On May 17, 2005, the Court entered the Order preliminarily approving the settlement and providing for notice. A Settlement Conference set for August 25, 2005 at 03:00 PM in Courtroom 9B before Judge Sim Lake. At the Settlement Conference, Judge Sim Lake approved the settlement, the partial reimbursement of expenses, and the plan of allocation of settlement proceeds. On October 7, 2005, the Court entered the Final Judgment and Order of Dismissal with Prejudice.
According to a press release dated March 21, 2005, Verdisys, Inc. has entered into an agreement to settle the class action lawsuit filed in March 2004. Under the terms of the settlement Verdisys would issue to the class 1,150,000 shares of common stock and pay for certain out of pocket costs. The settlement is subject to court approval.
The complaint charges Verdisys and its former Chief Executive Officer and the Company's former Chief Financial Officer with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The Complaint alleges that defendants made materially misstatements with respect to the Company's financial results. More specifically, the Complaint alleges that defendants failed to disclose and indicate: (1) that the Company had materially overstated its net income and earnings per share; (2) that defendants prematurely recognized revenue from contracts between the Company, Edge Capital Group, Inc. and Energy 2000 in violation of GAAP and its own revenue recognition policy; (3) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (4) that as result of recognizing revenue prematurely, the Company's financial results were inflated at all relevant times.
The complaint further alleges that on March 10, 2004, the United States Securities and Exchange Commission announced the temporary suspension of trading of the securities of Verdisys at 9:30 a.m. on March 10, 2004, and terminating at 11:59 p.m. on March 23, 2004. The SEC further stated that temporarily suspending trading in the securities of Verdisys was because of questions that had been raised about the accuracy and adequacy of publicly disseminated information, including assertions made in Commission filings, concerning, among other things, the company's business operations related to its lateral drilling services and the company's anticipated and actual revenues. Then, on March 15, 2004, the Company announced that it was conducting an ongoing internal investigation that began in December 2003 into the Company's activities in the second and third quarters of 2003. The Company had thus far been unable to determine whether certain radial drilling services were actually provided to two of Verdisys' customers, Edge Capital Group, Inc. and Energy 2000 NGC, Inc. in the Monroe field in Louisiana. Accordingly, the Company expected to restate its interim 2003 financial statements to reverse $230,000 of revenue in the quarter ended June 30, 2003, and $605,000 of revenue in the quarter ended September 30, 2003, until such a time that it could confirm such services were performed. When shares of Verdisys resumed trading on March 24, 2004, they plummeted $2.10 per share, or 35.9%, on unusually high volume to close at $3.75 per share.