U.S. Securities and Exchange Commission
                             Washington D. C., 20549

                                   Form 10-QSB

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
       THE SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended December 31, 1998

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

     For the transition period from__________ to ___________.


                         Commission file number 0-20924
                                                -------

                           RECONDITIONED SYSTEMS, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

               ARIZONA                                       86-0576290
     -------------------------------                    -------------------
     (State or other jurisdiction of                       (IRS Employer
     incorporation or organization)                     Identification No.)

                     444 WEST FAIRMONT, TEMPE, ARIZONA 85282
                    ----------------------------------------
                    (Address of principal executive offices)

                                  602-968-1772
                           --------------------------
                           (Issuer's telephone number)

              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 5, 1999, the number of
shares outstanding of the Registrant's common stock was 1,473,950.

<PAGE>

ITEM 1









                          PART 1 - FINANCIAL STATEMENTS



                           RECONDITIONED SYSTEMS, INC.


                         UNAUDITED FINANCIAL STATEMENTS

                                DECEMBER 31, 1998














                                        2

<PAGE>



                           RECONDITIONED SYSTEMS, INC.
--------------------------------------------------------------------------------

                                 BALANCE SHEETS
                           December 31, 1998 and 1997
                                   (Unaudited)
--------------------------------------------------------------------------------

                                                           1998         1997
                                                        ----------   ----------
                                     ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                          $1,091,614   $   38,446
     Accounts receivable - trade, net of allowance
          for doubtful accounts of $32,000 and
          $70,403, respectively                          1,225,790    1,328,858
     Inventory                                             922,247    1,082,855
     Prepaid expenses and other current assets              97,568       28,941
                                                        ----------   ----------

          TOTAL CURRENT ASSETS                           3,337,219    2,479,100

PROPERTY AND EQUIPMENT; NET OF ACCUMULATED
          depreciation of $365,237 and
          $381,146, respectively                           144,390      148,185
OTHER ASSETS
     Notes receivable - Officers                           150,000      150,000
     Deferred merger costs (Note 5)                         29,738           --
     Other assets                                            9,158       14,188
                                                        ----------   ----------

                                                        $3,670,505   $2,791,473
                                                        ==========   ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Current maturities of long-term debt                    3,134       41,577
     Accounts payable                                      448,762      444,629
     Customer deposits                                      20,888       18,955
     Accrued expenses and other current liabilities        215,780      277,075
                                                        ----------   ----------

          TOTAL CURRENT LIABILITIES                        688,564      782,236

LONG-TERM DEBT, LESS CURRENT MATURITIES                         --        3,415

STOCKHOLDERS' EQUITY                                     2,981,941    2,005,822
                                                        ----------   ----------

                                                        $3,670,505   $2,791,473
                                                        ==========   ==========

                                        3
<PAGE>

                           RECONDITIONED SYSTEMS, INC.
--------------------------------------------------------------------------------

                            STATEMENTS OF OPERATIONS
      For the Three and Nine Month Periods Ended December 31, 1998 and 1997
                                   (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                         THREE MONTHS ENDED            NINE MONTHS ENDED
                                             DECEMBER 31,                 DECEMBER 31,
                                        1998           1997           1998           1997      
                                    -----------    -----------    -----------    -----------
<S>                                 <C>            <C>            <C>            <C>        
Sales                               $ 2,543,315    $ 2,827,429    $ 8,317,781    $ 7,340,607
Cost of sales                         1,919,714      2,065,594      6,399,630      5,461,608
                                    -----------    -----------    -----------    -----------

Gross profit                            623,601        761,835      1,918,151      1,878,999

Selling & administrative expenses       360,661        439,341      1,189,424      1,231,498
                                    -----------    -----------    -----------    -----------

Income from operations                  262,940        322,494        728,727        647,501
                                    -----------    -----------    -----------    -----------
Other income (expense):
     Interest income                     13,852          1,806         35,446          2,158
     Interest expense                      (205)        (1,107)        (1,252)       (19,267)
     Other                                1,023         (3,281)         3,466           (594)
                                    -----------    -----------    -----------    -----------
                                         14,670         (2,582)        37,660        (17,703)
                                    -----------    -----------    -----------    -----------

Net income                          $   277,610    $   319,912    $   766,387    $   629,798
                                    ===========    ===========    ===========    ===========

Basic earnings per share
    (Notes 1 and 3)                 $      0.19    $      0.22    $      0.52    $      0.43
                                    ===========    ===========    ===========    ===========

Basic weighted average number
     of shares outstanding            1,473,950      1,473,950      1,473,950      1,473,950
                                    ===========    ===========    ===========    ===========

Diluted earnings per common
     and common equivalent share
     (Notes 1 and 3)                $      0.16    $      0.19    $      0.45    $      0.38
                                    ===========    ===========    ===========    ===========

Diluted weighted average number
     of shares outstanding            1,702,691      1,668,105      1,698,491      1,661,745
                                    ===========    ===========    ===========    ===========
</TABLE>

                                        4
<PAGE>

                           RECONDITIONED SYSTEMS, INC.
--------------------------------------------------------------------------------

                       STATEMENTS OF STOCKHOLDERS' EQUITY
           For the Year Ended March 31, 1998 and the Nine Month Period
                             Ended December 31, 1998
                                   (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                         COMMON      COMMON       RETAINED        TREASURY
                         STOCK       STOCK        EARNINGS         STOCK          
                         SHARES      AMOUNT       (DEFICIT)     (134 SHARES)      TOTAL
                       ---------   ----------    -----------    ------------   -----------
<S>                    <C>         <C>           <C>            <C>            <C>        
Balance at             
March 31, 1997         1,473,950   $4,586,982    $(3,207,204)   $     (3,754)  $ 1,376,024

Net income                    --            0        839,530               0       839,530
                       ---------   ----------    -----------    ------------   -----------

Balance at
March 31, 1998         1,473,950    4,586,982     (2,367,674)         (3,754)    2,215,554


Treasury Stock Retired        --            0         (3,754)          3,754             0

Net income                    --            0        766,387               0       766,387
                       ---------   ----------    -----------    ------------   -----------

BALANCE AT
DECEMBER 31, 1998      1,473,950   $4,586,982    $(1,605,041)   $          0   $2,981,941
                       =========   ==========    ===========    ============   ===========
</TABLE>


                                        5
<PAGE>

                           RECONDITIONED SYSTEMS, INC.
--------------------------------------------------------------------------------

                            STATEMENTS OF CASH FLOWS
      For the Three and Nine Month Periods Ended December 31, 1998 and 1997
                                   (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                      THREE MONTHS ENDED             NINE MONTHS ENDED
                                          DECEMBER 31,                  DECEMBER 31,
                                      1998           1997           1998           1997
                                  -----------    -----------    -----------    -----------
<S>                               <C>            <C>            <C>            <C>        
Cash and cash equivalents
provided (used) by operating
activities                        $   270,085    $  (168,068)   $   438,686    $   542,811

Cash and cash equivalents
used by investing activities           (3,874)      (150,324)       (49,451)      (163,831)

Cash and cash equivalents
used by financing activities          (11,008)       (13,605)       (30,652)      (482,658)
                                  -----------    -----------    -----------    -----------
Increase (decrease) in cash and
cash equivalents                      255,203       (331,997)       358,583       (103,678)

Cash and cash equivalents,
beginning of period                   836,411        370,443        733,031        142,124
                                  -----------    -----------    -----------    -----------
Cash and cash equivalents,
end of period                     $ 1,091,614    $    38,446    $ 1,091,614    $    38,446
                                  ===========    ===========    ===========    ===========
</TABLE>


                                        6
<PAGE>

                           RECONDITIONED SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

--------------------------------------------------------------------------------
                                     NOTE 1.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

BASIS OF PRESENTATION:
     The  unaudited   financial   statements   include  only  the  accounts  and
     transactions of the Company.

INTERIM FINANCIAL STATEMENTS:
     The  unaudited  interim  financial   statements   include  all  adjustments
     (consisting  of  normal  recurring  accruals)  which,  in  the  opinion  of
     management,  are  necessary in order to make the financial  statements  not
     misleading.  Operating  results for the nine months ended December 31, 1998
     are not necessarily  indicative of the results that may be expected for the
     entire year ending March 31, 1999.  These  financial  statements  have been
     prepared  in  accordance  with the  instructions  to Form 10-QSB and do not
     contain  certain  information  required by  generally  accepted  accounting
     principles.  These  statements  should  be read  in  conjunction  with  the
     financial  statements  and notes  thereto  included in the  Company's  Form
     10-KSB for the year ended March 31, 1998.

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.

--------------------------------------------------------------------------------
                                     NOTE 2.
                            REVOLVING LINE OF CREDIT
--------------------------------------------------------------------------------

Effective  July 31, 1998,  the Company  renegotiated  and renewed its $1,000,000
line of credit  agreement with M&I Thunderbird  Bank.  Under this new agreement,
interest  is payable at the bank's base rate.  Borrowings  on the line of credit
may not exceed 75% of eligible accounts receivable and 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  December  31,  1998,  there  was  $1,000,000  available  and no  outstanding
borrowings on the line of credit.

                                        7
<PAGE>

                           RECONDITIONED SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

--------------------------------------------------------------------------------
                                     NOTE 3.
                               EARNINGS PER SHARE
--------------------------------------------------------------------------------

                                  THREE MONTHS ENDED        NINE MONTHS ENDED
                                      DECEMBER 31,             DECEMBER 31,
                                  1998         1997         1998         1997
                               ----------   ----------   ----------   ----------
Basic EPS

Net Income                     $  277,610   $  319,912   $  766,387   $  629,798
                               ==========   ==========   ==========   ==========
Weighted average number
  of shares outstanding         1,473,950    1,473,950    1,473,950    1,473,950
                               ==========   ==========   ==========   ==========

Basic earnings per share       $     0.19   $     0.22   $     0.52   $     0.43
                               ==========   ==========   ==========   ==========
Diluted EPS

Net Income                     $  277,610   $  319,912   $  766,387   $  629,798
                               ==========   ==========   ==========   ==========

Weighted average number
  of shares outstanding         1,473,950    1,473,950    1,473,950    1,473,950

Effect of dilutive securities:
  Stock options                   228,741      194,155      224,541      187,795
                               ----------   ----------   ----------   ----------

Total common shares + assumed
   conversions                  1,702,691    1,668,105    1,698,491    1,661,745
                               ==========   ==========   ==========   ==========

Per-Share Amount               $     0.16   $     0.19   $     0.45   $     0.38
                               ==========   ==========   ==========   ==========


                                        8
<PAGE>

                           RECONDITIONED SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

--------------------------------------------------------------------------------
                                     NOTE 4.
                                  INCOME TAXES
--------------------------------------------------------------------------------

The Company has determined that the entire net operating loss for the year ended
March 31, 1996 in the  approximate  amount of $2.9 million could  potentially be
deemed invalid by the Internal  Revenue  Service (IRS) due to the omission of an
election in the filing and that this same net  operating  loss may be overstated
by an amount not to exceed  $500,000.  The Company  has engaged  experts to file
with the IRS for a private  letter ruling to validate the loss.  Due to the fact
that  the  IRS  has   repeatedly   granted   relief  to   taxpayers  in  similar
circumstances,  the experts  believe it is very likely that the IRS will approve
the private letter ruling,  thereby  assuring the net operating loss  deductions
taken to date.  Even if the loss is validated,  a reduction of the net operating
loss  carryforward not to exceed $500,000 may be required.  Since this reduction
would not relate to loss  carryforwards  already  used and since the Company has
previously  established a valuation  allowance  against the entire  deferred tax
asset resulting from the remaining loss carryforwards,  no adjustments have been
made to the  accompanying  financial  statements  as a result  of this  finding.

--------------------------------------------------------------------------------
                                     NOTE 5.
                      PROPOSED MERGER AND SUBSEQUENT EVENT
--------------------------------------------------------------------------------

On October 30, 1998,  the Company  signed a  definitive  Merger  Agreement  (the
"Merger  Agreement") with Cort Investment Group,  Inc., a privately-owned  Texas
corporation  d/b/a Contract Network  ("CNI").  Under the terms of the agreement,
CNI would  acquire  RSI  through a merger  in which the RSI  shareholders  would
receive approximately $8,575,000 in cash.

On February 5, 1999,  the Company's  shareholders  approved the proposed  Merger
Agreement  between  the  Company and CNI.  However,  on  February  4, 1999,  CNI
informed  the Company  that CNI believes the Company may be in breach of certain
representations  and warranties set forth in the Merger  Agreement as related to
the income tax issues discussed in Note 4 above. As a result, the merger did not
close into escrow on February 5, 1999 as planned.  Although no assurance  can be
given  that the  merger  will be  consummated,  CNI has  expressed  a desire  to
continue to work with the Company to resolve the situation.

As of December 31, 1998, the Company has incurred and  capitalized  costs in the
amount of $29,738 in connection with the proposed merger.

                                        9
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

The  statements  contained  in this  report  that are not  historical  facts may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended,  and are subject to the safe harbors  created  thereby.
These forward-looking statements involve risks and uncertainties, including, but
not  limited  to, the risk that the the  proposed  merger  with Cort  Investment
Group,  Inc.  (CNI) may not be  consummated,  the risk that the Company will not
obtain a favorable IRS private letter ruling regarding its net operating losses,
the risk  that  the  Company  may not be able to  geographically  diversify  its
operations on a profitable  basis, and the risk that the Company may not be able
to bring its computer systems into year 2000 compliance before Janauary 1, 2000.
In addition,  the Company's  business,  operations  and financial  condition are
subject to  substantial  risks that are described in the  Company's  reports and
statements filed from time to time with the Securities and Exchange  Commission.
These reports and statements  include the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1998 and Quarterly  Reports on Form 10-Q for
the quarters ended June 30, 1998 and September 30, 1998.

RESULTS OF OPERATIONS

FOR THE QUARTERS ENDED DECEMBER 31, 1998 AND 1997

Reconditioned  Systems,  Inc. (the "Company")  reported net income for the three
month period ended December 31, 1998  (hereinafter  the "reporting  quarter") of
$277,610 as compared to $319,912 for the three month  period ended  December 31,
1997 (hereinafter the "comparable  quarter").  This $42,302 or 13.2% decrease is
primarily a result of decreased sales volume.

The Company  reported sales for the reporting  quarter of $2,543,315 as compared
to $2,827,429 for the comparable quarter, resulting in a decrease of $284,114 or
10%.

Wholesale  sales totaled  $1,560,331  for the reporting  quarter,  a decrease of
$107,527 or 6.5% over the comparable quarter. This decrease was primarily due to
shifts  in the OEM lead  times.  During  the  comparable  quarter,  the  Company
benefited from a temporary  competitive  advantage  created by extended Haworth,
Inc. lead times.  Haworth's  lead times during the  reporting  quarter were more
consistent with what they have been historically.

Retail  sales in the  Phoenix and Tucson  markets  totaled  $982,984  during the
reporting quarter, a decrease of $176,587 or 15.2% over the comparable  quarter.
This  decrease  was  primarily  attributed  to the OEM lead times  returning  to
historical  levels  and  attrition  within  the  retail  sales  department.  The
Company's retail sales manager position has been vacant since October, 1998, and
the number of retail  salespeople  decreased  from 6 to 5 during  the  reporting
quarter.

The  Company's  gross  profit  margin for the  reporting  quarter was 24.5%,  as
compared to a gross profit margin of 26.9% for the comparable quarter. This 2.4%
decrease  in  the  gross  margin  was   primarily   attributable   to  decreased
efficiencies resulting from a 10% decrease in sales.

The  Company's  selling and  administrative  expenses were reduced from 15.5% of
sales in the  comparable  quarter to 14.1% for the reporting  quarter.  The 1.4%
decrease was primarily a result of a lower estimated  percentage of bad debts to
sales.  The allowance for potential bad debts is determined using an analysis of
collection  rates and  historical  bad debts.  As collection  rates and bad debt
losses have improved over the last two years, the estimate of potential bad debt
losses has  decreased.  Actual bad debt losses for the reporting and  comparable
quarters were approximately .5% of sales.

The Company's  other income and expenses,  which consists  primarily of interest
income and  expense,  improved  by $17,252  from the  comparable  quarter to the
reporting  quarter.  This  improvement  was primarily due to increased  interest
income generated from the Company's current cash reserves.

                                       10
<PAGE>

FOR THE NINE MONTH PERIOD ENDED DECEMBER 31, 1998 AND 1997

The Company  reported  net income of $766,387  for the nine month  period  ended
December 31, 1998  (hereinafter the "reporting  period") as compared to $629,798
for the nine month period ended December 31, 1997  (hereinafter  the "comparable
period"), an increase of $136,589 or 21.7%.

Sales revenues for the reporting period totaled $8,317,781,  a $977,174 or 13.3%
increase over the comparable  period.  This increase was attributed to increased
wholesale sales revenues.

Wholesale sales for the reporting period totaled $5,220,940, a $982,607 or 23.2%
increase  over the  comparable  period.  The  wholesale  division  continues  to
actively  pursue  sales  growth by  targeting  the western  region of the United
States and has been  successful in developing new and expanding  existing dealer
relationships in some of these markets.

The Company  generated  $3,096,841 in retail sales during the reporting  period.
This is  consistent  with the  comparable  period during which retail sales were
$3,102,274.

Despite the  increased  revenues,  the  Company's  gross profit margin fell from
25.6% in the  comparable  period  to 23.1% in the  reporting  period.  This 2.5%
decrease was  primarily  due to the change in the  wholesale/retail  mix and the
difference in wholesale pricing as compared to retail pricing.  The Company also
experienced  higher  product  costs and  lower  profits  margins  as a result of
increased  competition,  changes to the product-mix and greater demand for newer
Haworth  product-lines.  Recent tougher  competition  with newly  manufacturered
"bargain"  product-lines  has driven profit  margins down.  The Company's  gross
margin was also  negatively  impacted by customer  demand for newer  versions of
Haworth product lines not yet readily  available in the aftermarket.  This shift
in demand  required the Company to supplement  its used  inventory  with new and
clone parts at a higher cost.

Selling and  administrative  expenses as a percentage of sales improved by 2.5%,
from 16.8% in the comparable period to 14.3% during the reporting  period.  This
was  primarily a result of the overall  lower  percentage  of fixed  expenses to
increased sales revenues.

The Company generated an additional  $55,363 over the comparable period in other
income by eliminating  interest  expense  associated  with the Company's line of
credit and increasing interest income.

INCOME TAXES

During the periods ended December 31, 1998 and 1997,  the Company's  taxable net
income was fully offset by net  operating  loss  carryforwards.  As a result the
Company incurred no income tax expense during these periods.

The Company has determined that the entire net operating loss for the year ended
March 31, 1996 in the  approximate  amount of $2.9 million could  potentially be
deemed invalid by the Internal  Revenue  Service (IRS) due to the omission of an
election in the filing and that this same net  operating  loss may be overstated
by an amount not to exceed  $500,000.  The Company  has engaged  experts to file
with the IRS for a private  letter ruling to validate the loss.  Due to the fact
that  the  IRS  has   repeatedly   granted   relief  to   taxpayers  in  similar
circumstances,  the experts  believe it is very likely that the IRS will approve
the private letter ruling,  thereby  assuring the net operating loss  deductions
taken to date.  Even if the loss is validated,  a reduction of the net operating
loss  carryforward not to exceed $500,000 may be required.  Since this reduction
would not relate to loss  carryforwards  already  used and since the Company has
previously  established a valuation  allowance  against the entire  deferred tax
asset resulting from the remaining loss carryforwards,  no adjustments have been
made to the accompanying financial statements as a result of this finding.

                                       11
<PAGE>

FINANCIAL CONDITION AND LIQUIDITY

As of  December  31,  1998,  the  Company's  cash and cash  equivalents  totaled
$1,091,614.  In addition,  the Company's net worth and working  capital  totaled
$2,981,941 and $2,648,655,  respectively.  The Company has no material long-term
debt and  $1,000,000  available  on its line of credit  through M&I  Thunderbird
Bank.

The Company reported cash flows from operations of $438,686 during the reporting
period.  This was primarily a result of operating income and increased inventory
turns which more than offset the increase in the Company's accounts  receivable.
The Company used $80,103 of these funds for financing  and investing  activities
with the remainder going to cash reserves.

The  Company's  sales  growth  resulted in  increasing  the  Company's  accounts
receivable  balances by  $263,668 at December  31, 1998 as compared to March 31,
1998.  The Company's  collection  rate  improved from 43 days in the  comparable
period to 36 days in the reporting  period.  The Company's  long-term goal is to
maintain a collection rate at or near 30 days.

Annualized inventory turns for the reporting period were 9.2, as compared to 6.4
for the year ended March 31, 1998.  This  improvement  was primarily a result of
the Company's  ability to increase sales without  increasing  inventory  levels.
However,  management  believes any  additional  sales  increases may require the
Company to increase current inventory levels and thereby reduce turns.

PROPOSED MERGER

On October 30, 1998,  the Company  signed a  definitive  Merger  Agreement  (the
"Merger  Agreement") with Cort Investment Group,  Inc., a privately-owned  Texas
corporation  d/b/a Contract Network  ("CNI").  Under the terms of the agreement,
CNI would  acquire  RSI  through a merger  in which the RSI  shareholders  would
receive approximately $8,575,000 in cash.

On February 5, 1999,  the Company's  shareholders  approved the proposed  Merger
Agreement  between  the  Company and CNI.  However,  on  February  4, 1999,  CNI
informed  the Company  that CNI believes the Company may be in breach of certain
representations  and warranties set forth in the Merger  Agreement as related to
the income tax issues  discussed  above.  As a result,  the merger did not close
into escrow on February 5, 1999 as planned.  Although no assurance  can be given
that the merger will be  consummated,  CNI has expressed a desire to continue to
work with the Company to resolve the situation.

As of December 31, 1998, the Company has incurred and  capitalized  costs in the
amount of $29,738 in connection with the proposed merger.

YEAR 2000 COMPLIANCE

The "Year 2000 problem" arose because many existing  computer  programs use only
the last two digits to refer to a year.  Therefore,  these computer  programs do
not  properly  recognize a year that begins  with "20"  instead of the  familiar
"19."  If not  corrected,  many  computer  applications  could  fail  or  create
erroneous results when the year 2000 begins.

RSI has implemented a program to access and monitor the progress of its material
customers,  suppliers and other significant third parties in resolving Year 2000
compliance  issues.  Questionnaires  have  been  sent to all  significant  third
parties to  evaluate  their Year 2000  readiness.  All  responses  are due to be
returned to RSI no later than  January 31, 1999,  at which time second  requests
will be  delivered  to any  parties who did not  respond on a timely  basis.  In
addition,  all new  suppliers  and  customers  will be required to complete  the
questionnaires.  The initial evaluation is scheduled to be completed by February
28, 1999;  however,  new third parties will be evaluated as needed. All material
third parties with potential unresolved Year 2000 compliance issues which become
evident through this assessment program will be monitored on an individual basis
depending on the significance of the relationship to RSI and the severity of the
unresolved issues.

                                       12
<PAGE>

The Company has evaluated its existing systems, including information technology
and non-information technology systems, for Year 2000 compliance. Following this
evaluation,  the Company believes all of its non-information  technology systems
are in compliance at this time.

The  Company's  computer  hardware  and  accounting  software  are not Year 2000
compliant.  The Company has  developed  two plans to bring  these  systems  into
compliance  based upon the outcome of the proposed  Merger with CNI. They are as
follows:

PLAN  1 - THE  MERGER  IS  CONSUMMATED.  If  the  proposed  Merger  with  CNI is
consummated,  RSI will  upgrade its  current  accounting  and  network  software
programs  to  Year  2000  compliance.  The  estimated  cost  of the  upgrade  is
approximately  $500 and is scheduled for  completion by April 30, 1999. RSI will
also  contract  with a third  party  vendor to  analyze  the  existing  computer
hardware for Year 2000 compliance and will upgrade all necessary  hardware.  The
cost of the analysis and  hardware  upgrades is estimated at between  $3,000 and
$5,000 and is expected to be completed no later than June 30, 1999.  The cost of
both the  software  and  hardware  upgrades  will be funded  from  current  cash
reserves  and is not  expected  to have a  material  effect  on RSI's  operating
results.  These  upgrades  would bring  RSI's  computer  systems  into Year 2000
compliance.   RSI   and   CNI   would   then   begin   a   search   for   a  new
accounting/manufacturing  software program to replace those used by both CNI and
RSI. The cost of this replacement software and any necessary hardware is unknown
at this time and is expected to be implemented within 18 to 24 months.

PLAN 2 - THE MERGER IS NOT  CONSUMMATED.  If the proposed Merger with CNI is not
consummated, RSI intends to replace its existing computer hardware with new Year
2000 compliant equipment. RSI estimates the replacement cost to be approximately
$50,000 and would be scheduled for  completion by April 30, 1999. RSI would also
replace   the    existing    accounting    software    program    with   a   new
accounting/manufacturing  software  program.  The estimated cost of this program
including  implementation and training is approximately $60,000.  Implementation
would be  scheduled to begin May 1, 1999 with an  estimated  completion  date of
August 31, 1999.  The cost of the hardware  and  software  replacement  would be
funded from current cash reserves and is not expected to have a material  effect
on RSI's operating results.  These capital expenditures will bring RSI into Year
2000 compliance and are expected to improve RSI's administrative efficiency.

The most likely worse case scenario  regarding RSI's Year 2000 compliance  would
be that RSI  would  be  unable  to  implement  the new  accounting/manufacturing
package  before  December  31, 1999 or that the cost will  exceed the  estimated
costs.  If for any reason the  conversion  process  cannot be  completed  before
January,  2000,  RSI will  resort to its  backup  plan (See Plan 1).  Should the
implementation  of Plan 2 fail,  Plan 1 can easily be completed  within 30 to 60
days. If the cost of the conversion  exceeds the estimated  costs,  RSI believes
any  additional  expense  can be funded  from cash  reserves  without a material
effect on operations.

RSI's  reconditioning  and sale of  workstations  is not dependent upon computer
operations. Accordingly, RSI does not believe there is a risk of interruption in
its supply of  workstations to its customers or lost revenues with any potential
Year 2000  compliance  issues.  Further,  RSI does not believe that it faces any
potential liability to third parties for breach of contract or other harm if its
systems are not Year 2000  compliant.  No costs  associated with RSI's Year 2000
compliance have been incurred to date.

                                       13
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
The  Company is not party to any pending  legal  proceeding  other than  routine
litigation incidental to the business.

ITEM 2.  CHANGES IN SECURITIES
None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

ITEM  5. OTHER INFORMATION
None.


                                       14

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed herewith pursuant to Regulation S-B:

NO.               DESCRIPTION                                          REFERENCE

2.1      Definitive merger agreement between Cort Investment Group, 
         Inc. and Reconditioned Systems, Inc.                              9
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
4.17     Common stock purchase warrant issued to Cort Investment 
         Group, Inc.                                                      10
10.1     Lease Agreement, dated April 12, 1990 between Boston Safe
         Deposit and Trust Company, as Lessor, and Registrant as Lessee    1
*10.21   Employment Agreement between the Registrant and Wayne R. 
         Collignon                                                         3
*10.22   Employment Agreement between the Registrant and Dirk D. 
         Anderson                                                          3
10.23    Third amendment to the Lease between the Registrant, as 
         Lessee, and Newhew Associates, as Lessor                          3
10.24    Loan documents between the Registrant and Norwest Business 
         Credit, Inc.                                                      3
*10.25   Amendment to Employment Agreement between Registrant and
         Wayne Collignon                                                   4
*10.26   Amendment to Employment Agreement between Registrant and
         Dirk Anderson                                                     4
10.27    Amendments to Loan document between Norwest Business Credit
         and Registrant                                                    4
10.28    Amendment to Loan document between Norwest Business Credit
         and Registrant                                                    5
10.29    Loan document between Registrant and M&I Thunderbird Bank         6
*10.30   Loan document between Registrant and Wayne R. Collignon           7
*10.31   Loan document between Registrant and Dirk D. Anderson             7
10.32    Loan document between M&I Thunderbird Bank and the Registrant     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-QSB on November 14, 1996
         (5)   Filed with 10-KSB on June 26, 1997
         (6)   Filed with 10-QSB on November 14, 1997
         (7)   Filed with 10-QSB on February 10, 1998
         (8)   Filed with 10-QSB on August 14, 1998
         (9)   Filed with 10-QSB on November 13, 1998
         (10)  Filed in conjunction with Exhibit 2.1 on November 13, 1998
         (*)   Indicates a compensatory plan or arrangement

(b) Reports on Form 8-K:

On November 16, 1998, the Company filed a report on Form 8-K announcing  that on
October 30, 1998 the Company  entered into an Agreement  and Plan of Merger with
Cort Investment Group, Inc.

                                       15

<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


RECONDITIONED SYSTEMS, INC.


Date:  February 12, 1999                  /s/ Wayne R. Collignon
                                          -------------------------------------
                                          Wayne R. Collignon, President and CEO


Date:  February 12, 1999                  /s/ Dirk D. Anderson
                                          -------------------------------------
                                          Dirk D. Anderson, CFO



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