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 June 30, 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 July 31, 1998, the number of
shares outstanding of the Registrant's common stock was 1,473,950.

<PAGE>
                          PART 1 - FINANCIAL STATEMENTS

ITEM 1















                           RECONDITIONED SYSTEMS, INC.


                         UNAUDITED FINANCIAL STATEMENTS

                                  JUNE 30, 1998
































                                        2
<PAGE>

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

                                 BALANCE SHEETS
                             JUNE 30, 1998 AND 1997
                                   (UNAUDITED)
--------------------------------------------------------------------------------

                                                           1998         1997
                                                        ----------   ----------

                                     ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                            $  695,781   $  129,632
   Accounts receivable - trade, net of allowance
      for doubtful accounts of $27,250 and
      $33,000, respectively                              1,254,644    1,051,646
   Inventory                                               942,360      943,922
   Prepaid expenses and other current assets                44,170       21,529
                                                        ----------   ----------

      TOTAL CURRENT ASSETS                               2,936,955    2,146,729

PROPERTY AND EQUIPMENT; net of accumulated
   depreciation of $349,675 and
   $350,274, respectively                                  136,522      171,465
OTHER ASSETS
   Notes receivable - Officers                             150,000           --
   Other assets                                             29,150       15,835
                                                        ----------   ----------

                                                        $3,252,627   $2,334,029
                                                        ==========   ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Revolving line of credit (Note 2)                    $       --   $  129,188
   Current maturities of long-term debt                     23,160       50,840
   Accounts payable                                        436,973      365,145
   Customer deposits                                       136,195       74,491
   Accrued expenses and other current liabilities          198,198      169,497
                                                        ----------   ----------

      TOTAL CURRENT LIABILITIES                            794,526      789,161

LONG-TERM DEBT, LESS CURRENT MATURITIES                         --       20,036

STOCKHOLDERS' EQUITY                                     2,458,101    1,524,832
                                                        ----------   ----------

                                                        $3,252,627   $2,334,029
                                                        ==========   ==========


                                        3

<PAGE>

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

                            STATEMENTS OF OPERATIONS
            FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)
--------------------------------------------------------------------------------

                                                         THREE MONTHS ENDED
                                                               JUNE 30,
                                                         1998           1997
                                                     -----------    -----------

Sales                                                $ 2,653,092    $ 2,267,362
Cost of sales                                          2,028,782      1,688,163
                                                     -----------    -----------

Gross profit                                             624,310        579,199

Selling & administrative expenses                        392,884        420,469
                                                     -----------    -----------

Income  from operations                                  231,426        158,730
                                                     -----------    -----------

Other income (expense):
         Interest income                                  10,441            171
         Interest expense                                   (639)       (13,595)
         Other                                             1,319          3,502
                                                     -----------    -----------
                                                          11,121         (9,922)
                                                     -----------    -----------


Net income                                           $   242,547    $   148,808
                                                     ===========    ===========

Basic earnings per share (Notes 1 and 3)                     .16            .10
                                                     ===========    ===========

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

Diluted earnings per common
     and common equivalent share (Notes 1 and 3)             .14            .09
                                                     ===========    ===========

Diluted weighted average number
     of shares outstanding                             1,691,411      1,578,510
                                                     ===========    ===========





                                        4

<PAGE>

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

                       STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED JUNE 30, 1998
                                   (UNAUDITED)
--------------------------------------------------------------------------------

                    COMMON     COMMON      RETAINED       TREASURY
                    STOCK      STOCK       EARNINGS        STOCK         TOTAL
                    SHARES     AMOUNT      (DEFICIT)    (134 SHARES)
                    ------     ------      ---------    ------------  ----------

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

Net income               --           0       242,547             0      242,547
                  ---------  ----------   -----------   -----------   ----------


BALANCE AT 
JUNE 30, 1998     1,473,950  $4,586,982   $(2,125,127)  $    (3,754)  $2,458,101
                  =========  ==========   ===========   ===========   ==========




























                                        5

<PAGE>

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

                            STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)
--------------------------------------------------------------------------------

                                                         THREE MONTHS ENDED
                                                               JUNE 30,
                                                         1998           1997
                                                      ---------      ---------

Cash and cash equivalents
provided (used) by operating
activities                                            $ (14,501)     $ 321,313

Cash and cash equivalents
used by investing
activities                                              (13,017)        (6,219)

Cash and cash equivalents
used by financing activities                             (9,732)      (327,586)
                                                      ---------      ---------

Decrease in cash
and cash equivalents                                    (37,250)       (12,492)

Cash and cash equivalents,
beginning of period                                     733,031        142,124
                                                      ---------      ---------


Cash and cash equivalents,
end of period                                         $ 695,781      $ 129,632
                                                      =========      =========



















                                        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 three months ended June 30,
          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  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.

                                        7
<PAGE>

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

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

                                                         THREE MONTHS ENDED
                                                               JUNE 30,
                                                          1998         1997
                                                       ----------   ----------

BASIC EPS

Net Income                                             $  242,547   $  148,808
                                                       ==========   ==========
Weighted average number
     of shares outstanding                              1,473,950    1,473,950
                                                       ==========   ==========

Basic earnings per share                               $     0.16   $     0.10
                                                       ==========   ==========
DILUTED EPS

Net Income                                             $  242,547   $  148,808
                                                       ==========   ==========
Weighted average number
     of shares outstanding                              1,473,950    1,473,950

Effect of dilutive securities:
  Stock options                                           217,461      104,560
                                                       ----------   ----------

Total common shares + assumed
   conversions                                          1,691,411    1,578,510
                                                       ==========   ==========

Per-Share Amount                                       $     0.14   $     0.09
                                                       ==========   ==========














                                        8

<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  Exchange 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  Company  may not be able to
geographically diversify its operations on a profitable basis, the risk that the
Company may not be able to continue to increase  sales,  maximize its production
capacity,  maintain  adequate  inventory levels at an acceptable cost and employ
qualified  personnel in response to rising  sales.  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.

RESULTS OF OPERATIONS

Reconditioned  Systems,  Inc. (the "Company")  reported net income for the three
month  period  ended June 30,  1998  (hereinafter  the  "reporting  period")  of
$242,547 as compared to $148,808  for the three month period ended June 30, 1997
(hereinafter  the  "comparable  period").  This  $93,739 or 62.9%  increase is a
result of  increased  sales  and  lower  selling,  administrative  and  interest
expenses over the comparable period.

The Company reported sales for the reporting period of $2,653,092 as compared to
$2,267,362 for comparable  period,  resulting in an increase of $385,730 or 17%.
This  increase  was  primarily   attributable  to  increased   wholesale  sales.
Approximately  60% of the total sales for the  reporting  period were  wholesale
sales and 40% were  retail  sales.  Sales  during  the  comparable  period  were
approximately 50% wholesale and 50% retail.

Wholesale  sales totaled  $1,638,584  for the reporting  period,  an increase of
$481,946 or 42% over the  comparable  period.  This was a result of expansion of
the  wholesale  division and  implementation  of a new  marketing  plan aimed at
increasing the Company's  wholesale  customer-base.  The Company began targeting
the larger  metropolitan  areas throughout the western United States and has had
success in developing new  dealership/broker  relationships  in these areas. The
Company's  wholesale  division has been very successful in the California market
and hopes to achieve similar results in other western states.

Retail sales in the Phoenix and Tucson  markets  totaled  $1,014,508  during the
reporting period, a decrease of 9% over the comparable period. This decrease was
primarily a result of turnover  within the retail sales  department.  During the
reporting period,  the Company hired and trained four new sales  representatives
to replace those lost through  attrition and to add to the existing sales staff.
The complexity  and demand for accuracy  within the Company's  industry  require
that the sales staff have proper training and product knowledge. The Company has
developed a formal training  program  designed to equip new salespeople with the
skills necessary to succeed;  however,  these skills take time to develop. While
the Company believes these newly hired sales  representatives will be successful
in developing the necessary skills to achieve their sales goals, there can be no
certainty that they will meet those expectations.

                                        9
<PAGE>

The  Company's  gross  profit  margin for the  reporting  period  was 23.5%,  as
compared to a gross profit margin of 25.5% for the  comparable  period.  This 2%
decrease  in  the  gross  margin  was  primarily  attributed  to  the  increased
percentage of wholesale sales to retail sales.

The  Company's  selling and  administrative  expenses were reduced from 18.5% of
sales in the  comparable  period to 14.8%  for the  reporting  period.  The 3.7%
decrease was primarily a result of a lower overall  percentage of fixed expenses
and the wholesale/retail sales mix. The Company's wholesale sales generally have
lower selling expenses than those of retail sales.

The Company's  other income and expenses,  which consists  primarily of interest
income and  expense,  improved  by  $21,043  from the  comparable  period to the
reporting  period.  This improvement was primarily due to the elimination of the
Company's interest expense and minimum interest requirements associated with its
previous line of credit agreement and increased interest income.  Effective July
30,  1997,  the  Company  entered  into  a  new  borrowing  agreement  with  M&I
Thunderbird  Bank,  lowering the Company's  borrowing rate and  eliminating  the
minimum  interest  payments  assessed  under the  previous  line of credit.  The
Company now carries a zero dollar balance on the new line of credit and believes
it has built a strong working  relationship  with M&I Thunderbird.  In addition,
the Company earned interest income of $10,441 on  interest-bearing  accounts and
notes receivable from officers.

INCOME TAXES

As  of  March  31,  1998,  the  Company  had  federal  loss   carryforwards   of
approximately   $2,120,000  and  state  loss   carryforwards   of  approximately
$1,920,000.  During the  quarters  ended  June 30,  1998 and 1997,  the  Company
benefited from these loss  carryforwards  in the approximate  amounts of $97,000
and $60,000, respectively.

FINANCIAL CONDITION AND LIQUIDITY

As of June 30, 1998, the Company's cash and cash equivalents  totaled  $694,781.
In addition,  the Company's net worth and working capital totaled $2,458,101 and
$2,142,429,  respectively.  The  Company  has no  material  long-term  debt  and
$1,000,000 available on its line of credit through M&I Thunderbird Bank.

While  cash  generated  from  operations  has been  sufficient  to  finance  the
company's  growth over the past few years,  the Company  reported  negative cash
flows from operations of $14,501 during the reporting period. This was primarily
a result of the  necessity  to finance  increased  sales  during  the  reporting
period.

The  Company's  sales  growth  resulted in  increasing  the  Company's  accounts
receivable  balances by $292,522 at June 30, 1998 as compared to March 31, 1998.
The Company's  collection rate remained fairly constant.  The average days sales
in accounts  receivable  at June 30, 1998 was 38, as compared to 37 at March 31,
1998. The Company hopes to maintain a collection rate at or near 30 days.

The increased accounts receivables were partially offset by the company's strong
operating  results and increased  inventory  turns during the reporting  period.
Annualized  inventory  turns for the  reporting  period were 8.7, as compared to
6.75 for the year ended March 31, 1998. This  improvement was primarily a result

                                       10
<PAGE>

of the Company's ability to increase sales without increasing  inventory levels.
Management  believes any additional  sales  increases may require the Company to
increase current inventory levels.

FUTURE OUTLOOK

Management is pleased with the operating  results achieved during this reporting
period.  The Company reported a 17% increase in revenues and a 62.9% increase in
net income.  Management plans to pursue gradual and focused growth;  in order to
facilitate this growth, the Company intends to expand its warehouse,  office and
showroom  space at the  Tempe,  Arizona  location.  This  modest  expansion  and
improvements are expected to be completed by December, 1998.

The Company continues to pursue growth in both the wholesale and retail markets.
The  wholesale  division  is  expanding  with  new  and  existing  dealer/broker
relationships.  In  addition  to  nurturing  the  accounts  established  in  the
California markets,  the Company will continue to concentrate on targeted growth
in other markets  throughout the western United  States.  The retail  division's
primary goal is to hire,  train and  maintain a qualified  and  competent  sales
staff. In addition,  the Company plans continued  development of its advertising
and  promotional  programs  designed to increase  local and  regional  exposure.
Furthermore,  now that the Company has strengthened its financial  condition and
liquidity,  management  believes a conservative  acquisition program is a viable
alternative for additional sales growth and increased share value.

The Company is currently  investigating  and taking corrective action to protect
itself from any potential computer hardware and software difficulties related to
Year 2000  computer  problems.  The Company  intends to complete all  corrective
action by June,  1999. The effect on the Company's  future results of operations
is not expected to be material.


























                                       11

<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

Effective June 30, 1997, the Company's Class B Warrants expired.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM  5. OTHER INFORMATION

None.


































                                       12

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed herewith pursuant to Regulation S-B:
<TABLE>
<CAPTION>
NO.               DESCRIPTION                                                     REFERENCE
<S>      <C>                                                                      <C> 

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                                          5
*4.10    Options issued to Dirk D. Anderson                                            5
*4.11    Amendment to Options issued to Wayne Collignon                                6
*4.12    Amendment to Options issued to Dirk D. Anderson                               6
*4.13    Options issued to Wayne R. Collignon                                          6
*4.14    Options issued to Dirk D. Anderson                                            6
*4.15    Options issued to Scott W. Ryan                                               6
*4.16    Options issued to Scott W. Ryan                                               6
10.1     Lease Agreement, dated April 12, 1990 between Boston Safe 
         Deposit and Trust Company, as Lessor, and Registrant as Lessee                1
10.17    Loan documents between National Bank of Arizona and the Registrant            2
*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      5
*10.26   Amendment to Employment Agreement between Registrant and Dirk Anderson        5
10.27    Amendments to Loan document between Norwest Business Credit and Registrant    5
10.28    Amendment to Loan document between Norwest Business Credit and Registrant     6
10.29    Loan document between Registrant and M&I Thunderbird Bank                     7
*10.30   Loan document between Registrant and Wayne R. Collignon                       8
*10.31   Loan document between Registrant and Dirk D. Anderson                         8
10.32    Loan document between M&I Thunderbird Bank and the Registrant                 9

         (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 Proxy Statement on July 15, 1996
         (5)  Filed with Form 10-QSB on November 14, 1996
         (6)  Filed with 10-KSB on June 26, 1997
         (7)  Filed with 10-QSB on November 14, 1997
         (8)  Filed with 10-QSB on February 10, 1998
         (9)  Filed herein
         (*)  Indicates a compensatory plan or arrangement
</TABLE>
(b) Reports on Form 8-K:

No reports were filed on Form 8-K during the quarter ended June 30, 1998.



                                       13

<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:  August 14, 1998                   /s/ Wayne R. Collignon
                                         -------------------------------------
                                         Wayne R. Collignon, President and CEO


Date:  August 14, 1998                   /s/ Dirk D. Anderson
                                         -------------------------------------
                                         Dirk D. Anderson, CFO





































                                       14