Securities and Exchange Commission
Washington D. C. 20549
Form 10-KSB/A
(Mark One)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
or
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to ___________.
Commission file number 0-20924
RECONDITIONED SYSTEMS, INC.
(Name of small business issuer in its charter)
Arizona 86-0576290
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
444 West Fairmont, Tempe, Arizona 85282
(Address of principal executive offices)
480-968-1772
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
Common stock, no par value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No_____.
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
The issuer's revenues for the fiscal year ended March 31, 2001 were $14,341,861.
As of July 2, 2001, the aggregate market value of the Common Stock (based on the
closing price as quoted on the Nasdaq Small Cap Market on that date) held by
non-affiliates of the Registrant was approximately $1,414,832.
As of July 2, 2001, the number of shares outstanding of the Registrant's common
stock was 1,165,750.
Portions of the Registrant's definitive Proxy Statement, dated July 10, 2001,
are incorporated herein by reference into Part III of this Report.
Transitional Small Business Disclosure Format. Yes ___No X
------
PART I
Item 1. Description of Business
--------------------------------
General
-------
Reconditioned Systems, Inc. ("RSI" or the "Company"), an Arizona corporation
formed in March 1987, remanufactures and markets modular office workstations
consisting of panels, work surfaces, file drawers, book and binder storage and
integrated electrical components ("workstations"). The Company specializes in
remanufacturing and marketing workstations originally manufactured by Haworth,
Inc. ("Haworth"). RSI purchases used workstations from manufacturers, dealers,
brokers, and end-users throughout the United States through competitive bids or
directly negotiated transactions. After purchasing used workstations, the
Company transports them to its manufacturing facility in Tempe, Arizona, where
it disassembles and inventories the workstations by component parts, stores,
and, upon receipt of purchase orders, reconditions and reassembles the
workstations. The Company sells the remanufactured workstations throughout the
United States to dealers and end-users.
There are more than 50 manufacturers of new workstations in the United States.
Steelcase, Inc. ("Steelcase"), Herman Miller, Inc. ("Herman Miller"), and
Haworth constitute the dominant manufacturers, controlling a majority of the
market for new workstations. Steelcase, Herman Miller, and Haworth have each
created a unique system for connecting panels, electrical power and
telecommunications raceways, resulting in virtually no interchangeability
between their respective products. Due to this lack of interchangeability of
dominant manufacturer parts, the Company has generally specialized in
remanufacturing and marketing workstations originally manufactured by just one
of the dominant manufacturers. The Company elected to specialize in
remanufacturing and marketing workstations originally manufactured by Haworth as
a result of the extensive experience of the Company's founders with Haworth
workstations.
In October 1999, the Company opened a new retail showroom under the new d.b.a.
of "Total Office Interiors." The primary focus of this marketing program was to
change the Company's image in the Phoenix marketplace from that of a used
furniture refurbisher to that of a full service office dealership in an effort
to increase retail sales.
The Company's executive offices are located at 444 West Fairmont, Tempe, Arizona
85282 and its telephone number is 480-968-1772.
Principal Line of Business
--------------------------
The Company's principal line of business is the sale of remanufactured Haworth
workstations. Historically, these sales have accounted for approximately 70 -
80% of the Company's revenues. For the year ended March 31, 2001, these sales
represented 69% of the Company's revenues.
The Company purchases used Haworth workstations from manufacturers, dealers,
brokers, and end-users and transports them to its manufacturing facility in
Tempe, Arizona, where it disassembles and inventories the workstations by
component parts, stores, and, upon receipt of purchase orders, reconditions and
reassembles the workstations. The remanufacturing process includes sanding,
painting, laminating, and reupholstering. Certain parts of the used Haworth
workstations the Company purchases are damaged beyond repair and must be
replaced with new parts purchased from Haworth dealers, clone parts which the
Company purchases from various vendors, and new parts which the Company
manufactures from raw materials. The Company markets these remanufactured
Haworth workstations throughout the United States. Orders received by the
Company range from as few as one workstation to as many as several hundred
workstations. However, orders for more than one hundred workstations are rare.
The manufacturers of new workstations offer deeper discounts on orders of this
size, making it more difficult for the Company to compete with new manufacturers
on price.
The Company believes that workstations offer advantages over the traditional
desk, free standing file, and permanent dry wall dividers common to historical
office layouts since workstations enable businesses to house more people in a
given space than traditional structures and are easier to move and reconfigure.
In addition, the Company believes its remanufactured Haworth workstations offer
an advantage over much of its competition because they are higher quality than
new workstations available in the same price range.
Other Lines of Business
-----------------------
The Company derives certain revenues outside of its principal line of business.
Other lines of business in which the Company engages include: brokering "as is"
used workstations; selling new office furniture produced by other manufacturers
(primarily desks, files, and chairs); installing workstations, and
remanufacturing product already owned by customers. Historically, these other
lines of business have accounted for approximately 20 - 30% of the Company's
revenues. For the year ended March 31, 2001, these sales represented 31% of the
Company's revenues.
In October 1999, the Company opened a new retail showroom under the new d.b.a.
of "Total Office Interiors." The primary focus of this marketing program was to
change the Company's image in the Phoenix marketplace from that of a used
furniture refurbisher to that of a full service office furniture dealership in
an effort to increase retail sales. Along with the new name and showroom
facilities, the Company expanded its new product-line and became an authorized
dealer of Teknion, a manufacturer of new modular furniture and seating. In
addition, the Company has expanded its product-line to include filing, seating,
lighting and other accessories from various other manufacturers.
Inventory and Sources of Supply
-------------------------------
The Company purchases used Haworth workstations throughout the United States
through competitive bids or private negotiations with new workstation
manufacturers and dealers, used workstation brokers, and end-users. The Company
then transports the used Haworth workstations to its facility in Tempe, Arizona,
where it disassembles, inventories by component part, and stores the used
Haworth workstation components until purchase orders are received which require
the various component parts. The Company also inventories new workstation
components purchased from Haworth dealers, clone workstation components, and raw
materials used in the remanufacturing process. These raw materials include items
such as fabric, particleboard, laminate and paint.
The Company carries a limited amount of work in process and finished goods
inventory because it generally does not initiate the remanufacturing process
until a purchase order has been received and because the remanufacturing process
rarely takes more than a couple of days due to the relatively small size of most
orders. However, a significant portion of the labor related to the
remanufacturing process is completed at the time the used Haworth workstations
are originally received and disassembled, and as a result, the value of this
labor is capitalized and added to the value of the Company's inventory.
The Company currently has sufficient amounts of inventory to meet its
anticipated demand. However, because there is not a principal supplier of used
Haworth workstations and the supply is based upon end-user decisions regarding
disposal of or enhancement to existing furniture, there can be no assurance that
the Company will be able to purchase adequate levels of inventory in the future
at competitive prices. Because the Company's principal line of business is the
sale of remanufactured Haworth workstations, any unavailability of adequate
levels of inventory at competitive prices would have a material adverse effect
on the Company's business, operating results, and financial condition.
The Company also carries a number of new product-lines, including new modular
office furniture, filing, lighting, and other accessories. The Company currently
maintains an excellent relationship with the manufacturers of these
product-lines and does not foresee any disruption in supply. In addition, if the
Company did face a disruption in supply of these product-lines, the Company
believes it could easily find an alternative source.
Remanufacturing Process
-----------------------
The Company's remanufacturing process for used Haworth workstations includes
sanding, painting, laminating, and reupholstering. The remanufacturing process
also includes replacing certain components with new components purchased from
Haworth dealers, clone components purchased from various vendors, or new
components manufactured by the Company from raw materials. The Company's
facility in Tempe, Arizona includes all of the equipment required to recondition
workstations, including closed and open paint booths, a paint drying booth,
sanding equipment, saws and laminating equipment.
The remanufactured Haworth workstations that the Company sells generally consist
of panels, worksurfaces, pedestals, overhead storage units, lateral file storage
units, task lights, and electrical raceways. The Company reconditions all of
these items. Components that are often damaged and need to be replaced with new
or clone components include panel top caps, shelf ends for overhead storage
units, worksurfaces, electrical base and top feeds, and electrical raceways. The
Company markets certain auxiliary items such as chairs, file cabinets, and
desks, but it usually purchases these items new from other manufacturers rather
than purchasing them used and remanufacturing them.
The Company's facility has been designed to facilitate the natural flow of used
Haworth workstation components and raw materials in order to streamline the
remanufacturing process through disassembly, storage, remanufacturing, and
shipping. Utilizing narrow aisle storage maximizes storage capacity. The Company
believes that its current facility will be able to handle any increase in volume
as a result of its plan to increase its distribution channels.
Competition
-----------
In purchasing used Haworth workstations, the Company competes with used
workstation brokers and other entities that recondition Haworth workstations.
Even though the Company may not be the highest bidder for an end-user's used
Haworth workstations, it may still have the opportunity to purchase them at a
slightly higher cost if the highest bidder was a used workstation broker who is
simply trying to make a small profit without actually taking possession of the
used Haworth workstations. The Company attempts to procure the used Haworth
workstations directly from end-users so as to avoid the middleman (used
workstation brokers) and to obtain these used Haworth workstations at the lowest
possible cost.
The market for workstations is highly competitive. The Company competes with new
workstation manufacturers, their dealers, and other reconditioners in the sale
of its remanufactured Haworth workstations. New workstation manufacturers and
their dealers have certain competitive advantages over the Company including
established distribution channels and marketing programs, substantial financial
strength, long-term customers, ready access to all component parts, and the fact
that if everything is equal (price, lead-time, etc.), most people would choose
new workstations over remanufactured workstations. The Company has certain
competitive advantages over new workstation manufacturers and their dealers. On
orders of 100 workstations or less, the Company's pricing is usually
significantly less than pricing on new "Grade A" workstations ("Grade A"
workstations are considered to be those workstations manufactured by Haworth,
Herman Miller and Steelcase) and the quality of the Company's remanufactured
Haworth workstations exceeds that of new "Grade B" workstations. In addition,
the Company can produce and install fully remanufactured Haworth workstations
within two to three weeks as compared to standard lead-times of approximately
six to eight weeks for the new workstation manufacturers. The Company believes
that its remanufacturing services are more comprehensive than most other
reconditioners. This results in a competitive advantage for the Company because
it has the ability to produce more remanufactured workstations and higher
quality remanufactured workstations than most other reconditioners. The Company
is facing increased competition from "bargain" newly manufactured product lines.
There are no significant barriers to entry into the markets served by the
Company. An increase in competition from existing competitors or the entry of
new competitors could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully in the future with existing or new
competitors.
In an effort to increase the Company's ability to compete in this changing
marketplace, beginning in October 1999, the Company became an authorized dealer
of Teknion, a manufacturer of new modular office furniture and expanded its line
of filing, seating, lighting and other office furniture accessories. In June
2000, the Company became an authorized dealer of Paoli Office Furniture, a
manufacturer of executive freestanding office furniture and tables. The Company
offers the Teknion and Paoli lines as an alternative to its remanufactured
Haworth workstations. There can be no assurance that the Company will be able to
compete successfully in the new modular office furniture market.
Distribution
------------
The Company markets its products on a wholesale basis to furniture dealerships,
design firms and installation companies throughout the United States. The
Company also markets on a retail basis to end-users primarily in Arizona. The
Company maintains a retail showroom in its Tempe, Arizona facility. In recent
years, the Company's wholesale sales have comprised as much as approximately 65%
of the Company's total sales. For the year ended March 31, 2001, wholesale sales
accounted for 49% and retail sales totaled 51% of the Company's total sales. The
Company maintains a broad customer base and is not dependent on any one
customer. The Company employs three full-time employees who concentrate on
telemarketing and servicing its wholesale sales, and seven full-time retail
salespeople who concentrate on retail sales in the greater Phoenix, Arizona
area.
Personnel
---------
The Company currently has 74 full-time employees of whom 47 are production
personnel directly involved in the remanufacturing process, 5 are in the
installation department, 13 are in the sales and design departments, and 9 are
management and administrative personnel. The Company believes that its ability
to grow and attain its desired profitability levels depend on its ability to
attract and retain highly qualified personnel. There can be no assurance that
the Company will be successful in attracting and retaining such personnel. The
Company has an employment agreement, which includes severance benefits, with its
Chief Executive Officer (see Item 10 - Executive Compensation.) None of the
Company's personnel are covered by a collective bargaining agreement, and the
Company has never suffered a work stoppage. The Company considers its relations
with its employees to be excellent.
Environmental Regulations
-------------------------
The Company's operations are subject to a variety of federal, state, and local
environmental laws and regulations, including those governing air quality, water
quality, and hazardous materials. The Company's principle environmental concerns
relate to the handling and disposal of paints, solvents, and related materials
in connection with product finishes and composite fabrication. The Company
contracts with various independent waste disposal companies for services. The
Company may be exposed to certain environmental liabilities which may or may not
be covered by the insurance of the independent contractors or by the Company's
own insurance.
The Company believes that it has been operating in substantial compliance in all
material respects with existing environmental laws and regulations and that the
costs and effects of such compliance are not material. The Company cannot
predict the nature, scope or effect of legislation or regulatory requirements
that could be imposed or how existing or future laws or regulations will be
administered or interpreted with respect to products or activities to which they
have not previously been applied. Compliance with more stringent laws or
regulations, or more vigorous enforcement policies or regulatory agencies, could
require substantial expenditures by the Company and could adversely affect its
business, financial condition and results of operations.
Item 2. Description of Property
--------------------------------
The Company presently leases a 58,500 square foot facility in Tempe, Arizona
that houses its corporate offices, its remanufacturing operations, its warehouse
space and its showroom space. The current lease on the Tempe facility expires
April 2006. The Company believes its existing facilities are adequate for its
current and projected sales volumes. In addition, the Company believes suitable
additional space will be available as needed.
The Company owns substantially all of its equipment, including its office
equipment and its remanufacturing equipment. The Company's equipment has been
assigned as collateral for amounts borrowed under loan agreements with M&I
Thunderbird Bank.
The Company has no investments or interests in real estate, real estate
mortgages or securities of persons primarily engaged in real estate activities.
Item 3. Legal Proceedings
--------------------------
The Company is not party to any pending legal proceedings other than routine
litigation incidental to the business.
Item 4. Submissions of Matters to a Vote of Security Holders
-------------------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended
March 31, 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq Small Cap Market under the
symbol "RESY." The following table sets forth the high and low closing sales
price, as reported by the Nasdaq Small Cap Market, in dollars per share for the
quarters then ended:
Common Stock
--------------------------------
Date Low High
------ ------------- -------------
June, 1999 2.50 3.91
September, 1999 2.63 3.88
December, 1999 2.13 3.00
March, 2000 2.19 3.38
June, 2000 2.25 3.13
September, 2000 2.50 3.13
December, 2000 2.69 3.38
March, 2001 2.81 3.38
The total number of shares of Common Stock of the Company outstanding as of July
2 was 1,165,750. As of the close of business on June 8, 2001, the number of
record holders of the Company's Common Stock was 44 and the number of holders of
the Company's Common Stock including beneficial holders of stock held in street
name was estimated to be 400.
There were no unregistered sales of the Company's Common Stock during the period
covered by this Report.
The Company has not paid any cash dividends on its Common Stock during the past
two fiscal years and does not intend to pay any cash dividends on its Common
Stock in the foreseeable future. Future earnings, if any, will be retained to
fund the development and growth of the Company's business. In addition, the
Company's line of credit security agreement prohibits the payment of any
dividends on the Company's Common Stock. Further, state corporate law may, under
certain circumstances, restrict the Company's ability to pay dividends.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------
The statements contained in this report that are not historical facts may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Exchange Act of 1933, as amended. These forward-looking statements
involve risks and uncertainties. Important factors that could cause actual
results to differ materially from the forward-looking statements include, but
are not limited to, the risk that the Company may not be able to cut costs and
maintain profitability, and the risk of decreased sales revenues. In addition,
the Company's business, operations and financial condition are subject to
substantial other risks that are described in the Company's reports and
statements filed from time to time with the Securities and Exchange Commission,
including this Report.
Results of Operations
---------------------
SALES REVENUE
The Company had sales for the fiscal year ended March 31, 2001 (the "reporting
period") of $14,341,861. This compares to $10,948,549 for the fiscal year ended
March 31, 2000 (the "comparable period"), resulting in an increase of $3,393,312
or approximately 31%.
Retail sales totaled $7,297,070, an increase of $2,263,105 or 45% over the
comparable period. This increase was primarily a result of the Company's
continued focus on developing its retail business operations and improved
revenues industry-wide. In October 1999, the Company remodeled its offices,
opened a new retail showroom, and began doing business as "Total Office
Interiors." The primary focus of this marketing program was to change the
Company's image in the Phoenix marketplace from that of a used furniture
refurbisher to that of a full service office furniture dealership in an effort
to increase retail sales. Along with the new name and showroom facilities, the
Company expanded its new product line and became an authorized dealer of
Teknion, Paoli, Superior, United Chair and Office Chairs, Inc., manufacturers of
new office furniture and seating. Increased name recognition and referrals
helped the Company to see improved revenues during the reporting period.
Wholesales sales totaled $7,044,791, an increase of $1,130,207 or 19% over the
comparable period. This increase is consistent with the significant growth
experienced industry-wide. Market sources reported record sales for the office
furniture industry during the calendar year ended December, 2000, with sales
slowing for the quarter ended March 31, 2001.
GROSS MARGIN
The Company's gross profit margin for the reporting period was 21.95%, as
compared to 25.88% for the comparable period. Retail gross profit margins
decreased from 28.9% for the comparable period to 24.1% for the reporting
period, primarily as a result of increased new product sales. Retail sales of
new furniture nearly doubled in the reporting period over the new furniture
sales in the comparable period to approximately 30% of the total retail sales.
The Company's typical gross margin on new furniture sales is lower than that on
remanufactured furniture. Wholesale gross profit margins were down over the
comparable period, from 22.5% to 19.7% in the reporting period. Increased
competitive pressures from "bargain" new furniture manufacturers forced
wholesale pricing down.
OPERATING EXPENSES
The Company's selling and administrative expenses net of severance charges (see
Note 8 of the Audited Financial Statements) decreased from 17% in the comparable
period to 13.8% in the reporting period. The Company's fixed costs represented a
lower percentage of sales as a result of the increased sales volume generated in
the reporting period.
SEVERANCE CHARGES
Effective September 30, 1999, the Company entered into an agreement with and
accepted the resignation of Wayne R. Collignon, the Company's former President
and Chief Executive Officer (CEO).
On February 23, 2000, Mr. Collignon filed a lawsuit against the Company in the
Superior Court of the State of Arizona. The suit alleged breach of the
above-mentioned agreement and violation of certain Arizona statutes relating to
the payment of wages. The suit sought relief in the amount of approximately
$348,000 and reimbursement of attorneys' fees and court costs. Subsequently, Mr.
Collignon and the Company settled the lawsuit.
As a result of the settlement and the original agreement, the Company recorded a
total charge to operating income in the comparable period of $332,984.
Confidentiality provisions in the settlement with Mr. Collignon prevent the
Company from disclosing any further details regarding this transaction.
OTHER INCOME AND EXPENSES
The Company's other income and expenses, which consist primarily of interest
income, improved by $26,778 or 40.7% from the comparable period to the reporting
period. This increase was primarily a result of additional interest income
generated by the Company's surplus cash reserves.
Income Taxes
------------
As of March 31, 2001, the Company had exhausted the balance of its federal and
state loss carryforwards and had income tax expense of $377,715 in the reporting
period. The Company's taxable income in the comparable period was fully offset
by tax loss carryforwards. Now that the Company has used all of its federal and
state tax loss carryforwards, the Company will begin paying the full federal and
state corporate tax rates beginning April 1, 2001. Assuming similar taxable
income levels to those reported for the current fiscal year, that rate would be
approximately 45%.
Financial Condition and Liquidity
---------------------------------
Cash Flows from Operating Activities. Net cash provided by operating activities
totaled approximately $1.4 million for the reporting period as compared to
approximately $360,000 for the comparable period. Net cash provided by operating
activities excluding the one-time severance charges of $332,984 was
approximately $600,000 for the comparable period. In addition to the
approximately $990,000 of cash flows from net income (net of depreciation and
amortization expense), the Company was able to lower its accounts receivables by
approximately $830,000 through the implementation of new credit and collection
personnel and policies. This allowed the Company to invest approximately
$245,000 in additional inventories, $100,000 in prepaid expenses and other
current assets and to reduce short-term liabilities by approximately $30,000.
Cash Flows from Investing and Financing Activities. During the reporting period,
net cash used by investing activities totaled approximately $131,000 primarily
for the purchase of a short-term note receivable and fixed assets. Net cash used
by financing activities totaled approximately $397,000, primarily for the
purchase of treasury stock.
Expected Future Cash Flows. Cash provided by operations in the near future
should closely follow operating income net of treasury stock purchases and
income taxes.
Management believes current working capital, cash reserves and cash flows from
operations are adequate to fund all planned expenditures without the need for
outside financing. In addition, the Company has $1,000,000 in available
borrowings on its line of credit with M&I Thunderbird Bank (see Note 7 of the
Audited Financial Statements.)
Forward Looking Statements
--------------------------
Fiscal year 2001 was a record earnings year for the Company. Consistent with the
general slowing of the U.S. economy, the Company anticipates a significant
decrease in sales revenues for the quarter ending June 30, 2001 as compared to
the comparable quarter ended June 30, 2000. Despite this current downturn,
management is hopeful the Company will generate level sales for the fiscal year
end 2002; however, there is no guarantee that the Company will be able to do so.
Management is currently implementing cost control strategies in an effort to
remain profitable at lower sales levels, while maintaining the infrastructure
built over the past few years, which enabled the Company to achieve 30-35% sales
growth. With this strategy in place, the Company believes it can weather the
current industry slowdown and retain the strength and flexibility necessary to
meet demand when the economy recovers.
Item 7. Financial Statements
-----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Stockholders and Board of Directors of
Reconditioned Systems, Inc.
We have audited the balance sheets of Reconditioned Systems, Inc. as of March
31, 2001 and 2000, and the related statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Reconditioned Systems, Inc. as of March 31,
2001 and 2000, and the results of its operations, stockholders' equity, and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/S/ Moffitt & Company, PC
Moffitt & Company, PC
Scottsdale, Arizona
July 27, 2001
RECONDITIONED SYSTEMS, INC.
BALANCE SHEETS
March 31, 2001 and 2000
2001 2000
---- ----
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1, 2 and 3) $1,839,284 $920,778
Accounts receivable (Notes 1 and 7) 1,227,241 2,055,151
Note receivable (Note 4) 50,000 0
Inventory (Notes 1 and 7) 1,434,319 1,191,173
Prepaid expenses and other current assets 193,680 54,372
------- ------
Total current assets 4,744,524 4,221,474
--------- ---------
Property and Equipment, net: (Note 1, 6 and 7) 249,861 262,543
------- -------
Other Assets (Note 1):
Note receivable - officer (Notes 3 and 5) 75,000 75,000
Refundable deposits 12,896 13,036
Other 23,760 73,745
------ ------
111,656 161,781
------- -------
Total Assets $5,106,041 $4,645,798
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $598,001 $717,148
Customer deposits 68,722 26,309
Accrued expenses and other current liabilities 340,883 293,544
------- -------
Total current liabilities 1,007,606 1,037,001
--------- ---------
Stockholders' Equity:
Common stock, no par value; 20,000,000
shares authorized, 1,473,834 shares issued, and 4,588,844 4,587,576
1,174,250 and 1,327,684 shares outstanding,
respectively
Retained earnings/(accumulated deficit) 267,460 (619,566)
------- ---------
4,856,304 3,968,010
Less: treasury stock, 299,584 and 146,132 shares
respectively, at cost (757,869) (359,213)
--------- ---------
4,098,435 3,608,797
--------- ---------
Total Liabilities and Stockholders' Equity $5,106,041 $4,645,798
========== ==========
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended March 31, 2001 and 2000
2001 2000
---- ----
Sales $14,341,861 $10,948,549
Cost of sales 11,193,591 8,114,580
---------- ---------
Gross profit 3,148,270 2,833,969
Selling & administrative expenses 1,976,155 1,865,787
Severance charges (Note 8) 0 332,984
- -------
Income from operations 1,172,115 635,198
Other income (expense):
Interest income 83,690 63,055
Other 8,936 2,793
----- -----
Net income before income taxes 1,264,741 701,046
Provision for income taxes 377,715 0
------- -
Net income $887,026 $701,046
======== ========
Basic earnings per share (Notes 1 and 12) $ 0.71 $ 0.51
======== ========
Basic weighted average number
of shares outstanding 1,257,909 1,372,935
========= =========
Diluted earnings per common
and common equivalent share
(Notes 1 and 12) $ 0.64 $ 0.46
======= =======
Diluted weighted average number
of shares outstanding 1,393,524 1,534,051
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 2001 and 2000
Common Stock Common Stock Retained
Shares Amount Earnings Treasury
(Deficit) Stock Total
---------------------------- -------------- ----------------- ---------------- -------------- --------------
Balance at March 31, 1999 1,473,816 $4,586,982 $(1,320,612) $ - $3,266,370
Purchase of Treasury
Shares (150,000) - - (368,413) (368,413)
Transfer of shares to ESPP
Plan 3,868 594 - 9,200 9,794
Net income - - 701,046 - 701,046
-------------- ----------------- ----------------- ------------ ---------------
Balance at March 31, 2000 1,327,684 $4,587,576 $(619,566) $(359,213) $3,608,797
Purchase of Treasury
Shares (154,634) - - (401,522) (401,522)
Transfer of shares to
ESPP Plan 1,200 1,268 - 2,866 4,134
Net income - - 887,026 - 887,026
-------------- ----------------- ----------------- ------------- --------------
Balance at March 31, 2001 1,174,250 $4,588,844 $267,460 $(757,869) $4,098,435
============== ================= ================== ============ ==============
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 2001 and 2000
2001 2000
---- ----
Cash Flows from Operating Activities:
Cash received from customers $15,177,707 $10,588,073
Cash paid to suppliers and employees (13,431,540) (10,287,962)
Income taxes paid (382,891) 0
Interest received 83,690 63,055
------ ------
Net cash provided by operating
activities 1,446,966 363,166
--------- -------
Cash Flows from Investing Activities:
Purchase of short-term note receivable (50,000) 0
Purchase of property and equipment (84,908) (173,270)
Other 3,836 (13,825)
----- --------
Net cash used by investing
activities (131,072) (187,095)
--------- ---------
Cash Flows from Financing Activities:
Purchase of Treasury Stock (401,522) (368,412)
Transfers to ESPP Plan 4,134 9,794
----- -----
Net cash used by financing
activities (397,388) (358,618)
--------- ---------
Increase (Decrease) in cash and cash equivalents 918,506 (182,547)
Cash and cash equivalents at beginning of
period 920,778 1,103,325
------- ---------
Cash and cash equivalents at end of period $1,839,284 $920,778
========== ========
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended March 31, 2001 and 2000
2001 2000
---- ----
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $887,026 $701,046
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 104,314 84,816
Provision for doubtful accounts 1,000 (5,000)
Non-cash portion of severance charges (Note 8) 0 80,484
Changes in assets and liabilities:
Accounts receivable 826,910 (358,269)
Inventory (243,146) (281,551)
Prepaid expenses and other assets (99,743) (28,988)
Accounts payable and accrued expenses (29,395) 170,628
-------- -------
Net cash provided by operating activities $1,446,966 $363,166
========== ========
Non-Cash Investing and Financing Activities:
During the years ended March 31, 2001 and 2000, the Company did not have any
non-cash investing or financing activities.
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statement
--------------------------------------------------------------------------------
Note 1.
Summary of Significant Accounting Policies, Nature of Operations,
and Use of Estimates
--------------------------------------------------------------------------------
Nature of Business:
Reconditioned Systems, Inc. ("RSI" or the "Company"), is a corporation
which was incorporated in the State of Arizona in March 1987. The
principal business purpose of the Company is the remanufacturing and
sale of office workstations comprised of panel systems to customers
located throughout the country. In addition, the Company markets new
workstations, filing, seating, lighting and other office furniture
accessories.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition:
The Company recognizes a sale when its earnings process is complete. In
connection with projects that are to be installed by a customer or an
agent of the customer, the sale is recognized when the product is
shipped to or possession is taken by the customer. In connection with
projects installed by the Company, the sale is recognized upon
completion of the installation.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments and money
market funds purchased with an initial maturity of three (3) months or
less to be cash equivalents.
Accounts Receivable - Trade:
The Company provides for potentially uncollectible accounts receivable
by use of the allowance method. The allowance is provided based upon a
review of the individual accounts outstanding and the Company's prior
history of uncollectible receivables. At March 31, 2001 and 2000
the Company has established an allowance for doubtful
accounts in the amount of $27,000 and $26,000, respectively.
Inventory:
Inventory, which is primarily composed of used office workstations and
remanufacturing supplies, is stated at the lower of cost
(weighted-average method) or market. The Company reviews its inventory
monthly and makes provisions for damaged and obsolete items. The
Company contemplates its ability to alter the size of panels and other
workstation components and designs projects so that the workstations
are comprised of products currently in inventory in establishing its
obsolescence reserve. At March 31, 2001 and 2000, the Company had
established a reserve for damaged and obsolete inventory in the amount
of $50,000.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 1.
Summary of Significant Accounting Policies, Nature of Operations,
and Use of Estimates
(Continued)
--------------------------------------------------------------------------------
Property and Equipment:
Property and equipment are recorded at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
respective assets, are expensed. At the time property and equipment are
retired or otherwise disposed of, the assets and related depreciation
accounts are relieved of applicable amounts. Gains or losses from
retirements or sales are credited or charged to income. Depreciation is
generally provided for on the straight-line basis over the following
estimated useful lives of the assets:
Years
-----
Machinery and equipment 5 - 7
Office furniture and equipment 3 - 7
Leasehold improvements Lease term
Vehicles 4 - 5
Showroom furniture 1 - 2
Long-Lived Assets:
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets in question may not be recoverable.
This standard did not have a material effect on the Company's results
of operations, cash flows or financial position.
Deferred Income Taxes:
Deferred income taxes are provided on an asset and liability method,
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, there is uncertainty of the operating losses in
future periods. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
Stock-Based Compensation:
The Company has elected to follow Accounting Principles Board Opinion
No. 25 Accounting for Stock Issued to Employees (APB 25) and the
related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant,
no compensation expense is recorded. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (Statement
No. 123).
During 1999, the Company adopted an Employee Stock Purchase Plan (the
"Plan"). Under this plan, employees may purchase shares of the
Company's common stock, subject to certain limitations, at 85% of its
market value. Purchases are limited to 10% of an employee's eligible
compensation, up to a maximum of $25,000 per year. An aggregate of
200,000 shares of the Company's common stock are authorized and
available for sale to eligible employees. During the years ended March
31, 2001 and 2000, 1,200 and 3,868 shares were issued to
employees under the Plan, respectively.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 1.
Summary of Significant Accounting Policies, Nature of Operations,
and Use of Estimates
(Continued)
--------------------------------------------------------------------------------
Earnings Per Common and Common Equivalent Share:
Basic earnings per share include no dilution and are computed by
dividing income available to common stockholders by the weighted
average number of shares outstanding for the period.
Diluted earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that
would be outstanding assuming the exercise of dilutive stock options,
all of which are considered to be common stock equivalents. The number
of shares that would be issued from the exercise of stock options has
been reduced by the number of shares that could have been purchased
from the proceeds at the average market price of the Company's stock.
In addition, certain outstanding options are not included in the
computation of diluted earnings per share because their effect would be
antidilutive.
Advertising:
All direct advertising costs are expensed as incurred. The Company
charged to operations $103,055 and $142,799 in advertising costs for
the years ended March 31, 2001 and 2000, respectively.
--------------------------------------------------------------------------------
Note 2.
Concentrations
--------------------------------------------------------------------------------
The Company maintains cash balances at various financial institutions. Deposits
not to exceed $100,000 at the financial institutions are insured by the Federal
Deposit Insurance Corporation. As of March 31, 2001, the Company had
approximately $2,035,000 of uninsured cash.
In addition, the Company specializes in remanufacturing one particular original
equipment manufacturer's (OEM) line of office workstations. The business is
dependent upon a readily available supply of new parts, as well as used product.
--------------------------------------------------------------------------------
Note 3.
Fair Value of Financial Instruments
--------------------------------------------------------------------------------
Estimated fair values of the Company's financial instruments (all of which are
held for non-trading purposes), are as follows:
March 31, 2001 March 31, 2000
-------------- --------------
Carrying Carrying
Amount Fair Value Amount Fair Value
Cash and cash equivalents $1,839,284 $1,839,284 $920,778 $920,778
The carrying amount approximates fair value of cash and short-term instruments.
The fair value of the Note receivable - officer cannot be determined due to its
related party nature.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 4.
Note Receivable
--------------------------------------------------------------------------------
As of March 31, 2001, the Company held an interest in an $800,000
uncollateralized note receivable from Vulcan Minerals & Energy, Inc. payable in
full on or before August 28, 2001. The Company entered into this note along with
a group of other investors. The Company's portion of the note receivable is
$50,000. Interest on the note accrues at a rate of 6% per annum payable monthly
beginning April 2, 2001.
--------------------------------------------------------------------------------
Note 5.
Note Receivable - Officer
--------------------------------------------------------------------------------
As of March 31, 2001, the Company had a $75,000 note receivable from an officer
payable in one payment on or before December 19, 2002, and collateralized by
50,000 shares of the Company's Common Stock. Interest on the note accrues at a
rate equal to that of the company's lenders' base rate plus 2.5%, payable
annually beginning December 19, 1998. For the years ended March 31, 2001 and
2000, the Company earned approximately $6,300 and $7,300 interest on
this note, respectively.
--------------------------------------------------------------------------------
Note 6.
Property and Equipment
--------------------------------------------------------------------------------
Property and equipment by major classifications are as follows:
March 31,
2001 2000
---- --------
Office furniture and equipment $243,587 $271,255
Machinery and equipment 152,389 121,327
Leasehold improvements 31,806 34,612
Vehicles 50,922 36,922
Showroom furniture 11,928 21,512
---------- ----------
490,632 485,628
Accumulated depreciation (240,771) (223,085)
---------- ---------
$249,861 $262,543
======== ========
Depreciation expense for the years ended March 31, 2001 and 2000 totaled $93,893
and $80,259, respectively.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 7.
Pledged Assets and Line of Credit
--------------------------------------------------------------------------------
As of March 31, 2001, the Company had a $1,000,000 line of credit agreement with
M&I Thunderbird Bank. Under this agreement, interest is payable at the bank's
base rate. Borrowings on the line of credit may not exceed seventy-five percent
(75%) of eligible accounts receivables and thirty percent (30%) of eligible
inventory up to $300,000. The line of credit is collateralized by accounts
receivable, inventory, property and equipment, and intangibles which total
$5,106,041. The agreement contains various covenants by the Company, including
covenants that the Company will maintain certain net worth thresholds and
ratios, will meet certain debt service coverage ratios, and will not enter into
or engage in various types of agreements or business activities without approval
from M&I Thunderbird Bank. The line of credit matures on July 31, 2001.
As of March 31, 2001, the Company had no outstanding borrowings on the line of
credit and was in compliance with all of the covenants of the agreement.
--------------------------------------------------------------------------------
Note 8.
Severance Charges
--------------------------------------------------------------------------------
Effective September 30, 1999, the Company entered into an agreement with and
accepted the resignation of Wayne R. Collignon, the Company's former President
and Chief Executive Officer (CEO).
On February 23, 2000, Mr. Collignon filed a lawsuit against the Company in the
Superior Court of the State of Arizona. The suit alleged breach of the
above-mentioned agreement and violation of certain Arizona statutes relating to
the payment of wages. The suit sought relief in the amount of approximately
$348,000 and reimbursement of attorneys' fees and court costs. Subsequently, Mr.
Collignon and the Company settled the lawsuit.
As a result of the settlement and the original agreement, the Company recorded a
total charge to operating income of $332,984 for the year ended March 31, 2000.
Confidentiality provisions in the settlement with Mr. Collignon
prevent the Company from disclosing any further details regarding this
transaction.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 9.
Operating Lease Commitments
--------------------------------------------------------------------------------
The Company leases remanufacturing, warehouse, showroom and office space in
Tempe, Arizona, as well as certain equipment under non-cancelable operating
lease agreements expiring at various times through April 2006. Certain of the
lease agreements require the Company to pay property taxes, insurance and
maintenance costs. The lease on the Tempe, Arizona facility expires April 2006.
The total minimum rental commitment due is as follows:
March 31, Amount
--------- -------
2002 $352,241
2003 358,330
2004 365,319
2005 372,307
2006 356,583
Subsequent 31,656
--------
$ 1,836,436
Rent expense under operating lease agreements for the years ended March 31, 2001
and 2000 was approximately $360,000 and $336,000, respectively.
--------------------------------------------------------------------------------
Note 10.
Income Taxes
--------------------------------------------------------------------------------
The provision for income taxes consist of the following for the years ended
March 31, 2001 and 2000:
For the Year Ended
March 31, 2001 March 31, 2000
-------------- --------------
Federal
Current $286,953 $ 0
Deferred 0 0
--------- -
286,953 0
------- -
State
Current 90,762 0
Deferred 0 0
------- -
90,762 0
------ -
Total $377,715 $0
======== ==
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 10.
Income Taxes
(Continued
--------------------------------------------------------------------------------
The Company's income tax provisions differ from the amount computed by applying
the federal statutory income tax rate to income before income taxes. A
reconciliation to the statutory federal income tax rate is as follows:
For the Year Ended
March 31, 2001 March 31, 2000
-------------- --------------
Income tax at statutory effective rate $430,000 $238,000
Adjustments:
NOL Carryforward (110,000) (238,000)
State taxes, net of federal benefit 31,000 0
Alternative minimum tax carryforward 26,715 0
------ -
$377,715 $ 0
======== ===
--------------------------------------------------------------------------------
Note 11.
Common Stock Options
--------------------------------------------------------------------------------
During the year ended March 31, 1997, the Board of Directors issued 300,000
common stock options to certain officers and directors with an exercise price of
$1.00 per share.
During the year ended March 31, 1998, the Board of Directors approved the 1997
Employee Stock Option Plan. The Plan authorizes the Company to grant incentive
stock options to key employees of the Company. 50,000 shares of common stock are
reserved for issuance pursuant to this Plan.
During the year ended March 31, 2001 and 2000, the Board of Directors issued
5,000 and 4,000 common stock options, respectively to certain officers and
directors with an exercise price of $3.00 and $2.63 per share, respectively.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 11.
Common Stock Options
(Continued)
--------------------------------------------------------------------------------
Following is a summary of the status of the outstanding stock options for
employees, officers and directors during the year ended March 31, 2001 and 2000:
Weighted Average
Number of Options Exercise Price
----------------- ----------------
Outstanding as of April 1, 1999 308,400 $1.05
Granted 8,907 2.63
Exercised 0 0
Forfeited (102,100) 1.04
--------- ----
Outstanding as of March 31, 2000 215,207 $1.13
Granted 15,112 3.00
Exercised 0 0
Forfeited 0 0
------ -
Outstanding as of March 31, 2001 230,319 $1.25
======= =====
Information relating to the stock options at March 31, 2001, summarized by
exercise price, is as follows:
OUTSTANDING EXERCISABLE
Weighted Average Weighted Average
---------------- ----------------
Remaining Life
Shares (Years) Exercise Price Shares Exercise Price
------ -------------- -------------- ------ --------------
6,300 3.00 $3.00 0 -
200,000 5.39 $1.00 200,000 $1.00
8,907 6.25 $2.63 4,000 $2.63
15,112 6.65 $3.00 5,000 $3.00
------ ---- ----- ----- -----
230,319 5.43 $1.25 209,000 $1.08
======= ==== ===== ======= =====
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 11.
Common Stock Options
(Continued)
--------------------------------------------------------------------------------
All stock options issued have an exercise price not less than the fair market
value of the Company's common stock on the date of grant. In accordance with
accounting for such options utilizing the intrinsic value method, there is no
related compensation expense recorded in the Company's financial statements for
the years ended March 31, 2001 and 2000. Had compensation cost for stock-based
compensation been determined based on the fair value of the options at the grant
dates consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts presented
below:
Year Ended Year Ended
March 31,2001 March 31,2000
------------- -------------
Net income:
As reported $887,026 $701,046
Pro forma $865,967 $692,046
Earnings per share:
Basic:
As reported $ 0.71 $ 0.51
Pro forma $ 0.69 $ 0.50
Diluted:
As reported $ 0.64 $ 0.46
Pro forma $ 0.62 $ 0.45
The fair value of option grants is estimated as of the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 2001 and 2000: expected life of options of 7.25 years,
expected volatility of 31% in 2001 and 40% in 2000, risk-free interest rates of
5% in 2001 and 8% in 2000, and a 0% dividend yield. The weighted average fair
value at date of grant for options granted during 2001 and 2000 approximated
$1.12 and $1.47, respectively.
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 12.
Earnings Per Share
--------------------------------------------------------------------------------
For the years ended March 31, 2001 and 2000, the following data shows amounts
used in computing earnings per share and the effect on income and the weighted
average number of shares of dilutive potential common stock.
March 31,
2001 2000
---- ----
Basic EPS
Net Income $887,026 $701,046
======== ========
Weighted average number of shares outstanding 1,257,909 1,372,935
Basic earnings per share $0.71 $0.51
===== =====
Diluted EPS
Net Income $887,026 $701,046
======== ========
Weighted average number of shares outstanding 1,257,909 1,372,935
Effect of dilutive securities:
Stock options 135,615 161,116
------- -------
Total common shares + assumed conversions 1,393,524 1,534,051
Diluted earnings per share $0.64 $0.46
===== =====
--------------------------------------------------------------------------------
Note 13.
Subsequent Events
--------------------------------------------------------------------------------
On June 8, 2001, the Company's former principal independent accountant, Semple &
Cooper, LLP resigned. Semple & Cooper's reports on the Company's financial
statements for the past two years contained an unqualified opinion, and were not
modified as to uncertainty, audit scope or accounting principles. There were no
disagreements with Semple & Cooper on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure. On
June 29, 2001, Semple & Cooper notified the Company they were withdrawing their
opinions for the audits for the fiscal years ended March 31, 1999 and 2000. (See
the Company's reports filed on Form 8-K dated June 15, 2001 and June 29, 2001.)
On July 5, 2001, Nasdaq notified the Company that as a result of Semple & Cooper
withdrawing their audit opinion for the year ended March 31, 2000, the Company
was no longer in compliance with Nasdaq Marketplace Rule 4815(b) and that the
Company's securities were in jeopardy of being delisted from the Nasdaq Stock
Market. On July 11, 2001, the Company formally requested a hearing to appeal the
delisting of securities. The Company engaged Moffitt & Company to conduct an
audit of the Company's financial statements for the year ended March 31, 2000 in
order to correct the deficiency. As of the date of this report, the Company
believes it has satisfied this deficiency.
On July 24, 2001, Nasdaq informed the Company that the Company's public float
was not in compliance with the Marketplace Rules. The Company is taking action
to correct this deficiency and expects to be in full compliance by the hearing
date of August 2, 2001.
Item 8. Changes in and Disagreements with Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------
On June 8, 2001, the Registrant's former principal independent accountant,
Semple & Cooper, LLP resigned. Semple & Cooper's reports on the Company's
financial statements for the past two years did not contain an adverse opinion
or disclaimer of opinion, and were not modified as to uncertainty, audit scope
or accounting principles. There were no disagreements with Semple & Cooper on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. On June 22, 2001, the Registrant appointed
Moffitt & Company, PC as the principal independent accountant. (See the
Registrant's filings on Form 8-K dated June 15, 2001, June 28, 2001 and June 29,
2001.)
PART III
The information required by Items 9 - 11 of Part III is omitted from this Report
by virtue of the fact that the Company will file with the Securities and
Exchange Commission (the "SEC"), pursuant to Regulation 14A, within 120 days
after the end of the fiscal year covered by this Report, a definitive proxy
statement (the "Proxy Statement") relating to the Company's Annual Stockholders'
Meeting to be held July 27, 2001.
Material incorporated herein by reference and location in Proxy
Statement for 2001 Annual Meeting:
Item No. Item Description Proxy Statement
------------------------- ----------------
9 Directors, Executive Officers, Promoters Proposal One - Election of
and Control Persons; Compliance with Directors
Section 16(a) of the Exchange Act
10 Executive Compensation Proposal One - Election of
Directors
11 Security Ownership of Certain General Information - Security
Beneficial Owners and Management Ownership of Certain Principal
Stockholders and Management
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
The Company holds a $75,000 note receivable from Dirk D. Anderson, the Company's
Chief Executive Officer. The funds provided by this note were used by the
officer to purchase 50,000 shares of the Company's Common Stock from a former
shareholder in a privately negotiated transaction. The note is payable in one
payment on or before December 19, 2002, and is collateralized by the purchased
shares of Common Stock. Interest on the note accrues at a rate equal to that of
the Company's lender's base rate plus 2.5%, payable annually beginning December
19, 1998.
Item 13. Exhibits and Reports on Form 8-K
------------------------------------------
(a)(1) Exhibits
----------------
The following exhibits are filed herewith pursuant to Regulation S-B:
No. Description Reference
--- ----------- ---------
3.1 Articles of Incorporation of the Registrant,
as amended and restated 3
3.2 Bylaws of Registrant, as amended and restated 3
4.1 Form of Common Stock Certificate 1
4.5 Registration Rights Agreements 2
*4.9 Options issued to Wayne R. Collignon 4
*4.10 Options issued to Dirk D. Anderson 4
*4.11 Amendment to Options issued to Wayne R. Collignon 5
*4.12 Amendment to Options issued to Dirk D. Anderson 5
*4.13 Options issued to Wayne R. Collignon 5
*4.14 Options issued to Dirk D. Anderson 5
*4.15 Options issued to Scott W. Ryan 5
*4.16 Options issued to Scott W. Ryan 5
*4.17 Options issued to Scott W. Ryan 9
*4.18 Options issued to Dirk D. Anderson 9
*4.19 Options issued to Scott W. Ryan 9
*4.20 Options issued to Dirk D. Anderson 9
10.1 Lease Agreement, dated April 12, 1990 between
Boston Safe Depositand Trust Company, as Lessor, and
Registrant as Lessee 1
10.33 Loan document between M&I Thunderbird Bank and the Registrant 6
*10.34 Agreement between Wayne R. Collignon and Registrant 7
*10.35 Severance between Wayne R. Collignon and Registrant 8
27 Financial Data Schedule 9
99 Consent Letter from Moffitt & Company 9
(1) Filed with Registration Statement on Form S-18, No. 33-51980-LA,
under the Securities Act of 1933, as declared effective on
December 17, 1992
(2) Filed with Form 10-KSB on July 13, 1995
(3) Filed with Form 10-KSB on July 2, 1996
(4) Filed with Form 10-KSB on November 14, 1996
(5) Filed with 10-KSB on September 26, 1997
(6) Filed with 10-KSB on August 11, 2000
(7) Filed with 10-KSB on November 16, 2000
(8) Filed with 10-KSB on June 28, 2000
(9) Filed herein
(*) Indicates a compensatory plan or arrangement
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended March 31, 2001.
SIGNATURES
In accordance with the Exchange Act, this report has been signed by the
following persons on its behalf by the registrant and in the capacities and on
the dates indicated.
Reconditioned Systems, Inc.
Date: July 27, 2001 /S/ Scott W. Ryan
---------------------------
Scott W. Ryan
Chairman
/S/ Dirk D. Anderson
---------------------------
Dirk D. Anderson
Chief Executive Officer
(Principal Accounting Officer)