Pinnacle Micro Announces Third Quarter Results and Turnaround Progress
IRVINE, Calif., Oct. 18, 1996 - Pinnacle Micro, Inc.(Nasdaq: PNCL) announces third quarter results,
including previously announced nonrecurring charges for a planned restructuring and revisions to two
component supply contracts.
Third Quarter Results
Net sales for the third quarter ended September 28, 1996 were $14,259,000, down 33 percent from
$21,4O1,000 in the third quarter of 1995, but up 16 percent from $12,333,000 in the second quarter of
1996. Net loss, including the nonrecurring charge of $4,333,000, was $7,807,000, or $.98 per share, as
compared to a net income of $24,000 or $.00 per share in the third quarter of 1995 and a net loss of
$3,913,000 or $.49 per share in the second quarter of l996. Gross margin was l8.3 percent for the third
quarter of 1996 as compared to 27.6 percent in the third quarter 1995 and 17.5 percent in the second
Third quarter 1996 net sales were lower than the comparable period in 1995 primarily because of the
decline in sales of the Company's existing RCD products and the end of the product cycle of the
Company's Sierra drive. The declining sales in the third quarter 1996 were partially offset by sales of
the Company's Vertex product. The increase in net sales for the third quarter of 1996 compared to the
second quarter of 1996 was a result of increasing shipments of the Company's Vertex and optical library
systems for mass data storage.
Gross margins in the third quarter of 1996 declined from the comparable quarter in 1995 in line with
price erosion in earlier generation RCD products. Gross margins improved in the third quarter of 1996
compared with the second quarter of 1996. Magneto-optical products designed and engineered in
Colorado Springs now represent over half of the third quarter's revenues. The decline in RCD margins
was more than offset by the improved margin mix from Vertex and optical library system shipments.
The operating loss for the third quarter excluding nonrecurring charges was $3,332,000, an improvement
of $380,000 from the operating loss in the second quarter of 1996 due to the improved margin mix and
higher revenues. Nonrecurring charges of $4,333,000 include a restructuring charge of $2,731,000 for
costs associated with the Company's planned consolidation and transfer of manufacturing operations to
Colorado Springs and the closing of our branch office in Japan, as well as a charge of $1,602,000
primarily for changes to major component contracts with two key suppliers.
"The reduced operating loss before nonrecurring charges and the improved gross margins in sequential
quarters shows progress in management's product strategy and the initial impact of cost cutting efforts,"
said Roger Hay, chief financial officer. "The nonrecurring charges reflect another major step towards
reducing Pinnacle's cost structure."
Revenue for the nine months ended September 28, 1996 was $44,026,000, or 29 percent lower than
$62,186,000 in the same period last year, primarily due to reduced sales of RCD products. This decline
in revenue was partially offset by Vertex and optical library system shipments.
Net loss for the nine months ended September 28, 1996, including the nonrecurring charges of
$4,333,000, was $15,635,000, compared to net income of $198,000 in the same period last year.
"We are continuing to make progress on our turnaround," said Lawrence Goelman, president and CEO.
"We obtained a $10 million secured line of credit and anticipate a second offshore private placement in
November. With Apex in pilot production and a cost reduction strategy in place, including the planned
restructuring, we are positioning the Company to move towards profitability in 1997."
Risk Factors Associated with Forward Looking Statements The Company's prospects for the fourth
quarter depend on Vertex selling according to plan and Apex shipments remaining on schedule. The
Company's working capital requirements will remain high. There is no assurance that the Company will
be able to complete the planned second offshore private placement. If Apex or Vertex demand exceeds
forecasts significantly there may be supply constraints. A change in a relationship with any one of our
strategic vendor partners could materially adversely affect the Company.
Pinnacle Micro, Inc. is a recognized leader in recordable CD technology and optical storage systems for
general data storage and data intensive applications such as network storage, imaging, desktop
publishing and pre- press, as well as emerging applications such as digital audio/video editing and
commercial multimedia. Founded in 1987, Pinnacle Micro, Inc. is headquartered in Irvine, CA with
offices in North America, Europe and the Pacific Rim. Pinnacle Micro can be found on the Internet at
Pinnacle Micro Inc.
Condensed Balance Sheets
Cash and cash equivalents $2,971,000
Accounts receivable, net 10,272,000
Income taxes receivable 963,000
Prepaid expenses and other current assets 705,000
Deferred income taxes 1,058,000
Total current assets 28,286,000
Furniture and equipment, net 1,787,000
Deferred income taxes 213,000
Other assets 908,000
Total assets $31,194,000
Liabilities and Stockholders' Equity
Accounts payable $11,831,000
Accrued expenses 5,004,000
Payroll related liabilities 1,125,000
Note payable to bank and current
portion of long-term debt -- 6,000
Total current liabilities 17,960,000
Long-term debt, less current portion 10,000,000
Other liabilities 829,000
Commitments and contingencies
Common stock 8,000
Additional paid-in capital 17,638,000
Retained earnings (14,860,000)
Foreign currency translation adjustment (381,000)
Total stockholders' equity 2,405,000
Total liabilities and stockholders' equity$31,194,000
PINNACLE MICRO, INC.
CONDENSED STATEMENTS OF OPERATIONS
13 Weeks 13 Weeks 39 Weeks
Ended Ended Ended
Sept. 28, Sept. 30, Sept. 28,
1996 1995 1996
Net sales $14,259,000 $21,401,000 $44,026,000
Cost of sales 11,646,000 15,490,000 36,132,000
Gross profit 2,613,000 5,911,000 7,894,000
Selling, general and
administrative 4,451,000 4,325,000 14,132,000 13,123,000
development 1,494,000 1,378,000 4,522,000 3,058,000
Nonrecurring charges 4,333,000 198,000 4,584,000
expenses 10,278,000 5,901,000 23,238,000 16,787,000
(loss) (7,665,000) 10,000 (15,344,000) 207,000
(expense) (142,000) 29,000 (288,000) 115,000
Income (loss) before
income taxes (7,807,000) 39,000 (15,632,000) 322,000
Income tax expense -- 15,000 3,000
Net income (loss) $(7,807,000) $24,000 $(15,635,000)
Net income (loss)
per share $(0.98) $0.00 $(1.98) $0.02
outstanding 7,926,000 8,121,000 7,904,000 7,995,000
SOURCE Pinnacle Micro Inc./CONTACT: Megan Morrow, Investor Relations of Pinnacle Micro, Inc.,
714-789-3114 direct, or www.irpinnaclemicro.com/