U.S. Securities and Exchange Commission
Washington D. C., 20549
FORM 10-QSB
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
----------- -----------.
Commission file number 0-20924
RECONDITIONED SYSTEMS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified 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)
602-968-1772
---------------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ].
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 5, 1997, the number of
shares outstanding of the Registrant's common stock was 1,473,950.
<PAGE>
PART 1 - FINANCIAL STATEMENTS
ITEM 1
RECONDITIONED SYSTEMS, INC.
UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
2
<PAGE>
RECONDITIONED SYSTEMS, INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,446 $ 150,071
Accounts receivable - trade, net of allowance
for doubtful accounts of $70,403 and
$31,495, respectively 1,328,858 828,430
Inventory 1,082,855 1,009,159
Prepaid expenses and other current assets 28,941 162,530
---------- ----------
TOTAL CURRENT ASSETS 2,479,100 2,150,190
PROPERTY AND EQUIPMENT; net of accumulated
depreciation of $381,146 and
$318,007, respectively 148,185 197,758
OTHER ASSETS
Notes receivable - Officers (Note 3) 150,000 --
Other assets 14,188 41,783
---------- ----------
$2,791,473 $2,389,731
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit (Note 2) $ -- $ 545,893
Current maturities of long-term debt 41,577 49,869
Accounts payable 444,629 308,779
Customer deposits 18,955 53,827
Accrued expenses and other current liabilities 277,075 107,076
---------- ----------
TOTAL CURRENT LIABILITIES 782,236 1,065,444
LONG-TERM DEBT, LESS CURRENT MATURITIES 3,415 45,621
STOCKHOLDERS' EQUITY 2,005,822 1,278,666
---------- ----------
$2,791,473 $2,389,731
========== ==========
3
<PAGE>
RECONDITIONED SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Sales $2,827,429 $1,672,569 $7,340,607 $4,968,983
Cost of sales 2,065,594 1,273,316 5,461,608 3,786,424
---------- ---------- ---------- ----------
Gross profit 761,835 399,253 1,878,999 1,182,559
Selling & administrative
expenses 439,341 352,782 1,231,498 953,095
---------- ---------- ---------- ----------
Income from operations 322,494 46,471 647,501 229,464
---------- ---------- ---------- ----------
Other income (expense):
Interest income 1,806 3,832 2,158 8,364
Interest expense (1,107) (19,787) (19,267) (79,446)
Other (3,281) 2,374 (594) 2,374
---------- ---------- ---------- ----------
(2,582) (13,581) (17,703) (68,708)
---------- ---------- ---------- ----------
Net income $ 319,912 $ 32,890 $ 629,798 $ 160,756
========== ========== ========== ==========
Earnings per common and
common equivalent share $ 0.22 $ 0.02 $ 0.43 $ 0.11
========== ========== ========== ==========
Weighted average number
of shares outstanding 1,473,950 1,473,950 1,473,950 1,473,950
========== ========== ========== ==========
Earnings per common and
common equivalent share -
assuming dilution $ 0.19 $ 0.02 $ 0.38 $ 0.10
========== ========== ========== ==========
Weighted average number of
shares outstanding -
assuming dilution 1,668,105 1,532,391 1,661,745 1,533,847
========== ========== ========== ==========
4
<PAGE>
RECONDITIONED SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1997 AND THE
NINE MONTH PERIOD ENDED DECEMBER 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON COMMON PREFERRED PREFERRED RETAINED TREASURY
STOCK STOCK STOCK STOCK EARNINGS STOCK TOTAL
SHARES AMOUNT SHARES AMOUNT (DEFICIT) (134 SHARES)
------ ------ ------ ------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
March 31, 1,621,300 $2,489,143 555,555 $2,156,717 $(3,465,318) $(3,754) $1,176,788
1996
Conversion of
Preferred 7,222,215 2,097,839 (555,555) (2,156,717) 0 0 (58,878)
Stock to
Common Stock,
net of costs
of $58,878
Reverse
Split of (7,369,565) 0 0 0 0 0 0
Common Stock
Net income -- 0 -- 0 258,114 0 258,114
---------- --------- -------- ---------- ----------- ------- ----------
Balance at
March 31, 1,473,950 $4,586,982 -- 0 $(3,207,204) $(3,754) $1,376,024
1997
Net income -- 0 -- 0 629,798 0 629,798
---------- ---------- -------- ---------- ----------- ------- ----------
BALANCE AT
DECEMBER 31, 1,473,950 $4,586,982 0 0 $(2,577,406) $(3,754) $2,005,822
1997
</TABLE>
5
<PAGE>
RECONDITIONED SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
Cash and cash equivalents
provided (used) by operating
activities $(168,068) $(106,752) $ 542,811 $(110,302)
Cash and cash equivalents
used by investing
activities (150,324) (8,804) (163,831) (29,599)
Cash and cash equivalents
provided (used) by financing
activities (13,605) 7,798 (482,658) 189,274
--------- --------- --------- ---------
Increase (decrease) in cash
and cash equivalents (331,997) (107,758) (103,678) 49,373
Cash and cash equivalents,
beginning of period 370,443 257,829 142,124 100,698
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ 38,446 $ 150,071 $ 38,446 $ 150,071
========= ========= ========= =========
6
<PAGE>
RECONDITIONED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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BASIS OF PRESENTATION:
The unaudited financial statements include only the accounts and
transactions of the Company.
INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements include all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are necessary in order to make the financial statements not
misleading. Operating results for the nine months ended December 31,
1997, are not necessarily indicative of the results that may be expected
for the entire year ending March 31, 1998. These financial statements
have been prepared in accordance with the instructions to Form 10-QSB
and do not contain certain information required by generally accepted
accounting principles. These statements should be read in conjunction
with financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended March 31, 1997.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
The computation of earnings per share is based on the net income and the
weighted average number shares of common stock outstanding for each
period. Certain stock options outstanding are considered common stock
equivalents in computing diluted earnings per share during the quarters
and periods ended December 31, 1997 and 1996, and were accounted for
under the Treasury Stock method. In addition, certain warrants which
were outstanding during the periods ended December 31, 1997 and 1996 are
not included in the computation of diluted earnings per share for those
quarters because their effect would be antidilutive. The earnings per
share and the weighted average number of shares outstanding for the
quarter ended and period ended December 31, 1996 give retroactive effect
to the conversion of preferred stock to common stock and the reverse
split of common stock which were effective on August 12, 1996. Earnings
per share and diluted earnings per share for the quarter and period
ended December 31, 1996 have been restated to give retroactive effect to
FASB No. 128.
- --------------------------------------------------------------------------------
NOTE 2.
REVOLVING LINE OF CREDIT
- --------------------------------------------------------------------------------
On July 30, 1997, the Company terminated its line of credit agreement with
Norwest Business Credit, Inc. and entered into a line of credit agreement with
M&I Thunderbird Bank. Under this new $1,000,000 revolving line of credit
agreement, which is effective through July 31, 1998, interest is payable at the
bank's base rate plus 2%. Borrowings on the line of credit may not exceed 75% of
eligible accounts receivable and 30% of eligible inventory up to $300,000. The
line of credit is collateralized by accounts receivable, inventory, property and
equipment, and intangibles. 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.
7
<PAGE>
RECONDITIONED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3.
NOTES RECEIVABLE - OFFICERS
- --------------------------------------------------------------------------------
On December 19, 1997, the Company issued two separate $75,000 notes receivable
to officers of the Company. The notes are payable in one payment on or before
December 19, 2002. Interest on the notes accrues at a rate equal to that of the
Company's lender's base rate plus 2%, payable annually beginning December 19,
1998.
- --------------------------------------------------------------------------------
NOTE 4.
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
BASIC EPS
Net Income (Numerator) $ 319,912 $ 32,890 $ 629,798 $ 160,756
========== ========== ========== ==========
Shares (Denominator) 1,473,950 1,473,950 1,473,950 1,473,950
========== ========== ========== ==========
Per-Share Amount $ 0.22 $ 0.02 $ 0.43 $ 0.11
========== ========== ========== ==========
DILUTED EPS
Net Income $ 319,912 $ 32,890 $ 629,798 $ 160,756
========== ========== ========== ==========
Shares 1,473,950 1,473,950 1,473,950 1,473,950
Effect of Dilutive Securities:
Stock options 194,155 58,441 187,795 59,897
---------- ---------- ---------- ----------
Total common shares + assumed
conversions 1,668,105 1,532,391 1,661,745 1,533,847
========== ========== ========== ==========
Per-Share Amount $ 0.19 $ 0.02 $ 0.38 $ 0.10
========== ========== ========== ==========
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The statements contained herein which are not historical facts may constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, and are subject to the safe harbors created thereby. These
forward-looking statements involve risks and uncertainties, including, but not
limited to, the risk that the Company may not be able to continue to increase
sales, maximize its production capacity, maintain adequate inventory levels at
an acceptable cost, maintain the mix between wholesale and retail sales, expand
its production and showroom space at an acceptable cost, and hire qualified
personnel in response to rising sales. In addition, the Company's business,
operations and financial condition are subject to substantial risks which are
described in the Company's reports and statements filed from time to time with
the Securities and Exchange Commission. These reports and statements include the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
Reconditioned Systems, Inc. ("RSI" or the "Company") reported revenues of
$2,827,429 for the three month period ended December 31, 1997 (hereinafter the
"reporting quarter"). This represents a $1,154,860 or 69% improvement over the
sales reported for the three month period ended December 31, 1996 (hereinafter
the "comparable quarter").
Wholesale sales increased 97% over the comparable quarter. Retail sales in the
Phoenix and Tucson markets increased 40% over the comparable quarter. This
increase in revenues was primarily attributable to increased marketing efforts
and extended OEM lead times. As previously reported, the Company has implemented
a wholesale marketing plan which focuses on expanding its wholesale markets
within the Western portion of the United States. The Company has also expanded
its retail operations through increased advertising in the Phoenix market and by
hiring additional retail sales personnel. In addition to the effects of the
Company's marketing plan, sales benefited from Haworth, Inc.'s relatively
extended lead times during the reporting quarter, giving the Company a temporary
competitive advantage. Haworth's current lead times are more in line with those
during the first two quarters of the fiscal year.
The Company's gross profit margin improved as a result of operating efficiencies
achieved through economies of scale from 23.8% in the comparable quarter to
26.9% for the reporting quarter. All areas of production benefited from the
economies of scale created by the Company's increased sales.
Selling and administrative expenses for the reporting quarter were 15.5%,
compared to 21.1% for the comparable quarter. The 5.6% improvement primarily
resulted from a lower overall percentage of fixed expenses and the
wholesale/retail mix of those sales. Wholesale sales, generally have lower
selling expenses. Current wholesale sales compensation approximates 3.6% of
wholesale sales revenues. By comparison, retail sales compensation approximates
10.1% of retail sales revenues.
Other income and expenses, which primarily consisted of interest expense,
improved by 81% over the comparable quarter. The Company's increased sales and
improved financial stability enabled management to acquire new financing with
lower borrowing rates on its revolving line of credit. In addition, the Company
paid off its line of credit during the reporting period through improved cash
flows, thereby eliminating its interest expense associated with the revolving
credit line.
The Company's net income increased $287,022 or 873% over the comparable quarter
as a result of the increased sales revenues, gains in economies of scale, lower
overall fixed costs, improved wholesale/retail sales mix, and lower interest
expense, as discussed above.
9
<PAGE>
FOR THE NINE MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
The Company's operating results for the nine month period ended December 31,
1997 (hereinafter the "reporting period") were influenced by the same factors
affecting the results for the reporting quarter, as were discussed in the
narrative above. Wholesale sales represented 57.7% of the sales revenues earned
during the reporting period. Wholesale revenues increased 62.7% compared to the
wholesale sales during the nine month period ended December 31, 1996
(hereinafter the "comparable period"). Retail sales increased by 31% during the
reporting period in comparison to the comparable period.
INCOME TAXES
As of March 31, 1997, the Company had federal loss carryforwards of
approximately $2,990,000 and state loss carryforwards of approximately
$2,790,000. The federal loss carryforwards expire through March 31, 2011 and the
state loss carryforwards expire through March 31, 2001. If the Company is
profitable before these loss carryforwards expire, it will benefit from them at
statutory rates. During the quarters ended December 31, 1997 and 1996, the
Company benefited in the approximate amount of $135,000 and $11,000 from these
loss carryforwards. The Company benefited from these loss carryforwards in the
approximate amount of $315,000 and $91,000 during the periods ended December 31,
1997 and 1996, respectively.
FINANCIAL CONDITION AND LIQUIDITY
The primary factors affecting the Company's financial condition and liquidity
are the results of operations, collection period and rate of inventory turns.
Net income earned during the reporting period generated the cashflow necessary
to finance the 47.7% increase in sales and resulted in net cash from operations
of $542,811. This increase allowed the Company to reduce its revolving credit
and long-term debt balances by $482,658 and finance $163,831 in notes receivable
and additional equipment. As of the date of this report, the Company had no
outstanding balance and approximately $980,000 of availability on its operating
line of credit. In addition, the Company was in compliance with all loan
covenants associated with this revolving line of credit. The Company's average
days sales in accounts receivable increased from 38 days in the comparable
period to 43 in the reporting period. This compares to 51 days as of March 31,
1997 and 41 days as of June 30, 1997, and 40 days as of September 30, 1997. The
Company hopes to maintain an average collection period of 30 to 40 days. The
increase in the collection period was offset by improved inventory turns from
4.2 in the comparable period to 6.3 in the reporting period and the Company's
strong operating results. Management believes cash flow from current operations
and the availability on the Company's $1,000,000 credit line will provide
adequate funds to sustain the Company's growth in sales without the need for
additional outside capital.
FORWARD LOOKING-STATEMENTS
This reporting quarter marks the ninth consecutive profitable quarter following
the Company's restructuring and downsizing. The operating results achieved
during the reporting period are representative of management's long term goals;
however, management does not believe the Company is currently positioned to meet
these results on a consistent basis. In order to meet this level of output, the
Company's remanufacturing facility was operating near production capacity. In
addition, the Company's closing ratio on large projects exceeded the level
normally achieved, primarily as a result of Haworth, Inc.'s extended lead times,
as discussed above. Management's goals for the short term are to achieve results
more consistent with those of the previous two quarters. In order to position
the Company to achieve results like that of the reporting quarter in the long
term, management intends to further develop its wholesale customer base within
the Western region of the United States, expand its production and showroom
space, and hire additional retail sales personnel. In addition, now that the
Company has strengthened its financial condition and liquidity, management
believes a conservative acquisition program is a viable alternative for
additional growth and increased share value.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceeding other than routine
litigation incidental to the business.
ITEM 2. CHANGES IN SECURITIES
Effective June 30, 1997, the Company's Class B Warrants expired.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith pursuant to Regulation S-B:
NO. DESCRIPTION REFERENCE
- --- ----------- ---------
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Amended and Restated Bylaws (2)
4.1 Form of Stock Certificate (1)
4.5 Registration Rights Agreements (3)
*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 Collignon (6)
*4.12 Amendment to Options issued to Dirk Anderson (6)
*4.13 Options issued to Wayne R. Collignon (6)
*4.14 Options issued to Dirk D. Anderson (6)
*4.15 Options issued to Scott W. Ryan (6)
*4.16 Options issued to Scott W. Ryan (6)
10.1 Lease Agreement, dated April 12, 1990 between Boston
Safe Deposit and Trust Company, as Lessor, and Registrant
as Lessee (1)
*10.21 Employment Agreement between Registrant and Wayne Collignon (4)
*10.22 Employment Agreement between Registrant and Dirk Anderson (4)
10.23 Third amendment to the Lease between Registrant, as Lessee,
and Newhew Associates, as Lessor (4)
*10.25 Amendment to Employment Agreement between Registrant and
Wayne Collignon (5)
*10.26 Amendment to Employment Agreement between Registrant and
Dirk Anderson (5)
10.29 Loan documents between Registrant and M&I Thunderbird Bank (7)
*10.30 Loan documents between Registrant and Wayne R. Collignon (8)
*10.31 Loan documents between Registrant and Dirk D. Anderson (8)
27 Financial Data Schedule (8)
- ----------
* Member of Compensation Committee.
(1) Filed with Registration Statement on Form S-18, No. 33-51980-LA, under
Securities Act of 1933, as declared effective on December 17, 1992.
(2) Filed with the Company's definitive proxy statement on July 10, 1996
(3) Filed with Form 10-KSB on July 13, 1995
(4) Filed with Form 10-KSB on July 2, 1996
(5) Filed with Form 10-QSB on November 14, 1996
(6) Filed with Form 10-KSB on June 26, 1997
(7) Filed with Form-10-QSB on November 14, 1997
(8) Filed herewith
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended December 31, 1997.
12
<PAGE>
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.
RECONDITIONED SYSTEMS, INC.
Date: February 10, 1998 /s/ Wayne R. Collignon
-------------------------------------
Wayne R. Collignon, President and CEO
Date: February 10, 1998 /s/ Dirk D. Anderson
-------------------------------------
Dirk D. Anderson, CFO
13
EXHIBIT 10.30
PROMISSORY NOTE
PRINCIPAL LOAN DATE MATURITY LOAN NO COLLATERAL
$75,000.00 12/19/97 12/19/2002 1 50,000 shares of
Reconditioned Systems,
Inc. Common Stock
BORROWER: Wayne R. Collignon LENDER: Reconditioned Systems, Inc.
3346 E. Mountain Vista Dr. 444 West Fairmont
Phoenix, AZ 85044 Tempe, AZ 85282
================================================================================
PRINCIPAL AMOUNT: $75,000.00 INITIAL RATE: 11.000%
DATE OF NOTE: DECEMBER 19, 1997
PROMISE TO PAY. WAYNE R. COLLIGNON ("BORROWER") PROMISES TO PAY TO RECONDITIONED
SYSTEMS, INC., AN ARIZONA CORPORATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF SEVENTY-FIVE THOUSAND &
00/100 DOLLARS ($75,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM DECEMBER 19, 1997, UNTIL PAID IN
FULL.. INTEREST SHALL BE CALCULATED FROM THE DATE OF THE LOAN UNTIL REPAYMENT OF
THE LOAN.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on December 19, 2002. In addition, Borrower
will pay annual payments of accrued unpaid interest beginning December 19, 1998,
and all subsequent interest payments are due on the same day of each year after
that. Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs
and any late charges then to any unpaid interest, and any remaining amount to
principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Bank's Prime RaTe
(the "Index"). The interest rate to be applied to the unpaid principal balance
of this Note will be at a rate of 2.500 percentage points over the Index,
resulting in an initial rate of 11% per annum. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender.
<PAGE>
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps with
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Arizona. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Maricopa County, the State of Arizona. This Note shall be governed by
and construed in accordance with the laws of the State of Arizona.
COLLATERAL. For valuable consideration, the Borrower grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in the agreement with respect to the Collateral, in
addition to all other rights which Lender may have by law. The word "Collateral"
means the following described property of Borrower, whether now owned or
hereafter acquired, whether now existing or hereafter arising, and wherever
located: 50,000 shares of Reconditioned Systems, Inc. Common Stock. Borrower
shall not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. Borrower shall not pledge, mortgage, encumber or otherwise permit
the Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be commingled
with any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Borrower shall
immediately deliver any such proceeds to Lender.
Borrower represents and warrants to Lender that it holds good and marketable
title to the Collateral, free and clear of all liens and encumbrances except for
the lien of this agreement. No financing statement covering any of the
Collateral is on file in any public office other than those which reflect the
security interest created by this agreement or to which Lender has specifically
consented. Borrower shall defend Lender's rights in the Collateral against the
claims and demands of all other persons.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Arizona Uniform Commercial Code. In addition and without
limitations, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Borrower to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral.
<PAGE>
SELL THE COLLATERAL. Lender shall have full power to sell, transfer, or
otherwise deal with the collateral or proceeds thereof in its own name or
that of Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISION OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
WAYNE R. COLLIGNON
X: /s/ Wayne R. Collignon
- -------------------------
EXHIBIT 10.31
PROMISSORY NOTE
PROMISSORY NOTE
PRINCIPAL LOAN DATE MATURITY LOAN NO COLLATERAL
$75,000.00 12/19/97 12/19/2002 1 50,000 shares of
Reconditioned Systems,
Inc. Common Stock
BORROWER: Dirk D. Anderson LENDER: Reconditioned Systems, Inc.
6445 S. Maple #2072 444 West Fairmont
Tempe, AZ 85283 Tempe, AZ 85282
================================================================================
PRINCIPAL AMOUNT: $75,000.00 INITIAL RATE: 11.000%
DATE OF NOTE: DECEMBER 19, 1997
PROMISE TO PAY. DIRK D. ANDERSON ("BORROWER") PROMISES TO PAY TO RECONDITIONED
SYSTEMS, INC., AN ARIZONA CORPORATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF SEVENTY-FIVE THOUSAND &
00/100 DOLLARS ($75,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM DECEMBER 19, 1997, UNTIL PAID IN
FULL.. INTEREST SHALL BE CALCULATED FROM THE DATE OF THE LOAN UNTIL REPAYMENT OF
THE LOAN.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on December 19, 2002. In addition, Borrower
will pay annual payments of accrued unpaid interest beginning December 19, 1998,
and all subsequent interest payments are due on the same day of each year after
that. Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs
and any late charges then to any unpaid interest, and any remaining amount to
principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Bank's Prime RaTe
(the "Index"). The interest rate to be applied to the unpaid principal balance
of this Note will be at a rate of 2.500 percentage points over the Index,
resulting in an initial rate of 11% per annum. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender.
<PAGE>
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps with
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Arizona. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Maricopa County, the State of Arizona. This Note shall be governed by
and construed in accordance with the laws of the State of Arizona.
COLLATERAL. For valuable consideration, the Borrower grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in the agreement with respect to the Collateral, in
addition to all other rights which Lender may have by law. The word "Collateral"
means the following described property of Borrower, whether now owned or
hereafter acquired, whether now existing or hereafter arising, and wherever
located: 50,000 shares of Reconditioned Systems, Inc. Common Stock. Borrower
shall not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. Borrower shall not pledge, mortgage, encumber or otherwise permit
the Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be commingled
with any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Borrower shall
immediately deliver any such proceeds to Lender.
Borrower represents and warrants to Lender that it holds good and marketable
title to the Collateral, free and clear of all liens and encumbrances except for
the lien of this agreement. No financing statement covering any of the
Collateral is on file in any public office other than those which reflect the
security interest created by this agreement or to which Lender has specifically
consented. Borrower shall defend Lender's rights in the Collateral against the
claims and demands of all other persons.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Arizona Uniform Commercial Code. In addition and without
limitations, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Borrower to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral.
<PAGE>
SELL THE COLLATERAL. Lender shall have full power to sell, transfer, or
otherwise deal with the collateral or proceeds thereof in its own name or
that of Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISION OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
DIRK D. ANDERSON
X: /s/ Dirk D. Anderson
- -----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 891915
<NAME> RECONDITIONED SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 38,446
<SECURITIES> 0
<RECEIVABLES> 1,399,261
<ALLOWANCES> (70,403)
<INVENTORY> 1,082,855
<CURRENT-ASSETS> 2,479,100
<PP&E> 529,331
<DEPRECIATION> (381,146)
<TOTAL-ASSETS> 2,791,473
<CURRENT-LIABILITIES> 782,236
<BONDS> 0
0
0
<COMMON> 4,586,982
<OTHER-SE> (2,581,160)
<TOTAL-LIABILITY-AND-EQUITY> 2,791,473
<SALES> 7,340,607
<TOTAL-REVENUES> 7,340,607
<CGS> 5,461,608
<TOTAL-COSTS> 6,693,106
<OTHER-EXPENSES> (1,564)
<LOSS-PROVISION> 79,249
<INTEREST-EXPENSE> 19,267
<INCOME-PRETAX> 629,798
<INCOME-TAX> 0
<INCOME-CONTINUING> 629,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629,798
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.38
</TABLE>
