Securities and Exchange Commission
                            Washington D. C. 20549

                                   Form 10-KSB

(Mark One)
( X )    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
         For the fiscal year ended March 31, 2002

                                       or

(    )   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
         For the transition period from__________ to ___________.

                         Commission file number 0-20924

                           RECONDITIONED SYSTEMS, INC.
                  (Name of small business issuer in its charter)
                   Arizona                                     86-0576290
(State or other jurisdiction of incorporation                 (IRS Employer
           or organization)                                 Identification No.)

                     444 West Fairmont, Tempe, Arizona 85282
                    (Address of principal executive offices)
                                  480-968-1772
               (Issuer's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:  None

Securities registered pursuant to Section 12(g) of the Exchange Act:
         Title of each class
Common stock, no par value

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No_____.

Check if there is no  disclosure  of  delinquent  filers in response  to Item
405 of  Regulation  S-B  contained  in this form,  and no disclosure will be
contained,  to the best of registrant's  knowledge,  in definitive proxy or
information  statements  incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.  (X)

The issuer's revenues for the fiscal year ended March 31, 2002 were $8,329,693.

As of June 10, 2002, the aggregate market value of the Common Stock (based on
the closing price as quoted on the Nasdaq Small Cap Market on that date) held by
non-affiliates of the Registrant was approximately $1,228,762.

As of June 10, 2002, the number of shares outstanding of the Registrant's common
stock was 1,194,608.

Portions of the Registrant's definitive Proxy Statement, dated June 28, 2002,
are incorporated herein by reference into Part III of this Report.

Transitional Small Business Disclosure Format.       Yes ___No  X  .
                                                              ------

<PAGE>

                                     PART I
                                     ------

Item 1.  Description of Business
--------------------------------

General
-------
Reconditioned Systems, Inc. ("RSI" or the "Company"), an Arizona corporation
formed in March 1987, remanufactures and markets modular office workstations
consisting of panels, work surfaces, file drawers, book and binder storage and
integrated electrical components ("workstations"). The Company specializes in
remanufacturing and marketing workstations originally manufactured by Haworth,
Inc. ("Haworth"). The Company operates two remanufacturing facilities, one in
Arizona and one in Georgia. The Company also markets new office furniture
product-lines, including office chairs, desk, filing, lighting and other office
furniture accessories.

There are more than 50 manufacturers of new workstations in the United States.
Steelcase, Inc. ("Steelcase"), Herman Miller, Inc. ("Herman Miller"), and
Haworth constitute the dominant manufacturers, controlling a majority of the
market for new workstations. Steelcase, Herman Miller, and Haworth have each
created a unique system for connecting panels, electrical power and
telecommunications raceways, resulting in virtually no interchangeability
between their respective products. Due to this lack of interchangeability of
dominant manufacturer parts, the Company has generally specialized in
remanufacturing and marketing workstations originally manufactured by Haworth.

The Company's executive offices are located at 444 West Fairmont, Tempe, Arizona
85282 and its telephone number is 480-968-1772.

Principal Line of Business
--------------------------
The Company's principal line of business is the sale of remanufactured Haworth
workstations. Historically, these sales have accounted for approximately 70 -
80% of the Company's revenues. For the year ended March 31, 2002, these sales
represented 74% of the Company's revenues.

The Company purchases used Haworth workstations from manufacturers, dealers,
brokers, and end-users and transports them to one of its two manufacturing
facilities located in Arizona and Georgia, where it disassembles and inventories
the workstations by component parts, stores, and, upon receipt of purchase
orders, reconditions and reassembles the workstations. The remanufacturing
process includes sanding, painting, laminating, and reupholstering. Certain
parts of the used Haworth workstations the Company purchases are damaged beyond
repair and must be replaced with new parts purchased from Haworth dealers, clone
parts which the Company purchases from various vendors, and new parts which the
Company manufactures from raw materials. The Company markets these
remanufactured Haworth workstations throughout the United States. Orders
received by the Company range from as few as one workstation to as many as
several hundred workstations.

The Company believes that workstations offer advantages over the traditional
desk, free standing file, and permanent dry wall dividers common to historical
office layouts since workstations enable businesses to house more people in a
given space than traditional structures and are easier to move and reconfigure.
In addition, workstations are designed around personal computers, and the growth
in that market has contributed to the growth and acceptance of workstations. The
Company believes its remanufactured Haworth workstations offer an advantage over
much of its competition because they are higher quality than new workstations
available in the same price range.


<PAGE>


Other Lines of Business
-----------------------
The Company derives certain revenues outside of its principal line of business.
Other lines of business in which the Company engages include: brokering "as is"
used workstations; selling new office furniture produced by other manufacturers
(including new modular office furniture, desks, files, and chairs); installing
workstations, and remanufacturing product already owned by customers.
Historically, these other lines of business have accounted for approximately 20
- 30% of the Company's revenues. For the year ended March 31, 2002, these sales
represented 26% of the Company's revenues.

In August 2001, the Company opened a new manufacturing facility and retail
showroom under the trade name of Total Office Interiors ("TOI") in Norcross,
Georgia, a suburb of Atlanta. The primary focus of this expansion was to provide
another manufacturing "hub" and sales office to market to customers in the
Eastern United States. The Company modeled this new facility after its Arizona
manufacturing and sales office.

In January 2002, the Company opened a satellite sales office and showroom
("spoke") in Sherman Oaks, California. The primary focus of this new sales
office is to develop a TOI retail presence in the Southern California region.
This office showcases the Company's remanufactured product-line, along with the
other new product-lines offered by the Company's Arizona and Georgia sales
offices.

Inventory and Sources of Supply
--------------------------------
The Company purchases used Haworth workstations throughout the United States
through competitive bids or private negotiations with new workstation
manufacturers and dealers, used workstation brokers, and end-users. The Company
then transports the used Haworth workstations to one of its two manufacturing
facilities in Arizona and Georgia, where it disassembles, inventories by
component part, and stores the used Haworth workstation components until
purchase orders are received which require the various component parts. The
Company also inventories new workstation components purchased from Haworth
dealers, clone workstation components, and raw materials used in the
remanufacturing process. These raw materials include items such as fabric,
particleboard, laminate and paint.

The Company carries a limited amount of work in process and finished goods
inventory because it generally does not initiate the remanufacturing process
until a purchase order has been received and because the remanufacturing process
rarely takes more than a couple of days due to the relatively small size of most
orders. However, a significant portion of the labor related to the
remanufacturing process is completed at the time the used Haworth workstations
are originally received and disassembled, and as a result, the value of this
labor is capitalized and added to the value of the Company's inventory.

The Company currently has sufficient amounts of inventory to meet its
anticipated demand. However, because there is not a principal supplier of used
Haworth workstations and the supply is based upon end-user decisions regarding
disposal of or enhancement to existing furniture, there can be no assurance that
the Company will be able to purchase adequate levels of inventory in the future
at competitive prices. Because the Company's principal line of business is the
sale of remanufactured Haworth workstations, any unavailability of adequate
levels of inventory at competitive prices would have a material adverse effect
on the Company's business, operating results, and financial condition.

The Company also carries a number of new product-lines, including new modular
office furniture, filing, lighting, and other accessories. The Company currently
maintains an excellent relationship with the manufacturers of these
product-lines and does not foresee any disruption in supply. In addition, if the
Company did face a disruption in supply of these product-lines, the Company
believes it could easily find an alternative source.


<PAGE>


Remanufacturing Process
-----------------------
The Company's remanufacturing process for used Haworth workstations includes
sanding, painting, laminating, and reupholstering. The remanufacturing process
also includes replacing certain components with new components purchased from
Haworth dealers, clone components purchased from various vendors, or new
components manufactured by the Company from raw materials. The Company's
facilities in Arizona and Georgia include all of the equipment required to
recondition workstations, including closed and open paint booths, paint drying
booths, sanding equipment, saws and laminating equipment.

The remanufactured Haworth workstations that the Company sells generally consist
of panels, worksurfaces, pedestals, overhead storage units, lateral file storage
units, task lights, and electrical raceways. The Company reconditions all of
these items. Components that are often damaged and need to be replaced with new
or clone components include panel top caps, shelf ends for overhead storage
units, worksurfaces, electrical base and top feeds, and electrical raceways. The
Company sells certain auxiliary items such as chairs, file cabinets, and desks,
but it usually purchases these items new from other manufacturers rather than
purchasing them used and remanufacturing them.

The Company's facilities have been designed to facilitate the natural flow of
used Haworth workstation components and raw materials in order to streamline the
remanufacturing process through disassembly, storage, remanufacturing, and
shipping. Utilizing narrow aisle storage maximizes storage capacity. The Company
believes that its current facilities will be able to handle the anticipated
increase in volume as a result of its plan to increase its distribution
channels.

Competition
-----------
In purchasing used Haworth workstations, the Company competes with used
workstation brokers and other entities that recondition Haworth workstations.
Even though the Company may not be the highest bidder for an end-user's used
Haworth workstations, it may still have the opportunity to purchase them at a
slightly higher cost if the highest bidder was a used workstation broker who is
simply trying to make a small profit without actually taking possession of the
used Haworth workstations. The Company attempts to procure the used Haworth
workstations directly from end-users so as to avoid the middleman (used
workstation brokers) and to obtain these used Haworth workstations at the lowest
possible cost.

The market for workstations is highly competitive. The Company competes with new
workstation manufacturers, their dealers, and other reconditioners in the sale
of its remanufactured Haworth workstations. New workstation manufacturers and
their dealers have certain competitive advantages over the Company including
established distribution channels and marketing programs, substantial financial
strength, long-term customers, ready access to all component parts, and the fact
that if everything is equal (price, lead-time, etc.), most people would choose
new workstations over remanufactured workstations. The Company has certain
competitive advantages over new workstation manufacturers and their dealers. On
orders of 100 workstations or less, the Company's pricing is usually
significantly less than pricing on new "Grade A" workstations ("Grade A"
workstations are considered to be those workstations manufactured by Haworth,
Herman Miller and Steelcase) and the quality of the Company's remanufactured
Haworth workstations exceeds that of new "Grade B" workstations. In addition,
the Company can produce and install fully remanufactured Haworth workstations
within two to three weeks as compared to standard lead-times of approximately
six to eight weeks for the new workstation manufacturers. The Company believes
that its remanufacturing services are more comprehensive than most other
reconditioners. The Company has the ability to produce more remanufactured
workstations and higher quality remanufactured workstations than most other
reconditioners, resulting in a competitive advantage. The Company is facing
increased competition from "bargain" newly manufactured product lines. There are
no significant barriers to entry into the markets served by the Company. An
increase in competition from existing competitors or the entry of new
competitors could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully in the future with existing or new
competitors.


<PAGE>


In an effort to increase the Company's ability to compete in this changing
marketplace, beginning in October 1999, the Company became an authorized dealer
of Teknion, a manufacturer of new modular office furniture and expanded its line
of filing, seating, lighting and other office furniture accessories. In June
2000, the Company became an authorized dealer of Paoli Office Furniture, a
manufacturer of executive freestanding office furniture and tables. The Company
offers the Teknion and Paoli lines as an alternative to its remanufactured
Haworth workstations.

Distribution
------------
The Company markets its products on a wholesale basis to furniture dealerships,
design firms and installation companies throughout the United States. The
Company employs three full-time employees who concentrate on telemarketing and
servicing its wholesale sales and two independent marketing representatives who
concentrate on market expansion. In recent years, the Company's wholesale sales
have comprised as much as approximately 65% of the Company's total sales. For
the year ended March 31, 2002, wholesale sales accounted for 44% of the
Company's total sales.

The Company also operates three retail sales offices doing business under the
trade name of "Total Office Interiors," located in the metropolitan areas of
Phoenix, Atlanta and Los Angeles. The Company's Arizona sales office has
historically generated approximately 40-50% of the Company's total sales. For
the year ended March 31, 2002, Arizona retail sales accounted for approximately
52% of the Company's total sales. In August 2001, the Company opened a new
manufacturing facility and retail showroom in Georgia. The primary focus of this
expansion was to provide another manufacturing hub and sales office to market to
customers in the Eastern United States. The Company modeled this new facility
after its Arizona manufacturing and sales office. In January 2002, the Company
opened a satellite sales office in Sherman Oaks, California. The primary focus
of this new sales office is to develop a retail presence in Southern California.
These two new divisions accounted for 4% of the Company's total sales for the
fiscal year.

Customers
----------
In addition to the Company's network of authorized dealers, the Company's retail
customers range from small business to Fortune 500 companies. The Company
customer base also includes various federal, state and local agencies and other
governmental entities. The Company maintains a broad customer base and is not
dependent on any one customer.

Personnel
---------
The Company currently has 73 full-time employees of whom 39 are production
personnel directly involved in the remanufacturing process, 8 are in the
installation department, 18 are in the sales and design departments, and 8 are
management and administrative personnel. Due to significantly reduced sales
volume, the Company eliminated 10 employees during the fiscal year ending March
31, 2002.

The Company believes that its ability to grow and attain its desired
profitability levels depend on its ability to attract and retain highly
qualified personnel. There can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company has an
employment agreement, which includes severance benefits, with its Chief
Executive Officer (see Item 10 - Executive Compensation.) None of the Company's
personnel are covered by a collective bargaining agreement, and the Company has
never suffered a work stoppage. Despite the recent elimination of employees, the
Company considers its relations with its employees to be excellent.

Environmental Regulations
-------------------------
The Company's operations are subject to a variety of federal, state, and local
environmental laws and regulations, including those governing air quality, water
quality, and hazardous materials. The Company's principle environmental concerns
relate to the handling and disposal of paints, solvents, and related materials
in connection with product finishes and composite fabrication. The Company
contracts with various independent waste disposal companies for services. The
Company may be exposed to certain environmental liabilities which may or may not
be covered by the insurance of the independent contractors or by the Company's
own insurance.


<PAGE>


The Company believes that it has been operating in substantial compliance in all
material respects with existing environmental laws and regulations and that the
costs and effects of such compliance are not material. The Company cannot
predict the nature, scope or effect of legislation or regulatory requirements
that could be imposed or how existing or future laws or regulations will be
administered or interpreted with respect to products or activities to which they
have not previously been applied. Compliance with more stringent laws or
regulations, or more vigorous enforcement policies or regulatory agencies, could
require substantial expenditures by the Company and could adversely affect its
business, financial condition and results of operations.

The Company's operations are also governed by laws and regulations relating to
work-place safety and worker health, principally the Occupational Safety and
Health Act and accompanying regulations and various state laws and regulations.
The Company does not believe that future compliance with current laws and
regulations will have a material adverse effect on its financial condition or
results of operations.

Insurance
---------
The Company maintains liability insurance policies covering a number of risks,
including business interruption, property, commercial crime, comprehensive
general liability and workers compensation and employer's liability insurance.
The Company believes that its insurance coverage is adequate.

Item 2.  Description of Properties
----------------------------------

The Company presently leases a 58,500 square foot facility in Tempe, Arizona
that houses its corporate offices, remanufacturing operation, warehouse space
and showroom space. The current lease on the Arizona facility expires April
2006. The Company leases a 18,720 square foot remanufacturing and sales office
facility in Norcross, Georgia which expires June 2004 and a 1,968 square foot
sale office in Sherman Oaks, California which expires December 2004. The Company
believes its existing facilities are adequate for its current and projected
sales volumes. In addition, the Company believes suitable additional space will
be available as needed.

The Company owns substantially all of its equipment, including its office
equipment, its company vehicles and its remanufacturing equipment. The Company's
equipment has been assigned as collateral for amounts borrowed under loan
agreements with M&I Thunderbird Bank.

The Company has no investments or interests in real estate, real estate
mortgages or securities of persons primarily engaged in real estate activities.

Item 3.  Legal Proceedings
--------------------------

In June 2001, the Company's former independent accountant, Semple & Cooper, LLP
("Semple"), resigned as a result of a fee dispute. In addition, Semple indicated
they were not independent with respect to their audits of the Company's
financial statements for the fiscal years ended March 31, 1999 and 2000, and
therefore, were withdrawing their opinions related to those audits. On August 9,
2001, the Company commenced a lawsuit against Semple & Cooper, LLP in the
Superior Court of Arizona, Maricopa County (Case No. CV2001-013810) for breach
of contract, malpractice, injurious falsehood and defamation. The complaint
seeks monetary damages, including punitive damages, and an injunction requiring
Semple & Cooper, LLP to retract and withdraw its injurious falsehoods and
defamatory statements against the Company.

On September 19, 2001, Semple & Cooper, LLP filed an answer and counterclaim for
breach of contract and defamation in response to the above mentioned lawsuit.
The counterclaim seeks monetary damages, including punitive damages and an
injunction requiring the Company to retract alleged defamatory statements the
Company made against Semple & Cooper, LLP.

The Company has filed a motion of readiness to proceed to trial. To date, the
Company has incurred $93,533 in legal fees and additional fees to re-audit the
financial statements for the fiscal years ended March 31, 1999 and 2000.


<PAGE>




Item 4.  Submissions of Matters to a Vote of Security Holders
--------------------------------------------------------------

No matters were submitted to a vote of security holders during the quarter ended
March 31, 2002.

                                     PART II
                                     -------

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------

The Company's Common Stock is traded on the Nasdaq Small Cap Market under the
symbol "RESY." The following table sets forth the high and low closing sales
price, as reported by the Nasdaq Small Cap Market, in dollars per share for the
quarters then ended:


--------------------------- ---------------------------------------------------
                                            Common Stock
--------------------------- ---------------------------------------------------

        Date                            Low                         High
--------------------------- --------------------------- ------------------------

           June, 2000                      2.25                        3.13

           September, 2000                 2.50                        3.13

           December, 2000                  2.69                        3.38

           March, 2001                     2.81                        3.38

           June, 2001                      2.86                        3.48

           September, 2001                 2.20                        4.10

           December, 2001                  2.23                        3.00

           March, 2002                     2.25                        2.79


The total number of shares of Common Stock of the Company outstanding as of June
10, 2002 was 1,194,608 As of the close of business on June 10, 2002, the number
of record holders of the Company's Common Stock was 44 and the number of holders
of the Company's Common Stock including beneficial holders of stock held in
street name was estimated to be 400.

There were no unregistered sales of the Company's Common Stock during the period
covered by this Report.

On August 14, 2001, the Company issued a 5% stock dividend to shareholders of
record on August 13, 2001.

The Company has not paid any cash dividends on its Common Stock during the past
two fiscal years and does not intend to pay any cash dividends on its Common
Stock in the foreseeable future. Future earnings, if any, will be retained to
fund the development and growth of the Company's business. In addition, the
Company's line of credit security agreement prohibits the payment of any
dividends on the Company's Common Stock. Further, state corporate law may, under
certain circumstances, restrict the Company's ability to pay dividends.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
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. These forward-looking statements
involve risks and uncertainties. Important factors that could cause actual
results to differ materially from the forward-looking statements include, but
are not limited to, the risk that the Company may not be able to increase sales
revenues, successfully diversify its operations and return to profitability. In
addition, the Company's business, operations and financial condition are subject
to substantial other risks that are described in the Company's reports and
statements filed from time to time with the Securities and Exchange Commission,
including this Report.


<PAGE>



Results of Operations
---------------------

SALES REVENUE
-------------
The Company had sales for the fiscal year ended March 31, 2002 (the "reporting
period") of $8.3 million. This compares to $14.3 million for the fiscal year
ended March 31, 2001 (the "comparable period"), resulting in a decrease of $6
million or approximately 42%. Management believes this decrease is primarily a
result of the general economic downturn and the adverse economic effects
following the terrorist attacks on September 11, 2001. Our industry has been
particularly hard hit; the Company's top competitors reported calendar year
sales declines ranging from 17% to 59%.

Retail sales declined 36% from approximately $7.3 million in the comparable
period to approximately $4.65 million in the reporting period. While this
decrease is disappointing, it is in line with the decreased revenues within the
industry.

Wholesales sales totaled approximately $3.7 million, a decrease of approximately
48% over the comparable period. This decrease was primarily due to the economic
downturn and the Company's historical concentration of accounts in the Northern
California market, whose high-technology economy was particularly hard hit by
the weak economy.

GROSS MARGIN
------------
The Company's gross profit margin for the reporting period was 17%, as compared
to approximately 22% for the comparable period. The lower margins are primarily
a result of the effect of fixed costs on lower sales revenues. In addition, the
percentage of new furniture sales to total sales increased from approximately
15% in the comparable period to 19% in the reporting period. The Company's
typical gross margin on new furniture sales is lower than that on remanufactured
furniture. Furthermore, increased competitive pressures required the Company to
be more aggressive in its pricing structure during the reporting period, further
reducing gross margins.

OPERATING EXPENSES
------------------
The Company's selling and administrative expenses net of non-standard operating
expenses (see Notes 8 and 9 of the Audited Financial Statements) increased from
13.8% in the comparable period to 22.8% in the reporting period. The Company's
fixed costs represented a higher percentage of sales as a result of the
decreased sales volume.

NON-STANDARD OPERATING EXPENSES
-------------------------------
In response to the lower sales volumes, management made personnel cuts in an
effort to reduce future fixed expenditures and improve the company's
profitability. Due to these lay-offs, the Company incurred approximately $43
thousand in severance charges during the quarter ended December 31, 2001. In
addition to these severance charges, the Company incurred legal fees and other
non-recurring expenses in connection with the Company's lawsuit against its
former independent auditors, Semple & Cooper, LLC (See "Legal Proceedings"
below). These expenditures totaled approximately $93 thousand for the fiscal
year ended March 31, 2002.

OTHER INCOME AND EXPENSES
-------------------------
The Company's other income and expenses, which consist primarily of interest
income, decreased by approximately $38 thousand or 41% from the comparable
period to the reporting period. This decrease was primarily a result of lower
interest rates and decreased cash reserves.


<PAGE>


Income Taxes
------------

As of March 31, 2002, as a result of the operating loss reported for the fiscal
year, the Company booked an income tax benefit of approximately $284 thousand
and a net deferred tax asset of approximately $63 thousand. This compares to
income tax expenses of approximately $377 thousand in the comparable period. The
Company has elected to carryback the loss reported in the reporting period and
is expecting to receive income tax refunds in 2003 of approximately $338
thousand, which includes refunds as a result of the Company's operating losses
and return of estimated income tax payments made during the reporting period.

Financial Condition and Liquidity
---------------------------------

Cash Flows from Operating Activities. The Company used approximately $50
thousand in net cash to fund operating activities during the reporting period.
This compares to net cash provided by operating activities of approximately $1.4
million for the comparable period. Net cash provided by operating activities
excluding the non-standard charges associated with the Company's lawsuit and
severance charges totaled approximately $86 thousand during the reporting
period. Despite the significant operating loss recorded in the reporting period,
the Company was able to effectively collect trade receivables and manage
short-term liabilities and inventory levels in order to limit the cash used for
operating activities.

Cash Flows from Investing and Financing Activities. During the reporting period,
net cash used by investing activities totaled approximately $387 thousand
primarily for the purchase of a short-term note receivable and fixed assets. Net
cash used for financing activities totaled approximately $25 thousand, primarily
for the purchase of treasury stock.

Expected  Future Cash Flows.  Cash provided by operations in the near future
should closely follow  operating  income net of income tax refunds.

Management believes current working capital, cash reserves and cash flows from
operations are adequate to fund all planned expenditures without the need for
outside financing. In addition, the Company has $1,000,000 in available
borrowings on its line of credit with M&I Thunderbird Bank (see Note 7 of the
Audited Financial Statements.)

Forward Looking Statements
--------------------------

Fiscal year 2002 was a challenging year for the Company. The weak U.S. economy
negatively affected sales revenues throughout the Contract Office Furniture
Industry. Major competitors within the industry reported sales declines for the
calendar year ranging from 17% to 59%. Decreased sales, coupled with lower sales
margins and higher fixed costs as a percentage of sales seriously impacted the
Company's bottom-line results. In an effort to cut costs, management implemented
corporate lay-offs, which reduced the Company's operating loss in the March 2002
quarter.

As a result of the downturn in the economy and our industry, management was
finally able to implement its expansion plan. In August 2001, the Company opened
an additional manufacturing and sales facility ("hub") in Norcross, Georgia.
This location is now fully operational and beginning to establish a modest
customer-base. In January 2002, the Company opened its first "spoke" sales
office in Sherman Oaks, California. With the opening of these two locations, the
Company is beginning to diversify its operations, reducing dependency upon its
Arizona and wholesale market share.

Industry economic forecasts are projecting an additional 13% decline in sales
for calendar year 2002 and in fact, one significant competitor reported sales
declines of 73% for the quarter ended March 2002. Despite this forecast,
management is budgeting for a modest sales increase and profitability in all
divisions this next year, including the new Georgia and California divisions. Of
course, there can be no guarantee that the Company will be able to achieve these
results.



<PAGE>



Item 7.  Financial Statements
-----------------------------




                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

To The Stockholders and Board of Directors of
Reconditioned Systems, Inc.


We have audited the accompanying balance sheets of Reconditioned Systems, Inc.
as of March 31, 2002 and 2001, and the related statements of operations,
stockholders' equity, and cash flows for the years 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of Reconditioned Systems, Inc. as of March 31,
2002 and 2001, and the results of its operations, stockholders' equity, and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

/s/ Moffitt & Company, PC
Moffitt & Company, PC
Scottsdale, Arizona

May 6, 2002





<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                                 BALANCE SHEETS
                             March 31, 2002 and 2001

<TABLE>

                                                                                  2002                  2001
                                                                                  ----                  ----
                                                   ASSETS
<S>                                                                         <C>                 <C>

Current Assets:
       Cash and cash equivalents (Notes 1, 2 and 3)                         $1,377,234           $1,839,284
       Accounts receivable (Notes 1 and 7)                                     625,430            1,227,241
       Notes receivable (Note 4)                                               150,000               50,000
       Corporation income tax receivable                                       338,249               44,741
       Deferred tax asset, net (Note 11)                                        62,982                    0
       Inventory (Notes 1 and 7)                                             1,407,923            1,434,319
       Prepaid expenses and other current assets (Note 11)                     148,790              148,939
                                                                               -------              -------

                    Total current assets                                     4,110,608            4,744,524
                                                                             ---------            ---------

Property and Equipment, net:   (Note 1, 6 and 7)                               391,341               249,861
                                                                               -------               -------

Other Assets (Note 1):
       Note receivable - officer (Notes 3 and 5)                                                     75,000
                                                                                     0
       Refundable deposits and other                                            66,463               36,656
                                                                                ------               ------

                                                                                66,463              111,656
                                                                                ------              -------

Total Assets                                                                 $4,568,412           $5,106,041
                                                                             ==========           ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
       Accounts payable                                                       $576,615             $598,001
       Customer deposits                                                        84,631               68,722
       Accrued compensation and benefits                                       174,040              245,874
       Other accrued expenses and current liabilities                           24,293               95,009
                                                                                ------               ------

                    Total current liabilities                                  859,579            1,007,606
                                                                               -------            ---------

Stockholders' Equity:
       Common stock, no par value; 20,000,000 shares authorized, 1,547,517 and
            1,473,834 shares issued, respectively and 1,194,608 and 1,174,250
            shares outstanding, respectively                                 4,805,258            4,588,844
       Retained earnings/(accumulated deficit)                               (230,247)               267,460
                                                                             ---------               -------

                                                                             4,575,011            4,856,304
       Less: treasury stock, 352,909 and 299,584 shares
                respectively, at cost                                        (866,178)             (757,869)
                                                                             ---------             ---------

                                                                             3,708,833            4,098,435
                                                                             ---------            ---------

Total Liabilities and Stockholders' Equity                                   $4,568,412           $5,106,041
                                                                             ==========           ==========
</TABLE>


                   The Accompanying Notes are an Integral Part
                           of the Financial Statements


<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                   For the Years Ended March 31, 2002 and 2001
<TABLE>


                                                                                              2002            2001
                                                                                              ----            ----
<S>                                                                                     <C>             <C>

Sales                                                                                    $8,329,693    $14,341,861

Cost of sales                                                                             6,915,237     11,193,591
                                                                                          ---------     ----------

Gross profit                                                                              1,414,456      3,148,270
                                                                                          ---------      ---------

Selling & administrative expenses                                                         1,901,257      1,976,155
Severance charges (Note 8)                                                                   42,708              0
Lawsuit and legal disputes (Note 9)                                                          93,533              0
                                                                                             ------              -

Income (loss) from operations                                                             (623,042)      1,172,115

Other income (expense):
          Interest income                                                                    54,436         83,690
          Other                                                                                 326          8,936
                                                                                                ---          -----

Net income (loss) before income taxes                                                     (568,280)      1,264,741

Provision for income taxes (expense) benefit
(Note 11)                                                                                   284,185      (377,715)
                                                                                            -------      ---------

Net income  (loss)                                                                       $(284,095)       $887,026
                                                                                         ==========       ========

Earnings (loss) per share (Notes 1 and 13):

          Basic                                                                            $ (0.24)       $   0.71
                                                                                           ========       ========
          Diluted                                                                          $ (0.24)       $   0.64
                                                                                           ========       ========

Weighted average number of shares outstanding:
          Basic                                                                           1,192,394      1,257,909
                                                                                          =========      =========
          Diluted                                                                         1,192,394      1,393,524
                                                                                          =========      =========


</TABLE>







                   The Accompanying Notes are an Integral Part
                           of the Financial Statements



<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                   For the Years Ended March 31, 2002 and 2001

<TABLE>


                                    Common Stock      Common Stock         Retained
                                       Shares            Amount            Earnings       Treasury
                                                                          (Deficit)          Stock          Total
-----------------------------      --------------  ----------------- ---------------- -------------- ------------
<S>                                    <C>              <C>                <C>          <C>            <C>


Balance at  March 31, 2000             1,327,684        $4,587,576         $(619,566)   $(359,213)     $3,608,797

Purchase of Treasury
      Shares                           (154,634)                 -                -       (401,522)     (401,522)

Transfer of shares to ESPP
   Plan                                    1,200             1,268                -          2,866          4,134

Net income                                     -                 -           887,026            -         887,026
                                   -------------- ----------------- ----------------- ------------ ---------------


Balance at  March 31, 2001             1,174,250        $4,588,844           $267,460   $(757,869)     $4,098,435

Purchase of Treasury
      Shares                            (40,500)                 -                  -    (112,025)      (112,025)

Transfer of shares to
      ESP Plan                             3,522               242                  -        8,379          8,621

Retirement of shares from
      ESP Plan                             (841)                                           (2,103)        (2,103)

Stock Dividend                            58,177           216,172          (213,612)      (2,560)              -

Net loss                                       -                 -          (284,095)            -      (284,095)
                                   -------------- ----------------- ------------------ ------------ --------------

Balance at  March 31, 2002             1,194,608        $4,805,258         $(230,247)   $(866,178)     $3,708,833
                                   ============== ================= ================== ============ ==============


</TABLE>













                   The Accompanying Notes are an Integral Part
                           of the Financial Statements




<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                   For the Years Ended March 31, 2002 and 2001
<TABLE>


                                                                                          2002         2001
<S>                                                                                  <C>             <C>

Cash Flows from Operating Activities:

        Cash received from customers                                                 $8,948,330     $15,177,707
        Cash paid to suppliers and employees                                         (8,975,076)   (13,431,540)
        Income taxes paid                                                               (72,305)      (382,891)
        Interest received                                                                49,336         83,690
                                                                                         ------         ------

                 Net cash provided/(used) by
                 operating activities                                                   (49,715)     1,446,966
                                                                                        --------     ---------

Cash Flows from Investing Activities:

        Investments in short-term notes
        receivable                                                                    (100,000)        (50,000)
        Purchase of property and equipment                                            (254,900)        (84,908)
        Other                                                                          (32,028)          3,836
                                                                                       --------          -----

                 Net cash used by investing
                 activities                                                           (386,928)       (131,072)
                                                                                      ---------       ---------

Cash Flows from Financing Activities:

        Purchase of Treasury Stock                                                     (31,925)       (401,522)
        Transfers to/from ESP Plan                                                       6,518           4,134
                                                                                         -----           -----

                 Net cash used by financing
                 activities                                                            (25,407)       (397,388)
                                                                                       --------       ---------

Increase (Decrease) in cash and cash
   equivalents                                                                        (462,050)        918,506
Cash and cash equivalents at beginning of
   period                                                                            1,839,284         920,778
                                                                                     ---------         -------

Cash and cash equivalents at end of period                                          $1,377,234      $1,839,284
                                                                                    ==========      ==========


</TABLE>





                   The Accompanying Notes are an Integral Part
                           of the Financial Statements




<PAGE>



                           RECONDITIONED SYSTEMS, INC.
                      STATEMENTS OF CASH FLOWS (Continued)
                   For the Years Ended March 31, 2002 and 2001

<TABLE>

                                                                                   2002                      2001
                                                                                   ----                      ----
<S>                                                                             <C>                     <C>


Reconciliation of Net Income/(Loss) to Net Cash
  Provided/(Used) by Operating Activities:

Net Income/(Loss)                                                              $(284,095)                $887,026

Adjustments to reconcile net income to net cash provided by operating
  activities:

          Depreciation and amortization                                         115,641                   104,314
          Provision for doubtful accounts                                      (16,500)                     1,000
          Non-cash portion of officer note buy-out (Note 5)                     (5,100)                         0

Changes in assets and liabilities:

          Accounts receivable                                                    618,311                  826,910
          Inventory                                                               26,396                 (243,146)
          Prepaid expenses and other assets                                          149                  (99,743)
          Income taxes receivable                                               (293,508)                       0
          Deferred income taxes receivable                                       (62,982)                       0
          Accounts payable and accrued expenses                                 (148,027)                (29,395)
                                                                                ---------                --------

          Net cash provided by operating activities                           $(49,715)                $1,446,966
                                                                              =========                ==========
</TABLE>


Non-Cash Investing and Financing Activities:

During the year ended March 31, 2002, the Company engaged in the following
non-cash investing and financing activities:

o On November 27, 2001 the Company
purchased 30,000 shares of treasury stock in exchange for a $75,000 note
receivable from an officer and $5,100 in unpaid accrued interest on said note.

o On August 14, 2001, the Company issued a 5% stock dividend to shareholders of
record on August 13, 2001.

During the year ended March 31, 2001, the Company did not have any non-cash
investing or financing activities.










                   The Accompanying Notes are an Integral Part
                           of the Financial Statements




<PAGE>



                           RECONDITIONED SYSTEMS, INC.
                          Notes to Financial Statements
--------------------------------------------------------------------------------

                                     Note 1.
--------------------------------------------------------------------------------

Nature of Business:
         Reconditioned Systems, Inc. ("RSI" or the "Company"), is a corporation
         which was incorporated in the State of Arizona in March 1987. The
         principal business purpose of the Company is the remanufacturing and
         sale of office workstations comprised of panel systems to customers
         located throughout the country. 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 March 31, 2002 and 2001, the
         Company has established an allowance for doubtful accounts in the
         amount of $10,500 and $27,000, respectively.

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 March 31,
         2002 and 2001, the Company had established a reserve for damaged and
         obsolete inventory in the amount of $50,000.


<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                     Note 1.
Summary of Significant Accounting Policies, Nature of Operations,
                                 Use of Estimates
--------------------------------------------------------------------------------

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                     3 - 7
                  Machinery and equipment                            5 - 7
                  Leasehold improvements                               3
                  Vehicles                                           3 - 5
                  Showroom furniture                                 1 - 2

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.

Stock-Based Compensation:
         The Company has elected to follow Accounting Principles Board Opinion
         No. 25 Accounting for Stock Issued to Employees (APB 25) and the
         related interpretations in accounting for its employee stock options.
         Under APB 25, because the exercise price of employee stock options
         equals the market price of the underlying stock on the date of grant,
         no compensation expense is recorded. The Company has adopted the
         disclosure-only provisions of Statement of Financial Accounting
         Standards No. 123, "Accounting for Stock-Based Compensation" (Statement
         No. 123).




<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                     Note 1.
                 Summary of Significant Accounting Policies, Nature of
                     Operations, and Use of Estimates
                                   (Continued)
--------------------------------------------------------------------------------

Stock-Based Compensation (Continued):
         During 1999, the Company adopted an Employee Stock Purchase Plan (the
         "Plan"). Under this plan, employees may purchase shares of the
         Company's common stock, subject to certain limitations, at 85% of its
         market value. Purchases are limited to 10% of an employee's eligible
         compensation, up to a maximum of $25,000 per year. An aggregate of
         200,000 shares of the Company's common stock are authorized and
         available for sale to eligible employees. During the years ended March
         31, 2002 and 2001, 2,931 and 1,200 shares were issued to employees
         under the Plan, respectively. These outstanding shares were adjusted
         for the 5% stock dividend issued on August 15, 2001 to 3,078 and 1,260,
         respectively.

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.
         In addition, certain outstanding options are not included in the
         computation of diluted earnings per share because their effect would be
         antidilutive.

Advertising:
         All direct advertising costs are expensed as incurred. The Company
         charged to operations $146,693 and $103,055 in advertising costs for
         the years ended March 31, 2002 and 2001, respectively.

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

         These FASB statements did not have a material impact on the Company's
financial position or results of operations.


<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                     Note 2.
                                 Concentrations
--------------------------------------------------------------------------------

The Company maintains cash balances at various financial institutions. Deposits
not to exceed $100,000 at the financial institutions are insured by the Federal
Deposit Insurance Corporation. As of March 31, 2002, the Company had
approximately $1,300,000 of uninsured cash.

In addition, 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.

--------------------------------------------------------------------------------

                                     Note 3.
                       Fair Value of Financial Instruments
--------------------------------------------------------------------------------

The Company estimates that the fair value of all financial instruments at March
31, 2002 and 2001 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:
<TABLE>

                                                     March 31, 2002                     March 31, 2001
                                                     --------------                     --------------

                                       Carrying Carrying
                                            Amount            Fair Value        Amount           Fair Value
<S>                                         <C>               <C>               <C>             <C>


Cash and cash equivalents                   $ 1,377,234       $ 1,377,234       $1,839,284       $1,839,284
Accounts receivable                         $   625,430       $   625,430       $1,227,241       $1,227,241
Short-term note receivable                  $   150,000       $   150,000       $   50,000       $   50,000
Accounts payable                            $   576,615       $   576,615       $  598,001       $  598,001

</TABLE>

The carrying amount approximates fair value of cash and short-term instruments.


<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                     Note 4.
                                 Note Receivable
--------------------------------------------------------------------------------

As of March 31, 2002, the Company held an interest in a note receivable from
American Business Financial Services, Inc. in the amount of $150,000, which
matures on December 4, 2002. The uncollateralized note is held for investment
purposes and accrues interest quarterly at an annual rate of 8.25%.

As of March 31, 2001, the Company held an interest in an $800,000
uncollateralized note receivable from Vulcan Minerals & Energy, Inc. payable in
full on or before August 28, 2001. The Company entered into this note along with
a group of other investors. The Company's portion of the note receivable was
$50,000. Interest on the note accrued at a rate of 6% per annum payable monthly
beginning April 2, 2001. On December 7, 2001, the Company transferred its
interests in the note to Scott W. Ryan, the Company's Chairman of the Board for
$50,000 (See "Related Party Transactions" below).
--------------------------------------------------------------------------------

                                     Note 5.
                            Note Receivable - Officer
--------------------------------------------------------------------------------

As of March 31, 2001, the Company held a $75,000 note receivable from an officer
payable in one payment on or before December 19, 2002, and collateralized by
50,000 shares of the Company's Common Stock. Interest on the note accrued at a
rate equal to that of the company's lenders' base rate plus 2.5%, payable
annually beginning December 19, 1998. On November 27, 2001, the Company
purchased 30,000 shares of the Company's Common Stock to be held in Treasury in
exchange for the note receivable and unpaid accrued interest from Mr. Anderson
(See "Related Party Transactions" below). For the years ended March 31, 2002 and
2001, the Company earned approximately $5,100 and $6,300 interest on this note,
respectively.
--------------------------------------------------------------------------------

                                     Note 6.
                             Property and Equipment
--------------------------------------------------------------------------------

Property and equipment by major classifications are as follows:

                                                                March 31,
                                                       2002              2001
                                                       ----              ----
Office furniture and equipment                       $331,596          $243,587
Machinery and equipment                               227,065           152,389
Leasehold improvements                                 47,806            31,806
Vehicles                                               67,447            50,922
Showroom furniture                                     64,931            11,928
                                                    ---------            -------
                                                      738,845           490,632
Accumulated depreciation                             (347,504)         (240,771)
                                                     ---------        ----------

                                                     $391,341          $249,861
                                                     ========          ========
Depreciation expense for the years ended March 31, 2002 and 2001 totaled
$112,061 and $93,893, respectively.


<PAGE>



                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                     Note 7.
                        Pledged Assets and Line of Credit
--------------------------------------------------------------------------------

As of March 31, 2002, the Company had a $1,000,000 line of credit agreement with
M&I Thunderbird Bank. Under this agreement, interest is payable at the bank's
base rate. Borrowings on the line of credit may not exceed seventy-five percent
(75%) of eligible accounts receivables and thirty percent (30%) of eligible
inventory up to $300,000. The line of credit is collateralized by accounts
receivable, inventory, property and equipment, and intangibles which total
$4,568,412. 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. The line of credit matures on July 31, 2002.

As of March 31, 2002, the Company had no outstanding borrowings on the line of
credit and was in compliance with all of the covenants of the agreement.
--------------------------------------------------------------------------------

                                     Note 8.
                                Severance Charges
--------------------------------------------------------------------------------

In response to decreased sales volume and the Company's reported losses, the
Company made personnel cuts during the quarter ended December 31, 2001. In
connection with the lay-offs, the Company incurred $42,708 in severance charges.
--------------------------------------------------------------------------------

                                     Note 9.
                           Lawsuit and Legal Disputes
--------------------------------------------------------------------------------

In June 2001, the Company's former independent accountant, Semple & Cooper, LLP
("Semple"), resigned as a result of a fee dispute. In addition, Semple indicated
they were not independent with respect to their audits of the Company's
financial statements for the fiscal years ended March 31, 1999 and 2000, and
therefore, were withdrawing their opinions related to those audits. On August 9,
2001, the Company commenced a lawsuit against Semple & Cooper, LLP in the
Superior Court of Arizona, Maricopa County (Case No. CV2001-013810) for breach
of contract, malpractice, injurious falsehood and defamation. The complaint
seeks monetary damages, including punitive damages, and an injunction requiring
Semple & Cooper, LLP to retract and withdraw its injurious falsehoods and
defamatory statements against the Company.

On September 19, 2001, Semple & Cooper, LLP filed an answer and counterclaim for
breach of contract and defamation in response to the above mentioned lawsuit.
The counterclaim seeks monetary damages, including punitive damages and an
injunction requiring the Company to retract alleged defamatory statements the
Company made against Semple & Cooper, LLP.

As of March 31, 2001, the Company had incurred $93,533 in legal fees and
additional audit fees to re-audit the financial statements for the fiscal years
ended March 31, 1999 and 2000. As the lawsuit is still pending, the Company
anticipates it will incur additional legal fees, however, those fees cannot be
estimated at this time.


<PAGE>




                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                    Note 10.
                           Operating Lease Commitments
--------------------------------------------------------------------------------

The Company leases remanufacturing, warehouse, showroom and office space in
Arizona, Georgia and California, as well as certain equipment under
non-cancelable operating lease agreements expiring at various times through
April 2006. Certain of the lease agreements require the Company to pay property
taxes, insurance and maintenance costs.

Future minimum lease payments were as follows at March 31, 2002:

                  March 31,                                   Amount

                  2003                                        $478,423
                  2004                                         508,150
                  2005                                         437,624
                  2006                                         417,534
                  2007                                          32,887
                                                              ----------

                                                            $1,874,618


Rent expense under operating lease agreements for the years ended March 31, 2002
and 2001 was approximately $350,000 and $360,000, respectively.
--------------------------------------------------------------------------------

                                    Note 11.
                                  Income Taxes
--------------------------------------------------------------------------------

The provision for income taxes consist of the following for the years ended
March 31, 2002 and 2001:

                                              For the Year Ended
                                         March 31, 2002          March 31, 2001
                                         --------------          --------------
Federal
   Current (Benefit)                        (221,203)                $286,953
   Deferred (Benefit)                        (13,102)                       0
                                             --------                       -

                                            (234,305)                 286,953
                                           ---------                  -------
State
   Current                                          0                  90,762
   Deferred (Benefit)                         (49,880)                      0
                                             --------                       -

                                              (49,880)                  90,762
                                              --------                  ------

Tax Expense (Benefit)                       $(284,185)                $377,715
                                            ==========                ========




<PAGE>



                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                    Note 11.
                                  Income Taxes
                                   (Continued)
--------------------------------------------------------------------------------

The Company's income tax provisions/(benefit) differ from the amounts computed
by applying the federal statutory income tax rate to income before income taxes.
Reconciliation to the statutory federal income tax rate is as follows:
                                                        For the Year Ended
                                             March 31, 2002       March 31, 2001

Income tax at statutory effective rate               $ 0             $430,000

Adjustments:
          NOL Carryforward/carryback            (238,745)            (110,000)
          State taxes, net of federal benefit    (45,440)              31,000
          Alternative minimum tax carryforward         0               26,715
                                                       -               ------

Income Tax Expense (Benefit)                   $(284,185)             $377,715
                                               ==========             ========

Significant components of the Company's deferred tax assets and liabilities are
as follows:

                                                      For the Year Ended
                                             March 31, 2002       March 31, 2001
Deferrred tax assets:
     Net operating loss carryforwards            $ 99,942                  $ 0
     Less valuation allowance                           0                    0
                                                        -                    -

     Deferred tax asset                          $ 99,942                  $ 0

Deferred tax liability:
     Property and equipment related              $ 36,960                  $ 0
                                                 --------                  ---

Net deferred tax asset                            $62,982                   $0
                                                  =======                   ==

Summary of valuation allowance:

     Balance at April 1, 2001                                 $      0

      Addition for the year ended March 31, 2002                     0
                                                              -------------

      Balance at March 31, 2002                               $      0
                                                              =============

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.

<PAGE>

                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                    Note 12.
                              Common Stock Options
--------------------------------------------------------------------------------

During the year ended March 31, 1997, the Board of Directors issued 300,000
common stock options to certain officers and directors with an exercise price of
$1.00 per share.

During the year ended March 31, 1998, the Board of Directors approved the 1997
Employee Stock Option Plan. The Plan authorizes the Company to grant incentive
stock options to key employees of the Company. 50,000 shares of common stock are
reserved for issuance pursuant to this Plan.

During the year ended March 31, 2001, the Board of Directors issued 5,000 common
stock options, respectively to certain officers and directors with an exercise
price of $3.00. These options were subsequently readjusted to 5,250 options with
an exercise price of $2.86 following the 5% stock dividend issued on August 15,
2001. In addition, during the year ended March 31, 2001, the Board of Directors
issed 10,112 common stock options to certain key employees under the 1997
Employee Stock Option Plan with an exercise price of $3.00, subsequently
readjusted to 10,616 options with an exercise price of $2.86.

Following is a summary of the status of the outstanding stock options for
employees, officers and directors during the year ended March 31, 2002 and 2001:
                                                        Weighted Average
                                       Number of Options         Exercise Price
Outstanding as of March 31, 2000                215,207                  $1.13
        Granted                                  15,112                   3.00
        Exercised                                     0                      0
        Forfeited                                     0                      0
                                                      -                      -

Outstanding as of March 31, 2001                230,319                  $1.25
        Granted                                       0                   0.00
        Exercised                                     0                      0
        Forfeited                                     0                      0
                                                      -                      -

Outstanding as of August 15, 2001               230,319                  $1.25
        Adjustment for 5% stock dividend         11,516                  (.06)
                                                 ------                  -----

Outstanding as of March 31, 2002                241,835                  $1.19
                                                =======                  =====




<PAGE>


                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------

                                    Note 12.
                              Common Stock Options
                                   (Continued)
--------------------------------------------------------------------------------

Information relating to the stock options at March 31, 2002, summarized by
exercise price, is as follows:

            OUTSTANDING                                    EXERCISABLE

               Weighted Average                      Weighted Average

                      Remaining Life
  Shares         (Years)     Exercise Price          Shares       Exercise Price

   6,615          2.0              $2.86               0                    -
 210,000         4.39              $0.95         210,000                $0.95
   9,352         5.25              $2.50           4,200                $2.50
  15,868         5.65              $2.86           5,250                $2.86
  ------         ----              -----           -----                -----

 241,835         4.43              $1.19         219,450                $1.03
 =======         ====              =====         =======                =====

All stock options issued have an exercise price not less than the fair market
value of the Company's common stock on the date of grant. In accordance with
accounting for such options utilizing the intrinsic value method, there is no
related compensation expense recorded in the Company's financial statements for
the years ended March 31, 2002 and 2001. Had compensation cost for stock-based
compensation been determined based on the fair value of the options at the grant
dates consistent with the method of SFAS 123, the Company's net income (loss)
and earnings (loss) per share would have been reduced to the pro forma amounts
presented below:

                                           Year Ended          Year Ended
                                          March 31,2002       March 31,2001

Net income (loss):
     As reported                            $(284,095)            $887,026
     Pro forma                              $(295,187)            $865,967

Earnings (loss) per share:
     Basic:
          As reported                          $(0.24)              $ 0.71
          Pro forma                            $(0.25)              $ 0.69

     Diluted:
          As reported                          $(0.24)              $ 0.64
          Pro forma                            $(0.25)              $ 0.62

The fair value of option grants is estimated as of the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 2002 and 2001: expected remaining life of options of
6.25 years in 2002 and 7.25 years in 2001, expected volatility of 31%, risk-free
interest rates of 5%, and a 0% dividend yield. The weighted average fair value
at date of grant for options granted during 2001 approximated $1.12.


<PAGE>



                           RECONDITIONED SYSTEMS, INC.
                    Notes to Financial Statements (Continued)

--------------------------------------------------------------------------------

                                    Note 13.
                            Earnings (Loss) Per Share
--------------------------------------------------------------------------------

For the years ended March 31, 2002 and 2001, the following data shows amounts
used in computing earnings per share and the effect on income and the weighted
average number of shares of dilutive potential common stock.

                                                              March 31,
                                                     2002              2001
                                                    ----              ----
Basic EPS

Net income (loss)                               $(284,095)          $887,026
                                                ==========          ========

Weighted average number of shares outstanding    1,192,394         1,257,909

Basic earnings (loss) per share                    $(0.24)             $0.71
                                                   =======             =====

Diluted EPS

Net income (loss)                               $(284,095)          $887,026
                                                ==========          ========

Weighted average number of shares outstanding    1,192,394         1,257,909

Effect of dilutive securities:
  Stock options                                          0           135,615
                                                         -           -------

Total common shares + assumed conversions        1,192,394         1,393,524

Diluted earnings (loss) per share                  $(0.24)             $0.64
                                                   =======             =====



<PAGE>




Item 8.  Changes in and Disagreements with Accountants on Accounting and
--------------------------------------------------------------------------------
Financial Disclosure
-------------


On June 8, 2001, the Registrant's former principal independent accountant,
Semple & Cooper, LLP resigned. Semple & Cooper's reports on the Company's
financial statements for the years ended March 31, 2000 and 1999 did not contain
an adverse opinion or disclaimer of opinion, and were not modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with Semple & Cooper on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. On June 22, 2001,
the Registrant appointed Moffitt & Company, PC as the principal independent
accountant. (See the Registrant's filings on Form 8-K dated June 15, 2001, June
28, 2001 and June 29, 2001.) Moffitt & Company subsequently re-audited the
Company's financial statements for the years ended March 31, 2000 and 1999, with
unqualified opinions and no changes to the financials as originally reported.

                                    PART III

The information required by Items 9 - 11 of Part III is omitted from this Report
by virtue of the fact that the Company will file with the Securities and
Exchange Commission (the "SEC"), pursuant to Regulation 14A, within 120 days
after the end of the fiscal year covered by this Report, a definitive proxy
statement (the "Proxy Statement") relating to the Company's Annual Stockholders'
Meeting to be held July 31, 2002.

         Material incorporated herein by reference and location in Proxy
         Statement for 2002 Annual Meeting:
<TABLE>

Item No.          Item Description                                     Proxy Statement
<S>               <C>                                                  <C>

9                 Directors, Executive Officers, Promoters             Proposal One - Election of Directors
                  and Control Persons; Compliance with
                  Section 16(a) of the Exchange Act

10                Executive Compensation                               Proposal One - Election of Directors

11                Security Ownership of Certain                        General Information - Security Owner-
                  Beneficial Owners and Management                     ship of Certain Principal Stockholders
                                                                       and Management
</TABLE>

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

The Company held a $75,000 note receivable from Dirk D. Anderson, the Company's
Chief Executive Officer. The funds provided by this note were used by the
officer to purchase 50,000 shares of the Company's Common Stock from a former
shareholder in a privately negotiated transaction. The note was payable in one
payment on or before December 19, 2002, and was collateralized by the purchased
shares of Common Stock. Interest on the note accrued at a rate equal to that of
the Company's lender's base rate plus 2.5%, payable annually beginning December
19, 1998. On November 27, 2001, the Company exchanged the $75,000 note
receivable, along with $5,100 in unpaid accrued interest on the note for 30,000
shares of the Company's Common Stock from Mr. Anderson.

On December 7, 2001, the Company entered into an agreement with Scott W. Ryan,
the Company's Chairman of the Board in which the Company transferred all of its
interests held in a $50,000 note receivable from Regent Energy Corporation along
with any and all unpaid accrued interest on the note in exchange for $50,000.
Furthermore, the agreement relieved the Company of any and all risk and
uncertainty associated with said note, including, but not limited to attorney
fees in connection with the collection of said note.


<PAGE>


Item 13.  Exhibits and Reports on Form 8-K
------------------------------------------
(a)(1)  Exhibits
The following exhibits are filed herewith pursuant to Regulation S-B:
<TABLE>


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
*4.10    Options issued to Dirk D. Anderson                                             4
*4.12    Amendment to Options issued to Dirk D. Anderson                                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    Options issued to Scott W. Ryan                                                7
*4.18    Options issued to Dirk D. Anderson                                             7
*4.19    Options issued to Scott W. Ryan                                                7
*4.20    Options issued to Dirk D. Anderson                                             7
10.1     Lease Agreement, dated April 12, 1990 between Boston Safe Deposit
         and Trust Company, as Lessor, and Registrant as Lessee                         1
10.33    Loan document between M&I Thunderbird Bank and the Registrant                  6
10.34    Agreement for Conveyance and Assignment between First Capital Bank
         and Registrant                                                                 8
10.35    Sublease between Iron Mountain Records Management, Inc. and Registrant         8
10.36    Lease agreement between Arden Realty Finance III, LLC and Registrant           9
</TABLE>

         (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-KSB on November 14, 1996
         (5)      Filed with 10-KSB on September 26, 1997
         (6)      Filed with 10-KSB on August 11, 2000
         (7)      Filed with 10-KSB on July 18, 2001
         (8)      Filed with 10-QSB on November 9, 2001
         (9)      Filed with 10-QSB on February 5, 2002
         (*)      Indicates a compensatory plan or arrangement

(b)  Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended March 31, 2002.


<PAGE>



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                           Reconditioned Systems, Inc.
Date:    June 28, 2002              /s/ Scott W. Ryan
                                    -------------------------------------
                                    Scott W. Ryan, Chairman

                                    /s/ Dirk D. Anderson
                                    -------------------------------------
                                    Dirk D. Anderson, Chief Executive Officer
                                   (Principal Accounting Officer)

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Date:    June 28, 2002               /s/ Scott W. Ryan
                                     -------------------------------------
                                     Scott W. Ryan, Chairman

                                     /s/ Dirk D. Anderson
                                     -------------------------------------
                                     Dirk D. Anderson, Chief Executive Officer
                                     (Principal Accounting Officer)