RECONDITIONED SYSTEMS, INC.
444 West Fairmont
Tempe, Arizona 85282
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 29, 2003
To the Stockholders of Reconditioned Systems, Inc.:
The 2003 Annual Meeting of the Stockholders of Reconditioned Systems,
Inc., an Arizona corporation (the "Company"), will be held at the Company's
corporate offices at 444 West Fairmont, Tempe, Arizona 85282, on Friday, August
29, 2003, at 8:00 a.m., Pacific Standard Time, for the following purposes:
1. To elect five directors to the Board of Directors;
2. To consider and act upon a proposal to ratify the appointment of Renzi,
Bernardi, Suarez, & Company as the Company's independent public
accountants for the fiscal year ending March 31, 2004;
3. SPECIAL MATTER FOR DISCUSSION - to explain and entertain
discussion of the Board's decision to have the Company cease
its status as a reporting company under the Securities
Exchange Act of 1934 and to allow the Company's common stock
to become de-listed from the Nasdaq market and no longer
publicly traded. This item is informational only and no
specific shareholder approval or action will be solicited.
4. To transact such other business as may properly come before the
meeting.
Only Stockholders of record at the close of business on July 21, 2003
are entitled to notice of and to vote at the Annual Meeting. Holders of Common
Stock as of such date are entitled to vote on proposals one and two. Shares can
be voted at the meeting only if the holder is present or represented by proxy. A
list of Stockholders entitled to vote at the Annual Meeting will be open for
inspection at the offices of Reconditioned Systems, Inc., 444 West Fairmont,
Tempe, Arizona 85282, during ordinary business hours for ten days prior to the
meeting.
It is important that your shares be represented at this meeting. To
assure your representation at the meeting, please complete, date, sign and
promptly mail the enclosed proxy card in the accompanying envelope, which
requires no postage if mailed in the United States.
By Order of the Board of Directors,
/s/ Dirk D. Anderson
Tempe, Arizona Dirk D. Anderson, Secretary
August 15, 2003
PROXY STATEMENT
OF
RECONDITIONED SYSTEMS, INC.
444 West Fairmont
Tempe, Arizona 85282
- --------------------------------------------------------------------------------
GENERAL INFORMATION
-------------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Reconditioned Systems, Inc., an Arizona corporation
(the "Company"), of proxies for use at the 2003 Annual Meeting of Stockholders
to be held on August 29, 2003, at 8:00 a.m., Pacific Standard Time. The Annual
Meeting will be held at the corporate offices at 444 West Fairmont, Tempe,
Arizona 85282.
This Proxy Statement and the accompanying form of proxy are being first
mailed to Stockholders on or about August 15, 2003. The Stockholder giving the
proxy may revoke it at any time before it is exercised at the meeting by: (i)
delivering to the Secretary of the Company a written instrument of revocation
bearing a date later than the date of the proxy; (ii) duly executing and
delivering to the Secretary a subsequent proxy relating to the same shares; or
(iii) attending the meeting and voting in person (attendance at the meeting will
not in and of itself constitute revocation of a proxy). Any proxy which is not
revoked will be voted in accordance with the recommendations of the Board of
Directors as to such items. The proxy card gives authority to the proxies to
vote shares in their discretion on any other matter properly presented at the
Annual Meeting.
Proxies will be solicited from the Company's Stockholders by mail. The
Company will pay all expenses in connection with the solicitation, including
postage, printing and handling, and the expenses incurred by brokers,
custodians, nominees and fiduciaries in forwarding proxy material to beneficial
owners. It is possible that directors, officers and regular employees of the
Company may make further solicitation personally or by telephone, telegraph or
mail. Directors, officers and regular employees of the Company will receive no
additional compensation for any such further solicitation.
Only holders (the "Stockholders") of the Company's Common Stock, no par
value (the "Common Stock") at the close of business on July 21, 2003 (the
"Record Date"), are entitled to notice of, and to vote at, the Annual Meeting.
On the Record Date, there were 1,364,755 shares of Common Stock outstanding.
Each share of Common Stock is entitled to one vote on each matter to be
considered at the Annual Meeting. A majority of the outstanding shares of Common
Stock present in person or represented by proxy at the Annual Meeting, will
constitute a quorum for the transaction of business at the Annual Meeting.
The affirmative vote of holders of a plurality of the outstanding
shares of Common Stock of the Company entitled to vote and present in person or
by proxy at the Annual Meeting is required for approval of the election of
directors pursuant to Proposal One. The affirmative vote of holders of a
majority of the outstanding shares of Common Stock of the Company entitled to
vote and present in person or by proxy at the Annual Meeting is required for
approval of Proposal Two. Votes that are withheld will have the effect of a
negative vote. Abstentions may be specified on all proposals except Proposal One
relating to the election of directors. Abstentions will have the effect of a
negative vote on a proposal. Broker non-votes are not counted for purposes of
determining whether a quorum is present or whether a proposal has been approved.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. Stockholders voting on the election of directors may
cumulate their votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
Stockholder's shares are entitled, or may distribute their votes on the same
principle among as many candidates as being solicited. In order to cumulate
votes, at least one Stockholder must announce, prior to the casting of votes for
the election of directors, that he or she intends to cumulate votes. Proxies
will be tabulated by the Company with the assistance of the Company's transfer
agent. The Company will, in advance of the Annual Meeting, appoint one or more
Inspectors of Election to count all votes and ballots at the Annual Meeting and
make a written report thereof.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following table sets forth certain information, as of July 21,
2003, with respect to the number of shares of the Company's Common Stock
beneficially owned by individual directors, by individual executive officers, by
all directors and executive officers of the Company as a group and by persons
known by the Company to own more than 5% of the Company's Common Stock.
Amount
And Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Owner Total ***
---------------- ------ ----------
Scott W. Ryan 403,423* 24.97%
920 Ford Street, Suite 200
West Conshohocken, PA 19428
Granite Capital 365,056 22.60%
C/O Walter Harrison
25th Floor
126 W. 56th Street
New York, NY 10022
Dirk Anderson 144,622* 8.95%
444 West Fairmont
Tempe, Arizona 85282
Daniel R. Beck 111,002 6.87%
5300 Eagle Rock Avenue NE
Albuquerque, NM 87113
Frank E. Hart 81,017** 5.01%
333 Sandy Springs Court
Suite 230
Atlanta, GA 30328
David A. Rapaport 5,000** 0.30%
333 Sandy Springs Court
Suite 230
Atlanta, GA 30328
All directors and officers as 634,062*** 39.26%
a group (four persons)
--------------------
* Includes options to purchase 120,211 shares that are presently exercisable.
** Includes options to purchase 5,000 shares that are presently exercisable.
*** Includes options to purchase 250,422 shares that are presently exercisable.
PROPOSAL ONE
------------
ELECTION OF DIRECTORS
---------------------
Nominees
- --------
The Board of Directors currently consists of five members holding seats
to serve as members until the next Annual Meeting of Stockholders or until their
respective successors are duly elected and qualified, unless they earlier resign
or are removed from office. The Company's Articles of Incorporation presently
provide for a Board of Directors of not less than three (3) nor more than nine
(9) in number, with the exact number to be fixed as provided by the Company's
Bylaws. The term of office of all current directors will expire at the 2003
Annual Meeting of Stockholders.
On July 23, 2003, the Company's Board of Directors nominated Messrs.
Scott W. Ryan, Dirk D. Anderson, Frank E. Hart, David A. Rapaport and H. Ronald
Ziegler for election to the Board of Directors. All five directors are currently
serving as directors. None of the nominees has a family relation to any of the
other nominees. A brief description of the business experience of each nominee
is set forth below in the table under the heading "Directors and Executive
Officers." Unless otherwise instructed, the persons named in the accompanying
------------------------------------------------------------------
proxy will vote FOR the election of such nominees. All of the nominees have
- --------------------------------------------------
consented to being named herein and have indicated their intention to serve if
elected. If for any reason any nominee should become unable to serve as a
director, the accompanying proxy may be voted for the election of a substitute
nominee designated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
-------------------------------------------------------------------
OF THE NOMINEES.
----------------
Directors and Executive Officers
- --------------------------------
The following table sets forth certain information with respect to the directors
and executive officers of the Company as of July 21, 2003.
Name Age Position, Tenure and Experience
- ---- --- -------------------------------
Scott W. Ryan 57 Mr. Ryan has been a Director since December 1995
and served as the Company's President and Chief
Executive Officer from November 1999 to August
2000. Mr. Ryan is also the Chief Operating Officer
of Ryan & Company, LP. which is a securities
brokerage and asset management firm located in
West Conshohocken, Pennsylvania that he founded in
1988. Previously, Mr. Ryan was with other securities
brokerage firms including Merrill Lynch and
Goldman, Sachs & Co. Mr. Ryan also served as
Board Member and Vice Chairman of NASD District
#9 and on the NASD Small Firm Advisory Board.
Dirk D. Anderson 39 Mr. Anderson has been a Director since December
1995 and the Company's President and Chief Executive
Officer since August 2000 He served as the Company's
Chief Operating Officer from November 1999 to August
2000 and as the Chief Financial Officer from August
1995 through October 1999 and prior to that was
employed as the Company's Controller for
approximately two years. Previously, he served as Audit
Manager at Semple & Cooper, LLP, where his career
spanned seven years.
Frank E. Hart 56 Mr. Hart has been a Director since August 2000 and
has been President of Profit Concepts, Ltd. since
1978. Profit Concepts, Ltd. has been the Manager of
a private investment fund, High Capital Funding,
LLC and its predecessor, since 1983. Prior to 1983,
Profit Concepts, Ltd. was in the business of rendering
management and financial consulting services.
David A. Rapaport 60 Mr. Rapaport has been a Director since August 2002.
For the last 31 years Mr. Rapaport has specialized in
capital formation for small to mid-size companies
and has held various senior management positions
(including Chief Executive Officer) of several public
companies. Mr. Rapaport has served as Executive Vice
President and General Counsel of Profit Concepts, Ltd,
the manager of a private investment fund, since February
1997. From January 1996 to January 1997 Mr. Rapaport
served as a consultant and General Counsel to Myriad
International, Inc., a development stage company involved
in developing affordable housing in Peru. Mr. Rapaport
served as Executive Vice President, General Counsel and
Secretary of Conversion Industries, Inc., a publicly held
merchant banking firm from August 1990 to December 1995.
Mr. Rapaport is a graduate of the St. John's University
School of Law (1966) and practiced corporate law in
New York City from 1967 to 1975. From 1975 to August 1990,
Mr. Rapaport was an executive officer of National Patent
Development Company, a diversified company with
interests in growth technologies, technical training and
engineering support, medical and health care, and consumer
products distribution.
H. Ronald Ziegler 42 Mr. Ziegler has been a Director since August 2002
and has acted as a Vice President of Total Office
Interiors - Los Angeles since January 2002.
Previously Mr. Ziegler was a consultant for the BRG
Group, a $200 million national office furniture
company. From 1996 to 2001, Mr. Ziegler was
president and CEO of the Business Outlet, Inc., a
remanufacturer of Herman Miller workstations
located in West Reading, Pennsylvania.
Board Meetings and Committees of the Board of Directors
- -------------------------------------------------------
During the fiscal year ended March 31, 2003, the Board of Directors met
five times. The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board does not have a Nominating Committee, and the
entire Board is responsible for recommending nominees to serve on the Board.
During the fiscal year ended March 31, 2003, the Board of Directors
appointed Scott W. Ryan, Frank E. Hart and David A. Rapaport to the Audit
Committee. The functions of the Audit Committee are to: receive reports with
respect to loss contingencies, which may be legally required to be publicly
disclosed through financial statement notation; annually review and examine
those matters that relate to the financial audit of the Company; recommend to
the Company's Board of Directors the selection, retention and termination of the
Company's independent accountants; review the professional services, proposed
fees and independence of such accountants; review and examine those matters that
relate to the interim financial statements of the Company; and provide for the
periodic review and examination of management performance in selected aspects of
corporate responsibility. The Audit Committee met five times during the fiscal
year ended March 31, 2003.
During the fiscal year ended March 31, 2003, the Board of Directors
appointed Scott W. Ryan, Frank E. Hart and David A. Rapaport to the Compensation
Committee. The functions of the Compensation Committee are to review annually
the performance of the Chief Executive Officer and President and of the other
principal officers whose compensation is subject to the Committee's review and
report thereon to the Company's Board of Directors. In addition, the
Compensation Committee reviews the compensation of outside directors for their
services on the Board of Directors and reports thereon to the Board of
Directors. The Compensation Committee met once during the fiscal year ended
March 31, 2003.
During the fiscal year ended March 31, 2003, each incumbent director
attended 75% or more of the aggregate of (i) the total number of meetings of the
Board of Directors and (ii) the total number of meetings held by all committees
on which such director served.
Compensation of Directors
- -------------------------
On November 1, 2002, the Company provided 5,000 common stock options at
an exercise price equal to the market price at the date of grant of $2.63 per
share to its non-employee directors as compensation for their membership on the
board of directors for the 2002-2003 membership. In addition, the Company
reimburses them for reasonable expenses incurred in attending meetings.
Executive Compensation
- ----------------------
The following table sets forth the compensation paid or accrued to the
current Chief Executive Officer (Named Executive Officer) of the Company.
Summary Compensation Table
--------------------------
Long-Term
Compensation
Awards
Annual Compensation
-------------------------- -----------------
Securities
Name and Principal Underlying All Other
Position Year Ended Salary ($) Bonus ($) Options (#)* Compensation
- ----------------------- ------------------ ------------ ------------- ----------------- ------------------
Dirk D. Anderson March 31, 2003 $93,900 $3,575 0 $ 0
CEO March 31, 2002 $100,000 $0 0 $ 0
March 31, 2001 $100,000 $60,795 2,756 $ 0
* Adjusted for 5% Stock Dividend issued on August 14, 2002 and August 13, 2001
Option Grants
- -------------
There were no options or SARs granted to the Chief Executive Officer
(Named Executive Officer) of the Company during the last fiscal year.
Aggregated Option Exercises and Fiscal Year-End Option Values
- -------------------------------------------------------------
The following table sets forth information with respect to the number
of unexercised options held by the Named Executive Officer on March 31, 2003. No
options were exercised by the Named Executive Officer during the fiscal year
ended March 31, 2003.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
- ------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money
Options at FY-End (#) Options at FY-End ($)
---------------------- ---------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ ------------------------- -------------------------
Dirk D. Anderson 120,211/0 $135,838/$0
Employment Agreements and Termination of Employment Arrangements
- ----------------------------------------------------------------
On August 10, 1996, the Company entered into an employment agreement
with Dirk Anderson pursuant to which he serves as the Company's Chief Executive
Officer. The agreement is automatically extended for successive one year periods
unless either the Board of Directors or Mr. Anderson gives written notice to the
other at least ninety days prior to the end of the initial or any renewal term
of its or his intention not to renew. The agreement automatically renewed on
August 10, 2001, and since no written notice was given by the Company ninety
days prior to August 10, 2002, the agreement will again be automatically
extended. Under the agreement, Mr. Anderson receives a base annual salary of
$75,000. Increases to Mr. Anderson's base salary and bonuses are at the
discretion of the Company's Board of Directors. Mr. Anderson is entitled to
participate in all retirement and employee benefit plans that the Company may
adopt for the benefit of its senior executives. On March 24, 1999, the Board of
Directors and Mr. Anderson agreed to change the base annual salary of Mr.
Anderson to $100,000, effective April 1, 1999. The agreement also entitles Mr.
Anderson to receive the options described above under the heading "Aggregated
Option Exercises and Fiscal Year-End Option Values."
Under the agreement, if Mr. Anderson's employment is terminated by
reason of death, Disability or Retirement, upon expiration of the term of the
agreement, by the Company for Cause or by Mr. Anderson without Good Reason (in
each case as such terms are defined in the agreement), the Company shall: (i)
pay Mr. Anderson any base salary which has accrued but has not been paid as of
the termination date (the "Accrued Base Salary"); (ii) reimburse Mr. Anderson
for expenses incurred by him prior to termination which are subject to
reimbursement pursuant to applicable Company policies (the "Accrued Reimbursable
Expenses"); (iii) provide to Mr. Anderson any accrued and vested benefits
required to be provided by the terms of any Company-sponsored benefit plans (the
"Accrued Benefits"); (iv) pay Mr. Anderson any discretionary bonus with respect
to a prior fiscal year which has accrued and been earned but has not been paid
(the "Accrued Bonus"); (v) permit Mr. Anderson to exercise all vested,
unexercised stock options outstanding at the termination date; and (vi) to the
extent permitted by the terms of the policies then in effect, give Mr. Anderson
a right of first refusal to cause the transfer of the ownership of all key-man
life insurance policies maintained by the Company on Mr. Anderson to Mr.
Anderson at his expense (the "Right of First Refusal"). If Mr. Anderson's
employment is terminated by the Company without Cause or by Mr. Anderson for
Good Reason, the Company shall: (i) pay Mr. Anderson the Accrued Base Salary;
(ii) pay Mr. Anderson the Accrued Reimbursable Expenses; (iii) pay Mr. Anderson
the Accrued Benefits; (iv) pay Mr. Anderson the Accrued Bonus; (v) pay Mr.
Anderson the base salary, as and when it would have been paid had the
termination not occurred, for a period of six months following the termination
date; (vi) maintain in effect, until the first to occur of (a) his attainment of
comparable benefits upon alternative employment or (b) six months following the
termination date, the employee benefits in which he was entitled to participate
immediately prior to such termination; (vii) permit Mr. Anderson to exercise all
vested, unexercised stock options in accordance with the terms of the plans and
agreements pursuant to which they were issued; and (viii) give Mr. Anderson the
Right of First Refusal.
On August 19, 1996 the Company amended the employment agreement to
include compensation pursuant to a change in control. Under the amendment, if
Mr. Anderson's employment is terminated by the Company subsequent to a Change of
Control by the Company either by the new controlling party or by the executive
for Good Reason, Mr. Anderson will receive a two-year consulting agreement at
$100,000 per year in addition to the severance pay detailed above.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") initial report of ownership and
reports of changes in ownership of the Company's equity securities. Based solely
upon the copies of such reports furnished to the Company and certain written
representations, the Company believes that all Section 16(a) filing requirement
applicable to the Company's officers, directors and greater than 10%
stockholders were timely satisfied during the fiscal year ended March 31, 2003.
PROPOSAL TWO
------------
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-------------------------------------------------------------
Based on the recommendation of the Audit Committee, the Company's Board
of Directors has selected, and is submitting to the Stockholders for
ratification, the appointment of Renzi, Bernardi, Suarez & Company to serve as
independent public accountants to audit the financial statements of the Company
for the fiscal year ending March 31, 2004 and to perform other accounting
services as may be requested by the Company. Renzi, Bernardi, Suarez & Company
has acted as independent public accountants for the Company since its
appointment effective December 13, 2002.
The Company does not expect that representatives of Renzi, Bernardi,
Suarez, & Company will be present at the 2003 Annual Meeting. If present,
however, they will have the opportunity to make a statement and will be
available to respond to appropriate questions.
Although it is not required to do so, the Board of Directors has
submitted the selection of Renzi, Bernardi, Suarez, & Company to the
Stockholders for ratification.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL TWO.
Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
On December 13, 2002 the Registrant's former principal independent
accountant, Moffitt & Company, PC resigned. Moffitt & Company, PC's reports on
the Company's financial statements for the years ended March 31, 2002 and 2001
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 Moffitt & Company, PC on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure. On
December 13, 2002, upon recommendation from the Audit Committee, the Registrant
appointed Renzi, Bernardi, Suarez & Company as the principal independent
accountant.
During June of 2001, as a result of a fee dispute, Semple & Cooper, LLP
resigned as the Company's independent accountant. In addition, Semple & Cooper,
LLP 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. Semple & Cooper's original reports on the Company's financial statements
for the fiscal years ended March 31, 1999 and 2000 did not contain an adverse
opinion or disclaimer of opinion, and were not modified as to uncertainty, audit
scope or accounting principles. In addition, there were no disagreements with
Semple & Cooper, LLC on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. As a result of
Semple & Cooper, LLC's resignation, the Company immediately engaged Moffit &
Company, P.C. to audit its financial statements for the fiscal years ended March
31, 1999-2001. Due to the urgent need to complete these audits, Moffit and
Company, P.C. was engaged without recommendation from the audit committee.
Fees to Independent Public Accountants
--------------------------------------
Audit Fees
- ----------
The aggregate amount of fees billed or expected to be billed to the
Company by Renzi, Bernardi, Suarez & Company for professional services rendered
in connection with the audit of the Company's annual financial statements for
the fiscal year ended March 31, 2003 is currently expected to approximate
$16,800. The aggregate amount of fees billed or expected to be billed to the
Company by Renzi, Bernardi, Suarez & Company for the review of the Company's
interim financial statements including the Company's quarterly reports on Form
10-QSB for the fiscal year ended March 31, 2003, is currently expected to
approximate $1,500. The aggregate amount of fees billed or expected to be billed
to the Company by Moffitt & Company, PC, for the review of the Company's interim
financial statements including the Company's quarterly reports on Form 10-QSB
for the fiscal year ended March 31, 2003, is currently expected to approximate
$3,000.
Financial Information System Design and Implementation Fees
- -----------------------------------------------------------
There were no professional services rendered to the Company by Renzi,
Bernardi, Suarez & Company or by Moffitt & Company, PC for the design and
implementation of financial information systems for the fiscal year ended March
31, 2003.
All Other Fees
- --------------
The aggregate amount of fees billed to the Company by Renzi, Bernardi,
Suarez & Company for all other non-audit services rendered to the Company for
the fiscal year ended March 31, 2003 was approximately $1,700. The aggregate
amount of fees billed to the Company by Moffitt & Company, PC for all other
non-audit services rendered to the Company for the fiscal year ended March 31,
2003 was approximately $1,700.
Audit Committee Report
- ----------------------
Management is responsible for the Company's internal controls,
financial reporting process and compliance with laws and regulations and ethical
business standards. The independent auditor is responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and issuing a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes on behalf of the Board of Directors.
In this context, the Audit Committee has reviewed and discussed the
audited financial statements with management and the independent auditors. The
Audit Committee has discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committee). In addition, the Audit Committee has received from the
independent auditors the written disclosures required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees) and
discussed with them their independence from the Company and its management.
Moreover, the Audit Committee has considered whether the independent auditor's
provision of information technology services and other non-audit services to the
Company is compatible with maintaining the auditor's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2003, for filing with the Securities and Exchange
Commission.
Submitted by the Audit Committee of the Board of Directors
Scott W. Ryan, Chairman
Frank E. Hart
David A. Rapaport
ITEM THREE
----------
CESSATION OF SEC REPORTING; VOLUNTARY REMOVAL FROM NASDAQ
---------------------------------------------------------
As has been indicated in the Chairman's letters to shareholders for the
past two quarters, the Board has been examining the question of whether
remaining a publicly traded company merits the associated costs and regulatory
burden. The Board has similarly considered the further question of, if not, what
course of action would be appropriate. With the advent of heightened regulatory
demands following passage of the Sarbanes-Oxley Act of 2002, this question
became even more pressing and the prevailing market conditions hold little
promise that a small, solid but non-sensational company such as ours will
prospectively benefit from being publicly traded to any greater degree than it
has historically.
The Board has concluded that ending the Company's publicly traded
status will create the best opportunity for shareholder value over the short and
medium terms, if only through cost savings and productivity gains associated
with relieving management of this compliance burden. Whether at some later point
the Company will re-establish itself as publicly traded is an open question and
will be taken up at an appropriate time. For the foreseeable future, the Board
believes the best course is to end the Company's status as a publicly traded
company.
The following table presents a summary of the costs associated with
having the Company's common stock registered and listed and traded on Nasdaq:
Cost Item $ As a Publicly $ Following
Traded Company De-Registration
- ---------------------------------- ----------------- ----------------------
Independent Auditors 30,000 5,000 1
Legal Counsel 10,000 0
Nasdaq Fees 15,000 0
D&O Insurance Premium 44,000 0
Transfer Agent Fees 6,000 0
Printing and Copying 3,000 0
Total of Costs to be Eliminated 103,000 -
In addition to the more easily quantified costs indicated in the above
table, the Company's officers, directors and staff are required to devote a
considerable amount of time to the business of compliance with the federal
securities laws and the Nasdaq listing requirements. Free from such
requirements, the directors, officers and staff of the Company will be able to
re-invest such time directly into the primary business of the Company. The
Company estimates that these costs approximate $50,000 annually based upon
estimates of the portion of time of the Company's directors, officers and staff
devoted to such compliance and with reference to the annual compensation for
such individuals.
Under the Exchange Act, an issuer may "de-register" its stock by filing
a certification that it has fewer than 300 shareholders of record. Presently,
the Company has less than 300 shareholders of record. Accordingly, the Company
intends to file a Form 15 certification with the Securities and Exchange
Commission. This filing will terminate the registration of the Company's common
stock under section 12(g) of the Securities Exchange Act of 1934, as amended.
- ----------------------------
1 The Company anticipates that it will utilize internal accounting
resources to produce the Company's financial statements and will not
provide independently audited financial statements following
cessation of its periodic reporting requirement under the securities
laws. The Company's lender may require a lesser grade independent
financial statement and, as such, $5,000 of annual expenditures is
estimated.
Just prior to such filing, the Company will notify Nasdaq of its
intended filing and Nasdaq will cause the Company's shares to be de-listed from
the Small Cap market on or just prior to the date of filing. Unless the SEC
finds reason to disallow the Company's filing or the Company withdraws its Form
15 filing for some reason, the Company's stock will be de-registered 90 days
after the Form 15 filing.
While the Form 15 certification has a 90-day pendency prior to
effectiveness, the Company's obligation to file periodic and current reports
will cease at the time of filing. As such the Company's first quarterly report
on Form 10-QSB for the current fiscal year (due August 15, 2003) will likely be
the Company's last report to be filed with the SEC. Quite irrespective of such
relief, shareholders should expect a steady flow of information to continue to
be communicated by the Company, as the Company's commitment to keeping its
shareholders well informed remains steadfast and of the highest priority. The
Company will continue its practice of posting reports and press releases on its
website www.resy.net under the "Investor Relations" link.
Upon filing of the Form 15 and thereafter, once the Company's Form 15
certification becomes effective, no trading market is expected to exist with
respect to the Company's securities and none is expected to develop. As a
result, shareholders will be faced with a drastically more limited set of
options and opportunities to liquidate their investment in the Company. As such,
shareholders may not be able to liquidate their investment in the Company should
the need arise at a given time. Similarly, if a security holder is able to find
a willing buyer, they may experience a dramatic decrease in the value they can
obtain for their security holdings relative to a scenario in which the Company
were to maintain the publicly traded nature of its common stock and ready market
were to exist. With the exception of individually arranged private sales of
securities, the most likely opportunities for liquidating one's investment in
the Company will be fundamental transactions such as a stock sale or a sale of
all or substantially all of the Company's assets to a cash-paying buyer, in
whole or in part, or a merger or share exchange with a publicly traded acquirer.
Although, in the latter scenario, shareholders of the acquired corporation are
often restricted by prohibitions against sale of the securities received for
periods of up to 18 months or more following the transaction.
The further possibility exists that one or more broker-dealers choose
to quote a market for the Company's common stock in the Pink Sheets(R), in which
case shareholders may be able to reference the Pink Sheets(R) in order to find
buyers or sellers for the Company's shares. However, the Pink Sheets(R) is a
quotation service and not a listed exchange. The liquidity represented by
quotation in the Pink Sheets(R) tends to be drastically inferior to the
liquidity generally associated with a listing in one of the Nasdaq markets.2
Moreover, the Company does not intend to encourage broker-dealers in
establishing Pink Sheet(R) quotations, making the likelihood of liquidity
associated with Pink Sheet quotation relatively remote. The likely situation is
that no particular market will exist for the purchase and sale of the Company's
stock. Again, shareholders should recognize that they likely will not have the
opportunity to liquidate their holdings in the Company's stock once the stock is
de-listed, other than in a fundamental transaction as described above, and may
not be able to realize fair value, or any value, if their personal circumstance
requires them to liquidate their holdings other than in connection with a
fundamental transaction involving the Company.
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2 This is as much a function of the types of companies whose securities are
relegated to the Pink Sheets(R) as it is an indication of the relative strength
of the Pink Sheet(R) service versus any of the Nasdaq markets.
In addition to the loss of liquidity that will occur upon
de-registration, the specific disclosure requirements intrinsic to the periodic
and current reporting requirements of section 13 and 15(d) of the Exchange Act
and intrinsic to the filing requirements of section 14 of the Exchange Act will
no longer apply to the Company's obligation or practice with respect to its
shareholder communication. While the Company's directors and officers are
committed to maintaining regular, comprehensive and clear shareholder
communication, the Company's shareholders should nevertheless recognize and
contemplate that the Company will no longer be required to observe the specific
form, frequency or priority prescribed by the Exchange Act. The matter will
instead be largely left to the discretion and judgment of the Company's
directors and officers, except for the specific reporting requirements of
Arizona corporations law, as set forth in Title 10 of the Arizona Revised
Statutes in Chapter 16, Article 2, which requires annual financial statements to
be furnished to shareholders, disclosure regarding loans or advances to
directors, and the filing of an annual report with the Arizona corporations
commission.
Aware of the fact that some shareholders may for their own reasons
disagree with the Board's conclusion and intending that a reasonable period for
considering and reacting to the Board's conclusion be afforded to shareholders
and the market, the Company plans to make its Form 15 filing on September 30,
2003. This will afford shareholders the opportunity to discuss this significant
step with the Board and the Company's management at the Annual Meeting of
Shareholders. Although shareholder approval is not required for the Company to
take this step and will not be sought, the Board does think it important to
afford a forum for discussion to those shareholders who desire clarification of
the de-registration process or its implications or who simply want to voice any
concerns with respect to the Board's decision. This schedule will also provide
any shareholders not wishing to retain all or some of their shareholdings in
light of the Board's decision or for any other reason a final period during
which such shareholdings may be bought or sold in the public market prior to the
filing of the Form 15, which will end such period.
OTHER MATTERS
-------------
The Company's Board of Directors is not aware of any other business to
be considered or acted upon at the Annual Meeting of the Stockholders other than
those described above. If other business requiring a vote of the Stockholders is
properly presented at the meeting, proxies will be voted in accordance with the
judgement on such matters of the person or persons acting as proxies. If any
matter not appropriate for action at the Annual Meeting is presented, the holder
of the proxies will vote against consideration thereof or action thereon.
STOCKHOLDER PROPOSALS
---------------------
The Company welcomes comments or suggestions from its Stockholders. If
a Stockholder desires to have a proposal formally considered at the 2004 Annual
Meeting of Stockholders, and evaluated by the Board for possible inclusion in
the Proxy Statement for that meeting, the proposal (which must comply with the
requirements of Rule 14a-8 promulgated under the Exchange Act) must be received
in writing by the Secretary of the Company at the address set forth on the first
page hereof on or before March 15, 2004. If a Stockholder desires to have a
proposal formally considered at such meeting, but outside the process of Rule
14a-8, the proposal must be received in writing by the Secretary of the Company
at the address set forth on the first page hereof on or before May 25, 2004.
ANNUAL REPORT
-------------
The Company' Annual Report to Stockholders and the Annual Report on
Form 10-KSB, with audited financial statements, accompanies this Proxy Statement
and was mailed this date to all Stockholders of record as of the Record Date.