---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | --------------------------------------------------------------------------------



| |  | For the quarterly period ended March 29, 2003
| |  | ---------------------------------------------



| ̈ |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- |  | ---------------------------------------------------------------



| |  | For the transition period from
 to
| |  | ----------------------------------



Commission file number: 1-16103



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PINNACLE DATA SYSTEMS, INC.

(Exact name of
small business issuer as specified in its charter)



|Ohio (State or other jurisdiction of incorporation or
organization) |  | 31-1263732 (IRS Employer Identification
No.)
|------------------------------------------------------------------- |  | --------------------------------------------



6600
Port Road, Groveport, Ohio 43125

(Address of principal executive offices)



(614) 748-1150

(Issuers Telephone Number)



APPLICABLE ONLY TO CORPORATE ISSUERS



---



State the
number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date 5,518,870 common shares, without par value, as of May 10, 2003.



Transitional Small Business Disclosure Format (Check one):  Yes ̈No  x



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---



PINNACLE
DATA SYSTEMS, INC.

(DBA PDSi)



BALANCE SHEETS



|                                                                                      |  | March 29, 2003 |           | December 31, 2002
|------------------------------------------------------------------------------------- |  | -------------- | --------- | -----------------
|                                                                                      |  | (Unaudited)    |           |                  
|ASSETS                                                                                |  |                |           |                  
|CURRENT ASSETS                                                                        |  |                |           |                  
|Cash                                                                                  |  | $              | 252,738   |                  
|Accounts receivable, net of allowance for doubtful accounts of $15,000                |  |                | 2,673,147 |                  
|Inventory                                                                             |  |                | 2,587,293 |                  
|Prepaid expenses                                                                      |  |                | 244,110   |                  
|Deferred income taxes                                                                 |  |                | 514,000   |                  
|                                                                                      |  |                |           |                  
|                                                                                      |  |                | 6,271,288 |                  
|                                                                                      |  |                |           |                  
|PROPERTY AND EQUIPMENT                                                                |  |                |           |                  
|Leasehold improvements                                                                |  |                | 218,844   |                  
|Furniture and fixtures                                                                |  |                | 329,921   |                  
|Computer equipment and related software                                               |  |                | 2,140,049 |                  
|Shop equipment                                                                        |  |                | 465,940   |                  
|                                                                                      |  |                |           |                  
|                                                                                      |  |                | 3,154,754 |                  
|Less accumulated depreciation and amortization                                        |  |                | 1,939,731 |                  
|                                                                                      |  |                |           |                  
|                                                                                      |  |                | 1,215,023 |                  
|                                                                                      |  |                |           |                  
|OTHER ASSETS                                                                          |  |                |           |                  
|Deposits                                                                              |  |                | 21,885    |                  
|License agreement, less accumulated amortization of $22,044 and $18,528,
respectively |  |                | 20,156    |                  
|                                                                                      |  |                |           |                  
|                                                                                      |  |                | 42,041    |                  
|                                                                                      |  |                |           |                  
|                                                                                      |  | $              | 7,528,352 |                  
|                                                                                      |  |                |           |                  



The
accompanying notes are an integral part of these financial statements.



2



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PINNACLE DATA SYSTEMS, INC.

(DBA PDSi)



BALANCE SHEETS



|                                                                                                  |  | March 29, 2003 |           | December 31, 2002
|------------------------------------------------------------------------------------------------- |  | -------------- | --------- | -----------------
|                                                                                                  |  | (Unaudited)    |           |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                              |  |                |           |                  
|CURRENT LIABILITIES                                                                               |  |                |           |                  
|Line of credit                                                                                    |  | $              | 2,331,606 |                  
|Current portion of long-term debt                                                                 |  |                |          |                  
|Current portion of capital lease obligation                                                       |  |                | 16,552    |                  
|Accounts payable                                                                                  |  |                | 1,108,606 |                  
|Accrued expenses:                                                                                 |  |                |           |                  
|Wages, payroll taxes and benefits                                                                 |  |                | 187,164   |                  
|Income taxes                                                                                      |  |                | 60,943    |                  
|Other                                                                                             |  |                | 103,300   |                  
|                                                                                                  |  |                |           |                  
|                                                                                                  |  |                | 3,808,171 |                  
|                                                                                                  |  |                |           |                  
|LONG-TERM LIABILITIES                                                                             |  |                |           |                  
|Deferred income taxes                                                                             |  |                | 93,000    |                  
|                                                                                                  |  |                |           |                  
|                                                                                                  |  |                | 93,000    |                  
|                                                                                                  |  |                |           |                  
|                                                                                                  |  |                | 3,901,171 |                  
|                                                                                                  |  |                |           |                  
|COMMITMENTS AND CONTINGENCIES                                                                     |  |                |          |                  
|                                                                                                  |  |                |           |                  
|                                                                                                 
|STOCKHOLDERS' EQUITY                                                                              |  |                |           |                  
|Preferred stock; no par value; 4,000,000 shares authorized; no shares issued or
outstanding       |  |                |          |                  
|Common stock; no par value; 25,000,000 shares authorized; 5,518,870 shares issued and
outstanding |  |                | 2,161,656 |                  
|Additional paid-in capital                                                                        |  |                | 501,506   |                  
|Retained earnings                                                                                 |  |                | 964,019   |                  
|                                                                                                  |  |                |           |                  
|                                                                                                  |  |                | 3,627,181 |                  
|                                                                                                  |  |                |           |                  
|                                                                                                  |  | $              | 7,528,352 |                  
|                                                                                                  |  |                |           |                  



The
accompanying notes are an integral part of these financial statements.



3



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PINNACLE
DATA SYSTEMS, INC.

(DBA PDSi)



STATEMENTS OF OPERATIONS



Quarters Ended March 29, 2003 and March 30, 2002



|                                                 |  | 2003        |           | 2002        |  
|------------------------------------------------ |  | ----------- | --------- | ----------- | -
|                                                 |  | (unaudited) |           | (unaudited) |  
|SALES                                            |  |             |           |             |  
|Product sales                                    |  | $           | 2,202,876 |             | $
|Service sales                                    |  |             | 1,956,281 |             |  
|                                                 |  |             |           |             |  
|                                                 |  |             | 4,159,157 |             |  
|                                                 |  |             |           |             |  
|COST OF SALES                                    |  |             |           |             |  
|Product sales                                    |  |             | 1,759,689 |             |  
|Service sales                                    |  |             | 1,159,549 |             |  
|                                                 |  |             |           |             |  
|                                                 |  |             | 2,919,238 |             |  
|                                                 |  |             |           |             |  
|GROSS PROFIT                                     |  |             | 1,239,919 |             |  
|                                                 |  |             |           |             |  
|OPERATING EXPENSES                               |  |             |           |             |  
|Selling, general and administrative              |  |             | 1,035,897 |             |  
|Research and development                         |  |             | 58,518    |             |  
|                                                 |  |             |           |             |  
|                                                 |  |             | 1,094,415 |             |  
|                                                 |  |             |           |             |  
|INCOME/(LOSS) FROM OPERATIONS                    |  |             | 145,504   |             |  
|                                                 |  |             |           |             |  
|OTHER EXPENSE                                    |  |             |           |             |  
|Interest expense                                 |  |             | 22,401    |             |  
|                                                 |  |             |           |             |  
|INCOME/(LOSS) BEFORE INCOME TAXES                |  |             | 123,103   |             |  
|INCOME TAX EXPENSE/(BENEFIT )                    |  |             | 48,000    |             |  
|                                                 |  |             |           |             |  
|NET INCOME/(LOSS)                                |  | $           | 75,103    |             | $
|                                                 |  |             |           |             |  
|BASIC AND DILUTED INCOME/(LOSS) PER COMMON SHARE |  | $           | 0.01      |             | $
|                                                 |  |             |           |             |  



The
accompanying notes are an integral part of these financial statements.



4



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PINNACLE
DATA SYSTEMS, INC.

(DBA PDSi)



STATEMENTS OF CASH FLOWS



Quarters Ended March 29, 2003 and March 30, 2002



|                                                                                |  | 2003        |          |   | 2002        |  
|------------------------------------------------------------------------------- |  | ----------- | -------- | - | ----------- | -
|                                                                                |  | (unaudited) |          |   | (unaudited) |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                            |  |             |          |   |             |  
|Net income/(loss)                                                               |  | $           | 75,103   |   |             | $
|                                                                                |  |             |          |   |             |  
|Adjustments to reconcile net loss to net cash provided by operating
activities: |  |             |          |   |             |  
|Depreciation and amortization                                                   |  |             | 140,876  |   |             |  
|Inventory reserves                                                              |  |             | 42,502   |   |             |  
|(Increase)/decrease in assets:                                                  |  |             |          |   |             |  
|Accounts receivable                                                             |  |             | (585,455 | ) |             |  
|Inventory                                                                       |  |             | 114,784  |   |             |  
|Prepaid expenses and other assets                                               |  |             | 76,590   |   |             |  
|Refundable income taxes                                                         |  |             |         |   |             |  
|Increase/(decrease) in liabilities:                                             |  |             |          |   |             |  
|Accounts payable                                                                |  |             | 329,684  |   |             |  
|Accrued expenses and taxes                                                      |  |             | (154,839 | ) |             |  
|Unearned revenue                                                                |  |             |         |   |             |  
|                                                                                |  |             |          |   |             |  
|Total adjustments                                                               |  |             | (35,858  | ) |             |  
|                                                                                |  |             |          |   |             |  
|Net cash provided by operating activities                                       |  |             | 39,245   |   |             |  
|                                                                                |  |             |          |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                            |  |             |          |   |             |  
|Purchases of property and equipment                                             |  |             | (12,409  | ) |             |  
|                                                                                |  |             |          |   |             |  
|Net cash used in investing activities                                           |  |             | (12,409  | ) |             |  
|                                                                                |  |             |          |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                            |  |             |          |   |             |  
|Net change in line of credit                                                    |  |             | 229,737  |   |             |  
|Principal payments on long-term debt                                            |  |             | (33,333  | ) |             |  
|Principal payments on capital lease obligation                                  |  |             | (6,207   | ) |             |  
|Proceeds from stock options exercised                                           |  |             |         |   |             |  
|                                                                                |  |             |          |   |             |  
|Net cash provided by/(used in) financing activities                             |  |             | 190,197  |   |             |  
|                                                                                |  |             |          |   |             |  



The
accompanying notes are an integral part of these financial statements.



5



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PINNACLE
DATA SYSTEMS, INC.

(DBA PDSi)



STATEMENTS OF CASH FLOWS (CONTINUED)



Quarters Ended March 29, 2003 and March 30, 2002



|                                                                                |  | 2003        |         | 2002        |  
|------------------------------------------------------------------------------- |  | ----------- | ------- | ----------- | -
|                                                                                |  | (unaudited) |         | (unaudited) |  
|INCREASE/(DECREASE) IN CASH                                                     |  |             | 217,033 |             |  
|CASH  Beginning of period                                                      |  |             | 35,705  |             |  
|                                                                                |  |             |         |             |  
|CASH  End of period                                                            |  | $           | 252,738 |             | $
|                                                                                |  |             |         |             |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                |  |             |         |             |  
|Interest paid                                                                   |  | $           | 14,774  |             | $
|                                                                                |  |             |         |             |  
|Income taxes paid, net of refunds                                               |  | $           | 63,500  |             | $
|                                                                                |  |             |         |             |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH                                              |  |             |         |             |  
|INVESTING AND FINANCING TRANSACTIONS                                            |  |             |         |             |  
|During 2003, the Company capitalized $5,480 of inventory as computer
equipment. |  |             |         |             |  



The
accompanying notes are an integral part of these financial statements.



6



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PINNACLE DATA SYSTEMS, INC.

(DBA PDSi)



NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)





Note 1. Organization



Nature of Business  Pinnacle Data
Systems, Inc. (dba PDSi) (the Company) provides technical services and solutions, encompassing the development and production of embedded (built-in) computer systems and components, and the testing and repair of computer systems, components and
peripherals, to Original Equipment Manufacturers (OEMs) in, among others, the computer, computer peripheral, data storage, digital-imaging, process-control, and telecommunications equipment industries. PDSi offers a full range of services to
increase product speed to market and engineered product life, and to provide service and support to units in the field through comprehensive product lifecycle management programs encompassing depot repair, advanced exchange, contact center support
and end-of-life control. PDSi offers a full range of services to increase product speed to market and engineered product life, and to provide service and support to units in the field through comprehensive product lifecycle management programs
encompassing depot repair, advanced exchange, contact center support and end-of-life control.



Note 2. Summary of Significant Accounting Policies



The Company divides its fiscal calendar into 4 periods or quarters. It is intended that each quarter consist of thirteen
weeks. The first quarter of each year begins on January 1 and the fourth quarter ends on December 31. Depending on what day of the week that January 1 falls, the first quarter may contain a few days less than thirteen full weeks and the fourth
quarter may contain a few days more than thirteen full weeks. The first quarter of 2003 ended on March 29 and contained 88 days. The first quarter of 2002 ended on March 30 and contained 89 days.



The balance sheets as of March 29, 2003 and December 31,
2002, and the statements of operations and cash flows for the quarter ended March 29, 2003 and March 30, 2002 have been prepared by the Company, without audit. In the opinion of management, all adjustments, which consist solely of normal recurring
adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position, results of operations and changes in cash flows for all periods presented have been made.



Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed and omitted. These condensed financial statements should be read in conjunction with
the financial statements and notes thereto included in the Companys December 31, 2002 annual report on Form 10-KSB. The results of operations for the periods ended March 29, 2003 are not necessarily indicative of the results for the full year.

|
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7



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PINNACLE DATA SYSTEMS, INC.

(DBA PDSi)



NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)





Note 2. Summary of
Significant Accounting Policies (continued)



In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure, Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of
FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to the guarantors accounting for, and disclosure of, the
issuance of certain types of guarantees. The disclosure provisions of FIN 45 are effective for the current fiscal year, however are not significant to the Companys consolidated financial statements. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantors year-end. The Company has no outstanding debt guarantees.



In January 2003, the FASB issued FIN 46, Consolidation of
Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires a variable interest entity to be consolidated by a company, if that company is
subject to a majority of the risk of loss from the variable interest entitys activities or entitled to receive a majority of the entitys residual returns or both. FIN 46 also requires disclosures about variable interest entities that a
company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first
fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Management does not
expect the initial adoption of this accounting pronouncement will have a material impact on the Companys consolidated financial statements.



Note 3. Stock Options



During the quarter ended March 29, 2003, the Companys stock options activity and weighted average exercise prices were as follows:



|                               |  | Shares    |  | Exercise Price
|------------------------------ |  | --------- |  | --------------
|Outstanding, December 31, 2002 |  | 1,268,650 |  | 1.83          
|Granted                        |  | 0         |  |              
|Exercised                      |  | 0         |  |              
|Forfeited                      |  | 6,050     |  | 3.69          
|                               |  |           |  |               
|Outstanding, March 29, 2003    |  | 1,262,600 |  | 1.82          
|                               |  |           |  |               



8



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PINNACLE DATA SYSTEMS, INC.

(DBA PDSi)



NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)





Note 3. Stock Options
(continued)



The Company accounts for
employee and director stock options using the intrinsic value method. Under this method, no compensation expense was recorded for the first quarter of 2003 because all stock options were granted at an exercise price equal to the fair market value of
the Companys stock on the date of the grant. If compensation expense for the Companys stock option grants had been determined based on their estimated fair value at the grant dates, the Companys net income and earnings per share
for the quarter ending March 29, 2003 would have been as follows:



|Net income, as reported                                                                                                           |  | $ | 75,103  |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Deduct: total stock-based compensation expense determined under the fair value method
for all awards, net of related tax benefits |  |   | (20,447 | )
|                                                                                                                                  |  |   |         |  
|Pro forma net income                                                                                                              |  | $ | 54,626  |  
|                                                                                                                                  |  |   |         |  
|Earnings per common share, basic:                                                                                                 |  |   |         |  
|As reported                                                                                                                       |  | $ | 0.01    |  
|Pro forma                                                                                                                         |  | $ | 0.01    |  
|Earnings per common share, diluted                                                                                                |  |   |         |  
|As reported                                                                                                                       |  | $ | 0.01    |  
|Proforma                                                                                                                          |  | $ | 0.01    |  



The fair
value of options granted was estimated on the date of the grant using the Black-Scholes option-pricing model.



Note 4. Income Taxes



Income taxes for interim periods were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management.



9



---

PINNACLE DATA SYSTEMS, INC.

(DBA PDSi)



NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)





Note 5. Earnings Per
Common and Common Equivalent Share



Earnings
per common and common equivalent share were computed by dividing net income/(loss) by the weighted average number of shares of common stock outstanding during the quarter. At March 29, 2003, the number of common shares was increased by the number of
shares issuable on the exercise of outstanding stock options when the market price of the common stock exceeds the exercise price of the options. This increase in the number of common shares was reduced by the number of common shares that are
assumed to have been purchased with the proceeds from the exercise of the options; those purchases were assumed to have been made at the average price of the common stock during that part of the year when the market price of the common stock
exceeded the exercise price of the options.



The
following data show the amounts used in computing earnings per share (EPS) and the effect on income and the weighted-average number of shares of dilutive potential common stock.



|                                                                                         |  | 2003 |           | 2002 |  
|---------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | -
|Income available to common stockholders used in basic EPS and diluted
EPS                |  | $    | 75,103    |      | $
|                                                                                         |  |      |           |      |  
|Weighted average number of common shares used in basic EPS                               |  |      | 5,518,870 |      |  
|Effect of dilutive securities:                                                           |  |      |           |      |  
|Stock Options                                                                            |  |      | 221,227   |      |  
|                                                                                         |  |      |           |      |  
|Weighted number of common shares and dilutive potential common stock used in diluted
EPS |  |      | 5,740,097 |      |  
|                                                                                         |  |      |           |      |  



10



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PINNACLE DATA SYSTEMS, INC.

(DBA PDSi)



NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)





Note 6. Operating
Segments



The Other column
listed below reflects items that are not allocated to segments. These items primarily represent assets and expenses for various administrative functions within the Company.



|                              |  | Quarter Ended March 29, 2003 |           |   | Total         |  
|----------------------------- |  | ---------------------------- | --------- | - | ------------- | -
|                              |  | Product Sales                |           |   | Service Sales |  
|Sales                         |  | $                            | 2,202,876 |   |               | $
|Gross profit                  |  |                              | 443,187   |   |               |  
|Income/(loss) from operations |  |                              | 94,617    |   |               |  
|Depreciation and amortization |  |                              | 58,987    |   |               |  
|Interest expense              |  |                              |          |   |               |  
|Total assets                  |  |                              | 3,148,452 |   |               |  
|Capital expenditures          |  |                              | 6,985     |   |               |  
|                             
|                              |  | Quarter Ended March 30, 2002 |           |   | Total         |  
|                              |  | Product Sales                |           |   | Service Sales |  
|Sales                         |  | $                            | 1,931,710 |   |               | $
|Gross profit                  |  |                              | 76,317    |   |               |  
|Income/(loss) from operations |  |                              | (403,158  | ) |               |  
|Depreciation and amortization |  |                              | 56,604    |   |               |  
|Interest expense              |  |                              |          |   |               |  
|Total assets                  |  |                              | 3,523,756 |   |               |  
|Capital expenditures          |  |                              | 7,263     |   |               |  



11



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Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations



The following discussion should be read in conjunction with the Financial Statements and Notes contained herein.



This quarterly report, including the following sections contain forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. The words believe, expect, anticipate, estimate, project, and similar expressions identify forward-looking statements that speak only as of the date thereof. Investors are
cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors. Such factors include, but are not limited to, adverse changes in general
economic conditions, including adverse changes in the specific markets for our products and services, adverse business conditions, decreased or lack of growth in the computing industry, adverse changes in customer order patterns, including any
decline or change in product orders from large customers like the five customers that make up approximately 80% of our revenue during the first quarter of 2003, increased competition, any adverse change in Sun Microsystems business or our
relationship with Sun, around whose computing platforms a large portion of our business is based, lack of acceptance of new products, pricing pressures, lack of adequate financing to take advantage of business opportunities that may arise, lack of
success in technological advancements, risks associated with our new business practices, processes and information systems, and other factors.



The first quarter of 2003 was our third consecutive profitable quarter. In general, we have not seen a recovery in capital spending but we continued to
receive orders from existing customers in the quarter and we are starting to see product orders from the trials we participated in with new customers during 2002. We will continue to pursue our business plan with the goal of reporting a profitable
year in 2003. Specifically, we are working toward increasing major repair and logistics programs, as well as the number of customer-specific products we have ready to go to market. However, these successes do not assure future product orders will be
received.



The following discussions and analyses are for the
quarter ended March 29, 2003 compared to the quarter ended March 30, 2002.



SALES



Sales for the first quarter of 2003 and
2002 were as follows:



|($ thousands) |  | 2003 |       | 2002 |   | % Change | 
|------------- |  | ---- | ----- | ---- | - | -------- | 
|Total company |  | $    | 4,159 |      | $ | 3,405    | 
|Product       |  |      | 2,203 |      |   | 1,932    | 
|Service       |  |      | 1,956 |      |   | 1,473    | 



The increase in product
sales resulted in part from the assembly and test of high volume data storage handling units for Hewlett-Packard Company (HP), which began shipping during the quarter, and production ordering on 2002 trials.The increase in service sales was
due primarily to the continued ramp-up of HP programs as well as other service programs.



During the first quarter of 2003, HP informed us that, in the second quarter of 2003, the HP-UNIX workstation repair program will be consolidated into printed circuit assembly repair operations in California. However, HP has
expanded its high volume data storage handling equipment programs with us to include additional repair volume and the assembly and test of new units, and we are currently bidding on additional HP programs to replace the workstation repair
business.



The overlap of the new HP high volume data
storage handling equipment product sales with the existing repair programs resulted in total sales to HP representing 41% of all sales in the first quarter of 2003. In the second quarter of 2003, as we work through the transition of the workstation
board repair program, the percentage of HP sales to total sales will likely decrease.



12



---



GROSS PROFIT



Gross profit for the first quarter
of 2003 and 2002 was as follows:



|($ thousands)                                                          |  | 2003 |       |   | 2002 |   |     | % Change | 
|---------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | --- | -------- | 
|Total company                                                          |  | $    | 1,240 |   |      | $ | 636 |          | 
|Product                                                                |  |      | 443   |   |      |   | 76  |          | 
|Service                                                                |  |      | 797   |   |      |   | 560 |          | 
|                                                                      
|The gross profit margin percentages for 2003 and 2002 were as follows: |  |      |       |   |      |   |     |          | 
|                                                                      
|                                                                       |  | 2003 |       |   | 2002 |   |     |          | 
|Total company                                                          |  |      | 30    | % |      |   | 19  | %        | 
|Product                                                                |  |      | 20    | % |      |   | 4   | %        | 
|Service                                                                |  |      | 41    | % |      |   | 38  | %        | 



The gross profit margin
percentage in 2003 on product sales was more in line with our historical range than was the margin in the first quarter of 2002, which was abnormally low due to both a low sales volume and a very low margin mix of product sales that included some
one-time sales of excess inventory.



The gross profit margin in
the first quarter of both 2003 and 2002 was within our historical range, with the mix and volume of repairs driving the percentage generally up or down within a few percentage points from quarter to quarter. However, in the first quarter of 2002,
some newer service programs were still in the early stages of their implementation and generating lower gross profit margin percentages.



OPERATING EXPENSES (SELLING, GENERAL AND ADMINISTRATIVE, RESEARCH AND DEVELOPMENT) AND INTEREST EXPENSES



Selling, general and administrative (SG&A), and research and development
(R&D) and interest expenses for the first quarter of 2003 and 2002 were as follows:



|($ thousands)      |  | 2003 |       | 2002 |   | % Change | 
|------------------ |  | ---- | ----- | ---- | - | -------- | 
|Operating expenses |  |      |       |      |   |          | 
|SG&A expense       |  | $    | 1,036 |      | $ | 874      | 
|R&D expense        |  |      | 58    |      |   | 212      | 
|                   |  |      |       |      |   |          | 
|                   |  |      | 1,094 |      |   | 1,086    | 
|Interest expense   |  |      | 22    |      |   | 41       | 
|                   |  |      |       |      |   |          | 
|Total expense      |  |      | 1,116 |      |   | 1,127    | 
|                   |  |      |       |      |   |          | 



For the first quarter of
2003, operating expenses were within 1% of the 2002 first quarter total. However, product development resources continued to work on new service opportunities rather than new product opportunities during the quarter, resulting in a continuing shift
of expenses from R&D to SG&A.



In the first quarter of
2003, a decreased use of the credit line due to lower levels of inventory and due to the accumulation of three quarters of profits resulted in lower interest expense compared to the same quarter of 2002. The average daily



13



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balance declined to
approximately $2,030,000 in 2003 from $2,923,000 in 2002. Interest rates paid on the line of credit were 4.5% in 2003, and ranged from 3.90% to 4.75% in 2002.



INCOME TAXES AND NET INCOME/(LOSS)



Income taxes for the interim periods were computed using the effective tax rate estimated to be applicable for the full
fiscal year, which is subject to ongoing review and evaluation by management. The effective tax rate for the first quarter of both 2003 and 2002 was 39%.



Income/(loss) before taxes, income taxes/(benefit) and net income/(loss) for the first quarter of 2003 and 2002 were as follows:



|($ thousands)                     |  | 2003 |     | 2002 |   |      | % Change | 
|--------------------------------- |  | ---- | --- | ---- | - | ---- | -------- | 
|Income/(loss) before income taxes |  | $    | 123 |      | $ | (491 | )        | 
|Income taxes/(benefit)            |  |      | 48  |      |   | (192 | )        | 
|                                  |  |      |     |      |   |      |          | 
|Net income/(loss)                 |  | $    | 75  |      | $ | (299 | )        | 
|                                  |  |      |     |      |   |      |          | 



Earnings/(loss) per
share for the first quarter of 2003 and 2002 were as follows:



|                                               |  | 2003 |           | 2002 |  
|---------------------------------------------- |  | ---- | --------- | ---- | -
|Basic EPS                                      |  | $    | 0.01      |      | $
|Fully diluted EPS                              |  | $    | 0.01      |      | $
|                                              
|Weighted average number of shares outstanding: |  |      |           |      |  
|Basic                                          |  |      | 5,518,870 |      |  
|Fully diluted                                  |  |      | 5,740,097 |      |  



The improvement of
$374,000 to a net profit in 2003 from a net loss in 2002 resulted primarily from the execution of the strategy to shift resources to growing service sales that can have higher gross margins, higher product sales, and maintaining tight control of
overall operating expenses.



14



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LIQUIDITY AND CAPITAL RESOURCES



A
summary of changes in current assets for the quarter is as follows:



|($ thousands)        |  | 3/29/03 |       | 12/31/02 |   | % Change | 
|-------------------- |  | ------- | ----- | -------- | - | -------- | 
|Accounts receivable  |  | $       | 2,673 |          | $ | 2,088    | 
|Inventory            |  |         | 2,587 |          |   | 2,750    | 
|Other current assets |  |         | 1,011 |          |   | 870      | 
|                     |  |         |       |          |   |          | 
|Total                |  |         | 6,271 |          |   | 5,708    | 
|                     |  |         |       |          |   |          | 



A summary of changes in
current liabilities for the quarter is as follows:



|($ thousands)       |  | 3/29/03 |       | 12/31/02 |   | % Change | 
|------------------- |  | ------- | ----- | -------- | - | -------- | 
|Line of credit      |  | $       | 2,332 |          | $ | 2,102    | 
|Accounts payable    |  |         | 1,109 |          |   | 779      | 
|Other current liab. |  |         | 367   |          |   | 562      | 
|                    |  |         |       |          |   |          | 
|Total               |  | $       | 3,808 |          | $ | 3,443    | 
|                    |  |         |       |          |   |          | 



During the first quarter
of 2003, $39,000 of cash was generated by operating activities. Net income before depreciation, and inventory reserve increases was $258,000. Additional cash was generated by reductions in inventory of $115,000, and other current assets of $77,000,
and by an increase in accounts payable of $330,000. The amount of cash generated by operating activities was reduced by an increase in accounts receivable of $585,000 and by a reduction in accrued expenses and other current liabilities of $155,000.
The reduction in inventory was primarily attributable to sales to one large product customer that consumed components that were on hand at December 31, 2002. Accounts receivable increased because 46% of the quarters sales were in March. The
increase in short-term liabilities was also due to the higher sales and purchasing activity near the end of the first quarter of 2003 compared to the end of the fourth quarter of 2002.



For the first quarter of 2003, we used $12,000 of cash generated by operating activities to purchase equipment, including
computers and software.



We used $33,000 to pay off the balance
of a three-year bank term note. We also used $6,000 to make payments on a capital lease.



Because customer payments cannot be applied to the line of credit until they have cleared the federal reserve system, the amount of cash we have on hand will rarely be our target cash balance of $25,000, agreed to with the
bank. If our cash balance on March 29, 2003 had been applied to the line of credit, the change in the line from December 31, 2002 would only have been $13,000, a better indicator of our credit standing at March 29, 2003.



The line of credit, which is our primary source of operational and
non-operational funding, is maintained with KeyBank National Association (KeyBank) and is payable on demand and collateralized by a Blanket Lien on all of our assets. The amount available under the line of credit is subject to borrowing
base restrictions and other financial covenants as outlined in the agreement. In addition, the agreement restricts the payment of cash dividends.



The aforementioned borrowing base on the line of credit is calculated as 85% of eligible accounts receivable and 50% of inventory value, net of reserves.
The line has an overall limit of $4,000,000 as well as a sub-limit of $2,000,000 that can be collateralized by inventory. That calculation represents the maximum amount that can be drawn on the line of credit. The balance on the line of credit at
March 29, 2003 was $2,332,000. The borrowing base on that date was $3,495,000, resulting in an unused capacity (the excess of the borrowing base calculation over the amount drawn) of $1,163,000. We



15



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are not currently, and do not
expect at this time to be, constrained by our credit limits. We were in compliance with all covenants of the line for the quarter ended March 29, 2003.



On April 1, 2003, the line of credit was renewed until May 15, 2004. As the line of credit is our primary source of financing, it is critical to our
short-term liquidity. To maintain a sufficient borrowing base to meet our needs and meet the covenant requirements of the line, we must maintain sales and gross profit levels with minimum inventory on hand, and effectively manage cash flow from
collections to payments. Significant delays or loss of customer orders, or delayed customer payments, could severely impact our ability to meet our short-term financial obligations. Inventory reductions also reduce our borrowing base, thereby
limiting our capacity for short-term borrowing. This would include reductions in inventory due to changes in the valuation of our inventory and the setting of appropriate inventory reserves to reflect changes in technology or reduced customer
requirements.



Additional financing will be needed to support the
future growth plans of the company. The search for financing continues. However, economic factors have greatly decreased the availability and increased the cost of financing for our industry and hampered our progress in this area. The slowdown in
product sales that began in the second quarter of 2001 and our recent losses that we experienced in 2001 and early 2002 shifted our focus to attaining additional service business and returning to profitability. As we continue to make progress in
these areas, and/or the demand for products returns, we expect to increase our efforts to obtain further financing. However, there is no assurance that there will be financing available at terms that are acceptable to us.



We lease our operating facility under an operating lease in which we have an
obligation to pay rent through 2009. See Note 6 to the financial statements contained in our Form 10-KSB for the year ended December 31, 2002. Except for that operating lease, we have not entered into any off-balance sheet transactions in 2003 and
2002.



ACCOUNTING POLICIES



Our 10-KSB for the year ended December 31, 2002 included a
discussion of our critical accounting policies which should be read in conjunction with the quarterly discussions contained in this Form 10-QSB.



Item 3. Controls and Procedures



Based on the evaluation of the Companys disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report,
each of John D. Bair, the Chief Executive Officer of the Company, and Michael R. Sayre, the Chief Financial Officer of the Company, have concluded that the Companys disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange
Commissions rules and forms.



There were no significant
changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



16



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PART II
 OTHER INFORMATION



Item 6. Exhibits and Reports on
Form 8-K.



(A) Listing of Exhibits. The
following is a listing of Exhibits either filed with this report or incorporated by reference:



|Exhibit No. |  | Description of Exhibit                                                                                         |  | If Incorporated by Reference, Document with which Exhibit was Previously Filed with the SEC                 
|----------- |  | -------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------
|           
|3(a)        |  | Amended and restated articles of incorporation                                                                 |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.
|           
|3(b)        |  | Amendments to Amended and Restated Articles of Incorporation, adopted June 26, 2000                            |  | Form SB-2 filed with the Securities and Exchange Commission September 21, 2000.                             
|           
|3(c)        |  | Amendment to the Companys Amended and Restated Articles of Incorporation adopted May 23, 2001                 |  | Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on August 13,
2001.       
|           
|3(d)        |  | Amended and Restated Code of Regulations                                                                       |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.
|           
|3(e)        |  | Amendment to Amended and Restated Code of Regulations                                                          |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2000.           
|           
|3(f)        |  | Amendments to Amended and Restated Code of Regulations, adopted June 26, 2000                                  |  | Form SB-2 filed with the Securities and Exchange Commission September 21, 2000.                             
|           
|4           |  | Instruments defining the rights of security holders, including indentures                                      |  | Form SB-2 filed with the Securities and Exchange Commission September 21, 2000.                             
|           
|10(a)       |  | Technology license agreement between Pinnacle Data Systems, Inc. and Sun Microsystems, Inc. dated May 12, 1994 |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.



17



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|Exhibit No. |  | Description of Exhibit                                                                                                                |  | If Incorporated by Reference, Document with which Exhibit was Previously Filed with the SEC                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------
|           
|10(b)*      |  | Pinnacle Data Systems, Inc. 1995 Stock Option Plan dated December 19, 1995                                                            |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.
|           
|10(c)       |  | Development and manufacturing license agreement between Pinnacle Data Systems, Inc. and Sun Microsystems, Inc. dated October 27, 1997 |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.
|           
|10(d)       |  | Lease agreement between Pinnacle Data Systems, Inc. and Duke Realty Limited Partnership dated March 9, 1999                           |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.
|           
|10(e)       |  | Repair services agreement between Pinnacle Data Systems, Inc. and Sun Microsystems, Inc. dated March 29, 1999                         |  | Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on December 13,
1999.
|           
|10(f)       |  | Reference Design License Agreement between Pinnacle Data Systems, Inc. and Sun Microsystems, Inc. dated May 11, 1999                  |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.           
|           
|10(g)       |  | First Lease Amendment between Pinnacle Data Systems, Inc. and Duke Realty Limited Partnership dated January 5,
2000                   |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30,
2000.           
|           
|10(h)*      |  | Amendment No. 1 to Pinnacle Data Systems, Inc. 1995 stock option plan dated February 16, 2000                                         |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30,
2000.           
|           
|10(i)*      |  | Pinnacle Data Systems, Inc. 2000 Directors Stock Option Plan dated March 22, 2000                                                     |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30,
2000.           



18



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|Exhibit No. |  | Description of Exhibit                                                                                                                |  | If Incorporated by Reference, Document with which Exhibit was Previously Filed with the SEC      
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|           
|10(j)       |  | Business Loan Agreement between Pinnacle Data Systems, Inc. and Key Bank National Association dated
August 10, 2000                   |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30,
2001.
|           
|10(k)*      |  | Employment agreement between Pinnacle Data Systems, Inc. and John D. Bair dated January 1,
2001                                       |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30,
2001.
|           
|10(l)       |  | O.E.M. Supply Agreement between Pinnacle Data Systems, Inc. and Alcatel USA Sourcing L.P. dated February
12, 2001                     |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.
|           
|10(m)       |  | Divisional Service Agreement between Pinnacle Data Systems, Inc. and Hewlett-Packard Company dated
September 1, 2001                  |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.
|           
|10(n)       |  | Direct Connect VS Supplier Services Agreement between Pinnacle Data Systems, Inc. and Hewlett-Packard
Company dated September 1, 2001 |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.
|           
|10(o)*      |  | Employment agreement between Pinnacle Data Systems, Inc. and C. Robert Hahn dated September 1,
2001                                   |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.
|           
|10(p)*      |  | Employment agreement between Pinnacle Data Systems, Inc. and Michael R. Sayre dated September 1,
2001                                 |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.
|           
|10(q)*      |  | Employment agreement between Pinnacle Data Systems, Inc. and Christopher L. Winslow dated September 1,
2001                           |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20,
2002.



19



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|Exhibit No. |  | Description of Exhibit                                                                                                                    |  | If Incorporated by Reference, Document with which Exhibit was Previously Filed with the SEC      
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|           
|10(r)       |  | Amendment to Promissory Note between Pinnacle Data Systems, Inc. and Key Bank National Association dated February 21,
2002                |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20, 2002.
|           
|10(s)       |  | First Amendment Agreement to Loan Agreement between Pinnacle Data Systems, Inc. and Key Bank National Association
dated February 21, 2002 |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20, 2002.
|           
|10(t)       |  | Second Amendment Agreement to Loan Agreement between Pinnacle Data Systems, Inc. and Key Bank National Association
dated March 7, 2002    |  | Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 20, 2002.
|           
|10(u)       |  | Renewal of Loan Agreement between Pinnacle Data Systems, Inc. and Key Bank National Association dated April 1,
2003                       |  | Contained herein.                                                                                
|           
|10(v)       |  | Fifth Amendment Agreement to Loan Agreement between Pinnacle Data Systems, Inc. and Key Bank National Association
dated May 12, 2003      |  | Contained herein.                                                                                



(B)
Reports on Form 8-K.



None.



20



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SIGNATURES



In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|      |  |              |  | PINNACLE DATA SYSTEMS,
INC.
|----- |  | ------------ |  | ---------------------------
|     
|Date: |  | May 14, 2003 |  |                            
|      |  |              |  |                            



|     
|-----
|Date:
|     



21



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CERTIFICATIONS



I, John D. Bair, certify that:



1. I have reviewed this quarterly report on Form 10-QSB of Pinnacle Data
Systems, Inc.;



2. Based on my knowledge, this quarterly report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this quarterly report;



3. Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this quarterly report;



4. The registrants other certifying
officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and



6. The
registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: May 14, 2003



|                       
|-----------------------
|/s/    JOHN D.
BAIR    
|Chief Executive Officer



22



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I, Michael R. Sayre, certify
that:



1. I have reviewed this quarterly report on Form 10-QSB of
Pinnacle Data Systems, Inc.;



2. Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report;



3. Based on my
knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;



4. The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;



5. The registrants other certifying
officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):



a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: May 14, 2003



|                       
|-----------------------
|/s/    MICHAEL R.
SAYRE
|Chief Financial Officer



23



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CERTIFICATION
PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

OF QUARTERLY REPORT ON FORM 10-QSB

OF PINNACLE DATA
SYSTEMS, INC.

FOR THE QUARTER ENDED MARCH 29, 2003



The undersigned is the Chief Executive Officer of Pinnacle Data Systems, Inc. (the Issuer). This Certification is
made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the Quarterly Report on Form 10-QSB of the Issuer for the quarterly period ended March 29, 2003.



I, John D. Bair, certify that the Quarterly Report on Form 10-QSB for the
period ended March 29, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the Quarterly Report on Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations of the Issuer.



This certification is executed as of May 14, 2003.



/s/    JOHN D.
BAIRChief Executive Officer




24



---



CERTIFICATION
PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

OF QUARTERLY REPORT ON FORM 10-QSB

OF PINNACLE DATA
SYSTEMS, INC.

FOR THE QUARTER ENDED MARCH 29, 2003



The undersigned is the Chief Financial Officer of Pinnacle Data Systems, Inc. (the Issuer). This Certification is
made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the Quarterly Report on Form 10-QSB of the Issuer for the quarterly period ended March 29, 2003.



I, Michael R. Sayre, certify that the Quarterly Report on Form 10-QSB for the
period ended March 29, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the Quarterly Report on Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations of the Issuer.



This certification is executed as of May 14, 2003.



/s/    MICHAEL R.
SAYREChief Financial Officer




25