U.S. Securities and Exchange Commission
Washington D. C., 20549
Form 10-KSB
(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, 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.
(Name of small business issuer in its charter)
Arizona 86-0576290
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 Act: None
Securities registered pursuant to Section 12(g) of the 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, 2000 were $10,948,549.
As of June 9, 2000, 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 $2,331,801.
As of June 9, 2000, the number of shares outstanding of the Registrant's common
stock was 1,327,684.
Portions of the Registrant's definitive Proxy Statement, dated July 13, 2000,
are incorporated herein by reference into Part III of this Report.
Transitional Small Business Disclosure Format. Yes ___No X .
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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
dominate 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, 2000, these sales
represented 73% 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.
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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, 2000, these sales represented 27% 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.
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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 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. The Company
offers the Teknion line 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.
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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, 2000, wholesale sales
accounted for 54% and retail sales totaled 46% 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 it wholesale sales, and seven full-time retail
salespeople who concentrate on retail sales in the greater Phoenix, Arizona
area.
PERSONNEL
The Company currently has 81 full-time employees of whom 52 are production
personnel directly involved in there manufacturing process, five are in the
installation department, twelve are in the sales and design departments, and
twelve 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 Operating 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 naming the Company as
an additional insured 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
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 it
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.
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Item 3. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings.
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 2000.
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 setsforth 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, 1998 3 1/4 5 1/4
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
September, 1998 3 1/4 5
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
December, 1998 3 4 3/4
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
March, 1999 2 1/4 4 13/16
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
June, 1999 2 1/2 3 7/8
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
September 1999 2 5/16 3 7/16
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
December, 1999 2 1/8 2 3/4
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
March, 2000 1 1/2 3 3/8
----------------------------- --------------------- ----------------------------
The total number of shares of Common Stock of the Company outstanding as of June
12, 2000 was 1,327,684. As of the close of business on June 12, 2000, the number
of record holders of the Company's Common Stock was 48 and the number of holders
of the Company's Common Stock including beneficial holders of stock held in
street name was estimated to be 425.
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 of increased competition from new "bargain"
product-lines and the risk that the Company may not see increased retail sales.
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.
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RESULTS of OPERATIONS
SALES REVENUE
The Company reported sales for the fiscal year ended March 31, 2000 (the
"reporting period") of $10,948,549. This compares to $11,042,451 for the fiscal
year ended March 31, 1999 (the "comparable period"), resulting in a decrease of
$93,902 or less than 1%. Despite a general decline in industry sales during
1999, the Company was able to achieve relatively level sales results as a result
of increased retail sales. Approximately 46% of the Company's total sales for
the reporting period were generated from retail sales, up from 36% in the
comparable period.
Retail sales totaled $5,033,964, an increase of $1,022,036 or 25.5% over the
comparable period. This increase was primarily a result of the Company's focus
on developing its retail business operations. In July 1999, the Company promoted
one of its salespeople to sales manager to lead and continue to build the retail
operations. In October 1999, the Company remodeled its offices and 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.
Wholesales sales totaled $5,914,585, a decrease of $1,115,938 or 15.9% over the
comparable period. This decrease was primarily a result of increased competition
from new "bargain" product-lines and an overall industry slow-down. In an effort
to counter the decreased sales, beginning in July 1999, the Company's wholesale
department began offering deeper discounts and implemented a new freight policy
modeled after those offered by new furniture manufacturers. Wholesale sales for
the first quarter of the reporting period (prior to implementation of the new
pricing structure) were down 20% over the comparable quarter. Wholesale sales
for the second, third and fourth quarters of the reporting period were down 26%,
14% and 3% over the comparable quarters, respectively. Although the market was
somewhat slow to react to the pricing structure changes, management believes the
new program is beginning to offset the increased competitive pressures.
GROSS MARGIN
The Company's gross profit margin for the reporting period was 25.9% for the
reporting period, as compared to 24% for the comparable period. Retail gross
profit margins improved from 24.6% for the comparable period to 28.9% for the
reporting period, primarily as a result of increased supply of used Haworth
product available on the aftermarket resulting in lower product costs. Wholesale
gross profit margins were down slightly over the comparable period, from 23.6%
to 22.5% in the reporting period. Increased competitive pressures and
implementation of the Company's new wholesale pricing and freight program drove
margins down, but were partially offset by the lower product costs.
OPERATING EXPENSES
The Company's selling and administrative expenses net of terminated merger costs
and severance charges (see Note 7 and Note 12 of the Audited Financial
Statements) increased from 14.5% in the comparable period to 17% in the
reporting period. This increase was primarily due to increased selling expenses
due to changes in the retail/wholesale sales mix and expenditures related to
Year 2000 compliance. The Company's selling expenses for retail sales are
typically higher than those for wholesale sales.
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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, of which $292,984 was charged in
the second fiscal quarter and $40,000 was charged in the fourth fiscal quarter.
Confidentiality provisions in the settlement with Mr. Collignon prevent the
Company from disclosing any further details regarding this transaction.
TERMINATED MERGER COSTS
During the fiscal year ended March 31, 1999, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Cort Investment
Group, Inc., a Texas corporation d/b/a Contract Network ("CNI"). CNI terminated
the Merger Agreement in February 1999. As of March 31, 1999, the Company had
incurred $50,588 in expenses related to the terminated merger.
OTHER INCOME AND EXPENSES
The Company's other income and expenses, which consist primarily of interest
income, improved by $10,360 or 18.7% 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, 2000, the Company had federal loss carryforwards of
approximately $299,000 and state loss carryforwards of approximately $99,000.
The federal loss carryforwards expire March 31, 2001 through March 31, 2011 and
the state loss carryforwards expire March 31, 2001. The Company will benefit
from the loss carryforwards at statutory rates to the extent it is profitable
before they expire. Due to significant losses incurred during the years ended
March 31, 1994, 1995 and 1996 and the uncertainty of the utilization of the loss
carryforwards in future periods, the Company established, and continues to
maintain, a valuation allowance equal to the full amount of the Company's
deferred tax assets.
FINANCIAL CONDITION and LIQUIDITY
Cash Flows from Operating Activities. Net cash provided by operating activities
totaled $363,166 for the reporting period as compared to $507,844 for the
comparable period. Net cash provided by operating activities excluding the
one-time severance charges of $332,984 totaled $615,666 for the reporting
period. Net income for the reporting period was partially offset by increased
accounts receivable and increased inventory levels. The Company invested
approximately $281,500 in additional inventories. A significant portion of this
increase was the procurement of new Haworth electrical components purchased in
bulk prior to a price increase resulting from a change in vendors. Accounts
receivable increased by approximately $358,000. The average days receivables
increased from 44 days in the comparable period to 62 days in the reporting
period. See "Forward Looking Statements" below for further discussion.
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Cash Flows from Investing and Financing Activities. Net cash used by investing
activities totaled $187,095 primarily for the purchase of fixed assets related
to the Company's Year 2000 compliance program. Net cash used by financing
activities totaled $358,618, primarily for the purchase of treasury stock.
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. The increased
accounts receivable balances in the comparable period were consistent with the
growth experienced during that year. The increase in accounts receivable and the
corresponding increase in average days receivable for the reporting period were
considerably higher than management's expectations. As a result of these
increases, management has made personnel changes in the collection department
and implemented more stringent credit procedures. Management believes these
changes will enable the Company to decrease the average days receivables to
approximately 45 days within the next few reporting quarters.
Management believes current 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 6 of the Audited
Financial Statements.)
FORWARD LOOKING STATEMENTS
Fiscal Year 2000 was a year in which management focused on building the
infrastructure necessary for future growth. The Company invested in a new
computer system, bringing the Company's computers into Year 2000 compliance and
improving administrative efficiency. Improvements were made to the Company's
offices and a new showroom was constructed. Management hired a retail sales
manager, implemented the "Total Office Interiors" marketing plan and added
additional local sales staff in an effort to increase retail sales. Management
plans to continue to develop the local retail sales, while maintaining wholesale
sales. While it is unlikely the Company will see growth in the 15 - 35% growth
range reported in prior years without an acquisition or entrance into other
markets, management is hopeful that there will be modest sales growth.
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Item 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Reconditioned Systems, Inc.
We have audited the accompanying balance sheets of Reconditioned Systems, Inc.
as of March 31, 2000 and 1999, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 referred to above present fairly, in
all material respects, the financial position of Reconditioned Systems, Inc. as
of March 31, 2000 and 1999, and the results of its operations, stockholders'
equity, and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Semple & Cooper, LLP
Phoenix, Arizona
April 27, 2000
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RECONDITIONED SYSTEMS, INC.
BALANCE SHEETS
March 31, 2000 and 1999
2000 1999
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1, 2 and 3) $920,778 $1,103,325
Accounts receivable (Notes 1 and 6) 2,055,151 1,691,882
Inventory (Notes 1 and 6) 1,191,173 909,622
Prepaid expenses and other current assets 54,372 51,002
--------- ---------
Total current assets 4,221,474 3,755,831
--------- ---------
Property and Equipment, net: (Note 1 and 5) 262,543 189,173
--------- ---------
Other Assets:
Notes receivable - officer (Notes 3 and 4) 75,000 150,000
Refundable deposits 13,036 13,036
Other 73,745 24,703
--------- ---------
161,781 187,739
--------- ---------
Total Assets $4,645,798 $4,132,743
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 717,148 557,662
Customer deposits 26,309 22,635
Accrued expenses and other current liabilities 293,544 286,076
--------- ---------
Total current liabilities 1,037,001 866,373
Stockholders' Equity:
Common stock, no par value; 20,000,000
shares authorized 4,587,576 4,586,982
Accumulated deficit (619,566) (1,320,612)
--------- ----------
3,968,010 3,266,370
Less: treasury stock, 146,132 and 132 shares
respectively, at cost (359,213) 0
--------- ---------
3,608,797 3,266,370
--------- ---------
Total Liabilities and Stockholders' Equity $4,645,798 $4,132,743
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
11
<PAGE>
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended March 31, 2000 and 1999
2000 1999
---------- ----------
Sales $10,948,549 $11,042,451
Cost of sales 8,114,580 8,396,278
--------- ---------
Gross profit 2,833,969 2,646,173
Selling & administrative expenses 1,865,787 1,600,257
Severance charges (Note 7) 332,984 0
Terminated merger costs (Note 12) 0 50,588
--------- ---------
Income from operations 635,198 995,328
Other income (expense):
Interest income 63,055 49.083
Interest expense 0 (1,276)
Other 2,793 7,681
--------- ---------
Net income before income taxes 701,046 1,050,816
Provision for income taxes 0 0
--------- ---------
Net income $701,046 $1,050,816
========= =========
Basic earnings per share (Notes 1 and 11) $ 0.51 $ 0.71
========= =========
Basic weighted average number
of shares outstanding 1,372,935 1,473,950
========= =========
Diluted earnings per common
and common equivalent share
(Notes 1 and 11) $ 0.46 $ 0.62
========== =========
Diluted weighted average number
of shares outstanding 1,534,051 1,697,352
========== =========
The Accompanying Notes are an Integral Part
of the Financial Statements
12
<PAGE>
<TABLE>
<CAPTION>
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 2000 and 1999
Common Stock Common Stock Retained
Shares Amount Earnings Treasury
(Deficit) Stock Total
--------------------- --------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at
March 31,1998 1,473,950 $4,586,982 $(2,367,674) $(3,754) $2,215,554
Retirement of Treasury
Shares (134) - (3,754) 3,754 -
Net income - - 1,050,816 - 1,050,816
--------------------- --------- ------------ --------- -------- --------
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
ESOP 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
============== ========= ========== ========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
13
<PAGE>
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended March 31, 2000 and 1999
2000 1999
--------- ---------
Cash Flows from Operating Activities:
Cash received from customers $10,588,073 $10,319,727
Cash paid to suppliers and employees (10,287,962) (9,859,690)
Interest received 63,055 49,083
Interest paid 0 (1,276)
--------- ---------
Net cash provided by operating
activities 363,166 507,844
--------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment (173,270) (103,590)
Other (13,825) (174)
--------- ---------
Net cash used by investing
activities (187,095) (103,764)
--------- ---------
Cash Flows from Financing Activities:
Principal payments on credit line,
long- term borrowings and obligations 0 (33,786)
under capital leases
Purchase of Treasury Stock (368,412) 0
Transfers to ESOP Plan 9,794 0
--------- ---------
Net cash used by financing
activities (358,618) (33,786)
--------- ---------
Increase (Decrease) in cash and cash equivalents (182,547) 370,294
Cash and cash equivalents at beginning of
period 1,103,325 733,031
--------- ---------
Cash and cash equivalents at end of period $920,778 $1,103,325
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
14
<PAGE>
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Continued)
For the Year Ended March 31, 2000 and 1999
2000 1999
--------- ---------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $701,046 $1,050,816
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 84,816 48,790
Provision for doubtful accounts (5,000) 1,000
Loss on disposal of fixed assets 0 355
Non-cash portion of severance charges
(Note 7) 80,484 0
Changes in assets and liabilities:
Accounts receivable (358,269) (730,760)
Inventory (281,551) 15,636
Prepaid expenses and other assets (28,988) (11,548)
Accounts payable and accrued expenses 170,628 133,555
--------- ---------
Net cash provided by operating activities $363,166 $507,844
========= =========
Non-Cash Investing and Financing Activities:
During the years ended March 31, 2000 and 1999, the Company did not have any
non-cash investing or financing activities.
The Accompanying Notes are an Integral Part
of the Financial Statements
15
<PAGE>
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements
-------------------------------------------------------------------------------
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 generally
accepted accounting principles 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 receivable. At March 31, 2000 and 1999, the
Company has established an allowance for doubtful accounts in the
amount of $26,000 and $31,000, 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, 2000 and 1999, the Company had
established a reserve for damaged and obsolete inventory in the amounts
of $50,000 and $100,000, respectively.
16
<PAGE>
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. 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 5 - 7
Leasehold improvements Lease term
Vehicles 4 - 5
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 year ended March
31, 2000, 3,868 shares were issued to employees under the Plan.
17
<PAGE>
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.
--------------------------------------------------------------------------------
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, 2000, the Company had
approximately $720,778 of uninsured cash.
In addition, the Company specializes in remanufacturing one particular original
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, 2000 March 31, 1999
-------------- --------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Cash and cash equivalents $920,778 $920,778 $1,103,235 $1,103,235
The carrying amount approximates fair value of cash and short-term instruments.
The fair values of the Note receivable - officer cannot be determined due to its
related party nature.
18
<PAGE>
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 4.
Note Receivable - Officer
--------------------------------------------------------------------------------
As of March 31, 2000, the Company had a 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.
--------------------------------------------------------------------------------
Note 5.
Property and Equipment
--------------------------------------------------------------------------------
Property and equipment by major classifications are as follows:
March 31,
2000 1999
------- -------
Office furniture and equipment $271,255 $258,840
Machinery and equipment 121,327 233,996
Leasehold improvements 34,612 42,304
Vehicles 36,922 36,054
Showroom furniture 21,512 0
------- -------
485,628 571,194
Accumulated depreciation (223,085) (382,021)
------- -------
$262,543 $189,173
======== ========
--------------------------------------------------------------------------------
Note 6.
Pledged Assets and Line of Credit
--------------------------------------------------------------------------------
As of March 31, 2000, 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. 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.
As of March 31, 2000, the Company had no outstanding borrowings on the line of
credit and was in compliance with all of the covenants of the agreement.
19
<PAGE>
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 7.
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, of which $292,984 was charged in
the second fiscal quarter and $40,000 was charged in the fourth fiscal quarter.
Confidentiality provisions in the settlement with Mr. Collignon prevent the
Company from disclosing any further details regarding this transaction.
--------------------------------------------------------------------------------
Note 8.
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
--------- --------
2001 $332,489
2002 356,884
2003 363,852
2004 370,995
2005 378,137
Subsequent 417,436
--------
$2,219,793
=========
Rent expense under operating lease agreements for the years ended March 31, 2000
and 1999 was approximately $336,000 and $285,500, respectively.
20
<PAGE>
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 9.
Income Taxes
--------------------------------------------------------------------------------
Deferred tax assets consist of the following components:
March 31, 2000 March 31, 1999
-------------- --------------
Deferred tax assets:
State loss carryforwards $ 8,000 $72,000
Federal loss carryforwards 105,000 338,000
--------- ---------
113,000 410,000
Less: valuation allowance (113,000) (410,000)
--------- ---------
$ 0 $ 0
========= =========
The Company's approximate net operating loss carryforwards and their respective
expiration dates, are as follows:
Amount Expiration
-------- ----------
Federal $299,000 2011
State $ 99,000 2001
Based on recent taxable income levels, the Company's net operating loss
carryforwards may not be sufficient to fully offset income in future periods, in
which case the Company would begin to incur income tax expense.
--------------------------------------------------------------------------------
Note 10.
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.
21
<PAGE>
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 10.
Common Stock Options
(Continued)
--------------------------------------------------------------------------------
Following is a sumary of the status of the outstanding stock options for
employees, officers and directors during the year ended March 31, 1999 and 2000:
Weighted Average
Number of Options Exercise Price
----------------- ----------------
Outstanding as of April 1, 1998 300,000 $1.00
Granted 8,400 3.00
Exercised 0 0
- -
Outstanding as of March 31, 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
======= =====
Information relating to the stock options at March 31, 2000, summarized by
exercise price, is as follows:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted Average Weighted Average
---------------- ----------------
Remaining
Life Exercise Exercise Price
--------------
Shares (Years) Price Shares
------ ------- ----- ------
6,300 4.0 $3.00 0 -
200,000 6.39 $1.00 200,000 $1.00
8,907 7.25 $2.63 4,000 $2.63
----- ---- ----- ----- -----
215,207 6.36 $1.13 204,000 $1.03
======= ==== ===== ======= =====
22
<PAGE>
--------------------------------------------------------------------------------
Note 10.
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, 1999 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
March 31,2000
-------------
Net income:
As reported $701,046
Pro forma 692,046
Earnings per share:
Basic:
As reported $ 0.51
Pro forma 0.50
Diluted:
As reported $ 0.46
Pro forma 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 2000 and 1999: expected life of options of 7.25 years,
expected volatility of 40%, risk-free interest rates of 8%, and a 0% dividend
yield. The weighted average fair value at date of grant for options granted
during 2000 was approximately $1.47. The effect on net income and earnings per
share of the fair market value of the options issued in 1999 was deemed
inmaterial and, therefore, is not presented above.
23
<PAGE>
RECONDITIONED SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 11.
Earnings Per Share
--------------------------------------------------------------------------------
For the years ended March 31, 2000 and 1999, 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,
2000 1999
---- ----
Basic EPS
Net Income $701,046 $1,050,816
======== ==========
Weighted average number of shares outstanding 1,372,935 1,473,880
Basic earnings per share $0.51 $0.71
===== =====
Diluted EPS
Net Income $701,046 $1,050,816
======== ==========
Weighted average number of shares outstanding 1,372,935 1,473,880
Effect of dilutive securities:
Stock options 161,116 223,472
------- -------
Total common shares + assumed conversions 1,534,051 1,697,352
Diluted earnings per share $0.46 $0.62
===== =====
--------------------------------------------------------------------------------
Note 12.
Terminated Merger Costs
--------------------------------------------------------------------------------
During the fiscal year ended March 31, 1999, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Cort Investment
Group, Inc., a Texas corporation d/b/a Contract Network ("CNI"). CNI terminated
the Merger Agreement in February 1999. As of March 31, 1999, the Company had
incurred $50,588 in expenses related to the terminated merger.
24
<PAGE>
Item 8. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING and
FINANCIAL DISCLOSURE
Not applicable.
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 August 11, 2000.
Material incorporation herein by reference and location in Proxy
Statement for 2000 Annual Meeting:
Item No. Item Description Proxy Statement
------- ---------------- ---------------
9 Directors, Executive Officers, Promoters Proposal One -
and Control Persons; Compliance with Election of Directors
Section 16(a) of the Exchange Act
10 Executive Compensation Proposal One -
Election of Directors
11 Security Ownership of Certain General Information -
Security Owner-ship of
Certain Principal Stock-
holders and Management
Beneficial Owners 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 Operating 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.
25
<PAGE>
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 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
*10.34 Agreement between Wayne R. Collignon and Registrant 7
*10.35 Severance between Wayne R. Collignon and Registrant 8
27 Financial Data Schedule 8
(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 September26, 1997
(6) Filed with 10-KSB on August 11, 1999
(7) Filed with 10-KSB on November 16, 1999
(8) Filed hereby
(*) 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, 2000.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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: June 28, 2000 /S/ SCOTT RYAN
------------------------------------
Scott Ryan, Chief Executive Officer and Director
(Principal Executive Officer)
Date: June 28, 2000 /S/ DIRK D ANDERSON
------------------------------------
Dirk D. Anderson, Chief Operating Officer and Director
(Principal Accounting Officer)
