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PINNACLE MICRO, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
13 Weeks Ended 13 Weeks Ended
Mar. 27, 1999 Mar. 28, 1998
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Cash Flows from Operating Activities
Net loss $(752,000) $(938,000)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 44,000 126,000
Provision for product returns and price protection -
Provision for inventory obsolescence -
Interest on debentures paid in common stock -
Non-cash interest expense -
Changes in operating assets and liabilities:
Accounts receivable 149,000 1,553,000
Income taxes receivable -
Inventories 118,000 772,000
Prepaid expenses and other current assets 9,000 51,000
Other assets 41,000 5,000
Accounts payable and accrued expenses 433,000 (1,147,000)
Payroll related liabilities 20,000 49,000
Other liabilities -
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Net cash provided by (used in) operating activities 62,000 483,000
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Cash Flows from Investing Activities
Proceeds from disposal of furniture and equipment 1,000 -
Purchase of furniture and equipment - (5,000)
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Net cash used in investing activities 1,000 (5,000)
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Cash Flows from Financing Activities
Net cash provided by (used to) repay note payable (332,000) (548,000)
Proceeds from exercise of stock options - -
Tax benefit from exercise of stock options - -
Proceeds from issuance of stock through
the employee stock option plan -
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Net cash provided by (used in) financing activities (332,000) (548,000)
Effect of exchange rate changes on cash - -
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Decrease in cash and cash equivalents (269,000) (70,000)
Cash and cash equivalents at beginning of period 322,000 454,000
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Cash and cash equivalents at end of period $ 53,000 $ 384,000
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Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 157,000 $ 139,000
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Income taxes - -
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The accompanying notes are an integral part of these condensed financial
statements.
PINNACLE MICRO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 27, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY HAS BEEN UNABLE TO OBTAIN AN AUDIT OPINION ON THE FINANCIAL
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STATEMENTS AND NOTES THERTO FOR THE YEARS 1997 AND 1998 FROM ITS INDEPENDENT
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AUDITOR PRINCIPALLY AS A RESULT OF THE INDEPENDENT AUDITOR'S CONCERN OVER THE
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ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN. THE READER OF THE
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FINANCIAL STATEMENTS, NOTES, AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD CAREFULLY CONSIDER THE LACK
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OF AN INDEPENDENT AUDITORS ATTESTATION TO THE FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS OF THE COMPANY FOR DECEMBER 27, 1997 AND DECEMBER 26, 1998 PRESENTED
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IN THE COMPANY'S FORM 10-K.
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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 unaudited Form 10-K for the year
ended December 26, 1998. 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 thirteen weeks ending March 27,
1999.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128).
This pronouncement provides a different method of calculating earnings per
share than is currently used in accordance with APB 15, Earnings per Share.
SFAS 128 provides for the calculation of Basic and Diluted earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. This
pronouncement is effective for fiscal years and interim periods ending
after December 15, 1997; early adoption is not permitted. The Company does
not believe that the adoption of this pronouncement will have a material
impact on the net loss per share presented in the accompanying condensed
statements of operations.
In February 1997 FAS-129, Disclosure of Information about Capital
Structure, was issued by the FASB and is effective for fiscal years
beginning after December 15, 1997. The new standard reinstates various
securities disclosure requirements previously in effect under Account
Principles Board ("APB") 15, which has been superseded by FAS-128. The
Company does not expect adoption of FAS-129 to have a material effect, if
any, on its financial condition or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 and 131, Reporting Comprehensive
Income (SFAS 130) and Disclosure About Segments of an Enterprise and
Related Information (SFAS 131), respectively (collectively, the
"Statements"). The statements are effective for fiscal years beginning
after December 15, 1997. SFAS 130 establishes standards for reporting of
comprehensive income and its components in annual financial statements.
SFAS 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating
6
segments in its annual financial statements and selected segment
information in interim financial reports. Reclassification or restatement
of comparative financial statements for earlier periods is required upon
adoption of SFAS 130 and SFAS 131, respectively. Application of the
Statements' requirements is not expected to have a material impact on the
Company's financial position, results of operations or cash flow. In March
1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed
or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company
does not expect that the adoption of SOP No. 98-1 will have a material
impact on its consolidated financial statements.
During October 1997, the Accounting Standards Executive Committee ("AcSEC")
of the American Institute of Certified Public Accountants issued State of
Position ("SOP") 07-2, Software Revenue Recognition. The SOP is effective
for transactions entered into in fiscal years beginning after December 15,
1997. Different informal and unauthoritative interpretations of certain
provisions of SOP 97-2 have arisen. AcSEC is already deliberating
amendments to SOP 97-2, including deferral of the effective date of certain
provisions of the SOP so AcSEC can develop and issue an interpretation
regarding the applicability and the method of application of those
provisions. Because of the uncertainties related to the outcome of these
amendments, the impact on the future financial results of the Company is
not currently determinable.
2. NET INVENTORIES
Inventories consist of the following:
March, 27, December, 26,
1999 1998
UNAUDITED UNAUDITED
Components and work in process $11,089,000 $11,204,000
Finished goods 751,000 845,000
Reserve for excess and obsolete (8,366,000) (8,457,000)
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$ 3,474,000 $ 3,592,000
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