According to the latest docket posted, on December 9, 2003, the Court entered the Order granting the motion to consolidate the cases. The Court further appointed lead plaintiff and approved the selection of lead counsel. On June 23, 2004, the plaintiffs filed an Amended Consolidated Class Action Complaint, and on August 19, 2004, the defendants responded by filing motions to dismiss the Amended Consolidated Class Action Complaint. On March 31, 2005, the Court entered the Order by U.S. District James D. Whittemore denying the motions to dismiss. On February 16, 2006, the Court entered the Order adopting the Report and Recommendation from January 29, 2006, granting the plaintiffs’ motion for class certification.
The original complaint alleges that the defendants made positive statements concerning the company's expectations about growth in its revenues and earnings and the demand that existed for the company's services, and that the defendants engaged in improper revenue recognition. Specifically, the complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing numerous positive statements concerning the Company's ability to grow its revenues and earnings at a rapid pace and the strong demand that existed for the Company's products, especially at its Health Resource division. In a Press Release dated September 2, 2003, the expanded class-action suit extended the class period to August 25, 2003 to include more recent shareholders.
Throughout the Class Period, defendants issued highly positive statements regarding in an effort to create the impression that Catalina' revenues were growing and the Company was well positioned to generate strong profitability. In response, Catalina stock traded at over $36 per share during April 2002. In particular, defendants repeatedly emphasized the success of the Company's Health Resource division, which defendants touted as a strong revenue contributor. On April 13, 2003, defendants partially disclosed material problems at Health Resource, including the fact that Catalina would miss revenue and earnings targets because of "disappointing" results for the Health Resource division. Prior to revealing this information, defendants sold over $10,000,000 worth of their Catalina holdings.
The complaint further alleges that the magnitude of the problems within Health Resource again came partially to light on June 30, 2003. After the close of trading, defendants revealed that the Company would not be able to timely file its Annual Report on Form 10-K, because of certain "revenue recognition issues" at Health Resource. As a result of defendants improper revenue recognition, the press release revealed that it will have to restate financial results for fiscal 2003. As a result, Catalina stock dropped to slightly over $16 per share on unusually large trading volumes - - a far cry from the stock's Class Period high of over $39. On July 15, 2003, defendants revealed that the accounting issues were not limited to solely Health Resource. In a July 15, 2003 press release, defendants announced that "(t)he company is now also reviewing certain other revenue recognition timing matters in its core domestic business as well as with Catalina Health Resources."