UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(AMENDMENT NO. 2)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- --------
COMMISSION FILE NO. 333-64122
VERDISYS, INC.
(Exact name as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
22-3755993
(I. R. S. Employer Identification No.)
25025 I-45 North, Suite 525
The Woodlands, Texas
(Address of executive offices)
77380
(Zip Code)
(281) 364-6999
(Registrant's telephone number, including area code)
Reconstruction Data Group, Inc.
10600 N. De Anza Boulevard, Suite 250
Cupertino, California 95014
(408) 517-3305
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ].
As of September 30, 2003, there were 28,369,486 shares of Verdisys, Inc. Common
Stock issued and outstanding.
EXPLANATORY NOTE: This Amendment No. 2 on Form 10-QSB/A ("Form 10-QSB/A No. 2")
is being filed to amend Part I, Items 1 and 2 to remove a statement included in
the Company's Amendment No. 1 on Form 10-QSB/A filed on November 20, 2003 ("Form
10-QSB/A No. 1") regarding the review by the Company's independent public
accountants. The Company's independent public accountants have completed their
review of the Company's unaudited interim financial statements which has
resulted in a restatement of such statements. Such restatement also required the
Company to make certain related changes to the Company's Management's Discussion
and Analysis of Financial Condition and Results of Operations ("MD&A") in Part
I, Item 2. This Form 10-QSB/A No. 2 also amends the disclosure under Part I,
Item 3 relating to the Company's internal controls and procedures and amends the
Exhibit List in Part II, Item 6 to add additional exhibits. The Company
originally filed its Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2003 on November 19, 2003 (the "Form 10-QSB").
The restatements included herein reflect the following: First, the Company
inadvertently recorded an October 2003 transaction in September 2003, which
resulted in an overstatement to accounts receivable and deferred revenue of
$200,000. Second, revenue and associated cost of services provided on related
party transactions were incorrectly recognized and should have been deferred as
of September 30, 2003. Third, certain contributions to capital by founders for
debt forgiveness and debt forgiveness income were calculated incorrectly.
Fourth, the Company is reclassifying a note payable on its license. Fifth,
certain revenue and associated costs of services provided were incorrectly
recognized and should have been deferred as of September 30, 2003. Finally, the
Company is correcting certain mathematical and other classification errors. This
restatement is described in detail in Note 11 to the unaudited interim financial
statements.
This Form 10-QSB/A No. 2 files in its entirety the Company's unaudited interim
financial statements filed as Part I, Item 1 of the Form 10-QSB/A No.1, which
financial statements are now restated as a result of the review of the
independent public accountants. Such financial statements also include a report
of the independent public accountants as required pursuant to rules and
regulations promulgated by the Securities and Exchange Commission. This Form
10-QSB/A No. 2 also files in its entirety the Company's MD&A in Part I, Item 2
to reflect certain changes made in connection with the restatement. This Form
10-QSB/A also files in its entirety Part I, Item 3 relating to the Company's
internal controls and procedures. Finally, the Company is filing Part II, Item 6
in its entirety to file the required certifications of management and additional
exhibits that were not included in the Form 10-QSB or Form 10-QSB/A No. 1. This
Form 10-QSB No. 2 speaks as of the filing date of the Form 10-QSB, except for
the certifications which speak as of their respective dates and the filing date
of this Form 10-QSB/A No. 2. Except as specifically indicated, this Form
10-QSB/A No. 2 does not reflect any events occurring subsequent to the filing of
the Form 10-QSB or the Form 10-QSB/A No. 1 except as required to reflect the
effects of the restatement as described in Note 11 to the unaudited interim
financial statements. This Form 10-QSB/A No. 2 also corrects the number of
shares of the Company's common stock outstanding reported on the cover page,
which was incorrect in the Form 10-QSB and Form 10-QSB/A No. 1.
PART I
ITEM 1. FINANCIAL STATEMENTS
November 28, 2003
To the Board of Directors
Verdisys, Inc.
The Woodlands, Texas
We have reviewed the accompanying balance sheet of Verdisys, Inc. as of
September 30, 2003, and the related statements of operations and cash flows for
the three and nine months ended September 30, 2003, in accordance with the
Statements on Standards of Accounting for Review Services issued by the American
Institute of Certified Public Accountants. All information included in these
financial statements is the representation of the management of Verdisys.
A review consists primarily of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying 2003 financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The balance sheet as of December 31, 2002 was audited by us and we expressed an
unqualified opinion on it in our report dated May 27, 2003, except notes 11 and
12, for which the date was September 18, 2003, but we have not performed any
auditing procedures since that date.
As discussed in Note 11 to these interim financial statements, errors resulting
in overstatements and understatements of previously reported assets,
liabilities, stockholders equity and net loss as of and for the three and nine
months ended September 30, 2003 were discovered by the management of Verdisys
during November 2003. Accordingly, adjustments have been made as of September
30, 2003 to correct the errors.
Malone & Bailey, PLLC
Houston, Texas
www.malone-bailey.com
VERDISYS, INC.
BALANCE SHEETS
(Unaudited)
(Restated)
September 30, December 31,
2003 2002
--------------- ---------------
ASSETS
Current Assets
Cash $ 200,501 $ 135
Accounts receivable, net of allowance for
doubtful accounts of $0 and $22,352 1,575,236 10,402
Accounts receivable from related party 337,500
Employee advances 42,620
Other current assets 25,468
--------------- ---------------
Total Current Assets 2,138,705 53,157
--------------- ---------------
Property and equipment, net of accumulated
depreciation of $43,153 and $41,833 372,135 3,755
License, net of accumulated
amortization of $107,473 4,917,528
--------------- ---------------
Total Assets $ 7,428,368 $ 56,912
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 294,763 $ 1,562,339
Accrued expenses 910,186 905,461
Deferred revenue 1,409,977 56,180
Notes payable to stockholders 204,106 1,579,562
Note payable on license 2,020,404
--------------- ---------------
Total Current Liabilities 4,839,436 4,103,542
Deferred revenue, less current portion 272,751 80,367
--------------- ---------------
Total Liabilities 5,112,187 4,183,909
--------------- ---------------
Commitments & Contingencies
Stockholders' Equity (Deficit)
Convertible preferred stock, no par value,
40,000,000 shares authorized
Series A, 2,000,000 shares allocated,
none outstanding
Series B, none and 1,410,000 issued
and outstanding 705,000
Common stock, $.001 par value, 60,000,000 shares
authorized, 28,369,486 and 13,553,139 shares
issued and outstanding 28,369 13,553
Additional paid in capital 15,793,629 6,098,924
Accumulated deficit (13,505,817) (10,944,474)
--------------- ---------------
Total Stockholders' Equity (Deficit) 2,316,181 (4,126,997)
--------------- ---------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 7,428,368 $ 56,912
=============== ===============
VERDISYS, INC.
STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2003 and 2002
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
(Restated) (Restated)
------------ ------------ ------------ ------------
Revenue
Third parties $ 524,824 $ 20,509 $ 859,115 $ 227,332
Related party 60,000
------------ ------------ ------------ ------------
Total revenue 524,824 20,509 919,115 227,332
------------ ------------ ------------ ------------
Cost of services
Provided 432,021 28,107 774,085 225,562
Selling, general
& administrative 770,119 581,992 1,897,811 1,445,467
Depreciation
& amortization 62,078 3,587 108,792 8,477
Bad debts 19,999 19,999
Impairment 1,000,000
Debt forgiveness
income (460,235)
------------ ------------ ------------ ------------
Total operating
expenses 1,284,217 613,686 3,340,452 1,679,506
------------ ------------ ------------ ------------
Operating loss (759,393) (593,177) (2,421,337) (1,452,174)
------------ ------------ ------------ ------------
Other expense
Interest expense 43,167 38,926 140,006 101,804
------------ ------------ ------------ ------------
NET LOSS $ (802,560) $ (632,103) $ (2,561,343) $ (1,553,978)
============ ============ ============ ============
Basic and diluted net
loss per share $ (.03) $ (.05) $ (.12) $ (.11)
Weighted average
shares outstanding 26,783,077 13,553,139 21,491,391 13,553,139
VERDISYS, INC.
STATEMENTS OF CASH FLOW
Nine Months Ended September 30, 2003 and 2002
(Unaudited)
(Restated)
2003 2002
----------- -----------
Cash Flows From Operating Activities
Net loss $(2,561,343) $(1,553,978)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for services 326,329
Issuance of options and warrants for services 810,935 353,709
Depreciation and amortization 108,792 8,477
Impairment expense 1,000,000
Debt forgiveness income (460,235)
Bad debt 19,999
Changes in:
Accounts receivable (1,584,833) 41,510
Accounts receivable - related party (337,500)
Other current assets (25,468) (9,500)
Employee advances 42,620
Accounts payable (302,674) 100,758
Accrued expenses 261,353 570,639
Deferred revenue 1,546,181 115,730
----------- -----------
Net Cash Used In Operating Activities (1,155,844) (372,655)
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment (369,701) (5,286)
Cash payments for license (100,000)
----------- -----------
Net Cash Used In Investing Activities (469,701) (5,286)
----------- -----------
Cash Flows From Financing Activities
Proceeds from sales of common stock 1,982,150
Proceeds from exercise of warrants 329,251
Proceeds from notes payable to stockholders 50,000
Payments on notes payable to stockholders (155,894)
Payments on note payable on license (379,596)
Proceeds from sales of preferred stock 380,000
----------- -----------
Net Cash Provided by Financing Activities 1,825,911 380,000
----------- -----------
Net change in cash 200,366 2,059
Cash at beginning of period 135 3,397
----------- -----------
Cash at end of period $ 200,501 $ 5,456
=========== ===========
VERDISYS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Restated)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Verdisys, Inc.
("Verdisys") have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission ("SEC"), and should be read in conjunction
with the audited financial statements and notes thereto contained in Verdisys'
Annual Report filed with the SEC on Form 8-K. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the full year. Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for 2002
as reported in the 8-K have been omitted.
Revenue recognition. Revenue is recognized on well drilling operations when
persuasive evidence of an arrangement exists, the lateral drilling is complete,
the price is fixed or determinable and collectibility is reasonably assured.
Certain amounts in financial statements of prior years have been reclassified to
conform to the presentation of the current year for comparative purposes. Those
reclassifications did not affect net loss for the periods presented.
Restatements of September 30, 2003 were made. See note 11 for details.
As a result of the merger that was completed in July 2003, the capitalization of
Verdisys changed. Par value is $.001 per share as compared to no par prior to
the merger. All amounts have been retroactively restated to reflect this change.
NOTE 2 - STOCK OPTIONS AND WARRANTS
Stock options and warrants. Verdisys accounts for non-cash stock-based
compensation issued to non-employees in accordance with the provisions of SFAS
No. 123 and EITF No. 96-18, Accounting for Equity Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services.
Common stock issued to non-employees and consultants is based upon the value of
the services received or the quoted market price, whichever value is more
readily determinable. Verdisys accounts for stock options and warrants issued to
employees under the intrinsic value method. Under this method, Verdisys
recognizes no compensation expense for stock options or warrants granted when
the number of underlying shares is known and the exercise price of the option or
warrant is greater than or equal to the fair market value of the stock on the
date of grant.
In April 2003, Verdisys issued 1,280,000 10 year $.10 options to employees.
30,000 options vest monthly over three months, 750,000 options vest quarterly
over four years, 300,000 options vest quarterly over one year and 200,000
options vest quarterly over two years. The intrinsic value of these options
totals $193,250 which approximated their fair value.
In April 2003, Verdisys issued 100,000 $.10 warrants that expire in January 2007
and have a fair value of $40,000 which was expensed when the warrants were
granted.
During the summer of 2003, Verdisys negotiated settlements with 9 vendors plus
the two original founders for various debts carried on the books. One of the
founders was issued 150,000 warrants exercisable at $.10 and valued at $.40 or
$60,000.
In September 2003, Verdisys issued an employee 100,000 five year options with an
exercise price of $4.10. There was no intrinsic value associated with the
issuance. The fair value of the options was $299,008.
The following table illustrates the effect on net loss and net loss per share if
Verdisys had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Restated) (Restated)
------------- ------------- ------------- -------------
Net loss as reported $ (802,560) $ (632,103) $ (2,561,343) $ (1,553,978)
Less: stock based
compensation
determined under
fair value-
based method (299,008) (299,008)
------------- ------------- ------------- -------------
Pro forma net loss $ (1,101,568) $ (632,103) $ (2,860,351) $ (1,553,978)
============= ============= ============= =============
Basic and diluted net loss per common share:
As reported $ (.03) $ (.05) $ (.12) $ (.11)
Pro forma (.04) (.05) (.13) (.11)
The weighted average fair value of the stock options granted during 2003 and
2002 was $.50 and $.50, respectively. Variables used in the Black-Scholes
option-pricing model include (1) 5.0% risk-free interest rate, (2) expected
option life is the actual remaining life of the options as of each year end, (3)
expected volatility is zero, and (4) zero expected dividends.
NOTE 3 - PRIVATE PLACEMENT
In July and August 2003, Verdisys sold 609,000 shares of common stock at $2.00
per share in a private placement for total proceeds of $1,218,000. Offering
costs consisted of 59,400 shares of restricted common stock and 9,501 warrants
exercisable at $2 per share anytime through September 5, 2008.
NOTE 4 - LATERAL DRILLING LICENSE
In April 2003, an individual licensed his lateral drilling technology and
equipment to Verdisys. Verdisys agreed to pay $2,750,000 plus 10 percent of
related gross revenue from drilling operations. Verdisys paid $100,000 upon
signing and signed a note payable for $2,650,000 plus 8 percent due in monthly
installments from May 2003 through March 2004 for a total payout of $2,970,000.
In July 2003, Verdisys issued 125,000 shares in exchange for a $250,000
reduction of the note payable. In August 2003, Verdisys and the licensor amended
the agreement whereby, in exchange for 500,000 shares of Verdisys and the grant
of a board seat, the licensor agreed to eliminate the 10% royalty and instead
receive $500 per well drilled. The stock price at the time of the amendment was
$4.55 per share, resulting in a $2,275,000 increase in the carrying value of the
license.
At September 30, 2003 the total cost of the license was $5,025,000 with $107,473
of accumulated amortization. The license is amortized over the remaining life of
the patent, 14 years. The balance of the note payable at September 30, 2003 was
$2,020,404.
NOTE 5 - DEFERRED REVENUE
Typical satellite bandwidth contracts cover 36 months. Verdisys receives the
cash up front, records deferred revenue and recognizes revenue evenly over the
contract.
In addition to satellite bandwidth, Verdisys deferred revenue consists of
revenue and associated costs of services provided on drilling operation
contracts. In June 2003, Verdisys signed an agreement to drill wells for Edge
Capital ("Edge"). The contracts contained contingencies disallowing revenue
recognition until each contingency is fulfilled. As of September 30, 2003,
Verdisys deferred revenues and associated costs of $1,496,000 and $330,000,
respectively under this contract. In November 2003, Verdisys and Edge
renegotiated the contract to remove the
contingencies. Verdisys expects to recognize the deferred revenue in the fourth
quarter provided collectibility from Edge is reasonably assured. If
collectibility is not reasonably assured, the revenue will remain deferred.
Verdisys deferred $337,500 of revenue and $72,000 of associated costs as of
September 30, 2003 related to related party transactions. See note 9 for
details.
NOTE 6 - DEBT FORGIVENESS INCOME
During 2003, Verdisys negotiated settlements with 9 vendors for various debts
carried on the books at $520,501 for $43,600 cash and 33,333 shares of stock
valued at $.50 or $16,666 resulting in debt forgiveness income of $460,235.
During the same period, Verdisys negotiated settlements with the two original
founders for various debts carried on the books at $576,000 for $28,000 cash and
150,000 warrants exercisable at $.10 and valued at $.40 or $60,000 resulting in
a contribution to capital of $488,000.
NOTE 7 - SOFTWARE IMPAIRMENT
Verdisys reviews the carrying value of its long-lived assets annually or
whenever events or changes in circumstances indicate that the historical
cost-carrying value of an asset may no longer be appropriate. Verdisys assesses
recoverability of the carrying value of the asset by estimating the future net
cash flows expected to result from the asset, including eventual disposition. If
the future net cash flows are less than the carrying value of the asset, an
impairment loss is recorded equal to the difference between the asset's carrying
value and fair value. In April 2003, Verdisys issued 2,000,000 shares of common
stock for software. The shares were valued at $1,000,000. The software has been
determined to not be useful and was fully impaired as of September 30, 2003.
NOTE 8 - NON-CASH TRANSACTIONS ON CASH FLOW STATEMENT
Non-cash transactions:
Purchase of license with note payable $2,650,000
Stock issued for license amendment 2,275,000
Stock issued for reduction of note payable on license 250,000
Contributions to capital by founders for debt
forgiveness income 488,000
Conversion of notes payable
to investors to common stock 1,245,000
Conversion of accrued interest on notes payable
to investors to common stock 261,190
Conversion of Series B preferred stock to common 705,000
Stock issued for accounts payable 16,666
Warrants exercised with notes payable to investors 20,000
NOTE 9 - RELATED PARTY ACCOUNTS RECEIVABLE AND REVENUE
In April 2003, Verdisys signed a drilling service contract with Energy 2000 NGC,
Inc. of Louisiana ("Energy 2000"), whereby Energy 2000 will pay Verdisys a
minimum of $1,800,000 for lateral drilling of 45 wells. This contract is a fixed
fee contract with the total price depending on the number of wells drilled and
offshoot lateral bores drilled. In addition, Verdisys will receive an 80 percent
interest in the net operating income after payback from these properties and
will also be reimbursed for 20 percent of its field costs. In September, 2003
Verdisys entered into another contract with Energy 2000 for an additional 57
wells with terms similar to the original contract.
Energy 2000 is a related party. Energy 2000 is a wholly owned subsidiary of Berg
McAfee Companies for which Eric McAfee, a director of Verdisys, has a 50%
ownership. Mr. McAfee has a 0.4% direct ownership of Verdisys and Berg McAfee
Companies has a 29.6% ownership in Verdisys, and Clyde Berg, the co-owner of
Berg McAfee Companies, owns 1.3% of Verdisys; therefore, Mr. McAfee and Mr. Berg
have a total beneficial ownership of 31.3% in Verdisys.
Verdisys billed $397,500 of revenue for the nine months ended September 30,
2003, but has deferred $337,500 of revenue and $72,000 of associated costs as of
September 30, 2003. The deferral relates to contingencies in the contract that
existed as of September 30, 2003. Verdisys is carrying $337,500 of accounts
receivable as of September 30, 2003 related to Energy 2000.
NOTE 10 - EQUIPMENT
In September 2003, Verdisys purchased 2 drilling rigs for $170,000 each.
Depreciation expense for the rigs will be computed on the straight-line basis
over a period of five years. There was no depreciation expense related to the
rigs as of September 30, 2003 because they were placed in service in October.
NOTE 11 - RESTATEMENTS OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS
There were several errors and misstatements in the originally prepared September
30, 2003 financials. See the notes below.
A summary of the restatements are as follows:
Previously Increase
Stated (Decrease) Restated
------------ ------------ ------------
As of September 30, 2003:
Balance Sheet:
Cash $ 200,501 $ 200,501
Accounts receivable, net 1,775,236 (1) $ (200,000) 1,575,236
Accounts receivable from
related party 337,500 337,500
Other current assets 25,468 25,468
Property & equipment, net 411,280 (2) (39,145) 372,135
License, net 4,917,528 4,917,528
------------ ------------ ------------
Total assets $ 7,667,513 $ (239,145) $ 7,428,368
============ ============ ============
Accounts payable $ 294,763 $ 294,763
Accrued expenses 910,186 910,186
Deferred revenue 575,884 (1) (200,000) 1,682,728
(7) 1,496,000
(7) (330,000)
(2) 140,844
Note payable to stockholders 2,224,510 (5) (2,020,404) 204,106
Note payable on license (5) 2,020,404 2,020,404
Common stock 28,364 (6) 5 28,369
Additional paid in capital 15,865,134 (3) (60,000) 15,793,629
(6) (5)
(6) (11,500)
Accumulated deficit (12,231,328) (7) (1,496,000) (13,505,817)
(7) 330,000
(3) 60,000
(6) 11,500
(2) (140,844)
(2) (39,145)
------------ ------------ ------------
Total liabilities and equity $ 7,667,513 $ (239,145) $ 7,428,368
============ ============ ============
For the three months ended September 30, 2003:
Statement of Operations:
Revenue:
Third parties $ 2,094,612 (7) $ (1,496,000) $ 524,824
(2) (73,788)
Cost of services provided (775,278) (7) 330,000 (432,021)
(2) 13,257
Selling, general and administrative (815,722) (3) 45,603 (770,119)
Depreciation & amortization (61,638) (4) (440) (62,078)
Bad debts (19,999) (19,999)
Debt forgiveness income 61,653 (3) (16,050)
(3) (45,603)
Interest expense (59,217) (3) 16,050 (43,167)
------------ ------------ ------------
Net income (loss) $ 424,411 $ (1,226,971) $ (802,560)
============ ============ ============
Basic net loss per common share $ .02 $ (.05) $ (.03)
Diluted net loss per share $ .01 (.03)
Weighted average common shares
outstanding 26,783,077 26,783,077
Diluted average common shares
outstanding 34,893,910 26,783,077
For the nine months ended September 30, 2003:
Statement of Operations:
Revenue
Third parties $ 2,627,959 (7) $ (1,496,000) $ 859,115
(2) (397,500)
(2) 124,656
Related party (2) 60,000 60,000
Cost of services provided (1,138,260) (7) 330,000 (774,085)
(2) 32,855
(6) 1,320
Selling, general and
administrative (2,003,414) (3) 60,000 (1,897,811)
(3) 45,603
Depreciation & amortization (107,472) (6) (1,320) (108,792)
Bad debts (19,999) (19,999)
Impairment (1,000,000) (1,000,000)
Debt forgiveness income 521,887 (3) (16,049) 460,235
(3) (45,603)
Interest expense (156,055) (3) 16,049 (140,006)
------------ ------------ ------------
Net loss $ (1,275,354) $ (1,285,989) $ (2,561,343)
============ ============ ============
Basic and diluted
net loss per common share $ (.06) $ (.06) $ (.12)
Weighted average common shares
outstanding 21,491,391 21,491,391
Restatement notes:
(1) - An October transaction was inadvertently recorded in September. This
overstated accounts receivable and deferred revenue by $200,000.
(2) - Revenue and associated cost of services provided on related party
transactions were incorrectly recognized and should have been deferred
as of September 30, 2003 (see note 9 for details).
(3) - Contributions to capital by founders for debt forgiveness and debt
forgiveness income were calculated incorrectly (see note 6 for details).
(4) - mathematical error
(5) - reclassification of note payable on license
(6) - classification errors
(7) - Revenue and associated cost of services provided were incorrectly
recognized and should have been deferred as of September 30, 2003 (see
note 5 for details).
NOTE 12 - SUBSEQUENT EVENTS
In October 2003, Verdisys sold 833,333 shares of common stock to Gryphon Master
Fund, L.P. at $6.00 per share for aggregate gross proceeds of $5,000,000.
Offering costs associated with the sale were $420,000 in cash, 83,334 warrants
at $6 per share that expire October 24, 2008 and 20,000 shares of common stock.
The warrants are exercisable at any time prior to October 24, 2008 by paying
cash at the exercise price or by electing a cashless exercise. If a cashless
exercise is elected, the holder would receive a percentage of the shares defined
as the market price at the time of exercise less the exercise price multiplied
by the number of shares for which the warrant is exercised.
If Verdisys fails to meet certain milestones related to registration of such
shares, Verdisys is required to pay in cash liquidated damages equal to 1
percent of the purchase price of the shares paid for the first 30 days the event
is not cured and 2 percent of the purchase price paid for each thirty day period
thereafter until cured. In no event shall Verdisys be required to pay more than
aggregate liquidated damages of 8 percent of the purchase price or $400,000. In
addition, if in the ten months subsequent to the agreement, the 30 day average
closing price of Verdisys' common stock drops below $6 per share, such drops
could result in the issuance of a maximum of 277,778 additional shares of common
stock for no additional compensation. If this occurs, a total of 1,111,111
common shares will have been issued for an average price of $4.50 per share.
In October 2003, Verdisys amended certain provisions of its contract with its
major customer. Under the provisions of the amendment, Verdisys shall refund to
its customer $200,000 if delivery of certain leases to the customer does not
occur.
On November 10, 2003, Verdisys paid $500,000 for an option to place an
additional $10,500,000 deposit to purchase a large natural gas field with
significant current gas production for a purchase price in excess of $100
million. Verdisys also paid fees to date of $120,000 associated with the
transaction. The additional $10,500,000 would have held the purchase option open
until February 2004. As of November 26, 2003, the $500,000 was forfeited and the
option expired.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition and
Plan of Operations" reflects certain restatements to the Company's previously
reported unaudited interim financial statements for the quarter ended September
30, 2003. (See "Restatement of Financial Statements" below).
Forward-Looking Statements
This statement may include projections of future results and "forward looking
statements" as that term is defined in Section 27A of the Securities Act of 1933
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934 as amended (the "Exchange Act"). All statements that are included in
this Quarterly Report, other than statements of historical fact, are forward
looking statements. Although management believes that the expectations reflected
in these forward looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct.
Restatement of Financial Statements
As discussed in Note 11 to the unaudited interim financial statements included
herein, the Company is making the following restatements to its financial
statements: First, the Company inadvertently recorded an October 2003
transaction in September 2003, which resulted in an overstatement to accounts
receivable and deferred revenue of $200,000. Second, revenue and associated cost
of services provided on related party transactions were incorrectly recognized
and should have been deferred as of September 30, 2003. Third, certain
contributions to capital by founders for debt forgiveness and debt forgiveness
income were calculated incorrectly. Fourth, the Company is reclassifying a note
payable on its license. Fifth,
certain revenue and associated costs of services provided were incorrectly
recognized and should have been deferred as of September 30, 2003. Finally, the
Company is correcting certain mathematical and other classification errors.
Critical Accounting Policies
The Company has made certain disclosures relating to its critical accounting
policies with respect to certain of its contracts; please see the paragraphs
below under "Revenues-Lateral Drilling Services."
Management Discussion
Headquartered in Houston, Texas, Verdisys provides proprietary oil services and
solutions for Energy Production Enhancement including patented Lateral Drilling
Technologies and secure Satellite Communications. Verdisys, Inc. was
incorporated in the State of California as Rocker & Spike Entertainment, Inc. on
September 27, 2000. Until December 31, 2000, operations consisted of
organizational matters, the sale of no par value common stock, and the search
for an operating company with which to perform a merger or acquisition.
Effective January 1, 2001, Rocker & Spike Entertainment, Inc. purchased the
assets and web domain of Accident Reconstruction Communications Network, a sole
proprietorship, from the sole proprietor. Following the acquisition, the company
changed its name from Rocker & Spike Entertainment, Inc. to Reconstruction Data
Group, Inc. effective March 19, 2001. On July 18, 2003, Reconstruction Data
Group, Inc. changed its name to Verdisys, Inc. to facilitate the merger with
Verdisys Operation Corporation based on the Company's desire to retain the name
of the private company into which it merged.
Reconstruction Data Group, Inc. ("RDGI") and Verdisys, Inc. ("Verdisys") entered
into an Agreement and Plan of Merger on April 24, 2003, as amended, which was
effective as of July 18, 2003. Prior to the merger, the authorized capital stock
of RDGI consisted of 50,000,000 shares of RDGI common stock, $.001 par value, of
which 3,651,500 shares of common stock, which included 1,485,000 shares of
common stock previously owned by the President of RDGI, in exchange for 100 per
cent of RDGI's ownership, rights, interest and liabilities in ARC Network. The
ARC Network represented all the operations of RDGI immediately prior to the
merger.
Prior to the Consummation of the merger, the authorized capital stock of
Verdisys consisted of 40,000,000 shares of common stock, and 60,000,000 shares
of preferred stock, no par value, of which 25,202,539 shares of common stock
were outstanding. Immediately prior to the merger Verdisys, Inc. changed its
name to Verdisys Operations Corporation and RDGI changed its name to Verdisys,
Inc.
Upon consummation of the merger, Verdisys, Inc. issued 25,202,539 newly issued,
restricted common shares. Each share of common stock was converted into and
exchanged into one share of restricted common stock of Verdisys, Inc., except
shares held in treasury which were cancelled. The following table reconciles the
number of shares of common stock issued and outstanding immediately prior to
consummation of the merger to the number of shares of common stock issued and
outstanding immediately following consummation of the merger.
RDGI shares just prior to the merger were 3,651,500 shares of common stock of
which the following were cancelled:
Shares owned by President 1,485,000
Shares owned by other founder 666,500
(2,151,500)
-----------
RDGI shares prior to share issuance 1,500,000
Newly issued shares for the share exchange 25,202,539
-----------
Verdisys shares outstanding immediately after
Merger 26,702,539
Financial Summary
Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002
Verdisys incurred $524,824 in revenues and an operating loss of $759,393 for the
quarter ended September 30, 2003 as compared to revenues of $20,509 and an
operating loss of $593,177 for the quarter ended September 30, 2002. The
significant increase in revenues for the three months ended September 30, 2003
was due to lateral drilling services utilizing the Landers lateral drilling
technology for the first full quarter. Higher operating margins for the quarter
ended September 30, 2003 compared with the prior year were offset by increased
spending on selling, general and administrative expense. There were no
comparable revenues in 2002 as the license to the Landers lateral drilling
technology was acquired in April 2003.
Revenues
Lateral Drilling Services
Lateral Drilling Services' revenues were $497,000 and $0 for the three months
ended September 30, 2003 and three months ended September 30, 2002,
respectively. During the quarter, 29 wells were drilled with Verdisys'
proprietary drilling rigs under the Edge Capital Group ("Edge") initial
contract. Verdisys was paid by Edge on the initial 7 wells drilled and
recognized revenue on these wells for a total value of $497,000 in the quarter.
Consequently, Edge represented 100% of the lateral drilling services revenues
for the quarter ended September 30, 2003. A further 22 wells for a total revenue
of $1,496,000 were drilled in the quarter such revenues being contingent upon
receipt of financing and payment by Edge Capital. Such revenues were deferred in
the quarter, along with associated costs of $330,000, pending payment of the
outstanding amounts. Management has received representations from Edge and its
principals that the amount will be paid in the quarter ending December 31, 2003.
Based upon these representations, management believes collectibility is assured.
In addition to the fee for drilling services, Verdisys shall receive a 66 2/3%
interest in the net operating income from Edge's portion of the properties'
income (the "Verdisys Royalty") after Edge has fully recovered all drilling
service fees and related expenses incurred for all wells drilled as part of the
contract. The Verdisys Royalty will be calculated as 66 2/3% of the net lease
after recovery by Edge and/or its third party financing sources of Edge's costs
related to the drilling services, including principal, interest, fees and costs
for financing such drilling services; cost of acquisition of the lease; land
owner royalties or other royalties to third parties other than Edge or Verdisys;
and field operating costs. Therefore, after completion of the re-development of
the field, Edge will secure for Verdisys a 66 2/3% listing with the gatherer for
direct payment of net proceeds. It is not anticipated that Verdisys will receive
any royalties until late 2004 or later.
During the quarter ended September 30, 2003, the Company signed a second
contract with Edge for drilling services for 100 wells associated with the
Franklin field. The Company is to receive a conveyancing fee of $200,000 upon
the completion of the transfer of certain leases to Edge plus similar drilling
fees and production interest to its first contract with Edge. To date, the
Company has received payment of $120,000 towards the conveyancing fee with the
balance due in March 2004. At this time such leases have not been conveyed to
Edge. Management currently believes they will be conveyed by December 31, 2003.
The Company's revenue recognition policy with regards to drilling operations
is to recognize revenue when collectibility is reasonably assured. The Company
has determined that based upon the current contract with Edge collectibility is
reasonably assured when amounts outstanding are paid. Consequently, the Company
has deferred any revenue associated with the contract that has not been paid.
During the quarter ended September 30, 2003, two wells were drilled by Verdisys
in accordance with the Energy 2000 NGC, Inc.'s (E2000) agreement for total
revenue of $107,500, and 4 wells during the quarter ended June 30, 2003 for a
total value of $230,000. Such revenues were deferred in the respective quarters
being contingent upon receipt of financing and payment by E2000. Associated
costs of $24,000 for the quarter ended September 30, 2003 and $48,000 for the
quarter ended June 30, 2003 were also deferred, pending payment of the
outstanding amounts. Management has received representations from E2000 and its
principals that the amount will be paid in the quarter ending December 31, 2003
and in October 2003 an amount of $100,000 was paid. Based upon these
representations, management believes collectibility is assured.
E2000 is a wholly owned subsidiary of Berg McAfee Companies for which Eric
McAfee, a director of and consultant to Verdisys, has a 50 per cent ownership.
Mr. McAfee has a 0.4% direct ownership of Verdisys and Berg McAfee Companies has
a 29.6% ownership in Verdisys, and Clyde Berg, the co-owner of Berg McAfee
Companies, owns 1.3% of Verdisys; therefore, Mr. McAfee and Mr. Berg have a
total beneficial ownership of 31.3% in Verdisys. In addition to the fee for
drilling services, Verdisys shall receive an 80% interest in the net operating
income from E2000's portion of the properties' income (the "Verdisys Royalty")
after E2000 has fully recovered all drilling service fees and related expenses
incurred for all wells drilled as part of the contract. The Verdisys Royalty
will be calculated as 80% of the net lease after recovery by Edge and/or its
third party financing sources of E2000's costs related to the drilling services,
including principal, interest, fees and costs for financing such drilling
services; cost of acquisition of the lease; land owner royalties or other
royalties to third parties other than E2000 or Verdisys; and field operating
costs. Therefore, after completion of the re-development of the field, E2000
will secure for Verdisys an 80% listing with the gatherer for direct payment of
net proceeds. It is not anticipated that Verdisys will receive any royalties
until late 2004 or later.
The Company's revenue recognition policy with regards to drilling operations is
to recognize revenue when collectibility is reasonably assured. The Company has
determined that based upon the current contract with E2000 collectibility is
reasonably assured when amounts outstanding are paid. Consequently, the Company
has deferred any revenue associated with the contract that has not been paid.
During the quarter ended September 30, 2003, the Company signed an agreement
with Natural Gas Systems, Inc. ("NGS") to provide drilling services for 120
wells in the Delhi field in Louisiana. The Company did not commence drilling on
this contract until October 2003 and consequently no revenue was recognized for
the quarter ended September 30, 2003. Mr. McAfee, a director, and other
affiliates have a 28.6% beneficial ownership in Natural Gas Systems, Inc. and as
such any revenue associated with the contract will be disclosed as a related
party transaction.
In addition to the fee for drilling services, Verdisys shall receive a 70%
interest in the net operating income from NGS's portion of the properties'
income (the "Verdisys/NGS Royalty") after NGS has fully recovered all drilling
service fees and related expenses incurred for all wells drilled as part of the
contract. The Verdisys/NGS Royalty will be calculated as 70% of the net lease
after recovery by NGS and/or its third party financing sources of NGS's costs
related to the drilling services, including principal, interest, fees and costs
for financing such drilling services;
cost of acquisition of the lease; land owner royalties or other royalties to
third parties other than NGS or Verdisys; and field operating costs. Therefore,
after completion of the re-development of the field, NGS will secure for
Verdisys a 70% listing with the gatherer for direct payment of net proceeds. It
is not anticipated that Verdisys will receive any royalties until late 2004 or
later.
During the quarter ended September 30, 2003, the Company amended its lateral
drilling license agreement with Carl Landers. In August 2003, Mr. Landers agreed
to retroactively eliminate the royalty fees of 10% of the net revenues on
Verdisys' lateral drilling, in exchange for 500,000 shares of restricted common
stock of Verdisys plus a $500 flat fee per well drilled. The parties also agreed
to amend the term of the license to the expiration dates associated with the
patents to the lateral drilling technology. The Company capitalized $2,275,000
associated with the 500,000 shares issued and is amortizing the amounts
associated with the license over a period of 14 years. In July 2003, Verdisys
exchanged 125,000 shares of Verdisys restricted common stock for reduction of
$250,000 to the principal balance of the note payable to Mr. Landers.
Satellite Communications Services
Satellite Communication Services' revenues for the quarter ended September 30,
2003 were $24,824 compared to the quarter ended September 30, 2002 of $20,509.
This increase for the current quarter as compared to the quarter ended June 30,
2003 was due to the nature of the services provided. As hardware is sold,
Verdisys recognizes the revenue in the period it is delivered to the customer.
The bandwidth revenue is amortized over the period benefited. Cash collected for
bandwidth is recorded as deferred revenue. At September 30, 2003 there was
$251,228 reflected in balance sheet as deferred revenue relating to Satellite
Communications.
Operating Loss
The operating loss for the quarter ended September 30, 2003 narrowed due to the
high gross margins realized from the lateral drilling services.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Verdisys had $919,115 in revenues and incurred an operating loss of $2,421,337
for the nine months ended September 30, 2003 as compared to revenues of $227,332
and an operating loss of $1,452,144 for the quarter ended September 30, 2002.
The increase in revenues for the nine months ended September 30, 2003 was due
primarily to lateral drilling services provided utilizing the Landers lateral
drilling technology. There were no comparable revenues in 2002 as the license to
the Landers lateral drilling technology was acquired in April 2003. Operating
loss increased for the nine months ended September 30, 2003 due to the
impairment of certain software the Company acquired for $1,000,000 which was
written down during the year, offset by higher gross margins from the lateral
drilling services.
Revenues
Lateral Drilling Services' revenues for the nine months ended September 30, 2003
were $557,000. The revenues reflect less than four month of operations for 2003
so no comparable figures are available for 2002.
Satellite Communication Services' revenues for the nine months ended September
30, 2003 were $362,115 compared to the quarter ended September 30, 2002 of
$227,332. Revenues increased due to the increase in contracts to provide
satellite communication services.
Backlog
To date the Company has signed contracts to drill 540 wells and had drilled and
completed 35 wells as of September 30, 2003. Of the 540 wells under contract 318
wells are related to Edge's contracts, 102 wells are related E2000's contract
and 120 wells are related to Natural Gas Systems, Inc., of which Mr. McAfee, a
Director, and other affiliates have a 28.6% beneficial ownership.
Liquidity and Capital Resources
Capital Expenditures
The Company utilized two drilling rigs owned and operated by Mr. Landers and his
affiliates during the current quarter. The Company took delivery of its first
new rig in late September, 2003 and an additional rig in November, 2003. It
currently has in assembly two rigs which it expects to receive in early
December, 2003.
Liquidity
In July and August 2003, Verdisys sold 609,000 shares of common stock at $2.00
per share in a private placement for total proceeds of $1,218,000 gross, fees
associated with the placement consisted of $19,000 in cash, 39,400 shares of
restricted common stock and warrants to purchase 9,501 shares of common stock at
$2.00 per share.
In connection with the offering, Verdisys issued 9,501 warrants for the purchase
of common stock at a price of $2.00 per share to certain principals of the
investment bank that assisted with the offering. The warrants may be exercised
at any time prior to September 5, 2008 by paying cash at the warrant price.
Prior to a registration statement such warrants may be exercised by surrendering
such number of shares of common stock received upon exercise of the warrants
with a current market price equal to the warrant price.
On October 24, 2003, Verdisys, Inc. sold 833,333 shares of its common stock at a
purchase price of $6.00 per share for a total purchase price of $5,000,000. The
shares issued in the offering contain a restrictive legend; as they have not
been registered under the Securities Act of 1933 or any State Securities Act.
Therefore in the absence of an effective registration statement, the shares can
only be sold pursuant to some exception from registration, such as Rule 144 of
the Act which requires, among other conditions, that the Shares must be held for
a minimum of one (1) year. Verdisys, Inc. has paid fees associated with this
sale totaling $420,000 resulting in net proceeds to the company of $4,580,000.
The Subscription Agreement for the sale has two provisions that if triggered by
a drop in the 30 day average closing price of Verdisys, Inc. common stock, could
result in the issuance of a maximum of 277,778 additional shares of common stock
for no additional compensation. If this occurs, a total of 1,111,111 common
shares will have been issued for a price of $4.50 per share. The Subscription
Agreement for the sale also confers registration rights to the Purchaser for the
all of the common stock purchased in this transaction and an additional 300,000
common shares purchased from a director of the company in a prior unrelated
private transaction. The purpose of this offering was to provide additional
operating capital to assist the company in fulfilling its current commitments
and expanding operations related to Lateral Drilling operations and Satellite
Data Services.
In November 2003, the Company signed an exclusive option to purchase a large
natural gas field with significant current gas production for a specified time
period. The option required the Company to pay a non-refundable deposit of
$500,000 and has incurred fees to date of $120,000 associated with the
transaction. As of November 26, 2003, the option expired and the Company
forfeited the deposit. The Company is continuing to negotiate for the purchase
of the field on a non-exclusive basis including the application of the forfeited
amount to the purchase price.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Principal Executive Officer and Principal Financial Officer have
undertaken an evaluation of the Company's disclosure controls and procedures as
of September 30, 2003. For the period covering the preparation and filing of the
Quarterly Report on Form 10-QSB for the quarterly period ended September 30,
2003, the Company was in the process of certain proposed changes in its
personnel involved in the financial reporting function of the Company, which led
to certain deficiencies in the implementation of the Company's disclosure
controls and procedures. This contributed to the Company's filing of inaccurate
financial reports for the three month and nine month periods ended September 30,
2003 and without the completion of a review of the Company's independent
auditor. Accordingly, this Amendment No. 2 to Form 10-QSB for the quarterly
period ended September 30, 2003 contains restated financial results for the
three months and nine months ended September 30, 2003. The Company has taken
steps to reassign and clarify financial reporting responsibility and has also
implemented certain additional disclosure controls and internal controls and
procedures for financial reporting and will continue to evaluate these controls
to improve its financial reporting. While the Company's Principal Executive
Officer and Principal Financial Officer have determined that modifications to
its disclosure controls and procedures are appropriate, the Company's Principal
Executive Officer and Principal Financial Officer have concluded that the
existing disclosure controls and procedures, when combined with further
investigations which have been undertaken and the interim modifications
discussed below are effective to provide reasonable assurances that the
information required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
While the Company is in the process of further evaluation of its disclosure
controls and procedures and implementing modifications to such disclosure
controls and procedures, the Company has, on an immediate basis, instituted
certain additional interim controls and procedures to ensure that information
required to be disclosed in this Amendment No. 2 to Quarterly Report on Form
10-QSB and subsequent reports filed or submitted by the Company has been
recorded, processed, summarized and reported to the Company's senior management.
Steps that have been taken to ensure that such filings are subject to proper
review and approval include:
o the appointment of the Company's Chairman of the Board to the position of
interim President;
o a requirement that the Company's Chief Financial Officer shall perform a
full credit check on all customer's ability to pay prior to executing any
contracts with such customer;
o a requirement that two signatures are required for any check in excess of
$25,000;
o all contracts in excess of $25,000 require approval by the Board;
o all proposed merger and acquisition activity is to be approved and
controlled by the Company's Chairman of the Board;
o the Company's website shall be under the control of the Company's Chief
Financial Officer;
o all press releases and other public statements relating to financial
issues concerning the Company shall be approved by the Chief Executive
Officer, the Chief Financial Officer and the Audit Committee;
o an evaluation of the personnel requirements at the financial reporting
function of the Company's management, including the Chief Financial
Officer position, and the consideration of other changes or additional
personnel as may be needed; and
o the engagement of outside professionals, including the Company's outside
legal counsel, to obtain advice and recommendations with respect to the
foregoing and such other matters as may be necessary or appropriate.
In connection with the evaluation described above, no changes in the Company's
internal control over financial reporting occurred during the Company's third
fiscal quarter ended September 30, 2003 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting. The Company does intend to continue to evaluate its
internal disclosure controls and procedures and implement improvements as
required.
PART II
Item 6. Exhibits and Reports on Form 8-K.
EXHIBITS
Verdisys, Inc. includes herewith the following exhibits:
3.1* Restated Articles of Incorporation of Verdisys, Inc., dated July
15, 2003, filed July 17, 2003 with Secretary of State, State of
California.
10.1* Employment Agreement, by and between Verdisys, Inc. and Daniel
Williams, President and Chief Executive Officer, dated June 2003.
10.2* Employment Agreement, by and between Verdisys, Inc. and Andrew
Wilson, Chief Financial Officer Officer, dated June 2003.
10.3* Employment Agreement, by and between Verdisys, Inc. and David
Mauz, Chief Operating Officer, dated June 2003.
10.4* Advisor Agreement, by and between Verdisys, Inc. and Ron
Robinson, Chairman of the Board of Directors, dated July 2003.
10.5* Advisor Agreement, by and between Verdisys, Inc. and Eric A.
McAfee, Director, dated October 1, 2000.
10.6* Contract by and between Verdisys, Inc. and Natural Gas Systems,
re: lateral drilling services, "Delhi Field", dated September 22,
2003.
10.7* Contract by and between Verdisys, Inc. and Edge Capital Group,
re: lateral drilling services, "Franklin Field", dated September
27, 2003.
10.7.1* Addendum to Contract by and between Verdisys, Inc. and Edge
Capital Group, re: lateral drilling services, "Franklin Field",
dated September 27, 2003.
10.8* Contract by and between Verdisys, Inc. and Apache Corp, re:
satellite services, dated September 11, 2002.
10.9* Contract by and between Verdisys, Inc. and Noble Energy, re:
satellite services, dated September 17, 2002.
10.10* Technology Report "Landers Technology", dated October 13, 2003.
10.11* Placement Agency Agreement between the Company and Stonegate
Securities, Inc. dated August 26, 2003.
10.12* Verdisys Inc. 2003 Stock Option Plan.
10.13* Independent Contractor Agreement between the Company and TerrOnne
Petroleum Corporation dated August 1, 2003.
10.14 Form of Registration Rights Agreement in connection with the
Company's private placements in July and August 2003.
10.15 Alternative Form of Registration Rights Agreement in connection
with the Company's private placements in July and August 2003.
31.1 Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Previously filed.
REPORTS ON FORM 8-K
On July 18, 2003, the Company filed a Current Report on Form 8-K reporting its
Agreement and Plan of Merger with Verdisys, Inc. as an event under Item 2, which
Form 8-K was amended by Amendment No. 1 to Form 8-K filed on September 29, 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Verdisys, Inc.
Date: December 3, 2003 By: /s/ Dan Williams
---------------------------------
Dan Williams,
Chief Executive Officer
Date: December 3, 2003 By: /s/ Andrew Wilson
---------------------------------
Andrew Wilson,
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1* Restated Articles of Incorporation of Verdisys, Inc., dated July
15, 2003, filed July 17, 2003 with Secretary of State, State of
California.
10.1* Employment Agreement, by and between Verdisys, Inc. and Daniel
Williams, President and Chief Executive Officer, dated June 2003.
10.2* Employment Agreement, by and between Verdisys, Inc. and Andrew
Wilson, Chief Financial Officer Officer, dated June 2003.
10.3* Employment Agreement, by and between Verdisys, Inc. and David
Mauz, Chief Operating Officer, dated June 2003.
10.4* Advisor Agreement, by and between Verdisys, Inc. and Ron
Robinson, Chairman of the Board of Directors, dated July 2003.
10.5* Advisor Agreement, by and between Verdisys, Inc. and Eric A.
McAfee, Director, dated October 1, 2000.
10.6* Contract by and between Verdisys, Inc. and Natural Gas Systems,
re: lateral drilling services, "Delhi Field", dated September 22,
2003.
10.7* Contract by and between Verdisys, Inc. and Edge Capital Group,
re: lateral drilling services, "Franklin Field", dated September
27, 2003.
10.7.1* Addendum to Contract by and between Verdisys, Inc. and Edge
Capital Group, re: lateral drilling services, "Franklin Field",
dated September 27, 2003.
10.8* Contract by and between Verdisys, Inc. and Apache Corp, re:
satellite services, dated September 11, 2002.
10.9* Contract by and between Verdisys, Inc. and Noble Energy, re:
satellite services, dated September 17, 2002.
10.10* Technology Report "Landers Technology", dated October 13, 2003.
10.11* Placement Agency Agreement between the Company and Stonegate
Securities, Inc. dated August 26, 2003.
10.12* Verdisys Inc. 2003 Stock Option Plan.
10.13* Independent Contractor Agreement between the Company and TerrOnne
Petroleum Corporation dated August 1, 2003.
10.14 Form of Registration Rights Agreement in connection with the
Company's private placements in July and August 2003.
10.15 Alternative Form of Registration Rights Agreement in connection
with the Company's private placements in July and August 2003.
31.1 Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Previously filed.