8-K/A 1 edg8k603.txt 8-K ITEM 7 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 -------------------------------------------------------------------------------- Note 1. Summary of Significant Accounting Policies, Nature of Operations, and Use of Estimates -------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------- 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)

RECONDITIONED SYSTEMS INC 8-K/A