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February 24, 1984

Steven GOLDMAN, on behalf of himself and all others similarly situated, Plaintiff,
G. C. BELDEN, Jr., John R. Sykes, Robert F. Sykes and Sykes Datatronics, Inc., Defendants.

The opinion of the court was delivered by: TELESCA


TELESCA, District Judge.


 Plaintiff, personally and purportedly as a representative of others similary situated, commenced this action against Sykes Datatronics, Inc., ("Sykes") and several of its directors and officers alleging violations of Section 10b of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b), and Rule 10b-5, 17 C.F.R. Section 240.10b-5, promulgated thereunder. Defendants initially moved to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) and for failure to comply with the pleading specificity requirements of Fed.R.Civ.P. 9(b). In a decision dated August 11, 1983, Goldman v. Belden, 98 F.R.D. 733, this Court dismissed plaintiff's complaint for failure to comply with Rule 9(b), without prejudice to the filing of an amended complaint in conformance with that rule. Plaintiff filed an amended complaint *fn1" and defendants now again move to dismiss.For the reasons set forth below, defendants' motion is granted and the amended complaint is dismissed.


 The factual background of this action is set forth at some length in this Court's previous decision, familiarity with which is assumed. However, a reiteration of some of this history will be necessary to understanding this decision.

 Sykes, a New York corporation with its principal place of business in Rochester, New York, is engaged primarily in the design, manufacture and marketing of microcomputer systems with data processing and communication applications. In early 1978 Sykes introduced its COMM-STOR family of terminal attachment products. A business which purchased a COMM-STOR attachment was able to record information on telephone calls made by its employees including the time of day, the length of the call and to whom it was made. As a result of the success of the COMM-STOR line, Sykes' sales and earnings per share effectively doubled in each of its fiscal years between 1978 and 1982. *fn2" Sykes' main customer during that period was American Telephone and Telegraph Company (AT & T), sales to which represented approximately 80% of the Company's total sales.

 In early 1982 Skyes was prepared to market a new product called "INNVOICE" which was a device enabling a hotel to record long distance phone calls made directly by guests from their rooms. In mid-1980 the Federal Communications Commission had issued a ruling allowing hotel and motel owners to resell their telephone charges to guests at a profit. Thus, INNVOICE was intended by Sykes to capitalize upon this new market. For reasons which will be discussed more fully later, INNVOICE did not produce the revenues expected in the early part of fiscal year 1983. However, during the first six months of 1982 defendants continued to express high expectations of INNVOICE and the potential revenues to be derived from its sale.

 On August 26, 1982 plaintiff purchased 1,000 shares of Sykes common stock at $15.50 per share. On August 30, 1982 Sykes issued a press release which indicated that its second quarter earnings in fiscal year 1983 would be significantly below previous years and also below prior estimates. Immediately after the press release, the price per share of Sykes common stock dropped from $13.00 per share to $7.75 per share. As was observed by Judge Van Graafeiland, in Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2nd Cir.1982), "[t]his is the type of economic climate in which Section 10(b) litigation flourishes".


 Plaintiff alleges that Sykes, its president and chief operating officer G. C. Belden, its vice-president and director John R. Sykes and its chairman of the board and chief executive officer Robert F. Sykes, violated Section 10(b) and Rule 10b-5 by making material misrepresentations and omissions concerning the short term outlook of the company and its projected sales and profits. The complaint cites several statements disseminated by defendants as fraudulent. First, the Sykes 1982 Annual Report ("1982 Annual Report") issued on May 7, 1982 and specifically a letter to shareholders and employees contained in that report signed by defendants Robert Sykes and Belden which projected a year of strong growth in earnings and sales and stressed the positive aspects of the breakup of AT & T for Sykes' future opportunities (Amended Complaint Para. 32). Second, a press release issued by Sykes on June 16, 1982 ("June 16th press release") announcing that first quarter 1983 earnings were down from the previous year but indicating that the situation was improving (Amended Complaint Para. 33). Third, plaintiff cites statements made by defendants Belden and Robert F. Sykes at the annual meeting held on June 16, 1982, a transcript of which was disseminated to the public, ("June 16th Transcript") which indicated that the AT & T breakup would provide increased opportunities to Sykes, that two situations which contributed to Sykes' sluggish first quarter were improving and that Sykes was going to try to increase sales and earnings in the range of forty to fifty percent during fiscal year 1983. Finally, plaintiff claims that the Sykes First Quarter fiscal year 1983 Report issued on June 28, 1982 ("First Quarter Report") was materially false because it indicated that there was an outlook for good growth in the future and that there was improvement in two situations relating to a new COMM-STOR product and INNVOICE which had been mentioned originally in the 1982 annual report and repeated at the 1982 annual meeting as responsible for the sluggish first quarter growth. (Amended complaint para. 35).

 Plaintiff claims that all of these statements were materially false because (a) Sykes "failed to disclose that the breakup of AT & T created substantial uncertainties about the structure and marketing practices of the Bell System" (Amended complaint para. 42(a)); (b) Sykes projected strong growth based upon sales of INNVOICE when in fact "there were signigicant technical and sales problems and grave uncertainties asoicated with the introduction and marketing of INNVOICE" (Amended complaint paras. 29, 42(b)); *fn3" and, (c) Sykes indicated that the problems experienced in first quarter of fiscal 1983 were improving when in fact there was no basis for such optimism (Amended complaint paras. 43-44). Plaintiff further alleges that "(defendants) had actual knowledge of the materially false and misleading statements and material omissions . . . and thereby intended to deceive plaintiff . . . or in the alternative, defendants acted with . . . reckless disregard for the truth". (Amended complaint para. 46).

 Finally, plaintiff alleges that during the class period *fn4" the individual defendants sold substantial amounts of Sykes common stock at "artificially inflated" prices, while at the same time "making very specific and optimistic projections about Sykes' near term prospects" (Amended ...

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