FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19621
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
MINNESOTA
(State or other jurisdiction of 41-1454591
incorporation or organization) (I.R.S. Employer
7400 Excelsior Blvd. Identification No.)
Minneapolis, Minnesota 55426-4517
(Address of principal executive
offices)
(612) 930-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES _X_ NO ___
As of November 12, 1999, the number of shares outstanding of the registrant's no
par value common stock was 2,286,744 shares.
<PAGE>
APPLIANCE RECYCLING CENTERS of AMERICA, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of
October 2, 1999 and January 2, 1999
Consolidated Statements of Operations for the Three and
Nine Months Ended October 2, 1999 and October 3, 1998
Consolidated Statements of Cash Flows for the
Nine Months Ended October 2, 1999
and October 3, 1998
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosure about
Market Risk [Not Applicable]
PART II. OTHER INFORMATION
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 155,000 $ 14,000
Accounts receivable, net of allowance of $27,000
and $18,000, respectively 1,578,000 498,000
Inventories, net of reserves of $115,000 and $40,000, respectively 1,614,000 1,979,000
Other current assets 154,000 100,000
- -----------------------------------------------------------------------------------------------------------
Total current assets $ 3,501,000 $ 2,591,000
- -----------------------------------------------------------------------------------------------------------
Property and Equipment, at cost
Land $ 2,103,000 $ 2,103,000
Buildings and improvements 4,043,000 3,957,000
Equipment 3,490,000 3,597,000
- -----------------------------------------------------------------------------------------------------------
$ 9,636,000 $ 9,657,000
Less accumulated depreciation 3,921,000 3,876,000
- -----------------------------------------------------------------------------------------------------------
Net property and equipment $ 5,715,000 $ 5,781,000
- -----------------------------------------------------------------------------------------------------------
Other Assets $ 270,000 $ 319,000
Goodwill, net of amortization of $67,000 and $38,000, respectively 123,000 152,000
- -----------------------------------------------------------------------------------------------------------
Total assets $ 9,609,000 $ 8,843,000
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit $ 1,133,000 $ 1,081,000
Current maturities of long-term obligations 101,000 79,000
Accounts payable 1,064,000 1,202,000
Accrued expenses (Note 2) 739,000 700,000
- -----------------------------------------------------------------------------------------------------------
Total current liabilities $ 3,037,000 $ 3,062,000
Long-Term Obligations, less current maturities 4,884,000 4,965,000
- -----------------------------------------------------------------------------------------------------------
Total liabilities $ 7,921,000 $ 8,027,000
- -----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, no par value; authorized 10,000,000 shares; issued and
outstanding 2,287,000 shares and 1,237,000 shares,
respectively (Note 4 and 6) $ 11,345,000 $ 10,857,000
Accumulated deficit (9,657,000) (10,041,000)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 1,688,000 $ 816,000
- -----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,609,000 $ 8,843,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Retail $ 2,100,000 $ 2,170,000 $ 6,104,000 $ 5,638,000
Recycling (Note 3) 2,589,000 2,084,000 5,456,000 4,841,000
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $ 4,689,000 $ 4,254,000 $ 11,560,000 $ 10,479,000
Cost of Revenues 2,429,000 2,529,000 6,632,000 6,944,000
- ------------------------------------------------------------------------------------------------------------------------
Gross profit $ 2,260,000 $ 1,725,000 $ 4,928,000 $ 3,535,000
Selling, General and Administrative Expenses (Note 6) 1,536,000 1,602,000 4,067,000 4,567,000
Loss on Impaired Assets (Note 5) -- -- -- 518,000
- ------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 724,000 $ 123,000 $ 861,000 $ (1,550,000)
Other Income (Expense)
Other income 8,000 8,000 117,000 277,000
Interest expense (200,000) (182,000) (594,000) (412,000)
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes $ 532,000 $ (51,000) $ 384,000 $ (1,685,000)
Provision for Income Taxes -- 30,000 -- 30,000
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 532,000 $ (81,000) $ 384,000 $ (1,715,000)
========================================================================================================================
Basic Earnings (Loss) per Common Share $ 0.23 $ (0.07) $ 0.18 $ (1.44)
========================================================================================================================
Diluted Earnings (Loss) per Common Share $ 0.22 $ (0.07) $ 0.18 $ (1.44)
========================================================================================================================
Weighted Average Number of Common Shares Outstanding 2,271,000 1,237,000 2,102,000 1,187,000
========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
October 2, October 3,
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 384,000 $(1,715,000)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 301,000 587,000
Loss on impaired assets -- 518,000
Gain on sale of equipment (54,000) (232,000)
Accretion of long-term debt discount 25,000 --
Change in assets and liabilities:
(Increase) decrease in:
Receivables (1,080,000) (434,000)
Inventories 365,000 (1,214,000)
Other current assets (54,000) 5,000
Increase (decrease) in:
Accounts payable (138,000) 672,000
Accrued expenses 39,000 (32,000)
- ------------------------------------------------------------------------------------------
Net cash used in operating activities $ (212,000) $(1,845,000)
- ------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of property and equipment $ (161,000) $ (270,000)
Proceeds from disposal of property and equipment 68,000 237,000
- ------------------------------------------------------------------------------------------
Net cash used in investing activities $ (93,000) $ (33,000)
- ------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in line of credit $ 52,000 $ (987,000)
Payments on long-term obligations (81,000) (389,000)
Proceeds from sale of common stock 475,000 200,000
Proceeds from long-term debt obligations -- 3,718,000
Proceeds ascribed to warrants issued in conjunction
with long-term debt -- 307,000
Fees from financing activities -- (288,000)
- ------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 446,000 $ 2,561,000
- ------------------------------------------------------------------------------------------
Increase in cash and cash equivalents $ 141,000 $ 683,000
Cash and Cash Equivalents
Beginning 14,000 13,000
- ------------------------------------------------------------------------------------------
Ending $ 155,000 $ 696,000
- ------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 508,000 $ 414,000
Income taxes net of refunds -- --
==========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Appliance Recycling Centers of America, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
1. Financial Statements
In the opinion of management of the Company, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting of only normal, recurring accruals) necessary to present
fairly the financial position of the Company and its subsidiaries as
of October 2, 1999, and the results of their operations for the
three-month and nine-month periods ended October 2, 1999 and October
3, 1998 and their cash flows for the nine-month periods ended October
2, 1999 and October 3, 1998. The results of operations for any
interim period are not necessarily indicative of the results for the
year. These interim consolidated financial statements should be read
in conjunction with the Company's annual consolidated financial
statements and related notes in the Company's Annual Report on Form
10-K for the year ended January 2, 1999.
2. Accrued Expenses
Accrued expenses were as follows:
October 2, January 2,
1999 1999
-------- --------
Compensation $259,000 $139,000
Warranty 189,000 157,000
Other 291,000 404,000
-------- --------
$739,000 $700,000
======== ========
3. Revenue Classification
In prior reports, the Company had separately reported byproduct
revenues which now are included in recycling revenues.
4. Sale of Common Stock
In February 1999, the Company sold in a private placement 1,030,000
shares of Common Stock at a price of $0.50 per share. The Company
paid $31,500 of the proceeds and issued warrants to purchase 83,000
shares of Common Stock at $0.50 per share, subject to adjustment, to
an investment banker as a placement fee. The remaining proceeds were
used to repay certain indebtedness, to purchase inventory and for
other general corporate purposes. The warrants were valued at $27,800
using the Black-Scholes option-pricing method and are recorded in
equity.
5. Loss On Impaired Assets
During the nine months ended October 3, 1998, the Company elected to
curtail its appliance shredding operation and intensify its strategic
focus on appliance retailing. As a result, the Company recorded
$518,000 as a loss on impaired assets.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - continued
6. Settlement
In August 1999, the Company settled a lawsuit with a former employee.
The settlement included a cash payment of $105,000 and the issuance
of 20,000 shares of the Company's common stock valued at $12,500. The
previously unaccrued portion of this settlement, ($74,000) is
included in selling, general and administrative expenses for the
three and nine month periods ended October 2, 1999.
<PAGE>
PART I: ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of
the Company's level of operations and financial condition. This
discussion should be read with the consolidated financial statements
appearing in Item 1.
RESULTS OF OPERATIONS
The Company generates revenues from two sources: retail appliance
sales and appliance recycling. Retail revenues are sales of
appliances, warranty and service revenue and delivery fees. Recycling
revenues are fees charged for the disposal of appliances and sales of
scrap metal and reclaimed chlorofluorocarbons ("CFCs") generated from
processed appliances. In prior reports, the Company had separately
reported byproduct revenues, which now are included in recycling
revenues.
Total revenues for the three and nine months ended October 2, 1999
were $4,689,000 and $11,560,000, respectively, compared to $4,254,000
and $10,479,000 for the same periods in the prior year.
Retail sales accounted for approximately 45% of revenues in the third
quarter of 1999. Retail revenues for the three and nine months ended
October 2, 1999 decreased by $70,000 or 3% and increased by $466,000
or 8%, respectively, from the same periods in the prior year. Third
quarter same-store retail sales increased 50% (a sales comparison of
6 stores that were open the entire third quarters of 1999 and 1998).
The slight decrease in retail sales for the third quarter compared to
the same period in the prior year was primarily due to fewer stores
being opened during the third quarter of 1999 as compared to 1998
offset by an increase in retail sales in the stores that remained
open. The increase in retail sales for the nine months ended October
2, 1999 compared to the same period in the prior year was primarily
due to increased advertising and an increase in inventory per
location, partially offset by a decrease in sales of reconditioned
appliances.
Currently, the Company has six retail locations compared to 11 retail
locations at the end of last year's third quarter. The Company does
not plan to expand its retail business into new geographic markets at
this time but to concentrate on increasing sales in its existing
markets. Currently the Company does not plan to close or consolidate
any existing stores or open any new retail locations. The Company
experiences seasonal fluctuations and expects retail sales to be
higher in the second and third calendar quarters than in the first
and fourth calendar quarters, reflecting consumer purchasing cycles.
<PAGE>
RESULTS OF OPERATIONS - continued
Recycling revenues for the three and nine months ended October 2,
1999 increased by $505,000 or 24% and $615,000 or 13%, respectively,
from the same periods in the prior year. The increase for the three
and nine months ended October 2, 1999 in recycling revenues was
primarily due to an increase in refrigerator recycling volumes
related to the contract with Southern California Edison Company
("Edison") and an increase in sales of CFCs, partially offset for the
nine month period only by a decrease in sales of scrap metal. The
decrease in sales of scrap metal was primarily due to a decrease in
scrap metal prices. The increase in sales of CFCs was primarily due
to a higher number of refrigerators being recycled related to the
Edison contract. In April 1999, the Company signed a contract with
Edison to continue its refrigerator recycling program through
December 30, 1999. Unlike the previous contracts, the contract for
1999 does not provide for a minimum number of refrigerators to be
recycled. However, the contract is expected to generate higher
recycling volumes in 1999 compared to 1998. The timing and amount of
revenues will be dependent on advertising by Edison. The Company
believes the program with Edison will be continued for the year 2000.
Gross profit as a percentage of total revenues for the three and nine
months ended October 2, 1999 increased to 48% and 43% from 41% and
34%, respectively. The increases were primarily due to improved
purchase price and mix of inventory for retail sales, higher
recycling revenues from the Edison contract without a corresponding
increase in expenses and discontinuing unprofitable programs. Gross
profit as a percentage of total revenues for future periods can be
affected favorably or unfavorably by numerous factors, including the
volume of appliances recycled from the Edison contract, the mix of
retail product sold during the period and the price and volume of
byproduct revenues. The Company believes that gross profit as a
percentage of total revenues will decrease slightly in the fourth
quarter due to anticipated lower retail sales and lower recycling
revenues from the Edison contract with a corresponding decrease in
expenses.
Selling, general and administrative expenses for the three and nine
months ended October 2, 1999 decreased by $66,000 or 4% and $500,000
or 11%, respectively, from the same periods in 1998. Selling expenses
for the three and nine months ended October 2, 1999 decreased by
$17,000 or 3% and $67,000 or 5%, respectively, from the same periods
in 1998. The decrease in selling expenses was primarily due to
operating fewer retail stores during the first nine months of 1999
compared to 1998 offset by an increase in advertising during the
first nine months of 1999 compared to 1998. General and
administrative expenses for the three and nine months ended October
2, 1999 decreased by $49,000 or 4% and $433,000 or 14%, respectively,
from the same periods in 1998. The decrease in general and
administrative expenses was primarily due to a decrease in personnel
costs as a result of an expense reduction program implemented
primarily in the first quarter of 1999 which included the closing of
the St. Louis, MO operation and the elimination of the V.P. of
Operations and Chief Financial Officer positions offset by the
lawsuit settlement in the third quarter of 1999.
<PAGE>
RESULTS OF OPERATIONS - continued
The Company took a one-time charge of $518,000 during the nine months
ended October 3, 1998 related to a loss on impaired assets associated
with the Company's decision to curtail the appliance shredding
operation of its recycling business related primarily to the
Company's Minneapolis center.
Interest expense was $200,000 for the three months and $594,000 for
the nine months ended October 2, 1999 compared to $182,000 and
$412,000 for the same periods in 1998. The increase in interest
expense was due to a higher average borrowed amount for the three and
nine months ended October 2, 1999 than in the same periods in 1998.
The Company recorded no provision for income taxes for the three and
nine months ended October 2, 1999 due to the use of deferred tax
assets (which had been offset by a valuation allowance) to offset
income taxes payable. However, no benefit provision and related asset
has been recorded for the remaining net operating loss carryforwards
and other net deferred tax assets due to the uncertainty of
realization of the net operating loss carryforwards. Net operating
loss carryforwards total approximately $8,500,000 and expire in the
years 2011 through 2013. At October 2, 1999, the Company had a
valuation allowance recorded against all of its net deferred tax
assets of approximately $4,200,000, due to uncertainty of
realization. The realization of deferred tax assets is dependent upon
sufficient future taxable income during the periods when deductible
temporary differences and carryforwards are expected to become
available to reduce taxable income.
Net operating loss carryforwards may be subject to significant
limitations under the provisions of the Internal Revenue Code,
Section 382, which relate to a 50 percent change in control over a
three-year period. In addition, any future changes of control may
result in the expiration of a portion of the carryforwards before
they can be used and are also dependent upon the Company attaining
profitable operations in the future.
The Company recorded net income of $532,000 or $.22 per diluted share
for the three months and $384,000 or $.18 per diluted share for the
nine months ended October 2, 1999 compared to net losses of $81,000
or $.07 per diluted share and $1,715,000 or $1.44 per diluted share
in the same periods of 1998. The increase in income for the three and
nine month periods was due to the factors discussed above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At October 2, 1999, the Company had working capital of $464,000
compared to a working capital deficit of $471,000 at January 2, 1999.
Cash and cash equivalents increased to $155,000 at October 2, 1999
from $14,000 at January 2, 1999. Net cash used in operating
activities was $212,000 for the nine months ended October 2, 1999
compared to $1,845,000 in the same period of 1998. The decrease in
cash used in operating activities was primarily due to the Company
having net income in the current period versus a net loss in the
comparable period last year (net of noncash loss on impaired assets
in 1998) plus a decrease in inventories offset by an increase in
accounts receivable and a decrease in accounts payable.
The Company's capital expenditures for the nine months ended October
2, 1999 and October 3, 1998 were approximately $161,000 and $270,000,
respectively. The 1999 capital expenditures were related to building
improvements and the purchase of computer equipment. The 1998 capital
expenditures were primarily related to building improvements.
The Company has a $2.0 million line of credit with a lender. The
interest rate as of October 2, 1999 was 13.25%. The amount of
borrowings available under the line of credit is based on a formula
using receivables and inventories. The line of credit was renewed
through August 30, 2000 on the same terms as the loan in place prior
to August 1999. The line of credit provides that the lender may
demand payment in full of the entire outstanding balance of the loan
at any time. The line of credit is secured by substantially all the
Company's assets, is guaranteed by the President of the Company, and
requires minimum monthly interest payments of $5,625 regardless of
the outstanding principal balance. The Lender also has an inventory
repurchase agreement with Whirlpool Corporation that secures the line
of credit. The line also requires that the Company meet certain
financial covenants, provides payment penalties for noncompliance,
limits the amount of other debt the Company can incur, limits the
amount of spending on fixed assets and limits payments of dividends.
At October 2, 1999, the Company was in compliance with such covenants
and had unused borrowing capacity of $760,000.
In April 1999, the Company signed a contract with Edison to continue
its refrigerator recycling program through December 30, 1999. Unlike
the previous contracts, the contract for 1999 does not provide for a
minimum number of refrigerators to be recycled. However, the contract
is expected to generate higher recycling volumes in 1999 compared to
1998. The timing and amount of revenues will be dependent on
advertising by Edison. The Company believes the program with Edison
will be continued for the year 2000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - continued
The Company believes, based on the anticipated revenues from the
Edison contract, the anticipated sales per retail store and its
anticipated increase in gross profit, that its cash balance,
anticipated funds generated from operations and its current line of
credit will be sufficient to finance its operations and capital
expenditures through December 1999. The Company's total capital
requirements for the remainder of 1999 and for 2000 will depend upon,
among other things as discussed below, the recycling volumes
generated from the Edison program in 1999, renewal of the Edison
program for the year 2000 and the number and size of retail stores
operating during the fiscal year. Currently, the Company has three
centers and six stores in operation. If revenues are lower than
anticipated or expenses are higher than anticipated or the line of
credit cannot be maintained, the Company may require additional
capital to finance operations. Sources of additional financing, if
needed in the future, may include further debt financing or the sale
of equity (common or preferred stock) or other securities. There can
be no assurance that such additional sources of financing will be
available or available on terms satisfactory to the Company or
permitted by the Company's current lender.
YEAR 2000
Based on its assessment of the Year 2000 issue, the Company
determined that it would be required to modify or replace
significant portions of its software so that its computer systems
would properly utilize dates beyond December 31, 1999. The Company
believes that with the planned modifications to existing software
and conversions to new software, the Year 2000 issue will not have a
material adverse impact on the Company's operations. However, if
such modifications and conversions are not made, or are not
completed in a timely manner, the Year 2000 issue could have a
material impact on the operations of the Company. The Company has
determined it has no exposure to contingencies related to the Year
2000 issue for products it has sold.
The Company is utilizing both internal and external resources to
replace and test the software for Year 2000 modifications. The
Company currently estimates that it will be able to complete its
Year 2000 project by December 1, 1999. The costs of the project are
being funded through operating cash flows. A portion of the costs
was used to purchase new software, which was capitalized. The
remaining portion of the costs was expensed as incurred over the
course of the project. The overall cost of the project is expected
to be approximately $260,000. To date, the Company has incurred and
expensed approximately $193,000 related to the assessment of, and
preliminary efforts in connection with, its Year 2000 project and
development of a remediation plan. The Company's cost and estimates
to complete the Year 2000 project include the cost of modifications
to existing software, the acquisition of new software and the
estimated costs and time associated with assessing the impact on the
Company of third parties' Year 2000 issue. All such estimates are
based on presently available information.
<PAGE>
YEAR 2000 - continued
The Company has initiated communications with all of its significant
suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issue. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely
will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's
systems, would not have material adverse effect on the Company.
At this time, the Company believes that its most likely worst case
scenario is that the Company could experience delays in receipt of
inventory and/or could experience a delay in payments on accounts
receivable from key customers. In the event that either of these
scenarios occur, management believes that it would not have a
long-term material adverse effect on the Company's financial
condition and results of operations.
The Company has prepared contingency plans so that the Company's
critical business processes can be expected to continue to function
on January 1, 2000 and beyond. These plans are intended to mitigate
both internal risks as well as potential risks in the supply chain
of the Company's suppliers and customers. These plans include manual
operating procedures and identifying and securing alternative
supplies of inventory and sources of financing.
The costs of the project and the date by which the Company plans to
complete the Year 2000 modifications and contingency plans are based
on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans
and other factors. However, there can be no assurances that these
estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability
to locate and correct all relevant computer codes, and similar
uncertainties.
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements regarding the Company's future operations, performance and
results, and anticipated liquidity discussed herein are
forward-looking and therefore are subject to certain risks and
uncertainties, including those discussed herein. In addition, any
forward-looking information regarding the operations of the Company
will be affected by the ability of Edison to deliver units under its
contract with the Company, the timing of such delivery, the timing of
advertising by Edison for the program and the renewal of the program
with Edison for the year 2000. Additionally, forward-looking
information will also be affected by the ability of individual stores
to meet planned revenue levels, the speed at which individual retail
stores reach profitability, the Company being able to contain
overhead expenses or whether costs and expenses are realized at
higher than expected levels, the continued ability to purchase
product from Whirlpool at acceptable prices, the Company's ability to
secure an adequate supply of used appliances for resale and the
continued availability of the Company's current line of credit.
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1 - LEGAL PROCEEDINGS
In August 1999, the Company settled a lawsuit with a former employee.
The settlement included a cash payment of $105,000 and the issuance
of 20,000 shares of the Company's common stock.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 1999, the Company issued 20,000 shares of restricted common
stock. The holder of such shares has certain limited registration
rights. See Item I above.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5 - OTHER INFORMATION - None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 27 - Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during
the three months ended October 2, 1999.
<PAGE>
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 thereunto duly authorized.
Appliance Recycling Centers of America, Inc.
--------------------------------------------
Registrant
Date: November 12, 1999 /s/Edward R. Cameron
--------------------------------------------------
Edward R. Cameron
President
Date: November 12, 1999 /s/Linda Koenig
--------------------------------------------------
Linda Koenig
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> OCT-02-1999
<CASH> 155,000
<SECURITIES> 0
<RECEIVABLES> 1,578,000
<ALLOWANCES> 0
<INVENTORY> 1,614,000
<CURRENT-ASSETS> 154,000
<PP&E> 9,636,000
<DEPRECIATION> 3,921,000
<TOTAL-ASSETS> 9,609,000
<CURRENT-LIABILITIES> 3,037,000
<BONDS> 4,884,000
0
0
<COMMON> 11,345,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,609,000
<SALES> 11,560,000
<TOTAL-REVENUES> 11,560,000
<CGS> 6,632,000
<TOTAL-COSTS> 6,632,000
<OTHER-EXPENSES> (117,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594,000
<INCOME-PRETAX> 384,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,000
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
