According to the docket posted, on October 12, 2005, the Court entered the certified copy of the judgment from the U.S. Court of Appeals for the Ninth Circuit affirming in part and reversing in part the decision of the District Court and remanded the matter back to District Court. On May 16, 2006, the Court entered the Order signed by U.S. District Judge M. J. Lorenz granting in part and denying in part the defendants’ request to dismiss the Third Amended Complaint. According to the Order the 3rd amended complaint cause of action under 12(a)(2) of the 1933 Securities Act is dismissed with prejudice.
As previously disclosed by the Company’s FORM 10-K/A for the fiscal year ended December 31, 2004, four separate complaints were filed against the Company and certain of its officers and directors in the United States District Court for the Southern District of California. A group of shareholders has been appointed the lead plaintiff in this federal litigation, and they filed a second amended consolidated class action complaint on January 21, 2000. A Motion to Dismiss the second amended consolidated class action complaint was filed on February 22, 2000. On March 27, 2002, the Court granted the Motion but extended to plaintiffs the opportunity to file a Third Amended Complaint. The plaintiffs filed their third amended consolidated class action complaint on May 16, 2002, to which the Company responded with another Motion to Dismiss. The Motion was filed on June 24, 2002 and challenged the legal sufficiency of the allegations. On October 15, 2002, the Court granted that Motion, this time with prejudice. Plaintiffs timely noticed an appeal and filed their Appellants' Brief with the Ninth Circuit Court of Appeals on April 9, 2003. On July 2, 2003, the Company filed its Respondents' Brief and Cross-Appeal. The Cross-Appeal challenges the trial court's failure to assess whether the complaint complied with applicable pleadings standards. The matter was argued before the court on February 12, 2004. On February 2, 2005, the court reversed the dismissal and remanded the case back to the district court. Because it reversed the dismissal, it did not decide the Company's cross-appeal. The Company appealed the reversal by way of petition for rehearing to the Ninth Circuit Court of Appeals filed February 23, 2005. Among other issues appealed was the court's ruling on loss causation. On March 3, 2005, the Ninth Circuit deferred consideration on the petition for rehearing until the United States Supreme Court renders its opinion in another case involving the same loss causation issue. Given this deferral, the Company's intended appeal to the Supreme Court by way of writ of certiorari is in abeyance until the Ninth Circuit decides the petition for rehearing.
The original complaint alleges that defendants concealed from the investing public the fact that they had been committing gross violations of the federal securities laws, including the concealment of accounting irregularities which have caused an extraordinary overstatement of the Company's earnings. The complaint alleges that throughout the class period Daou disseminated materially false and misleading statements regarding the Company's then current financial performance. In addition, the complaint alleges that defendants misrepresented the costs associated with two recent acquisitions by Daou, by stating to analysts that expenses incurred by the Company were one-time merger expenses when in reality, they were significant recurring general and administrative expenses.