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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
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 number: 0-21892
PINNACLE MICRO, INC.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 33-0238563
PINNACLE MICRO, INC.
19 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(714) 789-3000
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 No X .
--- ---
As of November 6, 1996, there were outstanding 9,061,840 shares of Registrant's
Common Stock.
Page 1 of 14 pages
Exhibit Index appears on Page 13
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PINNACLE MICRO, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements 3
Condensed Balance Sheets at September 28, 1996
and December 30, 1995 3
Condensed Statements of Operations for the thirteen
weeks and thirty-nine weeks ended September 28, 1996
and September 30, 1995 4
Condensed Statements of Cash Flows for the thirty-nine
weeks ended September 28, 1996 and September 30, 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PINNACLE MICRO, INC.
CONDENSED BALANCE SHEETS
September 28, December 30,
1996 1995
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,971,000 $ 3,606,000
Accounts receivable, net 10,272,000 11,354,000
Income taxes receivable 963,000 999,000
Inventories 12,317,000 11,413,000
Prepaid expenses and other current assets 705,000 961,000
Deferred income taxes 1,058,000 1,058,000
------------ ------------
Total current assets 28,286,000 29,391,000
Furniture and equipment, net 1,787,000 2,098,000
Deferred income taxes 213,000 213,000
Other assets 908,000 303,000
------------ ------------
Total assets $ 31,194,000 $ 32,005,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,831,000 $ 11,644,000
Accrued expenses 5,004,000 1,244,000
Payroll related liabilities 1,125,000 956,000
Note payable to bank and current
portion of long-term debt -- 6,000
------------ ------------
Total current liabilities 17,960,000 13,850,000
Long-term debt, less current portion 10,000,000 14,000
Other liabilities 829,000 1,400,000
Commitments and contingencies
Stockholders' equity:
Common stock 8,000 8,000
Additional paid-in capital 17,638,000 16,158,000
Retained earnings (14,860,000) 775,000
Foreign currency translation adjustment (381,000) (200,000)
------------ ------------
Total stockholders' equity 2,405,000 16,741,000
------------ ------------
Total liabilities and stockholders' equity $ 31,194,000 $ 32,005,000
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
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PINNACLE MICRO, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
13 Weeks Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks Ended
Sept. 28, 1996 Sept. 30, 1995 Sept. 28, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
Net sales $ 14,259,000 $21,401,000 $ 44,026,000 $62,186,000
Cost of sales 11,646,000 15,490,000 36,132,000 45,192,000
------------ ----------- ------------ -----------
Gross profit 2,613,000 5,911,000 7,894,000 16,994,000
------------ ----------- ------------ -----------
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 4,584,000 606,000
------------ ----------- ------------ -----------
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 3,000 124,000
------------ ----------- ------------ -----------
Net income (loss) $ (7,807,000) $ 24,000 $(15,635,000) $ 198,000
============ =========== ============ ===========
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
============ =========== ============ ===========
The accompanying notes are an integral part of these condensed financial
statements.
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PINNACLE MICRO, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks Ended 39 Weeks Ended
Sept. 28, 1996 Sept. 30, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(15,635,000) $ 198,000
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 979,000 682,000
Provision for doubtful accounts 306,000 113,000
Provision for product returns and price protection 831,000 (300,000)
Provision for inventory obsolescence 427,000 (304,000)
Deferred compensation recognized -- 13,000
Changes in operating assets and liabilities:
Accounts receivable (55,000) (2,916,000)
Income taxes receivable 36,000 (319,000)
Inventories (1,331,000) (1,567,000)
Prepaid expenses and other current assets 256,000 (740,000)
Other assets (29,000) (293,000)
Accounts payable and accrued expenses 3,761,000 2,905,000
Payroll related liabilities 169,000 175,000
Income taxes payable -- (294,000)
Other liabilities 829,000 --
------------ -----------
Net cash used in operating activities (9,456,000) (2,647,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of short-term investments -- 1,669,000
Purchase of furniture and equipment (644,000) (1,058,000)
------------ -----------
Net cash provided by (used in) investing activities (644,000) 611,000
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures 10,000,000 --
Payment of debt issuance costs (600,000) --
Principal payments on note payable to bank -- (1,400,000)
Principal payments on long-term debt (20,000) (19,000)
Proceeds from exercise of stock options 56,000 141,000
Tax benefit from exercise of stock options 4,000 49,000
Proceeds from issuance of stock through
the employee stock purchase plan 20,000 135,000
------------ -----------
Net cash provided by (used in) financing activities 9,460,000 (1,094,000)
------------ -----------
Effect of exchange rate changes on cash 5,000 (83,000)
------------ -----------
Decrease in cash and cash equivalents (635,000) (3,213,000)
Cash and cash equivalents at beginning of period 3,606,000 4,866,000
------------ -----------
Cash and cash equivalents at end of period $ 2,971,000 $ 1,653,000
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 178,000 $ 31,000
============ ===========
Income taxes $ -- $ 670,000
============ ===========
The accompanying notes are an integral part of these condensed financial
statements.
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PINNACLE MICRO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Period Accounting Policies
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles.
Certain information normally included in annual financial statements
prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission, and these financial statements
should be read in conjunction with the Company's Form 10-K for the year
ended December 30, 1995. In the opinion of management, the accompanying
condensed financial statements reflect all material adjustments which
are necessary for a fair presentation of the financial position and
results of operations and cash flows as of and for the thirty-nine
weeks ended September 28, 1996 and September 30, 1995.
Revenue Recognition
The Company recognizes product sales revenue at the time of shipment
and records a reserve for estimated sales returns and price
adjustments. The Company has agreements with its resellers which, under
certain circumstances, provide for stock rotation for slow-moving items
and price protection for inventories held by the resellers at the time
of published price reductions.
Foreign Currency Transactions
Gains and losses from foreign currency transactions are included in
operating results in selling, general and administrative expenses.
Transaction gains increased operating income in the thirteen weeks
ended September 28, 1996 and September 30, 1995 by $52,000 and
$105,000, respectively. Transaction gains increased operating income in
the thirty-nine weeks ended September 28, 1996 by $230,000 while
transaction losses decreased operating income for the thirty-nine weeks
ended September 30, 1995 by $684,000.
2. INVENTORIES
Inventories consist of the following:
September 28, December 30,
1996 1995
---- ----
Components and work-in-process $10,168,000 $ 9,522,000
Finished goods 2,149,000 1,891,000
----------- -----------
$12,317,000 $11,413,000
=========== ===========
3. INCOME TAXES
The Company estimated an effective tax rate of 38.5% for the thirteen
weeks and thirty-nine weeks ended September 30, 1995. The Company did
not accrue a tax benefit for the operating losses incurred in the
thirteen week and thirty-nine week periods ended September 28, 1996.
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4. CONTINGENCIES
On March 15, 1996, a complaint was filed against the Company and
certain of its directors and then executive officers in a securities
class action lawsuit which alleges that Company management engaged in
improper accounting practices and made certain false and misleading
statements. The complaint was filed in the United States District Court
for the Central District of California under the case name Wills,
Cohen, et al. v. William Blum et al., Case No. SACV96-261GLT. The
Company denies all allegations and intends to vigorously contest the
suit. The ultimate outcome of this matter cannot presently be
determined. Accordingly, no provision for any liability that may result
has been made in the accompanying financial statements. However, any
adverse determination with respect to the pending lawsuit could have a
material adverse effect on the Company's financial statements. The
Company expects to incur significant legal costs relating to this suit
in 1996 and into 1997.
5. CONVERTIBLE DEBENTURES
The Company completed an offshore placement of $10,000,000 principal
amount of convertible subordinated 8% notes in July 1996. The
$10,000,000 placement was completed on July 19, 1996, yielding
aggregate net proceeds of $9,400,000 after commissions (fees) to First
Bermuda Securities Limited ("First Bermuda"). First Bermuda will also
receive additional compensation in the form of warrants exercisable for
five years at a strike price of 125% of the closing bid price on the
closing date. First Bermuda received customary piggyback registration
rights beginning 90 days from the closing date and demand rights after
two years. The note holders may convert the principal of the 8% notes
in thirds, at discounts from the then market price of 15%, 17.5% and
20%, in intervals commencing 60, 90 and 120 days after the closing.
The first agreed upon conversion date of the convertible debentures was
September 14, 1996. There were no conversions as of September 28, 1996.
As a result of the conversion requests received through October,
approximately $5,000,000 of the debentures had been converted into
approximately 1,137,000 shares of common stock at conversion prices
ranging from $4.55 to $6.44 per share. Prior to the first conversion
date, the Company had 7,924,850 shares of its common stock issued and
outstanding. The Company had approximately 9,062,000 shares outstanding
as of November 6, 1996, the increase resulting from share issuances
from debenture conversions. The new shares increased the Company's
issued and outstanding common stock by approximately 14.3% as compared
the issued and outstanding immediately prior to the first conversion
date.
A portion of the proceeds from this placement and cash on hand were
used to repay the bank loan with Bank of America, the Company's lender,
on July 17, 1996. The Company, which no longer has a lending
relationship with Bank of America, subsequently entered into a secured
lending relationship in September 1996 with Coast Business Credit which
provides for borrowings of up to $10,000,000. The Company had no
borrowings against this lending relationship at September 28, 1996 but
borrowed $3,000,000 as of November 6, 1996.
6. RESTRUCTURING CHARGES
During the third quarter of 1996, the Company recorded nonrecurring
charges of $4,333,000 which 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, Colorado and the closing of its branch office in Japan, as
well as a charge of $1,602,000 primarily for changes to major component
contracts with two key suppliers. As a result of the manufacturing
consolidation, the Company expects the elimination of approximately 30
manufacturing positions in California, of which approximately half will
be replaced in Colorado. The majority of these liabilities should be
paid or settled by the end of the 1997 fiscal year.
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THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934. ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED
AS A RESULT OF THE RISK FACTORS SET FORTH IN THIS REPORT.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Net Sales
Net sales were $21,401,000 and $14,259,000 for the thirteen weeks ended
September 30, 1995 and September 28, 1996, respectively, representing a decrease
of 33%. Net sales were $62,186,000 and $44,026,000 for the thirty-nine weeks
ended September 30, 1995 and September 28, 1996, respectively, representing a
decrease of 29%. These decreases are primarily attributable to decreased unit
sales and average sales prices of the current recordable CD, Sierra and Tahoe
230 products. While the recordable CD product is facing increased competition,
the Sierra and Tahoe 230 products have reached the end of their product lives.
These decreases were partially offset by sales of the Vertex product which began
shipping at the end of the second quarter of 1996 and the Tahoe 640 product
which began shipping at the end of the third quarter of 1996.
Gross Profit
Gross profit decreased from $5,911,000 for the thirteen weeks ended September
30, 1995, to $2,613,000 for the thirteen weeks ended September 28, 1996, and
decreased as a percentage of net sales from 27.6% to 18.3%. Gross profit
decreased from $16,994,000 for the thirty-nine weeks ended September 30, 1995,
to $7,894,000 for the thirty-nine weeks ended September 28, 1996, and decreased
as a percentage of net sales from 27.3% to 17.9%. As noted above, the Company
has observed increased competition in the recordable CD market for its current
products and this competition placed additional pressures on selling prices and
gross margins during the first three quarters of 1996, and is expected to
continue placing pressure on gross margins in future periods for existing
recordable CD products. The reduction in gross profit is also attributable to
the Sierra and Tahoe 230 products which reached the end of their product lives.
The Company currently maintains manufacturing facilities in both California and
Colorado, each of which are currently underutilized. The overhead costs
associated with these facilities significantly reduced the Company's gross
margins in the current thirteen week and thirty-nine week periods. The Company
plans to consolidate all manufacturing operations into one facility located in
Colorado as part of the announced restructuring in order to reduce overhead
costs and increase efficiencies. (See Note 6 of Notes to Condensed Financial
Statements.)
Selling, General and Administrative
Selling, general and administrative expenses were $4,325,000 and $4,451,000 in
the thirteen weeks ended September 30, 1995 and September 28, 1996,
respectively, and represented 20.2% and 31.2% of net sales. Selling, general and
administrative expenses were $13,123,000 and $14,132,000 in the thirty-nine
weeks ended September 30, 1995 and September 28, 1996, respectively, and
represented 21.1% and 32.1% of net sales. The increase in expenditures resulted
primarily from increased advertising and promotional expenditures and the
expansion of the Company's sales and administrative staffs. In the thirteen
weeks ended September 30, 1995 and September 28, 1996, selling, general and
administrative expenses were decreased by $105,000 and $52,000, respectively,
because of Japanese Yen denominated transactions as the value of the U.S. dollar
fluctuated in relationship to the Japanese Yen. Selling, general and
administrative expenses were increased by $684,000 and decreased by $230,000 for
the thirty-nine weeks ended September 30, 1995 and September 28, 1996,
respectively, for the same reason. The Company has
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initiated a plan of restructuring intended to reduce its cost structure in 1997,
including the closing of its branch office in Japan. (See Note 6 of Notes to
Condensed Financial Statements.)
Research and Development
Research and development expenses were $1,378,000 and $1,494,000 for the
thirteen weeks ended September 30, 1995 and September 28, 1996, respectively, or
6.4% and 10.5% of net sales. Research and development expenses were $3,058,000
and $4,522,000 for the thirty-nine weeks ended September 30, 1995 and September
28 1996, respectively, or 4.9% and 10.3% of net sales. These increases resulted
from increased staffing at the Company's research and development facility,
along with expenses for Apex and Vertex prototypes and for ASIC development fees
paid to third parties. The Company expects to increase its research and
development expense during the next twelve months to fund new product
development projects.
Nonrecurring charges
Nonrecurring charges were $198,000 and $4,333,000 in the thirteen weeks ended
September 30, 1995 and September 28, 1996, respectively. Nonrecurring charges
were $606,000 and $4,584,000 in the thirty-nine weeks ended September 30, 1995
and September 28, 1996, respectively. Nonrecurring charges for the current
period also include $2,731,000 for costs associated with the Company's planned
restructuring and $1,602,000 primarily for changes to major component contracts
with two key suppliers. Also included in nonrecurring charges are certain
professional fees related to the restatements and related legal matters.
Management expects related legal fees to continue at noticeable levels through
1996 and into 1997. (See Note 4 and Note 6 of Notes to Condensed Financial
Statements).
LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 1996, the Company had cash and cash equivalents of
$2,971,000 as compared to $3,606,000 at December 30, 1995. During the
thirty-nine weeks ended September 30, 1995, the Company's operations used
$2,647,000 in cash, while they used $10,056,000 in cash during the thirty-nine
weeks ended September 28, 1996. Inventories increased from $11,413,000 at
December 30, 1995 to $12,317,000 at September 28, 1996 as the Company procured
additional quantities of long lead time components used in the Vertex and Apex
products. Accrued expenses increased from $1,244,000 at December 30, 1995 to
$5,004,000 at September 28, 1996 as a result of accrued restructuring charges.
Accounts receivable decreased from $11,354,000 at December 30, 1995 to
$10,272,000 at September 28, 1996 as the Company experienced decreased sales in
the current period.
Portions of the Company's accounts payable balance typically include items
denominated in Japanese Yen. As the Japanese Yen generally strengthened during
the thirty-nine weeks ended September 30, 1995, the cost to repay these
liabilities in terms of U.S. Dollars increased substantially. The Company has
renegotiated most of its principal contracts with Japanese suppliers for payment
in U.S. Dollars. In contrast, as the Japanese Yen generally weakened during the
thirty-nine weeks ended September 28, 1996, the cost to repay these liabilities
in terms of U.S. Dollars decreased. (See "Selling, General and Administrative"
above for details of these expenses.) These Japanese Yen liabilities were not
hedged at September 28, 1996.
The Company's investing activities during this period included capital
expenditures of $644,000 primarily for test and manufacturing equipment
associated with the Company's manufacturing facility in Colorado.
In October 1996, the Company entered into a Loan and Security Agreement with
Coast Business Credit which permits the Company to borrow the lesser of
$10,000,000 at any one time or an available credit limit determined by a formula
based on the Company's receivables, inventory and equipment and a term loan
limitation. The loan agreement has a letter of credit sublimit of $3,500,000 and
all amounts outstanding bear interest at a rate equal to the "prime rate" (as
defined in the agreement) plus 1-3/4% per annum. The
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Company's obligations under the agreement are secured by assets of the Company.
The agreement contains various covenants and the scheduled maturity date of the
agreement is September 30, 1998, subject to renewal as provided for in the
agreement. As of November 6, 1996, the Company had borrowed approximately
$3,000,000 under the agreement.
In addition to the Loan and Security Agreement with Coast Business Credit, the
Company also plans an additional private placement of $8,000,000 of convertible
subordinated notes with First Bermuda to take place in the fourth quarter of
1996. The Company believes the liquidity provided by the lending relationship
with Coast Business Credit along with the additional $8,000,000 from the private
placement should provide adequate working capital for the Apex ramp-up of
manufacturing which is expected in the fourth quarter of 1996. If the Company
can not complete the planned fourth quarter offshore placement of subordinated
debentures it is likely to have serious liquidity problems. (See Note 5 of Notes
to Condensed Financial Statements.)
GENERAL AND RISK FACTORS
Vertex and Apex
Vertex 2.6 GB optical drive was relaunched in June 1996. Current production is
sufficient to satisfy the existing backlog of orders and meet current demand.
Apex 4.6 GB optical drive was in pilot release for evaluation before volume
production begins in November. As the scheduled Apex production date in the
fourth quarter has drawn nearer, customer demand for Vertex is softening. In the
third quarter, the Company began testing the credit card direct sales backlog
for Apex, some of which were booked more than one year ago. Verification of
orders is continuing, with approximately 30% of credit card orders (which is a
small part of the backlog) dropping out. Management may make changes in Vertex's
market position and in its sales strategy in the fourth quarter in an attempt to
improve Vertex sales in subsequent periods. Market acceptance of Apex is
critical to the Company's success in the near term.
Challenges
The Company's main challenges fall into three categories: technology, management
and liquidity. The Company's future success depends upon its R&D strategy and
investments and related identification and development of new markets for the
Company's products. The Company is still building the management team it needs.
Management is actively recruiting a Vice President of Marketing. The Company's
cash requirements will be high through 1996 and into the second quarter of 1997,
as the Company invests in R&D and manufacturing ramp-up. If the Company is
unable to raise capital through the planned second offshore private placement,
growth will be slowed.
The manufacturing consolidation and reorganization in Colorado Springs may not
be completed until the first quarter of next year due to a planned move to a new
facility.
Background Risks
The Company's quarterly operating results fluctuate significantly depending on
factors such as timing of product introductions by the Company and its
competitors, market acceptance of new products and enhanced versions of the
Company's existing products, changes in pricing policies by the Company and its
competitors, currency fluctuations and the timing of expenditures on
advertising, promotion and research and development.
In addition, the Company's component purchases, production and spending levels
are made based upon forecasted demand for the Company's products. Accordingly,
any inaccuracy in forecasting could adversely affect the Company's results of
operations. Demand for the Company's products could be adversely affected by a
slowdown in the overall demand for computer systems or data storage products.
Further, as is common in many high technology companies, the Company's shipments
tend to be
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disproportionately higher in the latter part of each quarter. The
Company has historically experienced an increase in the number of orders and
shipments in the latter part of each calendar quarter and the Company expects
this pattern to continue in the future. The Company's failure to receive
anticipated orders or to complete shipments in the latter part of a quarter
could have a material adverse effect on the Company's results of operations for
that quarter. Past results are not necessarily indicative of future performance
for any particular period.
The Company continues to face competition from much larger magnetic and optical
storage device developers, including Fujitsu, Sony and Philips. These
competitors have larger R&D budgets and staffs, greater engineering and
manufacturing experience, and may be able to bring comparable or superior
products to market which could negatively impact the results of the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain former members of its senior management have been the
subject of an investigation by the Securities and Exchange Commission (the
"SEC") relating principally to the restatement of the Company's
previously-reported financial results. The Company and its management have been
cooperating fully with the investigation. The resignation of the Company's prior
independent public accountants on February 20, 1996, led to an additional
inquiry by the SEC, which additional inquiry is believed to be closed. The
Company is near final agreement on terms of a settlement with the Staff of the
Enforcement Division of the SEC. The proposed settlement does not provide for
any civil penalties.
On March 15, 1996, a complaint was filed against the Company and certain of its
directors and then executive officers in a securities class action lawsuit which
alleges that the Company's management engaged in improper accounting practices
and made certain false and misleading statements. The Company denies all
allegations and intends to vigorously contest the suit. (See Note 4 of Notes to
Condensed Financial Statements.)
The Company is also subject to other legal proceedings and claims which arise in
the normal course of business. While the outcome of these proceedings cannot be
predicted with certainty, the Company does not believe that the outcome of such
legal matters will have a material adverse effect on the Company's financial
condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company, held on Thursday, August
29, 1996, the following directors were elected to the Board of Directors to
serve as directors until the next Annual Meeting of Stockholders or until their
successors are elected and qualified:
Affirmative Withheld
Votes Votes
----- -----
Lawrence Goelman 4,335,715 300
Daryl White 4,335,715 300
Scott Blum 4,335,378 637
Charles A. Laverty 4,335,715 300
In addition to the election of directors, the following proposals were approved
by stockholders at the Annual Meeting:
Affirmative Negative
Votes Votes Abstentions
----- ----- -----------
(1) 1996 Long Term Incentive Plan 4,332,750 1,637 1,628
(2) 1996 Non-Employee Directors Stock Option Plan 4,332,472 1,915 1,628
(3) Ratify the appointment of BDO Seidman, LLP as the 4,334,928 37 1,050
Company's independent certified public accountants
ITEM 5. OTHER INFORMATION
SUBSEQUENT EVENTS
Scott Blum Resigns Employment
Scott Blum, a founder of the Company and Vice President, Marketing, resigned his
position as of September 30, 1996. Mr. Blum remains on the Board of Directors.
Advertising Agency
In the fourth quarter, management intends to select an outside advertising and
marketing services agency to take over advertising and marketing services
efforts previously handled internally.
New Director
Dr. John Koehler was elected to the Board of Directors by the Board as of
October 1, 1996.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description Page Number
- -------------- ----------- -----------
10.35 Loan and Security Agreement with Coast
Business Credit dated September 18, 1996
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated July 15,
1996, announcing the offshore placement of $10,000,000
principal amount of convertible subordinated notes.
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SIGNATURES
PINNACLE MICRO, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1996 By: /s/ LAWRENCE GOELMAN
----------------------------------
Lawrence Goelman
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 11, 1996 By: /s/ ROGER HAY
----------------------------------
Roger Hay
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer and Principal
Accounting Officer)
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