SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 1, 2003
RECONDITIONED SYSTEMS, INC.
(Exact name of registrant as specified in charter)
Arizona 0-20924 86-0576290
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
444 West Fairmont, Tempe, Arizona 85282
(Address of principal executive offices)
480-968-1772
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
This Form 8-K/A amends the Current Report on Form 8-K dated May 5, 2003 and
includes the financial statements and pro forma financial information that had
been omitted from the previously filed Form 8-K as permitted by Item 7 of Form
8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Beck Office Systems, Inc.
We have audited the accompanying balance sheet of Beck Office Systems, Inc. as
of April 30, 2003, 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.
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 financial statements present fairly, in all material
respects, the financial position of Beck Office Systems, Inc. as of April 30,
2003, and the results of its operations, stockholders' equity, and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Renzi, Bernardi, Suarez & Co.
Philadelphia, Pennsylvania
May 9, 2003
BECK OFFICE SYSTEMS, INC.
BALANCE SHEET
APRIL 30, 2003
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1, 2 and 3) $40,504
Accounts receivable (Notes 1 and 5) 295,655
Deferred tax asset, net (Note 7) 32,781
Inventory (Notes 1 and 5) 563,503
Prepaid expenses and other current assets 18,036
------
Total current assets 950,479
Property and Equipment, net: (Note 1, 4 and 5) 616,061
Other Assets 24,239
------
Total Assets $1,590,779
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of notes payable (Note 5) $620,877
Accounts payable 213,850
Customer deposits 105,269
Other accrued expenses and current liabilities 139,693
-------
Total current liabilities 1,079,689
Long-term Liabilities:
Note payable, long-term portion (Note 5) 42,395
Deferred income tax payable (Note 7) 31,699
------
Total liabilities 1,153,783
---------
Stockholders' Equity:
Common stock, no par value; 100,000 shares
authorized, 10,000 shares issued and outstanding 1,149
Retained earnings 435,847
-------
Total stockholders' equity 436,996
-------
Total Liabilities and Stockholders' Equity $1,590,779
==========
The Accompanying Notes are an Integral Part
of this Financial Statement
BECK OFFICE SYSTEMS, INC.
STATEMENT OF OPERATIONS
For the Year Ended April 30, 2003
Sales $5,185,974
Cost of sales 3,740,341
---------
Gross profit 1,445,633
Selling expenses 774,112
Administrative expenses 657,717
-------
Income from operations 13,804
Other income (expense):
Interest expense (55,031)
Interest income 3,350
Other 2,302
-----
Net loss before income taxes $(35,575)
Provision for income tax benefit 8,894
-----
Net loss $(26,681)
=========
Earnings (Loss) per share (Notes 1 and 8):
Basic $ (2.67)
============
Diluted $ (2.67)
============
Weighted average number of shares outstanding:
Basic 10,000
======
Diluted 10,000
======
The Accompanying Notes are an Integral Part
of this Financial Statement
BECK OFFICE SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Year Ended April 30, 2003
Common Stock Common Stock
Shares Amount Retained
Earnings Total
---------------------------------- -------------- ----------------- ---------------- --------------
Balance at April 30, 2002 10,000 $1,149 $462,528 $463,677
Net loss - - (26,681) (26,681)
-------------- ----------------- ------------------ ---------------
Balance at April 30, 2003 10,000 $1,149 $435,847 $436,996
============== ================= ================== =============
The Accompanying Notes are an Integral Part
of this Financial Statement
BECK OFFICE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
For the Year Ended April 30, 2003
Cash Flows from Operating Activities:
Cash received from customers $5,152,297
Cash paid to suppliers and employees (4,910,325)
Interest paid (55,031)
Interest received 3,350
-----
Net cash provided by operating activities 190,291
-------
Cash Flows from Investing Activities:
Purchase of property and equipment (136,175)
Other 1,022
-----
Net cash used by investing activities (135,153)
---------
Cash Flows from Financing Activities:
Repayment of debt principal (924,309)
Proceeds from debt instruments 889,315
-------
Net cash used by financing activities (34,994)
--------
Increase in cash and cash equivalents 20,144
Cash and cash equivalents at beginning of period 20,360
------
Cash and cash equivalents at end of period $40,504
=======
The Accompanying Notes are an Integral Part
of this Financial Statement
BECK OFFICE SYSTEMS, INC.
STATEMENT OF CASH FLOWS (Continued)
For the Year Ended April 30, 2003
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net loss $(26,681)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 113,112
Loss on disposal of assets 5,088
Changes in assets and liabilities:
Accounts receivable (41,067)
Inventory (16,838)
Prepaid expenses and other assets 10,038
Accounts payable and accrued expenses 146,639
-------
Net cash provided by operating activities $190,291
========
The Accompanying Notes are an Integral Part
of this Financial Statement
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements
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Note 1.
Summary of Significant Accounting Policies, Nature of Operations,
and Use of Estimates
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Nature of Business:
Beck Office Systems, Inc. ("BOS" or the "Company"), is a corporation
which was incorporated in the State of New Mexico in September, 1989.
The principal business purpose of the Company is the remanufacturing
and sale of office workstations comprised of panel systems to customers
primarily located throughout the continental United States. In
addition, the Company markets new workstations, filing, seating,
lighting and other office furniture accessories.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition:
The Company recognizes a sale when its earnings process is complete. In
connection with projects that are to be installed by a customer or an
agent of the customer, the sale is recognized when the product is
shipped to or possession is taken by the customer. In connection with
projects installed by the Company, the sale is recognized upon
completion of the installation.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments and money
market funds purchased with an initial maturity of three (3) months or
less to be cash equivalents.
Accounts Receivable - Trade:
Accounts receivable are reported at the customers' outstanding balances
less any allowance for doubtful accounts. The allowance is based upon a
review of the individual accounts outstanding and the Company's prior
history of uncollectible receivables. At April 30, 2003, the Company
believes all accounts receivable are fully collectible, and as such, no
allowance for doubtful accounts was established.
Inventory:
Inventory, which is primarily composed of used office workstations and
remanufacturing supplies, is stated at the lower of average cost 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 April 30,
2003, the Company had established a reserve for damaged and obsolete
inventory in the amount of $20,000.
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 1.
Summary of Significant Accounting Policies, Nature of Operations,
and Use of Estimates
(Continued)
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Property and Equipment:
Property and equipment are recorded at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
respective assets, are expensed. At the time property and equipment are
retired or otherwise disposed of, the assets and related depreciation
accounts are relieved of applicable amounts. Gains or losses from
retirements or sales are credited or charged to income. Depreciation is
generally provided for on the straight-line basis over the following
estimated useful lives of the assets:
Years
Office furniture and equipment 5 - 10
Machinery and equipment 3 - 10
Leasehold improvements 10 - 15
Vehicles 7
Long-Lived Assets:
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets in question may not be recoverable.
This standard did not have a material effect on the Company's results
of operations, cash flows or financial position.
Deferred Income Taxes:
Deferred income taxes are provided on an asset and liability method,
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, there is uncertainty of the operating losses in
future periods. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
Earnings (Loss) Per Common and Common Equivalent Share:
Basic earnings (loss) per share include no dilution and are computed by
dividing income (loss) available to common stockholders by the weighted
average number of shares outstanding for the period.
As of April 30, 2003, the Company did not have any outstanding stock
options, as such diluted earnings (loss) per share amounts are computed
based on the weighted average number of shares actually outstanding and
is equal to basic earnings (loss) per share.
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Summary of Significant Accounting Policies, Nature of Operations,
and Use of Estimates
(Continued)
--------------------------------------------------------------------------------
Advertising:
All direct advertising costs are expensed as incurred. The Company charged
to operations $50,214 in advertising costs for the year ended April 30,
2003.
Shipping costs:
Shipping costs include freight and mailing charges associated with delivery
of goods from the company's warehouse to customer's designated locations.
The company's policy is to classify shipping costs as part of cost of goods
sold in the statement of operations.
Recent Accounting Pronouncements:
In June 2001 and August 2001, the FASB issued the following statements:
FASB 141 - Business Combinations
FASB 142 - Goodwill and other Intangible Assets
FASB 143 - Accounting for Asset Retirement Obligations
FASB 144 - Accounting for the Impairment or Disposal of
Long-Lived Assets
FASB 148 - Accounting for Stock-Based Compensation -
Transition and Disclosure
These FASB statements did not have a material impact on the Company's
financial position or results of operations.
--------------------------------------------------------------------------------
Note 2.
Concentrations
--------------------------------------------------------------------------------
The Company specializes in remanufacturing one particular original equipment
manufacturer's (OEM) line of office workstations. The business is dependent upon
a readily available supply of new parts, as well as used product.
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 3.
Fair Value of Financial Instruments
--------------------------------------------------------------------------------
The Company estimates that the fair value of all financial instruments at April
30, 2003 as defined in FASB 107, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheets. The estimate fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
Estimated fair values of the Company's financial instruments (all of which are
held for non-trading purposes), are as follows:
Carrying
Amount Fair Value
Cash and cash equivalents $ 40,504 $ 40,504
Accounts receivable $ 295,655 $ 295,655
Lease receivables $ 15,212 $ 15,212
Accounts payable $ 213,850 $ 213,850
--------------------------------------------------------------------------------
Note 4.
Property and Equipment
--------------------------------------------------------------------------------
Property and equipment by major classifications are as follows:
Vehicles $381,728
Machinery and equipment 250,956
Office furniture and equipment 277,829
Leasehold improvements 35,877
------
946,390
Accumulated depreciation (330,329)
---------
$616,061
Depreciation expense for the year ended April 30, 2003 totaled $111,645.
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
-------------------------------------------------------------------------------
Note 5.
Notes Payable
-------------------------------------------------------------------------------
Notes payable and long-term debt consisted of the following at April 30, 2003:
Notes payable to various lending institutions
and collateralized by various vehicles, bearing
interest at 6.75% and 7.99%. Principal and
interest is payable in monthly installments of
$991. The notes mature through November 2011 $50,664
Note payable to Reconditioned Systems, Inc.
under a $1,000,000 line of credit agreement,
accruing interest at a rate of prime rate
plus 0.5%. The note is collateralized
by accounts receivable, inventory, property
and equipment, and intangibles with total
$1,548,618. The note matures on
May 1, 2004 612,608
Less - current maturities (620,877)
---------
Notes payable- long term portion $42,395
=======
Maturities of long-term debt for the next five years are as follows:
2005 $10,130
2006 5,200
2007 4,081
2008 4,419
2009 4,785
Thereafter 13,780
------
$42,395
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 6.
--------------------------------------------------------------------------------
The Company leases remanufacturing, warehouse, showroom and office space in New
Mexico and Arizona, as well as certain equipment under non-cancelable operating
lease agreements expiring at various times through September 2015. Certain of
the lease agreements require the Company to pay property taxes, insurance and
maintenance costs.
Future minimum lease payments were as follows at April 30, 2003:
April 30, Amount
--------- ------
2004 $332,685
2005 302,705
2006 298,671
2007 304,509
2008 303,721
Subsequent 2,449,667
---------
$3,991,958
Rent expense under operating lease agreements for the year ended April 30, 2003
was approximately $336,000.
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 7.
Income Taxes
--------------------------------------------------------------------------------
The provision for income taxes consist of the following for the year ended April
30, 2003:
Federal
Current (Expense) Benefit $7,291
Deferred (Expense) Benefit (1,955)
State
Current (Expense) Benefit $4,861
Deferred (Expense) Benefit (1,303)
-------
Tax (Expense) Benefit $8,894
Significant components of the Company's deferred tax assets and liabilities are
as follows:
Deferred tax assets:
Accrued liabilities $32,781
-------
Deferred tax asset $32,781
=======
Deferred tax liability:
Property and equipment related $31,699
-------
Deferred tax liability $31,699
=======
Realization of the net deferred tax assets is dependent on future reversals of
existing taxable temporary differences and adequate future taxable income,
exclusive of reversing temporary differences and carryforwards. Although
realization is not assured, management believes that it is more likely than not
that the net deferred tax assets will be realizable. The amount of the net
deferred tax asset considered realizable could be reduced in the near term if
actual future taxable income is lower than estimated, or if there are
differences in the timing or amount of future reversals of existing taxable
temporary differences. Deferred tax assets/liabilities were not material in
prior years.
BECK OFFICE SYSTEMS, INC.
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
Note 8.
Earnings (Loss) Per Share
--------------------------------------------------------------------------------
For the years ended April 30, 2003, the following data shows amounts used in
computing earnings (loss) per share and the effect on income and the weighted
average number of shares.
Basic and Diluted EPS
Net loss $(26,681)
=========
Weighted average number of shares outstanding 10,000
Basic and diluted loss per share $(2.67)
=======
--------------------------------------------------------------------------------
Note 9.
401(k) Profit Sharing Plan
--------------------------------------------------------------------------------
The Company established a 401(k) Profit Sharing Plan on January 1, 1996. Active
participants may elect to have the Company make salary reduction contributions
on their behalf based on a percentage of their earnings, not to exceed IRS
limits.
--------------------------------------------------------------------------------
Note 10.
Subsequent Event
--------------------------------------------------------------------------------
Effective May 1, 2003, Reconditioned Systems, Inc., an Arizona corporation
("RSI") completed its acquisition of Beck Office Systems, by means of a merger
of Beck with and into RSI Acquisition Sub, Inc., a New Mexico corporation and
wholly-owned subsidiary of RSI formed in order to effect the acquisition. The
merger was accomplished pursuant to the Agreement and Plan of Merger dated April
24, 2003 and entered into by the respective corporations and certain others and
a copy of which was filed as an attachment to the articles of merger with the
New Mexico State Corporation Commission on April 29, 2003.
In consideration for the merger which is intended to qualify as a tax free
reorganization under Section 368 of the Internal Revenue Code, RSI paid $200,000
in cash and 111,000 shares of restricted RSI common stock. The issuance of RSI
common stock was made without general solicitation or advertising pursuant to
Section 4(2) of the Securities Act of 1933.
RECONDITIONED SYSTEMS, INC.
PROFORMA
COMBINED BALANCE SHEET
RSI BOS Pro Forma Pro Forma
March 31, 2003 April 30, 2003 Adjustments(a) Combined
ASSETS
Current Assets
Cash and cash equivalents $1,274,132 $40,504 $(112,608) f $1,202,028
Accounts receivable, net 1,349,365 295,655 1,645,020
Notes and leases receivable 150,000 - 150,000
Deferred tax asset, net 48,285 32,781 (32,781) d 48,285
Inventory, net 1,343,157 563,503 65,123 b 1,971,783
Prepaid expenses and other
current assets 186,166 18,036 204,202
------- ------ -------
Total current assets 4,351,105 950,479 5,221,318
Property and Equipment, net 318,817 616,061 16,000 b 833,924
(116,954) d
Refundable deposits and other 67,034 24,239 91,273
------ ------ ------
Total Assets $4,736,956 $1,590,779 $6,146,515
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ - $620,877 (8,269) d
200,000 e
(112,608) f $700,000
Accounts payable 553,400 213,850 767,250
Customer deposits 157,414 105,269 262,683
Accrued compensation and benefits
234,862 87,780 28,747 c 351,389
Other accrued expenses and current
liabilities 34,038 51,913 85,951
------ ------ ------
Total current liabilities 979,714 1,079,689 2,167,273
Long term debt - 42,395 (42,395) d -
Deferred income taxes - 31,699 (31,699) d -
- ------ -
Total liabilities 979,714 1,153,783 2,167,273
------- --------- ---------
Stockholders' equity 3,757,242 436,996 81,123 b 3,979,242
--------- ------- ---------
(28,747) c
(67,372) d
(200,000) e
Total Liabilities and Stockholders' Equity
$4,736,956 $1,590,779 $6,146,515
========== ========== ==========
The accompanying notes are an integral
part of these pro forma combined financial statements.
RECONDITIONED SYSTEMS, INC.
Notes to Pro Forma Combined Balance Sheet
Pro Forma Adjustments to the Balance Sheet
a) The following is a summary of the estimated aggregate purchase price:
Cash paid to Beck stockholders $200,000
Market value of RSI common shares issued to Beck stockholders 222,000
RSI transaction costs 28,747
---------
Total purchase price $450,747
========
The estimated pro forma allocation of the purchase price is as follows:
Beck's historical assets and liabilities, net $436,996
Adjustments for assets and liabilities not acquired (67,372)
Adjustment of Beck historical assets and liabilities
to fair value 81,123
--------
Total purchase price $450,747
========
b) Represents adjustment to reflect Beck's inventory at fair value.
c) Represents an accrual for RSI's transaction costs incurred in
connection with the Beck acquisition.
d) Represents adjustment for assets and liabilities not acquired.
e) Represents elimination of Beck stockholders' equity, the issuance
of RSI common stock in exchange for Beck's common stock and
borrowings on note payable to finance cash paid to Beck
stockholders.
f) Represents borrowings on line of credit and pay off certain short-term
and long-term debts acquired in the merger.
RECONDITIONED SYSTEMS, INC.
PROFORMA
COMBINED INCOME STATEMENT
RSI BOS
For the Year For the Year
Ended Ended Pro Forma Pro Forma
March 31, 2003 April 30, 2003 Adjustments Combined
Sales $11,511,058 $5,185,974 - $16,697,032
Cost of sales (8,993,136) (3,740,341) (65,124) g (12,798,601)
----------- ----------- -------- - ------------
Gross profit 2,517,922 1,445,633 (65,124) 3,898,431
Selling and administrative expenses (2,474,293) (1,431,829) - (3,906,122)
----------- ----------- - -----------
Income (loss) from operations 43,629 13,804 (65,124) (7,691)
Other income (expenses) 23,408 (49,379) - (25,971)
------ -------- - --------
Net income (loss) before income 67,037 (35,575) (65,124) (33,662)
taxes
Provision for income tax (expense)
benefit (16,760) 8,894 16,282 h 8,416
-------- ----- ------ -----
Net income (loss) $50,277 $(26,681) $(48,842) $(25,246)
======= ========= ========= =========
Earnings (loss) per share
Basic $0.04 $(2.67) $(0.02)
Diluted $0.04 $(2.67) $(0.02)
Weighted average number of shares outstanding:
Basic 1,253,032 10,000 i 1,365,237
========= ====== =========
Diluted 1,370,730 10,000 i 1,475,487
========= ====== =========
The accompanying notes are an integral part of these proforma
combined financial statements.
RECONDITIONED SYSTEMS, INC.
Notes to Pro Forma Combined Income Statement
Pro Forma Adjustments to the Income Statement
g) Represents effect of fair value adjustment of inventory on cost
of goods sold.
h) Represent the aggregate pro forma income tax effect (25.0%) of the
adjustments.
i) Pro forma weighted average number of shares - basic and diluted
have been adjusted to reflect the issuance of 111,000 shares of
RSI common stock in exchange for the outstanding shares of Beck
common stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Reconditioned Systems, Inc.
Date: July 14, 2003 /s/ Scott W. Ryan
--------------------------
Scott W. Ryan, Chairman
/s/ Dirk D. Anderson
---------------------------
Dirk D. Anderson,
Chief Executive Officer
(Principal Accounting Officer)