts receivable as at December
31, 2004 and 2005 (in thousands of Korean WON):

Account
    
    2004
    
    2005Trade
    
    1,002,250
    
    1,190,382Others
    
    71,912
    
    83,618Sub total
    
    1,074,162
    
    1,274,000Allowance for doubtful
      accounts
    
    (543,412
    )
    (923,841
    )Accounts Receivable, net
    
    530,750
    
    350,159


6. Inventories

Inventories are comprised of the following as at December 31,
2004 and 2005 (in thousands of Korean WON):

2004
    
    
    2005Merchandise
    
    297,888
    
    
    156,131Finished goods
    
    105,395
    
    
    84,488Work-in-process
    
    125,293
    
    
    184,437Raw material
    
    167,420
    
    
    63,399695,996
    
    
    488,455


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

7. Other Current Assets

Other current assets as of December 31, 2004 and 2005 are as
follows (in thousands of Korean WON):

Account
    
    2004
    
    2005Advanced payment
    
    180,897
    
    691Prepaid income taxes
    
    69
    
    4Prepaid expenses
    
    3,653
    
    -Other
    
    3,996
    
    1,054Total
    
    188,615
    
    1,749


8. Investments in Nonconsolidated Affiliates

The Company accounts for investments in which it exerts
significant influence over using the equity method. The Company ownerships as
of December 31, 2004 and 2005 are as follows:

2004
    
    2005Beijing Meridian Medicals
      Equipment Co.,Ltd.
    25.00%
    
    25.00%


---

On November 10, 2001, the Company acquired 45% of the share
ownership in Beijing Meridian Medicals Equipment Co., Ltd. ("Beijing Meridian")
for (WON) 76,955,623 in cash. The changes of ownership percentage occurred in
2003 and 2002 when Beijing Meridian increased its issued capital stock. The
carrying amounts of investments as of December 31, 2004 and 2005 are as follows
(in thousands of Korean WON):

2004
    
    2005Beijing Meridian Medicals
      Equipment Co.,Ltd
    13,401
    
    29,327


9. Property, Plant and Equipment

Property, plant and equipment are comprised of the following at
December 31, 2004 and 2005 (in thousands of Korean WON):

2004
    
    
    2005Land
    928,107
    
    
    -Buildings
    693,733
    
    
    -Machinery
    49,716
    
    
    54,661Vehicles
    54,773
    
    
    54,085Tools
    47,900
    
    
    47,900Furniture and fixtures
    793,822
    
    
    795,798Less accumulated depreciation
    (1,076,383
    )
    
    (928,640
    )Property, plant and
      equipment, net
    1,491,668
    
    
    23,804


Depreciation expenses for the years ended December 31, 2003,
2004 and 2005 are (WON) 153,924 thousand, (WON) 61,790 thousand and (WON) 25,150
thousand.

In January 2005, Woori Bank exercised its security right on the
apartment owned by the Company. The total amount of (Won) 42,836,799 obtained
from disposition of the property was paid to Woori Bank: (Won) 30,271,035 for
debt principal, (Won) 12,565,764 for debt interest and other expense for the
disposition.

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

10. Intangible Assets

Intangible assets are comprised of the following at December
31, 2005 and 2004 (in thousands of Korean WON):

Patents and trademarks
    2004
    
    
    2005Acquisition cost
    5,466
    
    
    5,466Less accumulated amortization
    (3,996
    )
    
    (4,259
    )Intangible assets, net
    1,470
    
    
    1,207


Amortization expenses for the years ended December 31, 2003,
2004 and 2005 are (WON) 547 thousand, (WON) 547 thousand and (WON) 264 thousand.

11. Short-Term Borrowings

Details of Companys short-term borrowings as of December 31,
2004 and 2005 are as follows (in thousands of Korean WON):

AnnualCreditor
    
    
    
    2004
    
    2005interest rateChohung Bank
    
    -
    
    977,714
    
    -Medison Co., Ltd.
    
    -
    
    1,216
    
    1,216Other
    
    -
    
    114,000
    
    310,0001,092,930
    
    311,216


---

12. Long-Term Borrowings

Details of Companys long-term borrowings as of December 31,
2004 and 2005 are as follows (in thousands of Korean WON):

Creditor
    
    Annual
    
    Final maturity
    
    2004
    
    2005interest rateChohung Bank (Note a)
      
      3.5 %
      
      December 31, 2013
      
      96,741
      
      1,074,455Korea Technology Credit
    
    3.5 %
    
    December 31, 2013
    
    1,151,884
    
    1,151,884Guarantee FundKorea Foreign Exchange
      
      3.5 %
      
      December 31, 2013
      
      125,831
      
      125,831BankWoori Bank
    
    3.5 %
    
    December 31, 2013
    
    391,787
    
    361,516Small Business
      
      3.5 %
      
      December 31, 2013
      
      300,000
      
      300,000CorporationShinhan Bank
    
    3.5 %
    
    December 31, 2013
    
    41,612
    
    41,612SMI [ ] ABS Specialty
      
      3.5 %
      
      December 31, 2013
      
      1,000,000
      
      1,000,000Co., Ltd. (Note b)Rainbow Specialty Sec
    
    3.5 %
    
    December 31, 2013
    
    500,000
    
    500,000Co., Ltd. (Note b)Less portion due within
      
      
      
      
      
      ( 96,741)
      
      -one yearLong-term portion
      
      
      
      
      
      3,511,114
      
      4,555,298


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

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

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

Rescheduled
    
    OriginalAmount
    Interest rate
    Maturity
    
    Interest rate
    Maturity1stdebentures
      1,000,000
      3.5%
      December
      
      12.15%
      January 31,31, 2013
      
      
      20032nddebentures
      500,000
      3.5%
      December
      
      13.92%
      August 14,31, 2013
      
      
      20041,500,000


The repayment schedule for long-term debts as of December 31,
2005 is as follows (in thousands of Korean WON):

2005
    
    2006
    
    2007
    
    2008
    
    Thereafter-
    
    -
    
    650,757
    
    650,757
    
    3,253,784


13. Accrued Severance Benefits

Changes in accrued severance benefits for the years ended
December 31, 2004 and 2005 are summarized as follows (in Korean WON):

---

2004
    
    
    2005Estimated severance liability
      at beginning of year
    265,480,042
    
    
    278,440,460Provision
    51,222,136
    
    
    36,400,932Payments
    (38,261,718
    )
    
    (260,247,225
    )Transferred on disposal of subsidiary
    -
    
    
    -Transfer to National Pension
      Fund
    (20,607,547
    )
    
    (4,063,200
    )-Less current portion
    (113,059,144
    )
    
    -Net balance at end of year
    144,773,769
    
    
    50,530,967


14. Shareholders Equity

The Companys capital stock consists entirely of common stock
with a par value of (WON) 100 and the number of authorized, issued and
outstanding shares as of December 31, 2004 and 2005 are as follows (in Korean
WON):

2004
    
    2005Authorized shares
    50,000 thousand
    
    50,000 thousandIssued and outstanding shares
    29,994 thousand
    
    31,394 thousandPar value
    100
    
    100


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 WON 100) in exchange for investor relations and marketing
services with the fair value to the Company of WON 483,936,000. The shares
issued were valued at the trading price of the company's common stock as of the
date of authorization for the issuance.

The Company has legally issued its shares and complied with the
filing requirements pursuant to the SEC regulations. Except for the 13,885,159
common shares issued through S-8 registrations, for acquisition of By George
Holdings. and the October 21, 2004 shares for debt, which have not been included
in the Korean Commercial Registration Office due to the different share issuance
requirements between the US and Korean Commercial Laws. The numbers of
outstanding shares and capital stock as of December 31, 2005 in SEC and in
Korean Commercial Registration Office are as follows (in thousands of Korean
WON, except for number of outstanding shares):

SEC
    
    Korean CommercialRegistration OfficeNumber of outstanding shares
    31,393,984
    
    17,508,825Capital Stock
    3,139,398
    
    1,750,883


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

15. Appropriation for Business Rationalization

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

16. Selling, General and Administrative Expenses

Details of selling, general and administrative expenses for the
years ended December 31, 2004 and 2005 are as follows (in Korean WON):

2004
    
    
    2005Salaries
    
    552,666,633
    
    
    515,207,598Provision for retirement and severance
      benefits
    
    33,175,384
    
    
    28,682,927Other employee benefits
    
    74,597,350
    
    
    53,946,138Travel
    
    9,947,114
    
    
    7,663,750Entertainment
    
    3,845,815
    
    
    4,504,538Advertising
    
    30,749,116
    
    
    40,266,019


---

Research and development
    
    183,567,322
    
    
    100,201,919Communications
    
    21,964,125
    
    
    16,847,049Commissions and fees
    
    1,170,015,502
    
    
    869,622,033Insurance
    
    9,104,835
    
    
    9,953,765Transportation
    
    66,733,649
    
    
    39,313,102Depreciation
    
    21,991,546
    
    
    8,740,599Amortization
    
    546,626
    
    
    263,766Taxes and dues
    
    41,528,220
    
    
    16,399,062Bad debt expenses
    
    -
    
    
    360,003,247Rent
    
    83,108,735
    
    
    114,345,745Miscellaneous
    
    158,122,839
    
    
    107,210,931Total
    
    2,461,664,811
    
    
    2,293,172,188


17. Income Taxes

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

2003
    
    
    2004
    
    
    2005Income (loss) before income taxes
    
    (-) 2,151,672
    
    
    (-) 2,055,828
    
    
    (-) 3,349,407Income taxes  Current
    
    -
    
    
    -
    
    
    -Income taxes  Deferred
    
    -
    
    
    -
    
    
    -Total income taxes
    
    -
    
    
    -
    
    
    -


The Company is subject to corporate income tax and resident
surtax normally at an aggregate rate of 14.3% on taxable income up to (WON)
100,000,000 and 27.5% on taxable income over that amount. However, there were no
income taxes-current because the Company had net losses for income tax purposes
for the years ending December 31, 2003, 2004 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 (liabilities) as of December 31,
2004 and 2005 are as follows (in thousands of Korean WON):

2004
    
    
    2005Temporary differences
    
    1,088,245
    
    
    1,231,487Tax credit carry forwards
    
    1,971,580
    
    
    2,317,463Net loss carry forwards for tax purpose
    
    315,212
    
    
    131,448Total deferred income tax assets (liabilities)
    
    3,375,037
    
    
    3,680,398Less  Valuation allowance for deferred tax
      assets
    
    (3,375,037
    )
    
    (3,680,398
    )Net deferred tax assets (liabilities)
    
    -
    
    
    -


As of December 31, 2005, the Company has net operating loss
carryforwards for income tax purposes, tax credit carryforwards and deductible
accumulated temporary differences as showed above table. Realization of the
future tax benefits related to the deferred tax asset is dependent on many
factors, including the Companys ability to generate taxable income within the
period during which the temporary differences reserves, the outlook for the
Korean economic environment and the overall future industry outlook. Management
periodically considers these factors in reaching its conclusion and has
determined that valuation allowance was required as of December 31, 2005 and
2004. Therefore, the management concluded that 100% of valuation allowance is
recorded in the Companys financial statements with the reason for the remote
possibility to generate future taxable income within the period during which the
all temporary differences reserve due to the continuing loss from its inception.

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
maximum aggregate number of shares available for issuance under the Stock Option
Plan may not exceed 50% of the total number of shares outstanding. Stock options
may not be granted to all officers and employees at the same time. Any single
officer or employee may not be granted stock options for shares exceeding 10% of
shares issued and outstanding.

Stock options granted under the Stock Option Plan will have a
minimum exercise price equal to the arithmetic mean of (i) the weighted average
of the daily market prices for the two-month period prior to the date of grant,
(ii) the weighted average of the daily market prices for the one-month period
prior to such date, (iii) the weighted average of the daily market prices for
the one-week period prior to such date. When new

---

shares are issued upon the exercise of the stock options, the
option exercise price shall not be less than the greater of the market price of
shares valued as of the date of the grant or the par value of the shares
concerned.

Details of stock option rights granted by the Company as of
December 31, 2005, are presented below (in Korean WON):

Type ofGrant
    
    Options
    
    Exercise
    
    Fair
    
    Service
    
    ExercisableStockDate
    
    Outstanding
    
    Price
    
    Value
    
    Period
    
    PeriodOptionsIssuance of
    
    
    
    
    
    February,
    
    February,February
    
    common
    
    
    
    
    
    2000
    
    2003206,475
    
    500
    
    29523, 2000
    
    stock
    
    
    
    
    
    to January,
    
    to January,2003
    
    2007Issuance of
    
    
    
    
    
    March,
    
    March,March
    
    common
    
    
    
    
    
    2001
    
    2004147,875
    
    340
    
    60719, 2001
    
    stock
    
    
    
    
    
    to February,
    
    to February,2004
    
    2008354,350


19. Earnings (loss) Per Share

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

Diluted earnings (loss) per share is computed in a manner
consistent with that of basic earnings per share while giving effect to all
potentially dilutive common shares that were outstanding during the period. The
Company has potentially dilutive common shares as of December 31 2004 and 2005,
however there were no dilutive effects as of December 31, 2003, 2004 and 2005.
Therefore, earnings per share is the same as diluted earnings per share.

Earnings (loss) per share for the years ended December 31,
2003, 2004 and 2005 are calculated as follows (in thousands of Korean WON,
except for per share amount and number of shares):

2003
    
    
    2004
    
    
    2005Net income (loss) as reported
    
    (2,151,672
    )
    
    (2,055,828
    )
    
    (3,349,407
    )on the income statementsWeighted-average number
    
    18,094,211
    
    
    22,199,701
    
    
    31,603,847of common shares outstandingEarnings (loss) per share
    
    (119
    )
    
    (93
    )
    
    (106
    )


20. Related Party Transactions

Significant transactions and account balances which occurred in
the normal course of business with related companies, Beijing Meridian Medicals
Equipment Co., Ltd and Meridian Asia Co., Ltd. as of and for the years ended
December 31, 2004 and 2005 are summarized as follows (in thousands of Korean
WON):

Transaction orRelated party
    
    
    
    2004
    
    2005
    
    DescriptionAccount balanceBeijing Meridian
      
      Account receivable
      
      
      
      
      
      Sales of productMedical Equipment
      
       trade
      
      27,817
      
      -Co., Ltd.
      
      Short-term loans
      
      37,791
      
      -
      
      LoanMeridian Asia
      
      Sales
      
      346
      
      -
      
      Sales of productCo.,Ltd.


---

21. Statement of Cash Flows

(a) Transactions Not Involving Cash

Significant non-cash investing and financing activities for the
year ended December 31, 2005 are summarized as follows (in thousands of Korean
WON):

Short-term borrowings
      transferred to long-term borrowings
    977,713Current portion of long-term debt transferred
      to long-term borrowings
    96,741Long-term accounts payable
      transferred to current portion of long-term debt
    221,373


(b) Interest and Income Taxes Paid and Received

Interest and income taxes paid and received in cash for the
years ended December 31, 2003, 2004 and 2005 are as follows (in thousands of
Korean WON):

|                                    |  | 2003    |  |  | 2004    |  |  | 2005    | 
|----------------------------------- |  | ------- |  |  | ------- |  |  | ------- | 
|Cash paid for interest              |  | 151,799 |  |  | 202,198 |  |  | 649,382 | 
|Cash refunded (paid) for income tax |  | -       |  |  | -       |  |  | -       | 
|Cash received for interest          |  | 2,456   |  |  | 462     |  |  | 39      | 

22. Segment Information

In 2005, the Company operated in a one industry segment, the
development and manufacture of alternative medical equipments. The Company's
identifiable assets are located in one geographic area, the Republic of Korea
(also known as South Korea). Sales revenue is attributable to geographic
locations based on the location of the customer, as follows (in thousands of
Korean WON):

2004
    
    
    2005ExportU.S.A
    
    707,917
    
    
    576,699South Asia
    
    -
    
    
    -China
    
    29,153
    
    
    6,458Other
    
    946
    
    
    26,946738,016
    
    
    610,103Domestic Sales
    
    1,466,218
    
    
    824,4162,204,234
    
    
    1,434,519


23. Risk and Uncertainties

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

Item 19. Exhibits

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

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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: August 18 , 2006

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