12
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended March 31, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1943 (NO FEE REQUIRED)
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 (IRS Employer Identification Number)
of incorporation or organization)
444 WEST FAIRMONT, TEMPE, ARIZONA 85282
(Address of principal executive offices, including zip code)
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, 1999 were $11,042,451.
As of June 25, 1999, 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 $2,117,511.
As of June 25, 1999, the number of outstanding shares of the Registrant's Common
Stock was 1,401,816.
Portions of the Registrant's definitive Proxy Statement, dated July 7, 1999, for
the 1999 Annual Meeting of Stockholders to be held August 6, 1999, are
incorporated herein by reference into Part III of this Report.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
Item 7. Financial Statements
-----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Stockholders and Board of Directors of
Reconditioned Systems, Inc.
We have audited the accompanying balance sheet of Reconditioned Systems, Inc. as
of March 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year 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 audit. The financial
statements of Reconditioned Systems, Inc. as of March 31, 1998, were audited by
other auditors whose report dated May 5, 1998, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the March 31, 1999 financial statements referred to above
present fairly, in all material respects, the financial position of
Reconditioned Systems, Inc. as of March 31, 1999, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
Moffitt & Company, PC
Scottsdale, AZ
August 8, 2001
RECONDITIONED SYSTEMS, INC.
BALANCE SHEETS
March 31, 1999 And 1998
1999 1998
---- ----
ASSETS
------
Current Assets:
Cash and cash equivalents (Notes 1, 2 and 3) $1,103,325 $733,031
Accounts receivable (Notes 1, 6 and 7) 1,691,882 962,122
Inventory (Notes 1, 6 and 7) 909,622 925,258
Prepaid expenses and other current assets 51,002 58,885
------ ------
Total Current Assets 3,755,831 2,679,296
--------- ---------
Property And Equipment: (Notes 1, 5, 6 And 7) 189,173 134,728
------- -------
Other Assets:
Notes receivable - officers (Notes 3 and 4) 150,000 150,000
Refundable deposits 13,036 13,930
Other 24,703 4,204
------ -----
187,739 168,134
$4,132,743 $2,982,158
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 7) $ 0 $ 33,786
Accounts payable 557,662 444,900
Customer deposits 22,635 44,530
Accrued expenses and other current liabilities 286,076 243,388
------- -------
Total Current Liabilities 866,373 766,604
------- -------
Commitments (Note 8) 0 0
- -
Stockholders' Equity: (Notes 10 And 12):
Common stock, no par value; 20,000,000 shares
shares authorized $4,586,982 $4,586,982
Accumulated deficit (1,320,612) (2,367,674)
------------ -----------
3,266,370 2,219,308
Less: treasury stock, 134 shares, at cost 0 (3,754)
- -------
3,266,370 2,215,554
--------- ---------
4,132,743 $2,982,158
========== ==========
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For The Years Ended March 31, 1999 And 1998
1999 1998
---- ----
Sales $11,042,451 $9,583,441
Cost of sales 8,396,278 7,168,365
--------- ---------
Gross profit 2,646,173 2,415,076
Selling and administrative expenses 1,600,257 1,564,819
Terminated merger costs (Note 12) 50,588 0
------ -
Income from operations 995,328 850,257
Other income (expense):
Interest income 49,083 9,771
Interest expense (1,276) (20,173)
Other 7,681 (325)
----- -----
55,488 (10,727)
------ --------
Income before income taxes 1,050,816 839,530
Provision for income taxes (Note 9) 0 0
- -
Net income $ 1,050,816 $ 839,530
=========== ==========
Basic earnings per share (Notes 1 and 11) $ 0.71 $ 0.57
=========== ==========
Basic weighted average number
of shares outstanding 1,473,880 1,473,950
========= =========
Diluted earnings per common
and common equivalent share (Notes 1 and 11) $ 0.62 $ 0.51
=========== ==========
Diluted weighted average number
of shares outstanding 1,697,352 1,655,762
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended March 31, 1999 And 1998
Common Common Retained
Stock Stock Earnings Treasury
Shares Amount (Deficit) Stock Total
------ ---------- -------------- --------- -------------
Balance at March 31, 1997 1,473,950 $4,586,982 $(3,207,204) $(3,754) $1,376,024
Net Income - - 839,530 - 839,530
------------- -------------- --------------- ------------ ------------
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 0 1,050,816
------------- -------------- --------------- ------------ ------------
Balance at March 31, 1999 1,473,816 $4,586,982 $(1,320,612) $ - $3,266,370
------------- -------------- --------------- ------------ ---------------
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended March 31, 1999 And 1998
1999 1998
---- ----
Cash Flows from Operating Activities:
Cash received from customers $10,319,727 $9,620,081
Cash paid to suppliers and employees (9,859,690) (8,353,071)
Interest received 49,083 5,646
Interest paid (1,276) (20,173)
------ --------
Net cash provided by operating
activities 507,844 1,252,483
------- ---------
Cash Flows from Investing Activities:
Loans to officers 0 (150,000)
Purchase of property and equipment (103,590) (17,712)
Other (174) 0
---- -
Net cash used by investing
activities (103,764) (167,712)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from credit line and long-term
borrowings 0 2,643,000
Principal payments on credit line, long-
term borrowings and obligations
under capital leases (33,786) (3,136,864)
-------- -----------
Net cash used by financing
activities (33,786) (493,864)
-------- ---------
Increase in cash and cash equivalents 370,294 590,907
Cash and cash equivalents at beginning of year 733,031 142,124
------- -------
Cash and cash equivalents at end of year $ 1,103,325 $ 733,031
=========== ==========
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
For The Years Ended March 31, 1999 And 1998
1999 1998
---- ----
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $1,050,816 $839,530
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 48,790 68,256
Provision for doubtful accounts 1,000 (1,198)
Loss on disposal of fixed assets 355 2,704
Changes in assets and liabilities:
Accounts receivable (730,760) 38,163
Inventory 15,636 72,582
Prepaid expenses and other assets (11,548) (32,837)
Accounts payable and accrued expenses 133,555 65,283
------- ------
Net cash provided by operating
activities $507,844 $1,252,483
======== ==========
Non-Cash Investing and Financing Activities:
During the years ended March 31, 1999 and 1998, the Company did not have any
non-cash investing or financing activities.
The Accompanying Notes are an Integral Part
of the Financial Statements
RECONDITIONED SYSTEMS, INC.
NOTES TO FINANCIAL 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 reconditioning and
sale of office workstations comprised of panel systems to customers
located throughout the country.
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 period. 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 the 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 accounts receivable. At March 31, 1999 and
1998, the Company has established an allowance for doubtful accounts in
the amount of $31,000 and $30,000, respectively.
Inventory:
Inventory, composed of used office workstations and reconditioning
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,
1999 and 1998, the Company had established a reserve for damaged and
obsolete inventory in the amount of $100,000 and $25,000, respectively.
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
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 carry forwards 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 utilization 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).
Earnings Per 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 warrants which expired June 30, 1997
are not included in the computation of diluted earnings per share
because their effect would be antidilutive.
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
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, 1999, the Company had
approximately $1,123,340 of uninsured cash.
In addition, the Company specializes in reconditioning one particular original
equipment manufacturer's (OEM) line of office workstations. The business is
dependent upon a readily available supply of new parts from the OEM, 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, 1999 March 31, 1998
-------------- --------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
Cash and cash equivalents $1,103,325 $1,103,325 $733,031 $733,031
The carrying amount approximates fair value of cash and short-term instruments.
The fair value of Notes receivable - officers cannot be determined due to its
related party nature.
--------------------------------------------------------------------------------
Note 4.
Notes Receivable - Officers
--------------------------------------------------------------------------------
On December 19, 1997, the Company loaned $150,000 to officers of the Company.
These funds enabled the officers to purchase 100,000 shares of the Company's
Common Stock from a former shareholder in a privately negotiated transaction.
The notes are payable in one payment on or before December 19, 2002, and are
collateralized by the purchased shares of Common Stock. Interest on the notes
accrue at a rate equal to that of the Company's lender's base rate plus 2.5%,
payable annually beginning December 19, 1998.
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 5.
Property And Equipment
--------------------------------------------------------------------------------
Property and equipment by major classifications are as follows:
March 31,
1999 1998
---- ----
Office furniture and equipment $258,840 $194,914
Machinery and equipment 233,996 227,953
Leasehold improvements 42,304 36,682
Vehicles 36,054 13,632
------ ------
571,194 473,181
Accumulated depreciation (382,021) (338,453)
-------- ---------
$189,173 $134,728
Depreciation expense for the year ended March 31, 1999 totaled $48,790.
--------------------------------------------------------------------------------
Note 6.
Pledged Assets And Line Of Credit
--------------------------------------------------------------------------------
As of March 31, 1999, 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 receivable 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, 1999 the Company had no outstanding borrowings on the line of
credit and was in compliance with all of the covenants of the agreement.
Reconditioned Systems, Inc.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 7.
Long-Term Debt
--------------------------------------------------------------------------------
Long-term debt consists of the following: 1998
----
8.25% note payable to M&I Thunderbird Bank, due in
monthly installments of $3,440, including principal and
interest, until paid in full; collateralized by
accounts receivable, inventory, property and equipment,
and intangibles. In connection with this loan
agreement, the Company has agreed to maintain certain
financial ratios and various other covenants. As of
March 31, 1998, the Company was in compliance with
these financial ratios and other covenants $32,854
Capital lease obligations 932
---
33,786
Less: current portion (33,786)
--------
Long-term portion $ 0
==========
--------------------------------------------------------------------------------
Note 8.
Operating Lease Commitments
--------------------------------------------------------------------------------
The Company leases warehouse and office space in Tempe, Arizona, as well as
certain equipment under non-cancelable operating lease agreements expiring at
various times through March 2001. Certain of the lease agreements require the
Company to pay property taxes, insurance and maintenance costs. The lease on the
Tempe, Arizona facility expires March 2001.
The total minimum rental commitment due is as follows:
March 31, Amount
--------- ------
2000 $332,709
2001 333,058
2002 27,801
------
$693,568
Rent expense under operating lease agreements for the years ended March 31, 1999
and 1998 was approximately $285,500 and $268,750, respectively.
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 9.
Income Taxes
--------------------------------------------------------------------------------
Deferred tax assets consist of the following components:
March 31, 1999 March 31, 1998
-------------- --------------
Deferred tax assets:
State loss carryforwards $ 72,000 $ 175,000
Federal loss carryforwards 338,000 725,000
------- -------
410,000 900,000
Less: valuation allowance (410,000) (900,000)
-------- ---------
$ 0 $ 0
============ ===========
The Company's income tax provisions differ from the amount computed by applying
the federal statutory income tax rate to income before income taxes. A
reconciliation to the statutory federal income tax rate is as follows:
March 31, 1999
--------------
Income tax at statutory effective rate $412,761
Adjustments:
NOL Carryforward (412,761)
--------
$ 0
============
The Company's approximate net operating loss carryforwards and their respective
expiration dates, are as follows:
Amount Expiration
-------- ----------
Federal $994,000 2011
Arizona $794,000 2001
--------------------------------------------------------------------------------
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.
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 10.
Common Stock Options
(Continued)
--------------------------------------------------------------------------------
During the year ended March 31, 1998, the Board of Directors approved the 1997
Employee Stock Option Plan. The Plan authorizes the Company to grant incentive
stock options to key employees of the Company. 50,000 shares of common stock are
reserved for issuance pursuant to this Plan. During the year ended March 31,
1999, the Board of Directors issued 8,400 common stock options to key employees
under this Plan with an exercise price of $3.00 per share.
Following is a summary of the status of the outstanding stock options for
employees, officers and directors during the year ended March 31, 1999:
Weighted Average
Number of Options Exercise Price
----------------- ---------------
Outstanding as of March 31, 1998 300,000 $1.00
Granted 8,400 3.00
Exercised 0 0
Forfeited 0 0
- -
Outstanding as of March 31, 1999 308,400 $1.05
======= =====
Information relating to the stock options at March 31, 1999, summarized by
exercise price, is as follows:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted Average Weighted Average
---------------- ----------------
Remaining
Life
Shares (Years) Exercise Price Shares Exercise Price
------ ------- -------------- ------ --------------
8,400 5.00 $3.00 0 0
300,000 5.75 $1.00 300,000 $1.00
-------- ---- ----- ------- -----
308,400 5.73 $1.05 300,000 $1.00
======= ==== ===== ======= =====
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
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 year ended March 31, 1999. Had compensation costs 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 amount presented
below:
March 31, 1999
--------------
Net income:
As reported $1,050,816
Pro forma $1,039,245
Earnings per share:
Basic:
As reported $ 0.71
Pro forma $ 0.71
Diluted:
As reported $ 0.62
Pro forma $ 0.61
The fair value of option grants is estimated as of the date utilizing the
Black-Scholes option pricing model with the following weighted average
assumptions for grants in 1999: expected life of options of 5.92 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 1999
approximated $3.00.
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 11.
Earnings Per Share
--------------------------------------------------------------------------------
For the years ended March 31, 1999 and 1998, 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,
1999 1998
---- ----
BASIC EPS
Net income $1,050,816 $ 839,530
========== ==========
Weighted average number of shares
outstanding 1,473,880 1,473,950
========= =========
Basic earnings per share $ 0.71 $ 0.57
========== ==========
DILUTED EPS
Net income $1,050,816 $ 839,530
========== ==========
Weighted average number of shares
outstanding 1,473,880 1,473,950
Effect of dilutive securities:
Stock options 223,472 181,812
------- -------
Common stock including assumed
conversions 1,697,352 1,655,762
========= =========
Diluted earnings per share $ 0.62 $ 0.51
========== ==========
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 12.
Terminated Merger Costs
--------------------------------------------------------------------------------
On November 16, 1998, the Company announced that it had 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"), and RSI
Acquisition Corp., an Arizona corporation and wholly-owned subsidiary of CNI
("Merger Corp.").
On February 4, 1999, CNI informed the Company that CNI believed the Company was
in breach of certain of the representations and warranties set forth in the
Merger Agreement, specifically Sections 3.11 ("Tax Returns, Taxes"), 3.7 ("RSI
SEC Reports"), 3.8 ("Financial Statements and Records of RSI"), 3.9 ("Absence of
Certain Changes") and 3.10 ("No Material Undisclosed Liabilities"). CNI asserted
that the Company had not included certain elections in its 1995 income tax
returns and therefore had not properly preserved its net operating loss
carryforwards.
On February 15, 1999, the Company received formal notice of termination of the
Merger Agreement from CNI pursuant to the provisions of Section 8.1(b) of the
Merger Agreement based upon the Company allegedly being in breach of the
representations and warranties noted above.
The Company engaged experts who filed with the Internal Revenue Service (IRS)
for a private letter ruling to allow the Company to amend its 1995 income tax
returns to include the omitted elections. On June 25, 1999, the IRS approved the
Company's private letter ruling.
As of March 31, 1999, the Company had incurred $50,588 in expenses related to
the terminated merger.
--------------------------------------------------------------------------------
Note 13.
Subsequent Events
--------------------------------------------------------------------------------
On April 13, 1999, the Company purchased 72,000 shares of the Company's Common
Stock on the open market for $2.375 per share. The Company intends to hold the
shares in treasury.
On June 8, 2001, the Company's former principal independent accountant, Semple &
Cooper, LLP resigned. Semple & Cooper's reports on the Company's financial
statements for the years ended March 31, 1999 and 2000 contained an unqualified
opinion, and were not modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with Semple & Cooper on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. On June 29, Semple & Cooper, notified the Company there were
withdrawing their opinions for the audits for the fiscal years ended March 31,
1999 and 2000. (See the Company's reports filed on Form 8-K dated June 15, 2001
and June 29, 2001.)
RECONDITIONED SYSTEMS, INC.
Notes To Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 13.
Subsequent Events
(Continued)
--------------------------------------------------------------------------------
On July 5, 2001, Nasdaq notified the Company that as a result of Semple & Cooper
withdrawing their audit opinions, the Company was no longer in compliance with
Nasdaq Marketplace Rule 4815(b) and that the Company's securities were in
jeopardy of being delisted from the Nasdaq Stock Market. The Company engaged
Moffitt & Company to conduct an audit of the Company's financial statements for
the years ended March 31, 1999 and 2000 in order to correct the deficiency. As
of the date of this report, the Company believes it has satisfied this
deficiency.
On July 24, 2001, Nasdaq informed the Company that the Company's public float
was not in compliance with the Marketplace Rules. The Company issued a 5% stock
dividend to shareholders of record on August 13, 2001 in order to satisfy the
public float requirement.
Item 8. Changes In And Disagreements With Accountants On Accounting And
------------------------------------------------------------------------
Financial Disclosure
--------------------
On June 8, 2001, the Registrant's former principal independent accountant,
Semple & Cooper, LLP resigned. On June 29, 2001, Semple & Cooper notified the
Company they were withdrawing their opinions for the audits for the fiscal years
ended March 31, 1999 and 2000. (See the Company's reports filed on Form 8-K
dated June 15, 2001 and June 29, 2001.) Semple & Cooper's reports on the
Company's financial statements for the years ended March 31, 1999 and 2000 did
not contain an adverse opinion or disclaimer of opinion, and were not modified
as to uncertainty, audit scope or accounting principles. There were no
disagreements with Semple & Cooper on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure. On
June 22, 2001, the Registrant appointed Moffitt & Company, PC as the principal
independent accountant. Moffitt & Company has re-audited the Company's
financial statements for the years ended March 31, 1999 and 2000.
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and the
dates indicated.
Reconditioned Systems, Inc.
BY: /S/ Dirk D. Anderson
---------------------
Dirk D. Anderson, Chief Executive Officer and President
(Principal Accounting Officer)
DATE: August 24, 2001
BY: /S/ Scott W. Ryan
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Scott W. Ryan, Chairman of the Board of Directors
DATE: August 24, 2001