U.S. 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, 2000

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

                         Commission file number 0-20924

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

                     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 Act:  None

Securities registered pursuant to Section 12(g) of the 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, 2000 were $10,948,549.

As of June 9, 2000, 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 $2,331,801.

As of June 9, 2000, the number of shares outstanding of the Registrant's  common
stock was 1,327,684.

Portions of the Registrant's  definitive  Proxy Statement,  dated July 13, 2000,
are incorporated herein by reference into Part III of this Report.

Transitional Small Business Disclosure Format.       Yes ___No  X  .

                                        1

                                     <PAGE>

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").  RSI purchases used workstations from manufacturers,  dealers,
brokers,  and end-users throughout the United States through competitive bids or
directly  negotiated  transactions.  After  purchasing  used  workstations,  the
Company transports them to its manufacturing  facility in Tempe, Arizona,  where
it disassembles  and inventories the  workstations by component  parts,  stores,
and,  upon  receipt  of  purchase  orders,   reconditions  and  reassembles  the
workstations.  The Company sells the remanufactured  workstations throughout the
United States to dealers and end-users.

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
dominate   manufacturer   parts,  the  Company  has  generally   specialized  in
remanufacturing and marketing workstations  originally  manufactured by just one
of  the  dominant   manufacturers.   The  Company   elected  to   specialize  in
remanufacturing and marketing workstations originally manufactured by Haworth as
a result of the  extensive  experience  of the  Company's  founders with Haworth
workstations.

In October 1999, the Company  opened a new retail  showroom under the new d.b.a.
of "Total Office  Interiors." The primary focus of this marketing program was to
change  the  Company's  image in the  Phoenix  marketplace  from  that of a used
furniture  refurbisher to that of a full service office  dealership in an effort
to increase retail sales.

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, 2000,  these sales
represented 73% of the Company's revenues.

The Company  purchases used Haworth  workstations from  manufacturers,  dealers,
brokers,  and end-users and  transports  them to its  manufacturing  facility in
Tempe,  Arizona,  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.  However,  orders for more than one hundred workstations are rare.
The  manufacturers of new workstations  offer deeper discounts on orders of this
size, making it more difficult for the Company to compete with new manufacturers
on price.

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,  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.

                                        2
                                     <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
(primarily   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, 2000, these sales represented 27% of the
Company's revenues.

In October 1999, the Company  opened a new retail  showroom under the new d.b.a.
of "Total Office  Interiors." The primary focus of this marketing program was to
change  the  Company's  image in the  Phoenix  marketplace  from  that of a used
furniture  refurbisher to that of a full service office furniture  dealership in
an  effort  to  increase  retail  sales.  Along  with the new name and  showroom
facilities,  the Company  expanded its new product-line and became an authorized
dealer of Teknion,  a  manufacturer  of new modular  furniture  and seating.  In
addition, the Company has expanded its product-line to include filing,  seating,
lighting and other accessories from various other manufacturers.

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 its facility in Tempe, Arizona
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.

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
facility in Tempe, Arizona includes all of the equipment required to recondition
workstations,  including  closed and open paint  booths,  a paint drying  booth,
sanding equipment, saws and laminating equipment.

                                        3
                                     <PAGE>

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  markets  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  facility has 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 facility will be able to handle any 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.  This results in a competitive advantage for the Company because
it has the  ability  to  produce  more  remanufactured  workstations  and higher
quality remanufactured workstations than most other reconditioners.  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.

In an  effort  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. The Company
offers  the  Teknion  line  as an  alternative  to  its  remanufactured  Haworth
workstations. There can be no assurance that the Company will be able to compete
successfully in the new modular office furniture market.

                                        4
                                     <PAGE>


DISTRIBUTION

The Company markets its products on a wholesale basis to furniture  dealerships,
design  firms and  installation  companies  throughout  the United  States.  The
Company also markets on a retail  basis to end-users  primarily in Arizona.  The
Company maintains a retail showroom in its Tempe,  Arizona  facility.  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, 2000, wholesale sales
accounted for 54% and retail sales totaled 46% of the Company's total sales. The
Company  maintains  a  broad  customer  base  and is not  dependent  on any  one
customer.  The Company  employs three  full-time  employees who  concentrate  on
telemarketing  and  servicing it wholesale  sales,  and seven  full-time  retail
salespeople  who  concentrate  on retail sales in the greater  Phoenix,  Arizona
area.

PERSONNEL

The Company  currently  has 81  full-time  employees  of whom 52 are  production
personnel  directly  involved in there  manufacturing  process,  five are in the
installation  department,  twelve are in the sales and design  departments,  and
twelve are management and  administrative  personnel.  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   Operating   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.  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 naming the Company as
an additional insured or by the Company's own insurance.

The Company believes that it has been operating in substantial compliance in all
material  respects with existing  environmental  laws and  regulations  and that
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.


Item 2.  DESCRIPTION of PROPERTY

The Company  presently  leases a 58,500 square foot  facility in Tempe,  Arizona
that houses its corporate offices, its remanufacturing operations, its warehouse
space and its showroom  space.  The current lease on the Tempe facility  expires
April 2006.  The Company  believes its existing  facilities  are adequate for it
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 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.

                                        5
                                     <PAGE>

Item 3.  LEGAL PROCEEDINGS

The Company is not party to any pending legal proceedings.

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 2000.

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  setsforth  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, 1998                      3 1/4                       5 1/4
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       September, 1998                 3 1/4                       5
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       December, 1998                  3                           4 3/4
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       March, 1999                     2 1/4                        4 13/16
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       June, 1999                      2 1/2                        3 7/8
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       September 1999                  2 5/16                       3 7/16
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       December, 1999                  2 1/8                        2 3/4
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------
       March, 2000                     1 1/2                         3 3/8
----------------------------- --------------------- ----------------------------


The total number of shares of Common Stock of the Company outstanding as of June
12, 2000 was 1,327,684. As of the close of business on June 12, 2000, the number
of record holders of the Company's Common Stock was 48 and the number of holders
of the  Company's  Common Stock  including  beneficial  holders of stock held in
street name was estimated to be 425.

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

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 of  increased  competition  from  new  "bargain"
product-lines  and the risk that the Company may not see increased retail sales.
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.

                                        6
                                     <PAGE>



RESULTS of OPERATIONS

SALES REVENUE
The  Company  reported  sales for the  fiscal  year  ended  March 31,  2000 (the
"reporting period") of $10,948,549.  This compares to $11,042,451 for the fiscal
year ended March 31, 1999 (the "comparable period"),  resulting in a decrease of
$93,902 or less than 1%.  Despite a general  decline in  industry  sales  during
1999, the Company was able to achieve relatively level sales results as a result
of increased  retail sales.  Approximately  46% of the Company's total sales for
the  reporting  period  were  generated  from retail  sales,  up from 36% in the
comparable period.

Retail sales  totaled  $5,033,964,  an increase of  $1,022,036 or 25.5% over the
comparable  period.  This increase was primarily a result of the Company's focus
on developing its retail business operations. In July 1999, the Company promoted
one of its salespeople to sales manager to lead and continue to build the retail
operations.  In October 1999, the Company remodeled its offices and opened a new
retail  showroom under the new d.b.a.  of "Total Office  Interiors." The primary
focus of this marketing program was to change the Company's image in the Phoenix
marketplace from that of a used furniture  refurbisher to that of a full service
office  furniture  dealership in an effort to increase retail sales.  Along with
the new name and showroom facilities,  the Company expanded its new product-line
and became an  authorized  dealer of  Teknion,  a  manufacturer  of new  modular
furniture and seating. In addition, the Company has expanded its product-line to
include  filing,  seating,  lighting and other  accessories  from various  other
manufacturers.

Wholesales sales totaled $5,914,585,  a decrease of $1,115,938 or 15.9% over the
comparable period. This decrease was primarily a result of increased competition
from new "bargain" product-lines and an overall industry slow-down. In an effort
to counter the decreased sales,  beginning in July 1999, the Company's wholesale
department  began offering deeper discounts and implemented a new freight policy
modeled after those offered by new furniture manufacturers.  Wholesale sales for
the first quarter of the reporting  period (prior to  implementation  of the new
pricing  structure) were down 20% over the comparable  quarter.  Wholesale sales
for the second, third and fourth quarters of the reporting period were down 26%,
14% and 3% over the comparable quarters,  respectively.  Although the market was
somewhat slow to react to the pricing structure changes, management believes the
new program is beginning to offset the increased competitive pressures.

GROSS MARGIN
The Company's  gross profit  margin for the  reporting  period was 25.9% for the
reporting  period,  as compared to 24% for the comparable  period.  Retail gross
profit margins  improved from 24.6% for the  comparable  period to 28.9% for the
reporting  period,  primarily  as a result of  increased  supply of used Haworth
product available on the aftermarket resulting in lower product costs. Wholesale
gross profit margins were down slightly over the comparable  period,  from 23.6%
to  22.5%  in  the  reporting  period.   Increased   competitive  pressures  and
implementation  of the Company's new wholesale pricing and freight program drove
margins down, but were partially offset by the lower product costs.

OPERATING EXPENSES
The Company's selling and administrative expenses net of terminated merger costs
and  severance  charges  (see  Note  7 and  Note  12 of  the  Audited  Financial
Statements)  increased  from  14.5%  in  the  comparable  period  to  17% in the
reporting period.  This increase was primarily due to increased selling expenses
due to changes in the  retail/wholesale  sales mix and  expenditures  related to
Year 2000  compliance.  The  Company's  selling  expenses  for retail  sales are
typically higher than those for wholesale sales.

                                        7
                                     <PAGE>



SEVERANCE CHARGES
Effective  September 30, 1999,  the Company  entered into an agreement  with and
accepted the resignation of Wayne R. Collignon,  the Company's  former President
and Chief Executive Officer (CEO).

On February 23, 2000, Mr.  Collignon  filed a lawsuit against the Company in the
Superior  Court of the State of Arizona.  The suit  alleged  breach of the above
mentioned  agreement and violation of certain Arizona  statutes  relating to the
payment of wages. The suit sought relief in the amount of approximately $348,000
and  reimbursement  of  attorneys'  fees  and  court  costs.  Subsequently,  Mr.
Collignon and the Company settled the lawsuit.

As a result of the settlement and the original agreement, the Company recorded a
total charge to operating  income of $332,984,  of which $292,984 was charged in
the second fiscal quarter and $40,000 was charged in the fourth fiscal  quarter.
Confidentiality  provisions in the  settlement  with Mr.  Collignon  prevent the
Company from disclosing any further details regarding this transaction.

TERMINATED MERGER COSTS
During the  fiscal  year ended  March 31,  1999,  the  Company  entered  into an
Agreement  and Plan of Merger  (the  "Merger  Agreement")  with Cort  Investment
Group, Inc., a Texas corporation d/b/a Contract Network ("CNI").  CNI terminated
the Merger  Agreement in February  1999.  As of March 31, 1999,  the Company had
incurred $50,588 in expenses related to the terminated merger.

OTHER INCOME AND EXPENSES
The  Company's  other income and expenses,  which consist  primarily of interest
income, improved by $10,360 or 18.7% from the comparable period to the reporting
period.  This  increase was  primarily a result of  additional  interest  income
generated by the Company's surplus cash reserves.

INCOME TAXES

As  of  March  31,  2000,  the  Company  had  federal  loss   carryforwards   of
approximately  $299,000 and state loss  carryforwards of approximately  $99,000.
The federal loss carryforwards  expire March 31, 2001 through March 31, 2011 and
the state loss  carryforwards  expire March 31,  2001.  The Company will benefit
from the loss  carryforwards  at statutory  rates to the extent it is profitable
before they expire.  Due to significant  losses  incurred during the years ended
March 31, 1994, 1995 and 1996 and the uncertainty of the utilization of the loss
carryforwards  in future  periods,  the Company  established,  and  continues to
maintain,  a  valuation  allowance  equal to the full  amount  of the  Company's
deferred tax assets.

FINANCIAL CONDITION and LIQUIDITY

Cash Flows from Operating Activities.  Net cash provided by operating activities
totaled  $363,166  for the  reporting  period as compared  to  $507,844  for the
comparable  period.  Net cash  provided by operating  activities  excluding  the
one-time  severance  charges of  $332,984  totaled  $615,666  for the  reporting
period.  Net income for the reporting  period was partially  offset by increased
accounts  receivable  and  increased  inventory  levels.  The  Company  invested
approximately $281,500 in additional inventories.  A significant portion of this
increase was the procurement of new Haworth electrical  components  purchased in
bulk prior to a price  increase  resulting  from a change in  vendors.  Accounts
receivable  increased by  approximately  $358,000.  The average days receivables
increased  from 44 days in the  comparable  period  to 62 days in the  reporting
period. See "Forward Looking Statements" below for further discussion.

                                        8
                                     <PAGE>


Cash Flows from Investing and Financing  Activities.  Net cash used by investing
activities  totaled $187,095  primarily for the purchase of fixed assets related
to the  Company's  Year 2000  compliance  program.  Net cash  used by  financing
activities totaled $358,618, primarily for the purchase of treasury stock.

Expected  Future Cash Flows.  Cash  provided  by  operations  in the near future
should  closely  follow  operating  income.  The Company's  accounts  receivable
balances have been steadily  increasing  over the past few years.  The increased
accounts  receivable  balances in the comparable period were consistent with the
growth experienced during that year. The increase in accounts receivable and the
corresponding  increase in average days receivable for the reporting period were
considerably  higher  than  management's  expectations.  As a  result  of  these
increases,  management has made personnel  changes in the collection  department
and implemented  more stringent  credit  procedures.  Management  believes these
changes  will enable the Company to decrease  the average  days  receivables  to
approximately 45 days within the next few reporting quarters.

Management  believes  current 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 6 of the  Audited
Financial Statements.)

FORWARD LOOKING STATEMENTS

Fiscal  Year  2000  was a year in  which  management  focused  on  building  the
infrastructure  necessary  for future  growth.  The  Company  invested  in a new
computer system,  bringing the Company's computers into Year 2000 compliance and
improving  administrative  efficiency.  Improvements  were made to the Company's
offices and a new  showroom  was  constructed.  Management  hired a retail sales
manager,  implemented  the "Total  Office  Interiors"  marketing  plan and added
additional  local sales staff in an effort to increase retail sales.  Management
plans to continue to develop the local retail sales, while maintaining wholesale
sales.  While it is unlikely  the Company will see growth in the 15 - 35% growth
range  reported in prior years  without an  acquisition  or entrance  into other
markets, management is hopeful that there will be modest sales growth.

                                        9
                                     <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,  2000 and  1999,  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 audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. 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 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  referred to above present fairly, in
all material respects,  the financial position of Reconditioned Systems, Inc. as
of March 31,  2000 and 1999,  and the results of its  operations,  stockholders'
equity,  and its cash  flows  for the  years  then  ended,  in  conformity  with
generally accepted accounting principles.


Semple & Cooper, LLP

Phoenix, Arizona
April 27, 2000

                                       10




                                     <PAGE>


                           RECONDITIONED SYSTEMS, INC.
                                 BALANCE SHEETS
                             March 31, 2000 and 1999

                                                    2000                 1999
                                                  ---------            ---------
                                     ASSETS
Current Assets:
   Cash and cash equivalents (Notes 1, 2 and 3)    $920,778           $1,103,325
   Accounts receivable (Notes 1 and 6)            2,055,151            1,691,882
   Inventory (Notes 1 and 6)                      1,191,173              909,622
   Prepaid expenses and other current assets         54,372               51,002
                                                  ---------            ---------

                Total current assets              4,221,474            3,755,831
                                                  ---------            ---------

Property and Equipment, net:   (Note 1 and 5)       262,543              189,173
                                                  ---------            ---------
Other Assets:
   Notes receivable - officer (Notes 3 and 4)        75,000              150,000
   Refundable deposits                               13,036               13,036
   Other                                             73,745               24,703
                                                  ---------            ---------

                                                    161,781              187,739
                                                  ---------            ---------

Total Assets                                     $4,645,798           $4,132,743
                                                  =========            =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                 717,148              557,662
   Customer deposits                                 26,309               22,635
   Accrued expenses and other current liabilities   293,544              286,076
                                                  ---------            ---------

                   Total current liabilities      1,037,001              866,373

Stockholders' Equity:
   Common stock, no par value; 20,000,000
      shares authorized                           4,587,576            4,586,982
   Accumulated deficit                            (619,566)          (1,320,612)
                                                  ---------           ----------

                                                  3,968,010            3,266,370
      Less: treasury stock, 146,132 and 132 shares
               respectively, at cost              (359,213)                    0
                                                  ---------            ---------

                                                  3,608,797            3,266,370
                                                  ---------            ---------

Total Liabilities and Stockholders' Equity       $4,645,798           $4,132,743
                                                  =========            =========

                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       11
                                     <PAGE>


                           RECONDITIONED SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                   For the Years Ended March 31, 2000 and 1999

                                                           2000           1999
                                                       ----------     ----------

Sales                                                 $10,948,549    $11,042,451

Cost of sales                                           8,114,580      8,396,278
                                                        ---------      ---------

Gross profit                                            2,833,969      2,646,173

Selling & administrative expenses                       1,865,787      1,600,257
Severance charges (Note 7)                                332,984              0
Terminated merger costs (Note 12)                               0         50,588
                                                        ---------      ---------

Income from operations                                    635,198        995,328

Other income (expense):
   Interest income                                         63,055         49.083
   Interest expense                                             0        (1,276)
   Other                                                    2,793          7,681
                                                        ---------      ---------

Net income before income taxes                            701,046      1,050,816

Provision for income taxes                                      0              0
                                                        ---------      ---------

Net income                                               $701,046     $1,050,816
                                                        =========      =========

Basic earnings per share (Notes 1 and 11)                $   0.51        $  0.71
                                                        =========      =========
Basic weighted average number
          of shares outstanding                         1,372,935      1,473,950
                                                        =========      =========
Diluted earnings per common
         and common equivalent share
         (Notes 1 and 11)                                 $  0.46        $  0.62
                                                        ==========     =========
Diluted weighted average number
         of shares outstanding                          1,534,051      1,697,352
                                                        ==========     =========









                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       12

                                     <PAGE>
<TABLE>
<CAPTION>

                           RECONDITIONED SYSTEMS, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                   For the Years Ended March 31, 2000 and 1999

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

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

Retirement of Treasury
      Shares              (134)        -           (3,754)     3,754       -

Net income                -            -         1,050,816       -     1,050,816
--------------------- ---------   ------------   ---------   --------   --------


Balance at March
31,1999               1,473,816   $4,586,982  $(1,320,612)     $ -    $3,266,370

Purchase of Treasury
      Shares          (150,000)        -              -    (368,413)   (368,413)

Transfer of shares to
      ESOP Plan           3,868          594          -        9,200       9,794

Net income                -            -           701,046       -       701,046
--------------------- ---------     ----------  ----------   -------    --------

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

</TABLE>












                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       13


                                     <PAGE>


                           RECONDITIONED SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                   For the Year Ended March 31, 2000 and 1999

                                                           2000           1999
                                                       ---------       ---------
Cash Flows from Operating Activities:

   Cash received from customers                      $10,588,073     $10,319,727
   Cash paid to suppliers and employees             (10,287,962)     (9,859,690)
   Interest received                                      63,055          49,083
   Interest paid                                              0          (1,276)
                                                       ---------       ---------
        Net cash provided by operating
        activities                                       363,166         507,844
                                                       ---------       ---------
Cash Flows from Investing Activities:

   Purchase of property and equipment                  (173,270)       (103,590)
   Other                                                (13,825)           (174)
                                                       ---------       ---------

        Net cash used by investing
        activities                                     (187,095)       (103,764)
                                                       ---------       ---------
Cash Flows from Financing Activities:

   Principal payments on credit line,
    long- term borrowings and obligations                      0        (33,786)
    under capital leases
   Purchase of Treasury Stock                          (368,412)               0
   Transfers to ESOP Plan                                  9,794               0
                                                       ---------       ---------

        Net cash used by financing
        activities                                     (358,618)        (33,786)
                                                       ---------       ---------

Increase (Decrease) in cash and cash equivalents       (182,547)         370,294
Cash and cash equivalents at beginning of
   period                                              1,103,325         733,031
                                                       ---------       ---------
Cash and cash equivalents at end of period              $920,778      $1,103,325
                                                       =========       =========






                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       14


                                     <PAGE>



                           RECONDITIONED SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (Continued)
                   For the Year Ended March 31, 2000 and 1999

                                                2000                      1999
                                              ---------                ---------
Reconciliation of Net Income to Net Cash
  Provided by Operating Activities:

Net Income                                    $701,046                $1,050,816

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

    Depreciation and amortization               84,816                    48,790
    Provision for doubtful accounts            (5,000)                     1,000
    Loss on disposal of fixed assets                 0                       355
    Non-cash portion of severance charges
     (Note 7)                                   80,484                         0

Changes in assets and liabilities:

    Accounts receivable                      (358,269)                 (730,760)
    Inventory                                (281,551)                    15,636
    Prepaid expenses and other assets         (28,988)                  (11,548)
    Accounts payable and accrued expenses      170,628                   133,555
                                             ---------                 ---------

    Net cash provided by operating activities $363,166                  $507,844
                                             =========                 =========

Non-Cash Investing and Financing Activities:

During the years  ended  March 31,  2000 and 1999,  the Company did not have any
non-cash investing or financing activities.














                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       15


                                     <PAGE>



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

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

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 generally
         accepted  accounting  principles  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:
         The Company provides for potentially  uncollectible accounts receivable
         by use of the allowance method.  The allowance is provided based upon a
         review of the individual  accounts  outstanding and the Company's prior
         history of  uncollectible  receivable.  At March 31, 2000 and 1999, the
         Company has  established  an  allowance  for  doubtful  accounts in the
         amount of $26,000 and $31,000, respectively.

Inventory:
         Inventory,  which is primarily composed of used office workstations and
         remanufacturing   supplies,   is   stated   at  the   lower   of   cost
         (weighted-average  method) 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,  2000 and 1999,  the  Company  had
         established a reserve for damaged and obsolete inventory in the amounts
         of $50,000 and $100,000, respectively.

                                       16
                                     <PAGE>


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

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

Property and Equipment:
         Property and equipment are recorded at cost.  Depreciation is generally
         provided for on the  straight-line  basis over the following  estimated
         useful lives of the assets:

                                                                           Years
                                                                       ---------
                  Machinery and equipment                                5 - 7
                  Office furniture and equipment                         5 - 7
                  Leasehold improvements                              Lease term
                  Vehicles                                               4 - 5

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).

         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 year ended March
         31, 2000, 3,868 shares were issued to employees under the Plan.

                                       17
                                     <PAGE>


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

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

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.

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

                                     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,  2000,  the  Company  had
approximately $720,778 of uninsured cash.

In addition,  the Company specializes in remanufacturing one particular original
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
--------------------------------------------------------------------------------

Estimated fair values of the Company's  financial  instruments (all of which are
held for non-trading purposes), are as follows:

                              March 31, 2000              March 31, 1999
                              --------------              --------------

                              Carrying                     Carrying
                              Amount      Fair Value       Amount     Fair Value
                              --------    ----------       --------   ----------
Cash and cash equivalents     $920,778     $920,778      $1,103,235   $1,103,235

The carrying amount approximates fair value of cash and short-term  instruments.
The fair values of the Note receivable - officer cannot be determined due to its
related party nature.

                                       18
                                     <PAGE>



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

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


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

As of March 31, 2000, the Company had a 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 accrues at a rate
equal to that of the Company's  lenders' base rate plus 2.5%,  payable  annually
beginning December 19, 1998.

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

                                     Note 5.
                             Property and Equipment
--------------------------------------------------------------------------------

Property and equipment by major classifications are as follows:

                                                                March 31,
                                                          2000            1999
                                                         -------         -------
         Office furniture and equipment                 $271,255        $258,840
         Machinery and equipment                         121,327         233,996
         Leasehold improvements                           34,612          42,304
         Vehicles                                         36,922          36,054
         Showroom furniture                               21,512               0
                                                         -------         -------

                                                         485,628         571,194
         Accumulated depreciation                      (223,085)       (382,021)
                                                         -------         -------

                                                        $262,543        $189,173
                                                        ========        ========
--------------------------------------------------------------------------------

                                     Note 6.
                        Pledged Assets and Line of Credit
--------------------------------------------------------------------------------

As of March 31, 2000, 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.  The agreement
contains various covenants by the Company,  including covenants that the Company
will maintain  certain net worth  thresholds and ratios,  will meet certain debt
service coverage  ratios,  and will not enter into or engage in various types of
agreements or business activities without approval from M&I Thunderbird Bank.

As of March 31, 2000, the Company had no  outstanding  borrowings on the line of
credit and was in compliance with all of the covenants of the agreement.

                                       19
                                     <PAGE>

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

                                     Note 7.
                                Severance Charges
--------------------------------------------------------------------------------

Effective  September 30, 1999,  the Company  entered into an agreement  with and
accepted the resignation of Wayne R. Collignon,  the Company's  former President
and Chief Executive Officer (CEO).

On February 23, 2000, Mr.  Collignon  filed a lawsuit against the Company in the
Superior  Court of the State of Arizona.  The suit  alleged  breach of the above
mentioned  agreement and violation of certain Arizona  statutes  relating to the
payment of wages. The suit sought relief in the amount of approximately $348,000
and  reimbursement  of  attorneys'  fees  and  court  costs.  Subsequently,  Mr.
Collignon and the Company settled the lawsuit.

As a result of the settlement and the original agreement, the Company recorded a
total charge to operating  income of $332,984,  of which $292,984 was charged in
the second fiscal quarter and $40,000 was charged in the fourth fiscal  quarter.
Confidentiality  provisions in the  settlement  with Mr.  Collignon  prevent the
Company from disclosing any further details regarding this transaction.

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

                                     Note 8.
                           Operating Lease Commitments
--------------------------------------------------------------------------------

The Company  leases  remanufacturing,  warehouse,  showroom  and office space in
Tempe,  Arizona,  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. The lease on the Tempe, Arizona facility expires April, 2006.

The total minimum rental commitment due is as follows:

                  March 31,                                  Amount
                  ---------                                 --------
                      2001                                  $332,489
                      2002                                   356,884
                      2003                                   363,852
                      2004                                   370,995
                      2005                                   378,137
                  Subsequent                                 417,436
                                                            --------

                                                          $2,219,793
                                                           =========

Rent expense under operating lease agreements for the years ended March 31, 2000
and 1999 was approximately $336,000 and $285,500, respectively.

                                       20
                                     <PAGE>


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

                                     Note 9.
                                  Income Taxes
--------------------------------------------------------------------------------

Deferred tax assets consist of the following components:
                                             March 31, 2000       March 31, 1999
                                             --------------       --------------
   Deferred tax assets:
        State loss carryforwards                    $ 8,000              $72,000
        Federal loss carryforwards                  105,000              338,000
                                                  ---------            ---------

                                                    113,000              410,000
        Less: valuation allowance                 (113,000)            (410,000)
                                                  ---------            ---------

                                                    $     0              $     0
                                                  =========            =========
The Company's  approximate net operating loss carryforwards and their respective
expiration dates, are as follows:
                                              Amount                  Expiration
                                             --------                 ----------
                  Federal                    $299,000                      2011
                  State                      $ 99,000                      2001

Based on  recent  taxable  income  levels,  the  Company's  net  operating  loss
carryforwards may not be sufficient to fully offset income in future periods, in
which case the Company would begin to incur income tax expense.


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

                                    Note 10.
                              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.


                                       21
                                     <PAGE>






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

                                    Note 10.
                              Common Stock Options
                                   (Continued)
--------------------------------------------------------------------------------

Following  is a sumary  of the  status  of the  outstanding  stock  options  for
employees, officers and directors during the year ended March 31, 1999 and 2000:

                                                                Weighted Average
                                        Number of Options         Exercise Price
                                        -----------------       ----------------
Outstanding as of April 1, 1998                   300,000                  $1.00
        Granted                                     8,400                   3.00
        Exercised                                       0                      0
                                                        -                      -

Outstanding as of March 31, 1999                  308,400                   1.05
        Granted                                     8,907                   2.63
        Exercised                                       0                      0
        Forfeited                               (102,100)                   1.04
                                                ---------                   ----

Outstanding as of March 31, 2000                  215,207                  $1.13
                                                  =======                  =====

Information  relating  to the stock  options at March 31,  2000,  summarized  by
exercise price, is as follows:

                               OUTSTANDING                     EXERCISABLE
                               -----------                     -----------
                             Weighted Average                Weighted Average
                             ----------------                ----------------
                             Remaining
                             Life      Exercise                Exercise Price
                                                               --------------
         Shares        (Years)         Price        Shares
         ------        -------         -----        ------
          6,300            4.0         $3.00             0               -
        200,000           6.39         $1.00       200,000           $1.00
          8,907           7.25         $2.63         4,000           $2.63
          -----           ----         -----         -----           -----

        215,207           6.36         $1.13       204,000           $1.03
        =======           ====         =====       =======           =====

                                       22
                                     <PAGE>

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

                                    Note 10.
                              Common Stock Options
                                   (Continued)
--------------------------------------------------------------------------------

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, 1999 and 2000. 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 and
earnings  per share would have been reduced to the pro forma  amounts  presented
below:

                                                           Year Ended
                                                           March 31,2000
                                                           -------------
Net income:
     As reported                                                    $701,046
     Pro forma                                                       692,046

Earnings per share:
     Basic:
          As reported                                                 $ 0.51
          Pro forma                                                     0.50

     Diluted:
          As reported                                                 $ 0.46
          Pro forma                                                     0.45

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 2000 and 1999: expected life of options of 7.25 years,
expected  volatility of 40%,  risk-free  interest rates of 8%, and a 0% dividend
yield.  The  weighted  average  fair value at date of grant for options  granted
during 2000 was  approximately  $1.47. The effect on net income and earnings per
share of the  fair  market  value  of the  options  issued  in 1999  was  deemed
inmaterial and, therefore, is not presented above.

                                       23
                                     <PAGE>


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

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

                                    Note 11.
                               Earnings Per Share
--------------------------------------------------------------------------------

For the years ended March 31, 2000 and 1999,  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,
                                                            2000           1999
                                                            ----           ----
Basic EPS

Net Income                                               $701,046     $1,050,816
                                                         ========     ==========

Weighted average number of shares outstanding           1,372,935      1,473,880

Basic earnings per share                                    $0.51          $0.71
                                                            =====          =====

Diluted EPS

Net Income                                               $701,046     $1,050,816
                                                         ========     ==========

Weighted average number of shares outstanding           1,372,935      1,473,880

Effect of dilutive securities:
  Stock options                                           161,116        223,472
                                                          -------        -------

Total common shares + assumed conversions               1,534,051      1,697,352

Diluted earnings per share                                  $0.46          $0.62
                                                            =====          =====




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

                                    Note 12.
                             Terminated Merger Costs
--------------------------------------------------------------------------------

During the  fiscal  year ended  March 31,  1999,  the  Company  entered  into an
Agreement  and Plan of Merger  (the  "Merger  Agreement")  with Cort  Investment
Group, Inc., a Texas corporation d/b/a Contract Network ("CNI").  CNI terminated
the Merger  Agreement in February  1999.  As of March 31, 1999,  the Company had
incurred $50,588 in expenses related to the terminated merger.

                                       24
                                     <PAGE>







Item 8. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING and
FINANCIAL DISCLOSURE

Not applicable.

                                    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 August 11, 2000.

         Material  incorporation  herein  by  reference  and  location  in Proxy
         Statement for 2000 Annual Meeting:

Item No. Item Description                              Proxy Statement
-------  ----------------                              ---------------
9        Directors, Executive Officers, Promoters      Proposal One -
         and Control Persons; Compliance with          Election of Directors
         Section 16(a) of the Exchange Act

10       Executive Compensation                        Proposal One -
                                                       Election of Directors

11       Security Ownership of Certain                 General Information -
                                                       Security Owner-ship of
                                                       Certain Principal Stock-
                                                       holders and Management
         Beneficial Owners and Management

Item 12.  CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS

The Company holds a $75,000 note receivable from Dirk D. Anderson, the Company's
Chief  Operating  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 is payable in one
payment on or before December 19, 2002, and is  collateralized  by the purchased
shares of Common Stock.  Interest on the note accrues at a rate equal to that of
the Company's  lender's base rate plus 2.5%, payable annually beginning December
19, 1998.

                                       25

                                     <PAGE>


Item 13.  EXHIBITS and REPORTS on FORM 8-K

(a)(1)  EXHIBITS

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

No.               Description                                         Reference
                  -----------                                         ---------
3.1      Articles of Incorporation of the Registrant,
         as amended and restated                                              3
3.2      Bylaws of Registrant, as amended and restated                        3
4.1      Form of Common Stock Certificate                                     1
4.5      Registration Rights Agreements                                       2
*4.9     Options issued to Wayne R. Collignon                                 4
*4.10    Options issued to Dirk D. Anderson                                   4
*4.11    Amendment to Options issued to Wayne Collignon                       5
*4.12    Amendment to Options issued to Dirk D. Anderson                      5
*4.13    Options issued to Wayne R. Collignon                                 5
*4.14    Options issued to Dirk D. Anderson                                   5
*4.15    Options issued to Scott W. Ryan                                      5
*4.16    Options issued to Scott W. Ryan                                      5
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 between Wayne R. Collignon and Registrant                  7
*10.35   Severance between Wayne R. Collignon and Registrant                  8
27       Financial Data Schedule                                              8
         (1)      Filed with Registration Statement on Form S-18, No.
                  33-51980-LA, under the Securities Act of 1933, as declared
                  effective on December 17, 1992
         (2)      Filed with Form 10-KSB on July 13, 1995
         (3)      Filed with Form 10-KSB on July 2, 1996
         (4)      Filed with Form 10-KSB on November 14, 1996
         (5)      Filed with 10-KSB on September26, 1997
(6)      Filed with 10-KSB on August 11, 1999
(7)      Filed with 10-KSB on November 16, 1999
(8)      Filed hereby
         (*)      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, 2000.

                                       26


                                     <PAGE>





                                   SIGNATURES

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


                                   Reconditioned Systems, Inc.


Date:    June 28, 2000    /S/ SCOTT RYAN
                          ------------------------------------
                          Scott Ryan, Chief Executive Officer and Director
                          (Principal Executive Officer)


Date:    June 28, 2000    /S/ DIRK D ANDERSON
                          ------------------------------------
                          Dirk D. Anderson, Chief Operating Officer and Director
                         (Principal Accounting Officer)