Pinnacle Micro Stock Slide Continues : Finance: The Irvine maker of computer disk drives says it is revising its 1993 earnings because of an accounting error.
Shares of Pinnacle Micro Inc.--buffeted last week by a delay of second-quarter results--continued their slide Monday, falling $1.50 to $11.75, as the computer data storage company revised its 1993 earnings and revenue to correct what it described as an accounting error.
Pinnacle Micro said that about $2 million of the $39.2 million it reported as revenue last fiscal year should have been counted as revenue for the current year’s first quarter, which ended March 31. The company also announced preliminary second-quarter earnings in the range of $15 million to $16 million Monday, which is in line with analysts’ expectations.
Some of the orders that Pinnacle recorded as 1993 sales were not actually shipped until the first few days of 1994, according to the Irvine-based company.
While the accounting revisions, so far, have not affected the company’s second-quarter earnings, analysts said the error is worrisome for investors.
“I don’t see anyone changing their estimates (of the company’s profitability) on this,” Vincent Glinski, an analyst with Fahnestock/Christopher in New York, told Bloomberg Business News.
“But a lot of people get upset because you’re restating an annual report, you’re restating a fourth quarter, you’re restating a first quarter, and maybe when they’re going forward, they find a couple of more restatements,” he said.
Founded in 1987, Pinnacle Micro produces optical disk drives to store computer data. The company has about 110 employees, including 80 in Orange County. Pinnacle is particularly focused on products to store audio and video documents in digital formats instead of on magnetic disks or tapes.
James Hanley, Pinnacle’s vice president for operations, said that the miscounted inventory involved products shipped over “only a couple of days” at the end of the fiscal year, and that the company’s inventory was counted correctly. “It’s more of an accounting principles issue,” he said.
“We’re going to come with a whole host of recommendations that will be acted upon to see this doesn’t happen again,” Hanley said, though he did not know when such changes might be made. Asked if any employees might be disciplined, Hanley said such actions were “not being contemplated.”
Allen Strand, an analyst with Crowell, Weedon and Co. in Los Angeles, said the problem would probably be easy to fix.
“What we’re talking about here is timing,” he said. “I think the management are honest people, but there’s some confusion in my mind as to where the auditors were at the end of 1993.”
The company’s accounting firm, Ernst & Young, which performed the audit of Pinnacle Micro’s 1993 annual report, declined to comment.
In June, another Orange County computer company, Irvine-based Platinum Software Corp., settled a class-action shareholder lawsuit for $17 million after it admitted that it had overstated its revenue over an 18-month period.
According to its revised numbers, Pinnacle Micro said it earned between $1.4 million and $1.5 million on revenue of from $36 million to $37 million in fiscal 1993. That’s down from previously stated earnings of $1.9 million on revenue of $39.2 million.
First-quarter profit has been revised to a range of $1.1 million and $1.2 million on net sales of between $15 million and $16 million. The company previously stated its net income as $679,000 on revenue of $13.05 million.
Pinnacle Micro officials said that final results for its first and second quarters depend on its review of the accounting error. The company also announced that it was considering retaining legal counsel, which suggests the company expects lawsuits, Glinski said.
Last Thursday, Pinnacle Micro’s shares fell 17% when the company delayed announcing its preliminary second-quarter results. Executive Vice President Scott Blum said at the time that the results were delayed because the company was considering a shift in the start of its fiscal year to July 1 from Jan. 1
Pinnacle’s Plunge Pinnacle Micro’s shares dropped dramatically after Monday’s announcement that the company’s 1993 earnings must be restated. Monthly closing stock prices: Monday’s close: $11.75
Source: Dow Jones; Researched by JANICE L. JONES/Los Angeles Times