FILED PURSUANT TO RULE 424(b)(2)
FILE NO. 333-81205
PROSPECTUS
UP To 1,130,000 SHARES OF COMMON STOCK
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
Certain of our shareholders are offering to sell up to a maximum of
1,130,000 of their shares of our Common Stock under this prospectus. Appliance
Recycling will not receive any of the proceeds from the sale of these shares to
the public. There is no fixed period of time during which these shares may be
offered or sold by the selling shareholders.
The selling shareholders have told Appliance Recycling that sales of their
shares of Common Stock being offered under this prospectus may be made at
various times in the over-the-counter market, through negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at privately
negotiated prices.
The Common Stock is not traded on any exchange. The Common Stock is traded
on the OTC Bulletin Board under the symbol ARCI. On July 8, 1999, the last sale
price of the Common Stock as reported was $.59 per share.
INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED IN THE
SECTION OF THIS PROSPECTUS ENTITLED "RISK FACTORS" ON PAGE 4.
Neither the Securities And Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. any representation to the contrary is a
criminal offense.
You should rely only on the information contained in this prospectus or
that we have referred you to. We have not authorized anyone to provide you with
any different information. There may be changes relating to Appliance Recycling
or its business since the date of this prospectus or the date of any document
that we have referred you to that are not reflected in this prospectus or any
document that we have referred you to.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted. All the information that is important to you may not be
contained in this prospectus. For further information you should refer to the
registration statement including all exhibits filed with the Securities and
Exchange Commission. You may obtain copies of that information in a manner
described in the section of this prospectus entitled "Available Information" on
page 3.
The date of this Prospectus is July 9, 1999.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION..........................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................3
SUMMARY........................................................................4
RISK FACTORS...................................................................4
BUSINESS.......................................................................9
SELLING SHAREHOLDERS..........................................................10
USE OF PROCEEDS...............................................................12
PLAN OF DISTRIBUTION..........................................................12
LEGAL MATTERS.................................................................13
EXPERTS.......................................................................13
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AVAILABLE INFORMATION
Appliance Recycling is a reporting company under the Securities
Exchange Act of 1934. Appliance Recycling files annual, quarterly and special
reports, proxy statements and other information electronically with the
Securities and Exchange Commission. Such material can be inspected and copied at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information relating to the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also
inspect and copy such information at the SEC's regional offices at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may obtain copies
of such material by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. YOU MAY ALSO ACCESS SUCH MATERIAL
THROUGH THE SEC'S HOME PAGE ON THE INTERNET AT http://www.sec.gov.
THE COMMON STOCK OF THE COMPANY IS NOT TRADED ON THE NASDAQ MARKET OR
ANY STOCK EXCHANGE. THE COMMON STOCK IS CURRENTLY TRADED OVER-THE-COUNTER ON THE
OTC BULLETIN BOARD; HOWEVER, WE CANNOT ASSURE YOU SUCH TRADING WILL CONTINUE.
THEREFORE, THERE MAY BE NO MARKET FOR THE COMMON STOCK.
For further information with respect to Appliance Recycling and the
Common Stock offered by the prospectus, we refer you to the registration
statement, including the exhibits filed or incorporated as a part of the
registration statement. You may inspect or obtain copies of the registration
statement at prescribed rates from the Public Reference Section of the SEC at
the address set forth above. You may also obtain certain information listed
below from our offices.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus is part of a registration statement Appliance Recycling
filed with the SEC to register the Appliance Recycling Common Stock to be sold
to the public by certain selling shareholders. It does not repeat important
information that you can find in the registration statement or in the reports or
other documents that Appliance Recycling files with the SEC. The SEC allows
Appliance Recycling to "incorporate by reference" certain information it files
with them. This means that Appliance Recycling can disclose important
information to you by referring to other documents that are legally considered
to be part of this prospectus. Appliance Recycling incorporates by reference the
documents listed below made with the SEC under Section 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934:
1. Appliance Recycling's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, without exhibits (File No.
0-19621);
2. Appliance Recycling's Proxy Statement for the Annual Meeting
of Shareholders held April 29, 1999;
3. Appliance Recycling's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 3, 1999, without exhibits; and
4. The description of Appliance Recycling's Common Stock set
forth in Appliance Recycling's registration statement on Form
8-A filed with the SEC on October 28, 1991.
A copy of our Annual Report accompanies this Prospectus. You may
request a copy of the filings listed above, without exhibits, at no cost by
writing or telephoning Appliance Recycling at the following address: Appliance
Recycling, Inc., Investor Relations, 7400 Excelsior Boulevard, Minneapolis,
Minnesota, 55426-4517, Telephone: 612-930-9000.
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SUMMARY
OFFER TO SELL STOCK
This offer to sell up to 1,130,000 shares of Appliance Recycling Common
Stock is being made by certain of our shareholders. The Company will not receive
any of the proceeds from this sale. Most of the shares of Common Stock offered
were purchased by the current holders from Appliance Recycling in a private
placement in February 1999.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
Appliance Recycling provides a comprehensive range of services for the
large-scale collection, resale and recycling of major household appliances in an
environmentally sound manner. We generate revenues from two main sources: the
retail sale of appliances and the recycling of appliances.
Appliance Recycling's executive offices are located at 7400 Excelsior
Boulevard, Minneapolis, MN 55426, and its telephone number is (612) 930-9000.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU
DECIDE TO BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION
IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION, OPERATING RESULTS OR CASH FLOWS, COULD BE MATERIALLY
ADVERSELY AFFECTED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
LACK OF RECENT PROFITS FROM OPERATIONS; CAPITAL REQUIREMENTS. We
experienced a net loss for the first fiscal quarter of 1999 and for each of the
fiscal years 1996, 1997 and 1998. Our full financial information is set out in
our Form 10-K which accompanies this prospectus. At January 2, 1999, we had a
working capital deficit of $471,000, which was reduced to $294,000 at April 3,
1999.
Our current $2.0 million revolving line of credit with Spectrum
Commercial Services, a division of Lyon Financial Services, Inc. is secured by
all of our receivables and inventory and is guaranteed by Edward Cameron, our
Chief Executive Officer. The amount of money that we can borrow under this line
of credit is based on a formula using our receivables and inventories. The line
of credit has a maturity date of August 30, 1999, and provides that the lender
may demand payment in full of the entire loan at any time. The lender has
indicated that it will extend this loan to August 2000 on similar terms. The
loan provides for a rate of interest equal to 5 percentage points over the prime
lending rate, but never less than 10% per year (the interest rate as of April 3,
1999 was 12.75%), and minimum monthly interest payments of $5,625 regardless of
the outstanding principal balance. If there is an event of default under the
loan, the interest rate may increase by 5 percentage points per year. The loan
also requires that we meet certain financial covenants, provides payment
penalties if we cannot comply, limits the amount of other debt we may incur,
limits the amount we may spend on fixed assets, and limits our payments of stock
dividends. At June 26, 1999, we had borrowed approximately $1,058,000 under this
line of credit and had the ability to borrow approximately $491,000 more.
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We also have a term loan agreement with Medallion Capital, Inc. in the
principal amount of $3.5 million. The maturity date for the term loan is
September 30, 2005 and the interest rate is 13% per year. The term loan is
secured by all of our personal property, equipment and real estate, and provides
the lender with non-voting attendance rights at meetings of our Board of
Directors. When we entered into the term loan, we issued to Medallion a warrant
to purchase 700,000 shares of Common Stock at $2.50 per share, subject to
adjustment in certain circumstances. In February 1999 we sold shares of Common
Stock in a private placement at $.50. That sale triggered a price reduction in
the exercise price under the Medallion warrant to $.60 per share. Medallion
purchased 100,000 shares in that placement, which are being sold under this
prospectus. In September 1998, we also issued to Dougherty Summit Securities
LLC, as agent in placing the term loan, a warrant to purchase 125,000 shares of
Common Stock at $2.50 per share and paid them a placement fee of $180,000. We
used all the proceeds we received from the term loan to repay approximately
$1,500,000 of outstanding indebtedness, to finance inventory and for other
general corporate purposes.
Our commitment to providing comprehensive, integrated appliance
recycling services and to developing a chain of retail stores will require a
significant continuing investment in capital equipment and leasehold
improvements, and could require additional investment in real estate.
Our total capital requirements will depend, among the other things we
have discussed in this prospectus and the other documents we have incorporated
herein by reference, on the number of recycling centers operating and the number
and size of retail stores operating during the fiscal year. Currently, we have
three centers and 7 retail stores in operation. If our revenues are lower than
anticipated or our expenses are higher than anticipated or our current line of
credit cannot be maintained and renewed in August 1999, we may require
additional capital to finance our operations. Even if we are able to maintain
our current line of credit, we may need additional equity or other capital in
the future. Sources of additional financing, if needed in the future, may
include further debt financing or the sale of equity (including the issuance of
preferred stock) or other securities. We cannot assure you that any additional
sources of financing or new capital will be available to us, or available on
acceptable terms, or permitted by the terms of our current debt. In addition, if
we sell additional equity to raise funds, all outstanding shares of Common Stock
will be diluted.
LACK OF TRADING MARKET. The Common Stock is not traded on any other
market or stock exchange, but is traded on the OTC Bulletin Board. Effective
September 8, 1998, our Common Stock was delisted from The Nasdaq SmallCap Market
for failure to meet continued listing requirements, specifically the net worth
requirements. Prior to February 25, 1997, our Common Stock had been traded on
the Nasdaq National Market. We cannot assure you that trading on the OTC
Bulletin Board will be continued; therefore, there may be no market for any
shares of Common Stock that you purchase.
POTENTIAL TO SEVERELY AFFECT MARKET PRICE; SHARES ELIGIBLE FOR FUTURE
SALE; DILUTION. We currently have 2,266,744 shares of Common Stock outstanding,
approximately 1,432,689 of which are "restricted securities." The 1,130,000
shares offered under this prospectus, which represent approximately 50% of our
outstanding shares, are now freely transferable without further restriction or
registration under the Securities Act of 1933. The remaining 302,689 restricted
shares are held by our CEO and are eligible for sale to the public under the
SEC's Rule 144. The provisions of Rule 144 currently restrict the volume of
sales by any single affiliate of the Company, such as officers, directors and
major shareholders, to approximately 22,670 shares each within any three-month
period. There is no such restriction on the shares being sold under this
prospectus.
As of July 1, 1999, we had outstanding options and warrants outstanding
to purchase approximately 1,160,000 additional shares of our Common Stock.
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Sales of substantial amounts of Common Stock into the public market,
such as the shares being offered under this prospectus or under Rule 144, could
adversely affect any market price for our Common Stock.
DEPENDENCE ON RETAIL SALES. In 1995, we began operating a chain of
retail stores which sell reconditioned appliances under the name Encore(R)
Recycled Appliances, later changed to Appliance$mart(SM). In response to the
decrease in demand for services from electric utilities, we have shifted our
main focus to the sale of appliances in the last few years. Currently, we
operate 7 retail stores which sell used, reconditioned, "scratch and dent" new
appliances and factory overruns.
Retail revenues have much lower profits margins than recycling
revenues. We believe that our future economic results will be heavily dependent
on our retail stores. In 1996 and 1997, approximately 35% of our revenues were
from retail sales, and in 1998 approximately 58% of our revenues were from
retail sales. We currently expect that retail revenues will account for
approximately 60% of total revenues for 1999. However, we cannot assure you that
sales from our stores will grow at the rates we currently anticipate.
In 1997, 1998, and first quarter 1999, we incurred a net loss. In 1997,
we focused on stabilizing our business and developing a stronger foundation for
our retail business. During that year we were able to reduce our loss from
operations. Then in each quarter of 1998, we reported a loss from operations due
to lower than planned retail sales of reconditioned items and recycling volumes
from the energy conservation program of Southern California Edison Company. At
this time, we plan to close three to four of our smaller stores and consolidate
the sales into existing stores. We do not plan to expand our retail business
into new geographic markets for the remainder of 1999. We cannot assure you that
any new stores will be opened in the future or that any individual current or
future store will obtain or maintain projected profitability.
We currently have an agreement with Whirlpool Corporation to acquire
"scratch and dent" appliances, primarily from their Ohio region. Certain events
concerning the retail stores could significantly affect our profitability in the
future. These include the speed at which our retail stores reach their projected
profitability, if at all, whether future stores are able to attain planned
profitability levels, whether we are able to maintain our reduced overhead or
whether we incur higher than expected costs and expenses, the continuation and
cost of the Whirlpool agreement, and the availability of sufficient capital to
cover opening of stores and other costs until profits from operations are
available.
RECYCLING CUSTOMER CONTRACTS. In the past, our business was dependent
solely upon our ability to obtain new contracts and continue existing contracts
for appliance recycling services with utility companies, large retailers of new
appliances, refuse haulers, landfill operators, vending machine owners, and
local governments. Contracts with these entities generally have initial terms of
one to four years, with renewal options and early termination clauses. While the
recycling and byproducts portion of our business has diminished from
approximately 65% in fiscal 1996 and 1997 to approximately 42% in fiscal 1998,
we are still dependent on certain customers for a large portion of our revenues.
Generally, recycling revenues have a higher gross profit than retail revenues.
Our major utility customer, Southern California Edison Company,
accounted for approximately 38% of our net revenues for fiscal 1997 and
approximately 29% for 1998. The loss or material reduction of business from
Southern California Edison, or any major customer, could adversely affect our
net revenues and profitability. Our current contract with Southern California
Edison was signed in April 1999 to renew the refrigerator recycling program
through December 1999. Unlike the previous contract, the 1999 contract does not
provide for a minimum number of refrigerators to be recycled. The timing and
amount of revenues will be dependent on advertising by Southern California
Edison.
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We cannot assure you that our existing contracts will be continued or
renewed, that existing customers, including Southern California Edison, will
continue to use our services at current levels, or that we will be successful in
obtaining new recycling contracts.
As we expand our operations into the retail business, we anticipate
that utility customers will represent a smaller percentage of our net revenues.
However, we cannot assure you that we will be able to operate our retail stores
so as to avoid significant decreases in revenues as compared to prior years.
SEASONALITY. We experience seasonal fluctuations in our operating
results. Our revenues are generally higher during the second and third calendar
quarters and lower in the first and fourth calendar quarters. We expect that we
will continue to experience such seasonal fluctuations.
CONTROL BY EXISTING MANAGEMENT AND LENDERS. Currently, Edward Cameron,
Chairman and CEO, owns approximately 13% of our outstanding shares of Common
Stock, which are pledged to secure certain loans. Our officers and directors
together hold approximately 20%, including any options or warrants they may
hold. One of our principal lenders, Medallion Capital, Inc., owns approximately
4% of our outstanding shares and holds currently exercisable warrants to
purchase 700,000 additional shares of Common Stock at $.60 per share, which
would represent an additional approximately 24% of our outstanding Common Stock.
Medallion is one of the selling shareholders in this offering. If Medallion does
not sell its shares, and does exercise its warrant, it would own approximately
27% of our outstanding shares of Common Stock. Medallion also has a non-voting
right to attend and participate in all Board meetings. Because of such
ownership, our management, or possibly Medallion, may be able to significantly
effect the affairs of the Company, including the election of the Board of
Directors.
DEPENDENCE UPON KEY MANAGEMENT; REDUCTION OF OVERHEAD. We believe our
operations are materially dependent upon the continued services of our present
management. We have recently reduced our number of personnel in an effort to
significantly cut corporate overhead. The loss of the services of one or more
members of present management, including Edward R. Cameron, our founder,
Chairman of the Board and current CEO, could adversely affect our business. We
do not have employment contracts with present management. We do maintain key
person insurance on the life of Mr. Cameron in the amount of $1,000,000, a
portion of which has been assigned as collateral for our current line of credit.
GOVERNMENT REGULATION. The business of recycling appliances is subject
to certain governmental laws and regulations and is becoming increasingly
regulated. Our appliance recycling centers are subject to various federal, state
and local laws, regulations and licensing requirements which relate to the
collection, processing and recycling of household appliances. Requirements for
registrations, permits and licenses vary among our market areas. We have
registered our centers with the EPA as hazardous waste generators and obtained
licensed, where required, from appropriate state and local authorities. We have
agreements with approved and licensed hazardous waste companies for
transportation and disposal of PCBs from our centers.
The 1990 Amendments to the Clean Air Act provide for the phase out of
the production of CFCs over a period of years.
In late 1992, Congress adopted the Federal Energy Policy Act of 1992 to
encourage energy efficiency. One component of this act allows for deregulation
of the nation's energy providers, including the electric utility industry. The
ultimate impact of deregulation on the electric utility industry is yet unknown;
therefore, we cannot assure you that we will be able to continue certain of our
current operations in a deregulated environment.
While we believe that further government regulation in this area could
have a positive effect on our business, we cannot say at this point what course
future regulation could take and how that might affect our business. Under some
circumstances, further regulation could materially increase the costs of our
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operations and have an adverse effect on our business. In addition, as is the
case with all companies handling hazardous materials, under some circumstances
we may be subject to contingent liability.
COMPETITION. Competition for our retail stores comes from new appliance
retailers and other reconditioned and used appliance retailers. Each of our
separate locations will compete not only with local and national chains of new
appliance retailers, many of whom have been in business longer than we have and
who may have significantly greater assets, but will also be required to compete
with numerous independently owned retailers of used and reconditioned
appliances. Many of our retail operations are currently in a start-up mode;
therefore, we cannot assure you that we will be able to compete effectively in
any such market.
While recycling revenues could become a smaller part of our business
for the foreseeable future, many factors, including existing and proposed
governmental regulation, may affect competition in the waste management and
environmental services industry. We generally compete with two or three
companies which are based in the geographic area to be served under the contract
and which generally offer some of the services we provide. We expect our primary
competition for contracts with existing or new customers to come from
entrepreneurs entering the appliance recycling business, energy management
consultants, current recycling companies, major waste hauling companies, scrap
metal processors and used appliance dealers. In addition, some of our customers,
such as utility companies and local governments, may operate appliance recycling
programs internally rather than contracting with us or other third parties. We
cannot assure you that we will be able to compete profitably in any of our
chosen markets.
FORWARD LOOKING STATEMENTS. Any written or oral statements regarding
our future operations, performance and results, and anticipated liquidity,
whether contained in this prospectus, in any filing with the SEC, or any other
information or statement, are forward-looking and are subject to certain risks
and uncertainties, including those discussed in this prospectus. In addition,
our future performance will be affected by many things, including:
* the ability of our main public utility customer, Southern
California Edison Company, to deliver units under their
contract with us.
* the timing of delivery and the timing of advertising by
Southern California Edison.
* the ability of our individual retail stores to meet planned
revenue levels.
* the speed at which our individual retail stores reach
profitability, if at all.
* the continuation of our agreement with Whirlpool Corporation
and our continued ability to purchase product from Whirlpool
at acceptable prices.
* our costs and expenses being realized at higher than expected
levels, our ability to secure an adequate supply of used
appliances for resale.
* the continued availability of our current line of credit.
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BUSINESS
Appliance Recycling Centers of America, Inc. provides a comprehensive
range of services for the large-scale collection, resale and recycling of major
household appliances in an environmentally-sound manner. We generate revenues
from two main sources: retail and 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 generated from processed appliances. In prior
reports, we had separately reported byproduct revenues, which now are included
in recycling revenues.
We currently operate three recycling centers (located in Columbus,
Ohio; Minneapolis, Minnesota; and Los Angeles, California) and seven retail
stores: four in Minneapolis/ Saint Paul, one in California and two in Columbus,
Ohio.
The history of our business and our current focus is discussed in
detail in our Annual Report on Form 10-K, filed with the SEC. Our audited
year-end financial information is also included in the Form 10-K. A copy,
without exhibits, accompanies this prospectus.
Updated information on our business and our financial situation is
contained in the quarterly reports we file with the SEC. We will provide you,
upon your request, with a copy of our most recent report on Form 10-Q, without
exhibits.
We were incorporated under the laws of the State of Minnesota in 1983,
although we commenced the appliance recycling business in 1976 through our
predecessor. Our principal executive offices are located at 7400 Excelsior
Boulevard, Minneapolis, Minnesota 55426-4517; telephone number (612) 930-9000.
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SELLING SHAREHOLDERS
Up to 1,130,000 shares of Common Stock owned by the selling
shareholders named in the following table may be sold under this prospectus.
These shares represent approximately 50% of all shares outstanding.
The table sets forth certain information with respect to the beneficial
ownership of Appliance Recycling's Common Stock by the selling shareholders and
any relationships they may have or have had with the Company during the past
three years. Unless otherwise indicated, the selling shareholders possess sole
voting and investment power with respect to the shares shown.
Except as stated in footnote 1 below the table, all of the shares to be
sold were bought by the selling shareholders from the Company at $.50 per share
in a private placement in February 1998.
This table does not include shares which can be acquired under options
and warrants that are exercisable within 60 days of the date of this prospectus,
assumes that after the offering all of the shares offered by each selling
shareholder have been sold, and assumes that no additional shares are purchased.
The percentage ownership is based on 2,266,744 shares outstanding. Shares which
can be purchased under options or warrants that are outstanding are included in
the footnotes only.
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------ ------------------------
Current Number
Number Percent of of Shares Number of Percent of
Name of Shares Outstanding to be Sold Shares Outstanding
- ------------------------------------ --------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Perkins Capital Management Inc.(1) 639,588 28% 100,000 539,588 23.8%
Pyramid Partners, L.P.(1) 437,700 19% 400,000 37,700 1.7%
Medallion Capital, Inc.(2) 100,000 4% 100,000 (2) 0%
Marvin Goldstein(3) 100,000 4% 100,000 (3) 0%
Charles F. Bond 100,000 4% 100,000 -0- 0%
Charles R. Delamater 60,000 3% 60,000 -0- 0%
John Pagnucco(4) 60,000 3% 60,000 (4) 0%
Dale Ragan 60,000 3% 60,000 -0- 0%
John S. Mackay 50,000 2% 50,000 -0- 0%
Jerry E. Mathwig 50,000 2% 50,000 -0- 0%
Ford J. Nicholson 50,000 2% 50,000 -0- 0%
--------- --------- --------- --------- ---------
TOTAL 1,707,288 75% 1,130,000 577,288 25.5%
========= ========= ========= ========= =========
</TABLE>
(1) In May 1998, we sold in a private placement 100,000 shares at a
purchase price of $2.00 per share to an account managed by Perkins
Capital Management Inc. In our February 1999 private placement, Pyramid
Partners, L.P., an account managed by Perkins Capital, bought 400,000
shares. Based on information as of May 31, 1999 given by Perkins
Capital, it beneficially owned 552,088 shares as a result of serving as
investment advisor to various clients, and The Perkins Opportunity Fund
beneficially owned 87,500 shares (of which Perkins Capital disclaims
beneficial interest). Perkins Capital has sole dispositive power as to
639,588 shares and sole voting power as to 625,575 shares. The shares
owned by Pyramid Partners are included in the 639,588 shares listed on
the table as held by Perkins Capital.
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(2) Medallion is one of the Company's principal lenders. In connection with
a September 1998 loan, we issued to Medallion a warrant to purchase
700,000 shares of common stock and granted Medallion non-voting
attendance at all Board of Directors meetings. The warrant is currently
exercisable at $.60 per share. The shares owned by Medallion do not
include the warrant shares. If the warrant was exercised, Medallion
would own approximately 27% of the shares outstanding.
(3) Mr. Goldstein has been a director of the Company since November 1998.
The shares owned by Mr. Goldstein do not include options to purchase
10,000 shares under the Company's option plan or warrants to purchase
5,000 shares granted under a consulting agreement. If those were
exercised, Mr. Goldstein would own approximately 5% of the shares
outstanding.
(4) Mr. Pagnucco is a principal in Aethlon Capital LLC, the placement agent
for the February 1999 private placement. The shares owned by Mr.
Pagnucco do not include warrants to purchase 43,000 shares at $.50 per
share held by Mr. Pagnucco or 40,000 warrants held by his partner. If
Mr. Pagnucco exercised his warrants, he would own approximately 5% of
the shares outstanding.
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USE OF PROCEEDS
The shares of Common Stock being offered by this prospectus are being
sold by the selling shareholders. Appliance Recycling will not receive any of
the proceeds from the sale of these shares of Common Stock to the public.
PLAN OF DISTRIBUTION
Any or all of the shares of Common Stock being offered by this
prospectus may be sold at various times in different transactions at different
offering prices directly by the selling shareholders. Appliance Recycling will
not receive any of the proceeds.
Also, the selling shareholders may, at various times, offer their
shares of Common Stock through underwriters, dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders and/or the purchasers of these shares of Common Stock.
The selling shareholders have told Appliance Recycling that they have
no special selling arrangements with any underwriters, brokers, agents or other
person. If that should change, the selling shareholders are required to tell
Appliance Recycling, and the Company will file, if necessary, a supplement to
this prospectuses to describe any such material arrangements to sell these
shares. The selling shareholders and any such underwriters, dealers or agents
that participate in any distribution of these shares of Common Stock may be
considered to be underwriters under the Securities Act, and any profit that they
make on the sale of the Common Stock and any compensation they receive may be
considered to be underwriting discounts and commissions under the Securities
Act.
The selling shareholders originally bought these shares of Common Stock
from Appliance Recycling in private transactions in February 1999, at a price of
$.50 per share, except for one purchase from the Company that was made in 1998
at $2.00 per share.
Appliance Recycling is paying for the expenses of registering these
shares of Common Stock for sale by the selling shareholders.
We will use our best efforts to keep the registration statement with
respect to these shares of Common Stock available until the earlier of one year
from the date of this prospectus or the date when all such shares of Common
Stock by have been sold by the selling shareholders.
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LEGAL MATTERS
Certain matters with respect to the legality of the issuance and sale
of these shares of Common Stock will be passed upon by Mackall, Crounse & Moore,
PLC, Minneapolis, Minnesota. Denis E. Grande, Secretary of the Company, is a
partner in Mackall Crounse & Moore, PLC, and members of the firm own an
aggregate of less than one percent of the shares of Appliance Recycling Common
Stock.
EXPERTS
McGladrey & Pullen, LLP, independent accountants, have audited the
financial statements in our Annual Report on Form 10-K for the year ended
January 2, 1999, as set forth in their report, which accompanies this prospectus
and is also incorporated by reference. Our financial statements are incorporated
by reference in reliance upon their report, given on their authority as experts
in accounting and auditing.
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