<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-QSB


[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF
     1934
             For the quarterly period ended June 30, 2000

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
             For the transition period from __________ to ________

             Commission file number: 0-28483
                                     -------


                          PINNACLE DATA SYSTEMS, INC.
     ---------------------------------------------------------------------
       (Exact name of small business issuer as specified in its charter)

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

                     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: 2,532,602 common shares, without par
value, as of July 31, 2000.

Transitional Small Business Disclosure Format (Check one):  Yes [_] No [X]
<PAGE>

                        PART I - Financial Information


Item 1.  Financial Statements.





To the Board of Directors
Pinnacle Data Systems, Inc. (dba PDSi)
Groveport, Ohio

Independent Accountants' Report


        We have reviewed the accompanying balance sheet of Pinnacle Data
    Systems, Inc. as of June 30, 2000, and the related statements of income and
    cash flows for the thirteen weeks and twenty-six weeks then ended. These
    financial statements are the responsibility of the management of Pinnacle
    Data Systems, Inc.

        We conducted our review in accordance with standards established by the
    American Institute of Certified Public Accountants. A review of interim
    financial information consists principally of applying analytical procedures
    to financial data and making inquiries of persons responsible for financial
    and accounting matters. It is substantially less in scope than an audit
    conducted in accordance with generally accepted auditing standards, the
    objective of which is the expression of an opinion regarding the financial
    statements taken as a whole. Accordingly, we do not express such an opinion.

        Based on our review, we are not aware of any material modifications that
    should be made to the accompanying financial statements in order for them to
    be in conformity with generally accepted accounting principles.



                                             /s/ HAUSSER + TAYLOR LLP



Columbus, Ohio
July 21, 2000

                                      -2-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)

                                 BALANCE SHEET

                                 June 30, 2000

                                  (UNAUDITED)

               ASSETS
               ------

CURRENT ASSETS
  Cash                                                         $     31,035
  Accounts receivable, net of allowance for doubtful
   accounts of $15,000                                            2,921,720
  Inventory                                                       4,522,528
  Other prepaid expenses                                            177,486
  Deferred income taxes                                             132,000
                                                               ------------
                                                                  7,784,769
                                                               ------------

PROPERTY AND EQUIPMENT
  Leasehold improvements                                            122,538
  Furniture and fixtures                                            298,281
  Computer equipment                                              1,193,168
  Shop equipment                                                    297,398
  Vehicle                                                            21,846
                                                               ------------
                                                                  1,933,231
  Less accumulated depreciation                                     968,334
                                                               ------------
                                                                    964,897
                                                               ------------

OTHER ASSETS
  Deposits                                                           18,112
                                                               ------------

                                                               $  8,767,778
                                                               ============



                See accompanying notes to financial statements.

                                      -3-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)

                                 BALANCE SHEET

                                 June 30, 2000

                                  (UNAUDITED)

     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------

CURRENT LIABILITIES
  Line of credit                                                   $ 2,031,100
  Current portion of long-term debt                                    126,521
  Accounts payable                                                   2,747,946
  Accrued expenses:
    Wages and payroll taxes                                            277,943
    Vacation                                                            80,985
    Profit sharing plan                                                 39,993
    Income taxes                                                        66,634
    Other                                                              117,862
  Unearned service revenue                                              19,788
                                                                   -----------
                                                                     5,508,772
                                                                   -----------

 LONG-TERM LIABILITIES
  Long-term debt, less current portion                                 248,557
  Deferred income taxes                                                 14,000
                                                                   -----------
                                                                       262,557
                                                                   -----------
                                                                     5,771,329
                                                                   -----------

STOCKHOLDERS' EQUITY
  Common stock; no par value; 10,000,000 shares authorized;
   2,505,102 shares issued and outstanding                           1,718,050
  Preferred stock; no par value; 4,000,000 shares authorized;
   no shares issued or outstanding                                           -
  Additional paid-in capital                                           214,506
  Retained earnings                                                  1,063,893
                                                                   -----------
                                                                     2,996,449
                                                                   -----------

                                                                   $ 8,767,778
                                                                   ===========



                See accompanying notes to financial statements.

                                      -4-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)

                             STATEMENTS OF INCOME

<TABLE>
<CAPTION>



                                                                  For the Thirteen Weeks Ended     For the Twenty-six Weeks Ended
                                                                  June 30,             July 2,      June 30,               July 2,
                                                                    2000                1999          2000                  1999
                                                                    ----                ----          ----                  ----
                                                                           (unaudited)                        (unaudited)
                                                                  ----------------------------     -------------------------------
<S>                                                               <C>              <C>             <C>               <C>
SALES
  Product sales                                                   $ 5,725,534      $ 1,776,803     $  9,909,949      $    3,630,961
  Service sales                                                       997,110          810,802        1,856,650           1,442,284
                                                                  -----------      -----------     ------------      --------------
                                                                    6,722,644        2,587,605       11,766,599           5,073,245
                                                                  -----------      -----------     ------------      --------------
COST OF SALES
  Product sales                                                     4,401,545        1,418,171        7,654,382           2,896,552
  Service sales                                                       678,294          447,750        1,194,599             862,106
                                                                  -----------      -----------     ------------      --------------
                                                                    5,079,839        1,865,921        8,848,981           3,758,658
                                                                  -----------      -----------     ------------      --------------

GROSS PROFIT                                                        1,642,805          721,684        2,917,618           1,314,587
                                                                  -----------      -----------     ------------      --------------

OPERATING EXPENSES
  Selling, general and administrative                               1,104,089          597,337        2,036,254           1,095,828
                                                                  -----------      -----------     ------------      --------------

INCOME FROM OPERATIONS                                                538,716          124,347          881,364             218,759
                                                                  -----------      -----------     ------------      --------------

OTHER INCOME (EXPENSE)
  Interest expense                                                    (56,884)         (23,962)         (94,515)            (43,895)
  Gain on sale of building                                                  -           85,922                -              85,922
                                                                  -----------      -----------     ------------      --------------
                                                                      (56,884)          61,960          (94,515)             42,027
                                                                  -----------      -----------     ------------      --------------

INCOME  BEFORE INCOME TAXES                                           481,832          186,307          786,849             260,786

INCOME TAXES                                                          188,043           76,387          307,000             106,924
                                                                  -----------      -----------     ------------      --------------
NET INCOME                                                        $   293,789      $   109,920     $    479,849         $   153,862
                                                                  ===========      ===========     ============      ==============
BASIC EARNINGS PER COMMON SHARE                                   $      0.12      $      0.05     $       0.20         $      0.06
                                                                  ===========      ===========     ============      ==============
DILUTED EARNINGS PER COMMON SHARE                                 $      0.10      $      0.04     $       0.17         $      0.06
                                                                  ===========      ===========     ============      ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
  Basic                                                             2,468,195        2,430,552        2,452,799           2,427,044
                                                                  ===========      ===========     ============      ==============
  Diluted                                                           2,883,822        2,518,380        2,837,378           2,527,009
                                                                  ===========      ===========     ============      ==============
</TABLE>



                See accompanying notes to financial statements.

                                      -5-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)

                           STATEMENTS OF CASH FLOWS

             Twenty-six weeks ended June 30, 2000 and July 2, 1999
             -----------------------------------------------------

<TABLE>
<CAPTION>
                                                                       2000                   1999
                                                                    ----------             ----------
                                                                               (unaudited)
<S>                                                                 <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                        $    479,849           $    153,862
                                                                    ------------           ------------
  Adjustments to reconcile net income to net cash used
   in operating activities:
    Depreciation and amortization                                        169,410                163,892
    Provision for doubtful accounts                                        5,000                  6,024
    Inventory reserves                                                    79,569                 (2,185)
    Gain on sale of property and equipment                                     -                (85,922)
    (Increase) decrease in assets:
      Accounts receivable                                               (456,639)              (332,849)
      Inventory                                                       (1,924,817)            (1,324,575)
      Prepaid expenses and other assets                                  (42,447)              (118,515)
    Increase (decrease) in liabilities:
      Accounts payable                                                   968,731                381,900
      Accrued expenses and taxes                                          23,124                179,851
      Unearned revenues                                                  (41,465)                78,916
                                                                    ------------           ------------
        Total adjustments                                             (1,219,534)            (1,053,463)
                                                                    ------------           ------------
          Net cash used in operating activities                         (739,685)              (899,601)
                                                                    ------------           ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                                   (278,088)              (134,434)
  Proceeds from the sale of property and equipment                             -                147,615
                                                                    ------------           ------------
          Net cash provided by (used in) investing activities           (278,088)                13,181
                                                                    ------------           ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net proceeds from line of credit                                       731,100                945,000
  Principal payments on long-term debt                                  (220,001)               (36,953)
  Principal payments on capital lease obligation                               -                 (8,681)
  Long-term borrowings                                                   400,000                      -
  Net proceeds from exercise of stock options                            102,413                 36,750
                                                                    ------------           ------------
          Net cash provided by financing activities                    1,013,512                936,116
                                                                    ------------           ------------

INCREASE (DECREASE) IN CASH                                               (4,261)                49,696

CASH - Beginning of period                                                35,296                 35,101
                                                                    ------------           ------------
CASH - End of period                                                $     31,035           $     84,797
                                                                    ============           ============
</TABLE>



                See accompanying notes to financial statements.

                                      -6-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)

                     STATEMENTS OF CASH FLOWS (CONTINUED)

             Twenty-six weeks ended June 30, 2000 and July 2, 1999
             -----------------------------------------------------

                                                         2000          1999
                                                         ----          ----
                                                            (unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION
    Interest paid                                     $  91,940      $  44,192
                                                      =========      =========

    Income taxes paid, net of refunds                 $ 430,589      $  36,268
                                                      =========      =========














                See accompanying notes to financial statements.

                                      -7-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)


                         NOTES TO FINANCIAL STATEMENTS


Note 1.   Organization


          Pinnacle Data Systems, Inc. (dba PDSi) (the Company) is an independent
          provider of component-level depot repair services for electronic
          equipment such as computers, peripherals and printed circuit board
          assemblies. The Company's repair services are focused on UNIX/RISC
          workstations for original equipment manufacturers (OEM's). The Company
          also designs and manufactures custom printed circuit boards and
          provides custom integration of standard computing equipment for OEM's.


Note 2.   Summary of Significant Accounting Policies


          The accompanying unaudited financial statements have been prepared in
          accordance with generally accepted accounting principles for interim
          financial information and with instructions to Form 10-QSB and Article
          10 of Regulation S-X. Accordingly, they do not include all of the
          information and footnotes required by generally accepted accounting
          principles for complete financial statements. In the opinion of
          management, all adjustments considered necessary for fair presentation
          of the results of operations for the periods presented have been
          included. The financial statements should be read in conjunction with
          the audited financial statements and the notes thereto for the fiscal
          year ended December 31, 1999. Interim results are not necessarily
          indicative of results for the full year.


          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities at the date of the financial statements and the reported
          amounts of revenues and expenses during the reporting period. Actual
          results could differ from those estimates.


Note 3.   Short-Term Debt


          In February 2000, the Company entered into an agreement with a new
          financial institution to establish a $2,500,000 line of credit, with
          monthly interest payments at prime (9.50% at June 30, 2000) minus
          .25%. The line is payable on demand and is collateralized by a
          "Blanket Lien" on all assets of the Company. In May 2000, the Company
          extended this agreement and increased the limit to $3,000,000. In
          August 2000, the Company increased the limit to $7,000,000 and reduced
          the interest rate to prime minus 0.85%.

                                      -8-
<PAGE>

                          PINNACLE DATA SYSTEMS, INC.
                                  (DBA PDSi)


                         NOTES TO FINANCIAL STATEMENTS


Note 4.   Long-Term Debt


          In February 2000, the Company refinanced existing long-term debt at a
          new financial institution. The Company borrowed $400,000 payable over
          three years, in equal monthly payments of $12,627, including interest
          at prime minus .25%, and is collateralized by a "Blanket Lien" on all
          assets of the Company.




Note 5.   Stockholders' Equity


          On February 16, 2000 the Board of Directors amended the Pinnacle Data
          Systems, Inc., 1995 Stock Option Plan, which was subsequently approved
          by the shareholders on June 26, 2000, to increase the number of shares
          reserved for issuance from 600,000 to 1,200,000 common shares.


          On June 26, 2000, the shareholders approved amendments to the
          Company's Articles of Incorporation to increase the authorized number
          of common shares from 5,000,000 to 10,000,000 and to authorize a class
          of "blank check" preferred shares consisting of 4,000,000 authorized
          shares. No preferred shares were issued or outstanding at June 30,
          2000.


Note 6.   Leases


          In January 2000, the Company amended its facility lease to expand the
          amount of square feet under lease to approximately 113,000 square
          feet.


Note 7.   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-
<PAGE>

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.

The following sections contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks and uncertainties, and the cautionary statements set
forth below identify important factors that could cause actual results over the
next few quarters to differ materially from those predicted in any such forward-
looking statements. 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
any of our major customers, three of whom accounted for 56% of our sales during
1999, increased competition, any adverse change in Sun Microsystems' business or
our relationship with Sun, around whose systems our business is based, and with
whom we have significant contracts, lack of acceptance of new products, pricing
pressures, lack of adequate financing to take advantage of business
opportunities that may arise, our ability to respond to technological changes,
lack of success in technological advancements, risks associated with our new
business practices, processes and information systems, including our ability to
manage our growth effectively, and other factors.


On March 7, 2000, the Board of Directors declared a 2-for-1 stock split in the
form of a 100 percent stock dividend payable on March 31, 2000, to shareholders
of record on March 14, 2000. The effect of the stock split has been recognized
in all share and per share data in the following discussion of Results of
Operations.

Results of Operations

Twenty-six weeks ended June 30, 2000 (unaudited) compared to twenty-six weeks
ended July 2, 1999 (unaudited)

SALES

Our sales were $11,766,599 for the twenty-six weeks ended June 30, 2000, an
increase of 132% over sales of $5,073,245 for the comparable period of 1999.

Our product sales increased 173% in the first twenty-six weeks of 2000, to
$9,909,949. The increase in product sales was fully attributable to the addition
of new customers since July 2, 1999.

Our service sales for the first twenty-six weeks of 2000 were $1,856,650, which
was 29% higher than the first twenty-six weeks in 1999. We provide repairs and
logistics management services

                                      -10-
<PAGE>

for a specific list of electronic computer circuit boards and other computer
components for one large and several smaller Original Equipment Manufacturer
(OEM) customers. During the first quarter of 2000, we began providing additional
logistics and material management services to our largest customer, resulting in
higher revenue.

Our relative levels of growth of product and service sales continued a multi-
year trend of an evolution in the mix of the two types of sales. Product sales,
as a percentage of total sales have grown from 56% in 1996, to 65% in 1997, to
68% in 1998, to 74% in 1999, to 84% through the first twenty-six weeks of 2000.
Service sales, as a percentage of total sales, have gone from 44%, to 35%, to
32%, to 26%, to 16% over the same period.

GROSS PROFIT

Our gross profit increased from $1,314,586 in the first twenty-six weeks of 1999
to $2,917,618 in the first twenty-six weeks of 2000, an increase of 122%. Most
elements of cost of goods sold declined as a percentage of revenue in 2000
compared to 1999, for both the product and service segments.

Overall, we experienced some economies of scale in 2000. Direct labor declined
from 7% of sales to 6%. Overhead declined from 10% to 6%, despite a significant
increase in facility costs associated with a six-fold increase in the size of
our facility.

The gross margin on product sales was 23% for the first twenty-six weeks of
2000, compared to 20% for the first twenty-six weeks of 1999. The improvement
was attributable entirely to declines in labor and overhead as a percentage of
sales. Material costs as a percentage of sales increased approximately 1% in
2000 compared to 1999. The primary reason for the relative increase in material
costs was the fact that a few large product projects were in the prototype stage
during 2000, which usually involves component changes, resulting in some scrap
and higher material usage than typically is found in the production stage.

The gross margin on our service sales decreased to 36% for the first twenty-six
weeks of 2000, from 40% for the first twenty-six weeks of 1999. The decline was
due to the addition in 2000 of material and logistics management services, which
are more labor-intensive and space-intensive than repair services, and have
lower gross margins.

The decline in the gross margin on our service sales contributed to our overall
gross margin decreasing 1%, from 26% in the first twenty-six weeks of 1999 to
25% in the comparable period in 2000. The overall decline in gross margin was
also partially due to the fact that the mix of sales changed from 72% product
and 28% service in 1999 to 84% product and 16% service in 2000.

OPERATING EXPENSES

Our operating expenses totaled $2,036,254 for the first twenty-six weeks of
2000, compared with $1,095,828 for the first twenty-six weeks of 1999. The 86%
increase from 1999 to 2000 was less than both the 132% rate of growth of sales
and the 122% increase in gross profit.

                                      -11-
<PAGE>

The majority of the increase came from higher wages from an expanded
professional technical staff, caused by the significantly higher number of
customer product design projects. The other major expense categories
contributing to the increase were facility costs, relating to our relocation to
a larger building, and higher professional fees, relating to becoming a fully
SEC-reporting company.

As a percentage of sales, operating expenses decreased from 22% in 1999 to 17%
in 2000. Income from operations increased 303% to $881,364 (7% of sales) for the
first twenty-six weeks of 2000, from $218,758 (4% of sales) for the first
twenty-six weeks of 1999.

OTHER INCOME AND EXPENSE

In anticipation of higher sales volumes, we entered into a new financing package
with Key Bank in March, 2000. The package included an installment loan of
$400,000 and a revolving line of credit. The two new loans were used to
liquidate loans we had with our previous bank. At June 30, 2000 the balance of
the line of credit was $2,031,100. Primarily as a result of our increased use of
our line of credit to support higher accounts receivable and inventory, interest
expense in the first twenty-six weeks of 2000 grew 115% from the first twenty-
six weeks of 1999.

In May 1999, we sold the building in which we previously conducted operations.
The building sale resulted in a gain before taxes of $85,922. Netted against
interest expense, the net other income for the first twenty-six weeks of 1999
was $42,027 compared to net other expense in 2000 of $94,515, a difference of
$136,542.

INCOME TAXES AND NET INCOME

The improved income from operations exceeded the increase in net other expense,
and resulted in income before income taxes of $786,849 for the first twenty-six
weeks of 2000, compared to $260,786 for the first twenty-six weeks of 1999.
Consequently, income tax expense increased from $106,924 in 1999 to $307,000 in
2000. Net income was $479,849 (4% of sales) for the first twenty-six weeks of
2000, compared to $153,862 (3% of sales) for the first twenty-six weeks of 1999,
an increase of 212%. Without the building sales in 1999, net income would have
been only 2% of sales.

Our basic earnings per share improved from $0.06 for the first twenty-six weeks
of 1999, to $0.20 for the first twenty-six weeks of 2000. Fully diluted earnings
per share improved from $0.06 for the first twenty-six weeks of 1999, to $0.17
for the first twenty-six weeks of 2000. Without the building sale, earnings per
share in 1999 would have been only $0.04.

LIQUIDITY AND CAPITAL RESOURCES

During the first twenty-six weeks of 2000, we used $739,685 of cash in our
operating activities, compared to a use of $899,601 for the first twenty-six
weeks of 1999. The largest use of cash was an increase of $1,924,817 in
inventory. Primarily, the purchases of inventory were made for customer product
orders expected to be fulfilled in the 3rd quarter of 2000. Another use of cash

                                      -12-
<PAGE>

was the increase in accounts receivable of $456,639. That increase was fully
attributable to the fact that June sales exceeded $2.5 million, our second-
highest monthly sales total. We expect to maintain a substantial investment in
inventory for the foreseeable future in order to support our expected growth in
product sales. The increases in inventory and accounts receivable were partially
offset by increases in our liabilities, particularly accounts payable, which
increased by $968,731 during the first twenty-six weeks of 2000. Expanded credit
from our vendors was crucial to our ability to increase our purchases of
inventory components to support our increased product sales.

We used $278,088 of cash in our investing activities in the first twenty-six
weeks of 2000, compared to net proceeds of $13,181 in the comparable period of
1999. Most of the investments were for furniture and computer equipment for new
employees. We also invested in leasehold improvements in our new facility. In
1999 our investment of $134,434 in fixed assets was offset by proceeds of
$147,615 from the sale of our building.

In March 2000, we entered into a new loan agreement with Key Bank in order to
increase our borrowing capacity and to reduce our interest rates. The initial
package with Key included a revolving line of credit and a $400,000 term loan
requiring 36 monthly principal and interest payments of $12,627. Both
instruments have an interest rate of prime minus 0.25%. The line of credit
initially had a limit of the lower of $2,500,000, or a percentage of our
eligible accounts receivables and inventory. In May 2000, the limit of the line
of credit was increased to $3,000,000. In August 2000, the limit of the line of
credit was increased to $7,000,000, and the interest rate was reduced to prime
minus 0.85%. The loan agreement also includes a $250,000 lease line of credit
for purchases of equipment and furnishings. The loan agreement requires us to
meet certain financial targets and to comply with certain other covenants,
including restrictions on paying dividends, incurring additional indebtedness
and liens, guarantees of other obligations, and reorganizations. Our obligations
under the loan agreement are collateralized by substantially all of our assets.

The initial draw on the line of credit was approximately $1,475,000. Combined
with the $400,000 term loan, the proceeds were used to retire a term loan and
line of credit at Firstar Bank. The payoffs of those loans were approximately
$175,000 and $1,700,000, respectively. At June 30, 2000, the line of credit
balance was $2,031,100. We had not yet made any draws against the lease line of
credit.

In the first twenty-six weeks of 2000, our overall financing activities provided
cash of $1,013,512, compared to $936,116 in the comparable period in 1999. Long-
term debt increased by a net of approximately $180,000 and the line of credit
increased by approximately $731,000. We also received $102,413 from employees
exercising stock options.

As we continue to grow, we will need to obtain additional working capital, to
support higher levels of accounts receivable and inventory and we will need to
fund additional investments in capital equipment. The amount of additional
capital we will need will depend, in part, on the relative growth of our service
and product segments. We intend to expand our service sales at a pace greater
than or equal to our product sales. Service sales are significantly less capital
intensive than product sales, which require a much greater investment in
inventory.

                                      -13-
<PAGE>

We believe that if we continue with steady growth, then the new loan agreement
will be sufficient to meet our financing needs for the intermediate term.
However, we believe that we could need to raise additional debt and/or equity
capital in order to fund larger product sales opportunities that may arise. We
are currently investigating alternatives. Those alternatives include specific
bank financing for customer sales projects, and for fixed asset acquisitions. We
are also pursuing expanded credit terms from some suppliers for specific
projects. For the longer term we will consider additional debt or equity
financing.

                                      -14-
<PAGE>

                          PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

(a)      The annual meeting of shareholders was held June 14, 2000. The annual
         meeting was adjourned until June 26, 2000, at which time the meeting
         was reconvened and additional votes were accepted on the various
         proposals presented to the shareholders.

(b)      Thomas J. Carr, Robert V.R. Ostrander, Paul H. Lambert, John D. Bair,
         C. Robert Hahn, and Thomas M. O'Leary were elected as directors at the
         meeting.

(c)      Matters voted upon at the meeting were as follows:

1.       A proposal to Amend the Company's Amended and Restated Code of
         Regulations to create two classes of directors, with the terms of
         office of each class expiring every other year and the number of
         directors in each class fixed at four. The results of the shareholder
         vote were as follows: 1,349,107 in favor, 13,366 against, and 49,020
         abstentions.

2.       A proposal to elect three Class I directors and three Class II
         directors. The following three directors were elected as Class I
         directors to one year terms: Thomas J. Carr with 2,353,874 votes for
         and 10,800 votes withheld; Robert V.R. Ostrander with 2,355,274 votes
         for and 9,400 votes withheld; and Paul H. Lambert with 2,355,274 votes
         for and 9,400 votes withheld. The following three directors were
         elected as Class II directors to two year terms: John D. Bair with
         2,353,874 votes for and 10,800 votes withheld; C. Robert Hahn with
         2,355,274 votes for and 9,400 votes withheld; and Thomas M. O'Leary
         with 2,355,274 votes for and 9,400 votes withheld.

3.       A proposal to amend the Company's Amended and Restated Articles of
         Incorporation to require the affirmative vote of shares representing at
         least 75% of the voting power of the Company to approve mergers,
         acquisitions or other matters for which Ohio law specifies a required
         percentage vote of shareholders unless the transaction has previously
         been approved by the vote of at least two-thirds of the members of the
         Board of Directors. The results of the shareholder vote were as
         follows: 1,355,157 in favor, 19,536 against, 36,800 abstentions, and
         953,181 broker non-votes.

4.       A proposal to amend the Company's Amended and Restated Code of
         Regulations to require the affirmative vote of shares representing at
         least 75% of the voting power of the Company to amend the provisions
         governing the two classes of directors and the removal of directors
         unless the amendment has previously been approved by the vote of at
         least two-thirds of the members of the Board of Directors. The results
         of the shareholder vote were as follows: 1,353,877 in favor, 20,016
         against, 37,600 abstentions, and 953,181 and broker non-votes.

5.       A proposal to amend the Company's Amended and Restated Articles of
         Incorporation to increase the number of authorized common shares from
         5,000,000 to 10,000,000. The

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<PAGE>

         results of the shareholder vote were as follows: 2,315,274 in favor,
         43,900 against, 5,500 abstentions, and 0 broker non-votes.

6.       A proposal to amend the Company's Amended and Restated Articles of
         Incorporation to authorize a class of preferred shares consisting of
         4,000,000 authorized shares. The results of the shareholder vote were
         as follows: 1,286,353 in favor, 82,120 against, 43,020 abstentions, and
         953,181 broker non-votes.

7.       Proposed amendments to the Pinnacle Data System, Inc. 1995 Stock Option
         Plan which increase the number of shares that may be issued upon the
         exercise of stock options and which modify the terms of the Plan to
         reflect certain changes in the administration and operation of the
         Plan. The results of the shareholder vote were as follows: 1,304,967 in
         favor, 93,826 against, and 12,700 abstentions.

8.       A proposal to approve the Pinnacle Data Systems, Inc. 2000 Directors'
         Stock Option Plan. The results of the shareholder vote were as follows:
         1,301,367 in favor, 63,126 against, and 47,000 abstentions.

9.       A proposal to ratify the selection of Hausser + Taylor LLP as the
         Company's independent accountants for the year ending December 31,
         2000. The results of the shareholder vote were as follows: 2,322,708 in
         favor, 5,556 against, and 36,410 abstentions.

(d)      Inapplicable

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<PAGE>

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

               (A)  Exhibits.

                    Exhibit No.

                    (27)  Financial Data Schedule

               (B)  Reports on Form 8-K.

                    No reports on Form 8-K were filed during the thirteen weeks
                    ended March 31, 2000.

                                  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________________                     /s/ John D. Bair
                                         -------------------------------------
                                         John D. Bair, Chief Executive Officer


Date________________                     /s/ Thomas J. Carr
                                         -------------------------------------
                                         Thomas J. Carr, Chief Financial Officer

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