SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FEBRUARY 16, 1999
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Date of Report (Date of Earliest Event Reported)
RECONDITIONED SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Charter)
ARIZONA
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(State or Other Jurisdiction of Incorporation)
0-20924 86-0576290
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(Commission File Number) (I.R.S. Employer
Identification No.)
444 WEST FAIRMONT, TEMPE, ARIZONA 85282
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(Address of Principal Executive Offices) (Zip Code)
(602) 968-1772
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS.
On November 16, 1998, Reconditioned Systems, Inc., an Arizona corporation
("RSI") issued an 8-K announcing RSI had 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"), and RSI Acquisition Corp., an
Arizona corporation and wholly-owned subsidiary of CNI ("Merger Corp.").
On February 4, 1999, CNI informed RSI that CNI believed RSI was in breach
of certain of the representations and warranties set forth in the Merger
Agreement, specifically Sections 3.11 ("Tax Returns, Taxes), 3.7 ("RSI SEC
Reports"), 3.8 ("Financial Statements and Records of RSI"), 3.9 ("Absence of
Certain Changes") and 3.10 ("No Material Undisclosed Liabilities"). CNI asserted
that RSI had not properly preserved its net operating loss carryforward.
Consequently, the merger did not close into escrow on February 5, 1999 as
planned.
On February 16, 1999, RSI received formal notice of termination of the
Merger Agreement from CNI pursuant to the provisions of section 8.1(b) of the
Merger Agreement based upon RSI allegedly being in breach of the representations
and warranties noted above.
RSI has determined that the entire net operating loss for the year ending
March 31, 1996, in the approximate amount of $2.9 million, could potentially be
deemed invalid by the Internal Revenue Service ("IRS") due to the omission of an
election in the filing. RSI has engaged experts to file with the IRS for a
private letter ruling to validate the loss. Due to the fact that the IRS has
repeatedly granted relief to taxpayers in similar circumstances, the experts
believe it is very likely that the IRS will approve the private letter ruling,
thereby validating the net operating loss deduction taken to date. However, no
assurance can be given that RSI will receive a favorable ruling, and it is not
likely that the Company will receive any ruling prior to March 31, 1999.
Accordingly, CNI has terminated the Merger Agreement. Because RSI has been
advised that it is very likely that the IRS will grant relief in this case, the
Company is not restating its financial results at this time. However, if RSI
does not receive a favorable ruling, the Company will need to restate financial
results for all periods subsequent to March 31, 1995. Further details regarding
the Company's net operating losses are contained in the Company's Form 10-QSB
for the quarter ended December 31, 1998.
The statements contained in this report that are not historical facts may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbors created thereby.
These forward-looking statements involve risks and uncertainties, including, but
not limited to, the risk that the Company will not obtain a favorable IRS
private letter ruling regarding its net operating losses. In addition, the
Company's business, operations and financial condition are subject to
substantial risks that are described in the Company's reports and statements
filed from time to time with the Securities and Exchange Commission. These
reports and statements include the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1998 and Quarterly Reports on Form 10-QSB for
the quarters ended June 30, 1998, September 30, 1998 and December 31, 1998.
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EXHIBITS
99.1 - Press Release dated February 17, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 18, 1999.
RECONDITIONED SYSTEMS, INC.
By: /s/ Dirk D. Anderson
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Dirk D. Anderson,
Chief Financial Officer
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