InterNet Bankruptcy Library - News for October 18, 1996

Bankruptcy News For October 18, 1996

  1. Pinnacle Micro Announces Third Quarter Results and Turnaround Progress

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
quarter 1996.

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

                                                         September 28,
        December 30,


           Current assets:
           Cash and cash equivalents                  $2,971,000
           Accounts receivable, net                   10,272,000
           Income taxes receivable                       963,000
           Inventories                                12,317,000
           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
           Current liabilities:
           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
           Stockholders' equity:
           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.

                                    13 Weeks      13 Weeks       39 Weeks
        39 Weeks

                                      Ended         Ended          Ended

                                    Sept. 28,   Sept. 30,      Sept. 28,
        Sept. 30,

                                      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

           Operating expenses:
           Selling, general and
         administrative       4,451,000   4,325,000     14,132,000   13,123,000
           Research and
         development          1,494,000   1,378,000      4,522,000    3,058,000
           Nonrecurring charges   4,333,000     198,000      4,584,000
           Total operating
         expenses            10,278,000   5,901,000     23,238,000   16,787,000

           Operating income
         (loss)             (7,665,000)      10,000   (15,344,000)      207,000
           Interest income
         (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

           Weighted average
         common shares
         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