Opinion ID: 198674
Heading Depth: 4
Heading Rank: 4

Heading: The Force 3 Transaction

Text: 113 The Force 3 allegations concern a purchase order for $416,325 issued on September 30, which stated on its face that it was contingent on Force 3's receipt of a government contract. FTP nonetheless immediately recorded the entire amount as an account receivable. On December 29, FTP issued Force 3 a credit for the full amount. The same day, Force 3 sent FTP a new purchase order for the same products it ordered on September 30, but this purchase order did not refer to any contingency. FTP issued a new invoice and again booked the amount as a sale. The original booking of this sale in September appears to have violated the requirement in FAS 48 that the buyer's obligation to pay the seller is not contingent on resale of the product. 114 At best, plaintiffs' additional evidence supports an inference that FTP improperly recognized from $416,000 to $1.55 million in revenue in the third quarter of 1995. Because FTP reported overall revenue during the quarter of $37.1 million, these transactions do not support a strong inference of scienter. 18 It is equally possible to conclude that FTP made some incorrect accounting decisions regarding a limited number of transactions. Seeing fraud, however, requires too great of an inferential leap. In short, even when viewed in combination with plaintiffs' other allegations, plaintiffs' additional evidence does not support a strong inference of scienter, and thus the district court's decision not to consider the evidence could not have affected the outcome of the motion to dismiss.