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 June 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from__________ to ___________.
Commission file number 0-20924
Reconditioned Systems, Inc.
(Exact name of small business issuer as specified in its charter)
Arizona 86-0576290
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
444 West Fairmont, Tempe, Arizona 85282
(Address of principal executive offices)
480-968-1772
(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 August 2, 2000, the number of
shares outstanding of the Registrant's common stock was 1,328,599.
Transitional Small Business Disclosure Format. Yes ___No _X__ .
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Item 1
PART 1 - FINANCIAL STATEMENTS
RECONDITIONED SYSTEMS, INC.
Unaudited Financial Statements
June 30, 2000
2
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RECONDITIONED SYSTEMS, INC.
BALANCE SHEETS
June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $1,048,649 $1,279,252
Accounts receivable - trade, net
of allowance for doubtful
accounts of approximately $79,000
and $37,500, respectively 2,059,297 1,308,726
Inventory 1,691,647 918,941
Prepaid expenses and other current 194,092 80,210
assets
------- ------
Total current assets 4,993,685 3,587,129
--------- ---------
Property and Equipment, net: 273,160 199,102
------- -------
Other Assets:
Notes receivable - officer 75,000 150,000
Refundable deposits 13,036 13,036
Other 31,813 29,995
------ ------
119,849 193,031
------- -------
Total Assets $5,386,694 $3,979,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,152,997 $455,568
Customer deposits 29,167 30,016
Accrued expenses and other
current liabilities 400,998 224,748
------- -------
Total current liabilities 1,583,162 710,332
--------- -------
Stockholders' Equity:
Common stock, no par value; 20,000,000
shares authorized $4,588,259 $4,586,982
Accumulated deficit (427,690) (1,146,802)
--------- -----------
4,160,569 3,440,180
Less: treasury stock, 145,217 and 72,000
shares respectively, at cost (357,037) (171,250)
--------- ---------
3,803,532 3,268,930
--------- ----------
Total Liabilities and Stockholders' Equity $5,386,694 $3,979,262
========== ==========
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RECONDITIONED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Month Periods Ended June 30, 2000 and 1999
(Unaudited)
Three Months Ended
June 30,
2000 1999
---- ----
Sales $3,564,905 $2,297,796
Cost of sales 2,824,829 1,717,015
--------- ---------
Gross profit 740,076 580,781
Selling & administrative expenses 480,048 423,139
------- -------
Income from operations 260,028 157,642
Other income (expense):
Interest income 15,643 16,168
Other 5,746 0
----- -
Net income before provision for income taxes 281,417 173,810
Income tax expense 89,541 0
------ -
Net income $191,876 $173,810
======== ========
Basic earnings per share (Notes 1 and 2) $ 0.14 $ 0.12
======== =======
Basic weighted average number
of shares outstanding 1,327,694 1,458,232
========= =========
Diluted earnings per common
and common equivalent share
(Notes 1 and 2) $ 0.13 $ 0.10
======= =======
Diluted weighted average number
of shares outstanding 1,469,750 1,668,463
========== =========
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RECONDITIONED SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Year Ended March 31, 2000 and the Three Month Period Ended June 30, 2000
(Unaudited)
<TABLE>
Common Common Retained
Stock Stock Earnings Treasury
Shares Amount (Deficit) Stock Total
<S> <C> <C> <C> <C>
Balance at March 31,
1999 1,473,816 $4,586,982 $(1,320,612) $ - $3,266,370
Purchase of Treasury
Stock (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
Transfer of shares to
ESPP Plan 915 683 - 2,176 2,859
Net income - - 191,876 - 191,876
--------- ---------- ---------- ---------- ----------
Balance at June 30,
2000 1,328,599 $4,588,259 $(427,690) $(357,037) $3,803,532
========= ========== ========== ========== ==========
</TABLE>
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RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended June 30, 2000 and 1999
(Unaudited)
Three Months Ended
June 30,
2000 1999
---- ----
Cash and cash equivalents provided by
operating activities $160,223 $371,280
Cash and cash equivalents used by
investing activities (35,211) (24,103)
Cash and cash equivalents provided/
(used) by financing activities 2,859 (171,250)
----- ---------
Increase in cash and cash equivalents 127,871 175,927
Cash and cash equivalents at beginning
of period 920,778 1,103,325
------- ---------
Cash and cash equivalents at end of period $1,048,649 $1,279,252
========== ==========
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RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
Note 1.
Summary of Significant Accounting Policies
--------------------------------------------------------------------------------
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. Operating results for the three months ended
June 30, 2000 are not necessarily indicative of the results that may be
expected for the entire year ending March 31, 2001. 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 the financial statements and notes thereto
included in the Company's Form 10-KSB for the year that ended March 31,
2000.
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.
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RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
Note 2.
Earnings Per Share
--------------------------------------------------------------------------------
Three Months Ended
June 30,
2000 1999
---- ----
BASIC EPS
Net Income $191,876 $173,810
======== ========
Weighted average number of shares
outstanding 1,327,694 1,458,232
Basic earnings per share $0.14 $0.12
===== =====
DILUTED EPS
Net Income $191,876 $173,810
======== ========
Weighted average number of shares
outstanding 1,327,694 1,458,232
Effect of dilutive securities:
Stock options 142,056 210,231
------- -------
Total common shares + assumed
conversions 1,469,750 1,668,463
========= =========
Per Share Amount $0.13 $0.10
===== =====
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Item 2. 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 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 Reconditioned Systems, Inc. (the "Company") may
not be able to maintain its increased sales volume, the risk that the Company
may not see improved profitability and the risk that the Company will not be
successful in developing clone replacements for significant inventory parts. In
addition, the Company's business, operations and financial condition are subject
to substantial risks that are described in the Company's reports and statements
filed from time to time with the Securities and Exchange Commission, including
the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31,
2000.
RESULTS OF OPERATIONS
---------------------
SALES REVENUE
The Company reported sales revenue of $3,564,905 for the quarter ended June 30,
2000 (hereinafter the "reporting period") as compared to $2,297,796 for the
quarter ended June 30, 1999 (hereinafter the "comparable period"), resulting in
an increase of $1,267,109 or 55%. This increase was primarily due to improved
retail sales. Remanufactured furniture sales increased by 52.7%, while new
furniture sales increased by 119.5%.
Retail sales totaled $1,832,623 during the reporting period, up 86.6% over the
comparable period. Retail sales of remanufactured furniture during the reporting
period increased by 36.9% over the comparable period. Retail sales of new
furniture during the reporting period increased by 141% over the comparable
period. Management believes these increases are a result of the Company's focus
during the current fiscal year on building a stronger retail business operating
as "Total Office Interiors." This was achieved by the addition of the Company's
new sales manager in July 1999, the expansion of new furniture and accessory
product-lines, increased commitment to improving customer service and sales
support, the continued development of qualified sales personnel and the opening
of the Company's retail showroom.
Wholesale sales totaled $1,732,283 for the reporting period and $1,315,845 for
the comparable period, up 31.6%. This increase was primarily due to improved
market demand following a general industry slowdown during the fiscal year ended
March 31, 2000. Wholesale remanufactured sales and wholesale new furniture sales
for the reporting period increased by 36.9% and 31.3%, respectively, over the
comparable period.
GROSS MARGIN
Despite the higher percentage of retail to wholesale sales, the Company's gross
profit margin for the reporting period declined 4.52% from 25.28% for the
comparable period to 20.76% for the reporting period. This decline was primarily
attributable to higher product costs as a result of increased demand for used
Haworth inventories purchased on the aftermarket and a change in the
remanufactured to new furniture sales-mix. Following a general industry-wide
slow-down in sales volume during the calendar year ended December 31, 1999, the
industry's sales bounced back during the first quarter of 2000. As a result, the
demand for used inventories increased, creating a highly competitive purchasing
market. Furthermore, the Company's internal demand for used inventories
increased as a result of increased sales volume. In order to meet demand,
the Company was required to pay higher prices for it's used inventories and
purchase more new and clone parts to supplement the used inventories it was able
to secure.
In addition, the Company's remanufactured to new furniture sales-mix changed
from 88% remanufactured / 12% new furniture in the comparable period to 84%
remanufactured / 16% new furniture in the reporting period. As the gross margins
on new furniture sales are typically lower than on sales of the Company's
remanufactured product, this also had a negative impact on the Company's gross
margin.
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OPERATING EXPENSES
The Company's selling expenses decreased from 11.53% of sales in the comparable
period to 9% of sales for the reporting period. The Company's retail sales staff
is paid commissions based upon the gross profit of their sales. As a result, the
lower gross margins earned on the Company's sales revenues during the reporting
period also resulted in lower selling expenses as a percentage of sales for the
reporting period.
The Company's administrative expenses decreased from 6.88% of sales in the
comparable period to 4.4% of sales in the reporting period. This improvement was
primarily a result of the elimination of salaries and bonuses payable in the
comparable period to the Company's former President and CEO. The Company's
current President and CEO does not draw a salary or bonuses.
OTHER INCOME AND EXPENSES
The Company's other income and expenses, which consists primarily of interest
income, remained relatively consistent from the comparable period to the
reporting period at $16,168 and $21,389, respectively.
INCOME TAXES
------------
As of March 31, 2000, the Company had federal loss carryforwards of
approximately $299,000 and state loss carryforwards of approximately $99,000.
Based on annualizing the earnings for the quarter ended June 30, 2000, the
Company's income tax expense net of the remaining net operating loss
carryforwards totals approximately $89,000. During the three month period ended
June 30, 1999, the Company's taxable net income was fully offset by net
operating loss carryforwards. As a result the Company incurred no income tax
expense during this period.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
As of June 30, 2000, the Company's cash and cash equivalents totaled $1,048,649.
In addition, the Company's net worth and working capital totaled $3,803,532 and
$3,410,523, respectively. The Company has no long-term debt and $1,000,000
available on its line of credit through M&I Thunderbird Bank.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operating activities
totaled $160,223 during the reporting period. The Company's accounts receivable,
inventory and prepaid expenses all increased during the reporting period,
however they were partially offset by increased accounts payable and accrued
expenses. Although accounts receivable increased, the average days receivables
improved from 62 days as of March 31, 2000 to 53 days as of June 30, 2000.
During the reporting period, the Company invested approximately $500,000 in
additional inventories and approximately $130,000 in inventory deposits. This
increase was a result of both increasing costs and procurement of more
inventories to meet upcoming demand. The Company's Management believes the
majority of these increases relate to timing issues, which should be
self-correcting during the next few quarters.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES. During the reporting period,
the Company used approximately $35,000 for capital expenditures and received
approximately $3,000 from employees participating the in the Company's Employee
Stock Purchase Plan.
EXPECTED FUTURE CASH FLOWS. Cash provided by operations in the near future
should closely follow operating income. The Company's accounts receivable
balances have been steadily increasing over the past few years. As previously
reported, management implemented certain personnel and policy changes in an
effort to improve the collection of accounts receivable. As a result of these
changes, the Company's average days receivables improved from 62 days as of
March 31, 2000 to 53 days as of June 30, 2000, and 48 days as of July 31, 2000.
Management believes these changes will enable the Company to further reduce the
average days receivables to approximately 45 days within the next few reporting
quarters.
Management believes current cash reserves and cash flows from operations will be
adequate to fund the needs of the Company through the end of the next fiscal
year without the need for outside financing.
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FORWARD LOOKING STATEMENTS
--------------------------
Although the reporting period's sales revenues exceeded management's forecasts,
the gross margins were lower than management's expectations. Management's focus
at this time is to try to maintain the increased sales levels attained during
the reporting period, while bringing product cost percentages back into line
with those reported in the previous year. As discussed above, a significant
reason for the lower profit margins was a direct result of the increased
competitive pressures, increased internal and external demand for product and
higher prices demanded for used furniture inventories on the aftermarket.
Management believes these pressures are weakening and used inventory purchase
prices should return to normal levels in the near future. Additionally, the
Company is currently contracting with an outside vendor to develop clone
replacement parts for some of the parts which the Company is most frequently
required to purchase new. Upon successful development of these clone parts, the
Company could realize substantial cost savings (up to 70% cost savings on some
parts) which should have a positive impact on the Company's gross margins.
11
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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 AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
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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 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 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
10.1 Lease Agreement, dated April 12, 1990 between Boston Safe Deposit
and Trust Company, as Lessor, and Registrant as Lessee 1
10.33 Loan document between M&I Thunderbird Bank and the Registrant 6
27 Financial Data Schedule 7
(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-QSB on November 14, 1996
(5) Filed with 10-KSB on September26, 1997
(6) Filed with 10-QSB on August 11, 2000
(7) 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 June 30, 2000.
13
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Reconditioned Systems, Inc.
Date: August 14, 2000 /S/ Scott W. Ryan
___________________________________
Scott W. Ryan, CEO
Date: August 14, 2000 /S/ Dirk D. Anderson
___________________________________
Dirk D. Anderson, COO
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