PROSPECTUS
319,355 SHARES
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
COMMON STOCK
This prospectus relates to 319,355 shares of Common Stock, no par value (the
"Common Stock"), of APPLIANCE RECYCLING CENTERS OF AMERICA, INC. (the "Company")
that may be offered for sale for the account of certain shareholders of the
Company as stated herein under the heading "Selling Shareholders." No period of
time has been fixed within which the shares covered by this prospectus may be
offered or sold.
The 319,355 shares of Common Stock offered hereby are being sold by the
Selling Shareholders. The Company will not receive any of the proceeds from the
sale of Common Stock. See "Selling Shareholders."
The Common Stock of the Company is quoted on The Nasdaq National Market
System ("NMS") under the symbol ARCI. On November 8, 1996, the last sale price
of the Common Stock as reported by NMS was $1.125.
INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION,PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Selling Shareholders have advised the Company that sales of the shares
of Common Stock offered hereunder by them, or by their pledgees, donees,
transferees or other successors in interest, may be made from time to time on
the NMS, through negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
Pursuant to separate registration rights agreements with the Company, the
expenses of registering the shares will be paid by the Company. All selling
expenses incurred by the Selling Shareholders in connection with this offering,
including any fees and commissions payable to underwriters, brokers, agents or
other persons will be borne by the Selling Shareholders. See "Selling
Shareholders."
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this prospectus in
connection with the offer described in this prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or any of the Selling Shareholders. Neither the
delivery of this prospectus nor any sale made under this prospectus shall under
any circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, or an offer or solicitation in any state to any
person to whom it is unlawful to make such offer in such state.
The date of this Prospectus is November 8, 1996
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION...................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................... 3
PROSPECTUS SUMMARY......................................................... 4
RISK FACTORS............................................................... 5
THE COMPANY................................................................ 9
General........................................................... 9
Recent Developments............................................... 10
Third Quarter Results............................................. 11
SELLING SHAREHOLDERS....................................................... 13
USE OF PROCEEDS............................................................ 14
PLAN OF DISTRIBUTION....................................................... 14
LEGAL MATTERS.............................................................. 15
EXPERTS .................................................................. 15
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such material can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained
at prescribed rates by writing to the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock of the
Company is traded on the Nasdaq National Market System. Reports, proxy
statements and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 10006.
This prospectus does not contain all of the information set forth in the
registration statement of which this prospectus is a part and which the Company
has filed with the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the registration
statement, including the exhibits filed or incorporated as a part thereof,
copies of which can be inspected at, or obtained at prescribed rates from, the
Public Reference Section of the Commission at the address set forth above. For
further information, reference is made to the registration statement and its
exhibits.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference into this prospectus: (1) the Company's Annual Report
on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-19621); (2)
the Company's Proxy Statement for the Annual Meeting of Stockholders held May 2,
1996; (3) the Company's Current Report on Form 8-K dated February 15, 1996; (4)
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March
30, 1996; (5) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 29, 1996; (6) description of the Company's Common Stock set forth in
the Company's registration statement on Form 8-A filed with the Commission on
October 28, 1991 and any amendments thereto or reports filed for the purpose of
updating such description; and (7) all other reports filed by the Company
pursuant to Sections 13, 14 or 15(d) of the Exchange Act since December 30,
1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a document, all or any
portion of which is incorporated or deemed to be incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
The Company will provide without charge to each person to whom a copy of
this prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents referred to above or elsewhere
herein which have been incorporated herein by reference (other than certain
exhibits to such documents). Written requests for such copies should be directed
to Kent S. McCoy, APPLIANCE RECYCLING CENTERS OF AMERICA, INC., 7400 Excelsior
Boulevard, Minneapolis, Minnesota 55426. Telephone requests should be directed
to Mr. McCoy at (612) 930-1700.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL
STATEMENTS AND NOTES THERETO, INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE COMPANY
Appliance Recycling Centers of America, Inc., together with its
operating subsidiaries ("ARCA" or the "Company"), provides a comprehensive range
of services for the large-scale collection, reuse and recycling of major
household appliances in an environmentally-sound manner. The Company provides
its customers with integrated processes and programs addressing the solid waste
management, environmental and energy conservation issues involved with appliance
disposal and recycling. The Company generates revenues from fees charged for the
disposal of appliances, the sale of materials generated from processed
appliances (by-product revenues) and the sale of reconditioned appliances
through a chain of Company-owned retail stores. See "The Company" herein.
SELLING SHAREHOLDERS
This Prospectus relates to the offering of 319,355 shares of Common
Stock of the Company by certain Selling Shareholders. No shares are being
offered for the account of the Company, and the Company will not receive any of
the proceeds from the sale thereof.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, POTENTIAL
PURCHASERS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY, ITS BUSINESS AND THE SHARES OF COMMON STOCK OFFERED HEREBY.
FORWARD LOOKING STATEMENTS. Statements regarding the Company's
operations, performance and results, discussed herein, are forward-looking and
therefore are subject to certain risks and uncertainties, including those
discussed below and factors which may from time to time be included in
information incorporated herein by reference. In addition, any forward looking
information regarding the operations of the Company will be subject to the
amount of the write-offs and costs associated with the closing of retail stores
and centers discussed below, whether planned revenue levels are attained by
individual stores, the speed at which Encore stores reach profitability, whether
costs and expenses are realized at higher than expected levels (including
continued costs of conversion of existing recycling centers to support the
appliance resale aspect of the Company's business), the Company's ability to
secure an adequate supply of used appliances for resale, the continued
availability of the Company's current line of credit, and the ability of
Southern California Edison Company to deliver units under its contract with the
Company and the timing of such delivery.
DEPENDENCE ON RETAIL SALES. In response to the decrease in demand for
the Company's services from electric utilities, the Company has increased its
focus on the sale of reconditioned appliances. In 1995, the Company began
operating a chain of retail stores which sell reconditioned appliances under the
name Encore Recycled Appliances ("Encore"). As of September 28, 1996, the
Company operated 26 Encore stores. On October 31, 1996, the Company announced
that it will close 12 of such stores and 3 recycling centers by year end.
See "The Company--Recent Developments."
For the foreseeable future the Company expects to be economically
dependent on revenues from the Encore stores. The Company currently expects that
revenues from these stores will account for approximately 40% of total revenues
for 1996; however, there can be no assurance at this time that sales from such
stores will be recognized at the rates currently anticipated. In addition, the
Company has incurred, and expects to incur, negative cash flow from operations
in 1996 and expects to continue to incur such results in 1997 due primarily to
the costs associated with the expansion of the Encore stores during 1996, as
well as the write-offs and costs associated with the announced store and center
closings. At this time, the Company has determined to defer expansion of its
Encore retail network until after 1997. There can be no assurance than any new
stores will be opened in the future or that any individual current store will
obtain or maintain profitability.
Certain events concerning the Encore stores could significantly affect
the Company's results for the remainder of 1996 and 1997. These include the
speed at which Encore stores reach profitability, whether stores recently opened
are able to attain planned revenue levels, higher than expected costs and
expenses (including expenses incurred in connection with the Company's
conversion of existing recycling centers to accommodate the appliance resale
aspects of the Company's business and write-offs and other expenses related to
the store closings), the Company's ability to secure an adequate supply of used
appliances for resale, and the availability of sufficient capital to cover
start-up and other costs until profits from operations are available.
In addition, future economic results for the Company may be heavily
dependent upon the Encore stores. Such future results will be impacted not only
by the above factors, but also the ability of the Company to open additional
retail stores and the costs associated therewith.
The Company recorded a significant increase in its net loss for each of
the quarters ended March 30, 1996, June 29, 1996, and September 28, 1996 over
the prior periods, due primarily to the increased operating expenses and
increased selling, general and administrative expenses associated with the
development of the Company's retail business. The Company currently expects to
report a significantly larger net loss in the fourth quarter of 1996. See also,
"The Company - Recent Developments."
CUSTOMER CONTRACTS. The Company's business had been dependent in the
past solely upon its 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 and local
governments. Contracts with these entities generally have initial terms of one
to four years, with renewal options and early termination clauses. While this
portion of the Company's business has diminished, the Company is still dependent
on certain customers for a large portion of its revenues. No assurance can be
given that existing contracts will be continued or renewed, that existing
customers will continue to use the Company's services at current levels or that
the Company will be successful in obtaining new contracts.
Two customers, Southern California Edison Company ("California Edison")
and Northern States Power Company, accounted for approximately 23.5% and 14.0%
respectively, of the Company's net revenues for fiscal 1995. The Company's
contract with Northern States Power Company expired in February 1996 and was not
renewed. California Edison accounted for approximately 21% of the Company's net
revenues for the first nine months of 1996. On September 12, 1996, the Company
announced that California Edison had signed a contract with the Company to
extend the refrigerator recycling program through 1997, subject to approval of
funding by the California Public Utilities Commission ("CPUC"). The CPUC is
currently expected to act by the end of 1996. The loss or material reduction of
business from California Edison, or any major customer, could adversely affect
the Company's net revenues and profitability. See "The Company - Recent
Developments."
As the Company expands its operations into its retail business, it is
anticipated that utility customers will represent a smaller percentage of its
net revenues. However, there can be no assurance that the Company will be able
to operate its retail stores so as to avoid significant decreases in revenues as
compared to prior years.
SEASONALITY. The Company experiences seasonal fluctuations in operating
results, with revenues generally higher during the second and third calendar
quarters than in the first and fourth calendar quarters. The lower levels in the
first and fourth quarters reflect consumer purchasing cycles, which result in
lower sales of major household appliances during such quarters and corresponding
reductions in the demand for appliance recycling services. Furthermore, utility
companies that sponsor appliance turn-in programs generally reduce their
promotional efforts for such programs during the first and fourth calendar
quarters. The Company expects that it will continue to experience lower revenues
in the first and fourth quarters of future years as compared to the second and
third quarters of such years.
DEPENDENCE UPON KEY MANAGEMENT. The Company's operations are materially
dependent upon the continued services of its present management. The loss of the
services of one or more members of present management, including Edward R.
Cameron, the founder, Chairman of the Board and President of the Company, could
adversely affect the Company's business. The Company does not have employment
contracts with its present management. The Company maintains 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 the Company's current line of credit.
CAPITAL REQUIREMENTS. The Company believes its current cash balance and
existing and anticipated lines of credit and equipment financing will be
sufficient to meet the Company's current plans and working capital needs through
December 1997. The Company's current revolving line of credit, which was entered
into in August 1996, and amended November 8, 1996, with Spectrum Commercial
Services, Inc. in the amount of $2.0 million, is secured by receivables,
inventory, equipment, real estate comprising the Company's headquarters, and
other assets of the Company. The current financing provides that the lender can
demand payment in full of the outstanding balance under this loan at any time.
Although the Company believes it will be able to maintain this line of credit
and may be able to obtain certain additional equipment financing, the Company
may need additional equity or other capital in the future. There can be no
assurance that additional capital from any source will be available when needed
by the Company or that such capital will be available on terms acceptable to the
Company or permitted by the terms of its current line of credit. See "The
Company - Recent Development."
CAPITAL INVESTMENT. The Company's commitment to providing
comprehensive, integrated appliance recycling services and developing a chain of
retail stores will require a significant investment in capital equipment, and
leasehold improvements, and could require investment in real estate. The
announced closing of the three recycling centers and certain stores, as well as
any nonrenewal or other termination of a contract with a major customer, may
result in a loss of a substantial portion of such capital investment if the
Company is unable to continue utilizing such equipment in its operations or to
sell the equipment or real estate at a reasonable value. In addition, because
the retail stores are generally leased, the closing of any retail store may
result in a loss of capital investments in leasehold improvements, which loss
could be significant.
COMPETITION. Many factors, including existing and proposed governmental
regulation, may affect competition in the waste management and environmental
services industry. Recycling of appliances in conformity with recent legislative
and regulatory requirements is a relatively new industry. The Company generally
competes 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
provided by the Company. The Company expects its 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, customers such as utility companies and local
governments may operate appliance recycling programs internally rather than
contracting with the Company or other third parties. There can be no assurance
that the Company will be able to compete profitably in any of its chosen
markets.
Competition for the Company's retail stores comes from new appliance
retailers and other reconditioned and used appliance retailers. Each separate
location will compete not only with local and national chains of new appliance
retailers, many of whom have been in business longer than the Company and who
may have significantly greater assets than the Company, but will also be
required to compete with numerous independently owned retailers of used and
reconditioned appliances. The Company's retail operations are currently in a
start-up mode; therefore, there can be no assurance that the Company will be
able to compete effectively in any such market.
GOVERNMENT REGULATION. The business of recycling appliances is subject
to certain governmental laws and regulations and is becoming increasingly
regulated. These laws and regulations include landfill disposal restrictions,
hazardous waste management requirements and air quality standards, as well as
special permit and license conditions for the recycling of appliances. Company
management believes that further government regulation in this area could have a
positive effect on the Company's business; however, there can be no assurance
what course future regulation could have. Under some circumstances, however,
further regulation could materially increase the costs of the Company's
operations and have an adverse effect on the Company's business. In addition, as
is the case with all companies handling hazardous materials, under some
circumstances the Company may be subject to contingent liability.
In late 1992, Congress adopted the Federal Energy Policy Act of 1992 to
encourage energy efficiency. Requirements under this act will, among other
things, establish mandatory energy performance standards that will affect the
manufacture and sale of major household appliances. Such programs are also
expected to encourage energy efficiency to meet future demands. Another
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, there can be no
assurance that the Company will be able to continue certain of its current
operations in a deregulated environment.
CONTROL BY EXISTING MANAGEMENT. The officers and directors of the
Company own beneficially approximately 29% of the Company's outstanding shares
of Common Stock (excluding shares issuable upon exercise of options). Because of
such ownership, management may be able to control the affairs of the Company,
including the election of the entire Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE. The Company had 4,546,917 shares of
Common Stock outstanding as of September 28, 1996. The shares offered hereby,
which represent approximately 7% of such outstanding shares, are now freely
transferable without further restriction or registration under the Securities
Act of 1933, as amended (the "Act"). Of the currently outstanding shares,
1,210,754 shares are held by Edward R. Cameron, the founder, Chairman of the
Board and President of the Company, and 110,817 shares are held by other
officers and directors of the Company. Such shares are eligible for sale
pursuant to Rule 144 promulgated under the Act. The provisions of Rule 144
currently restrict the volume of sales by any single affiliate of the Company,
such as the officers and directors, to approximately 45,000 shares each within
any three-month period. Sales of substantial amounts of Common Stock into the
public market could adversely affect the then prevailing market price.
THE COMPANY
GENERAL
Appliance Recycling Centers of America, Inc., together with its operating
subsidiaries ("ARCA" or the "Company"), provides a comprehensive range of
services for the large-scale collection, reuse and recycling of major household
appliances in an environmentally-sound manner. The Company provides its
customers with integrated processes and programs addressing the solid waste
management, environmental and energy conservation issues involved with appliance
disposal and recycling. The Company generates revenues from fees charged for the
disposal of appliances, the sale of materials generated from processed
appliances (by-product revenues) and the sale of reconditioned appliances
through a chain of Company-owned retail stores.
In the late 1980s, in response to stricter environmental protection
laws, the Company developed and marketed programs to process and dispose of
unwanted appliances in an environmentally-sound manner. These programs were
offered to new appliance retailers, waste management companies and the general
public. In 1989, the Company expanded its appliance recycling concept to the
electric utility industry.
From 1989 to 1994, the Company focused its resources on the expansion
of its business with electric utility companies. During this time period the
Company opened 9 centers throughout the U.S. and Canada, primarily serving
seventeen electric utility customers. The Company's electric utility business
has been negatively impacted by the potential electric utility industry
deregulation. The potential of deregulation has caused electric utilities to
decrease their sponsorship of energy conservation programs like the one the
Company offers. As a result of the decrease in utility customers, the Company
incurred a loss at December 1995 on impaired equipment and leaseholds associated
with its utility business. In response to decreases in revenue from contracts
with electric utility programs, the Company closed four recycling centers during
the first six months of 1996. As of September 28, 1996, the Company operated 7
such centers. On October 31, 1996, the Company announced its plans to close 3
centers by year end. See "Recent Developments Announced Closing of Centers and
Retail Stores" below.
In response to the decrease in demand for services from electric
utilities, the Company increased its marketing of services to appliance
retailers, waste management companies and property management companies. The
Company also increased its focus on the sale of reconditioned appliances. In
1995, under the name Encore Recycled Appliances, the Company began operating a
chain of Company-owned retail stores, offering reconditioned appliances to
value-conscious individuals and property management companies. As of September
28, 1996, the Company operated 26 such retail locations. On October 31, 1996,
the Company announced its plans to close 12 stores by year end. No new stores
are currently expected to be opened until after 1997. The Company currently
anticipates that approximately 40% of the Company's revenue for 1996 will be
derived from sales at Encore retail stores. See also, "Recent Developments
Announced Closing of Centers and Retail Stores" below.
The Company was incorporated under the laws of the State of Minnesota
in 1983, although through its predecessors it commenced the appliance recycling
business in 1976. The Company's principal executive offices are located at 7400
Excelsior Boulevard, Minneapolis, Minnesota 55426-4517. Its telephone number is
(612) 930-1700.
RECENT DEVELOPMENTS
ANNOUNCED CLOSING OF CENTERS AND RETAIL STORES. On October 31, 1996,
the Company announced that it intended to withdraw from three under-performing
markets during the fourth quarter of 1996. The Company currently anticipates
closing 12 Encore retail stores and three recycling centers. The Company is
closing all of its Encore stores and centers in the Washington, D.C./Baltimore,
Hartford, Connecticut and Oakland, California markets. In addition, the Company
is closing its retail outlets in Southern California, but will continue to
operate its Los Angeles recycling center. Write-offs and other significant
expenses related to this action are expected to cause the Company to report a
significantly larger than initially expected net loss in the fourth quarter of
1996. In addition, such financial results will be subject, among other things,
to the results of operations at the remaining retail stores, as well as the
volume of units delivered under the California Edison contract.
CONTRACT WITH CALIFORNIA EDISON. In mid-September 1996, the Company and
California Edison entered into a contract to extend the refrigerator recycling
program with the Company through 1997, subject to approval of funding for 1997
by the CPUC. California Edison submitted its request October 1, 1996 and the
CPUC is currently expected to act by mid-November 1996, after a period for
public comment. The Company has participated in that program through its Los
Angeles recycling center since 1993. Under the terms of the new contract,
California Edison has specified minimum refrigerator recycling volumes of
approximately 25,000 units in 1996 and approximately 30,000 units in 1997, which
are expected by the Company to generate revenues of approximately $3 million in
1996 and $3.5 million in 1997. Through the third quarter of 1996, the Company
had realized approximately $2.1 in revenues pursuant to this agreement.
California Edison also agreed in the contract to take certain actions necessary
to collect 50,000 units; however, the realization of such volumes is subject to,
among other things, the receipt by California Edison of approval for additional
funding from the CPUC, customer acceptance, proper advertising, and cost
effectiveness; therefore, there can be no assurance that any such amounts will
be realized. The program is subject to cancellation by the CPUC if certain cost
effectiveness ratios are not met by the California Edison program.
CURRENT LINE OF CREDIT; CAPITAL REQUIREMENTS. In August 1996, the
Company entered into a new line of credit with Spectrum Commercial Services,
Inc., a division of Lyons Financial Services, Inc. On November 8, 1996, the line
of credit was amended to increase the line to $2.0 million, of which $1.4
million is currently drawn. The amended line of credit is secured by the
receivables, inventory, equipment, real estate comprising the Company's
headquarters, and other assets of the Company and a portion is guaranteed by the
President of the Company. The line of credit provides for a stated maturity date
of August 30, 1999, and provides that the lender may demand payment in full of
the entire outstanding balance of the loan at any time. The amended loan
provides for a rate of interest equal to 5 percentage points over the prime
lending rate per annum, but never less than 10% per annum (the current rate is
13-1/4%), and minimum monthly interest payments of $10,000 regardless of the
outstanding principal balance. Upon an event of default, the interest may
increase by 6% per annum. The loan also requires that the Company meet certain
financial covenants, provides payment penalties for noncompliance, contains
certain prepayment penalties, provides for annual fees for administration of the
loan and for maintenance of the line of credit, limits the amount of other debt
the Company can incur, and limits the amount of spending on fixed assets. As of
September 28, 1996, the Company was not in compliance with certain financial
covenants under the current line of credit. As of November 8, 1996, the lender
has waived such noncompliance.
The Company currently anticipates that its current cash balance,
existing and anticipated equipment financing, and current line of credit will be
sufficient to finance its operations and capital expenditures through December
1997. The Company's total capital requirements will depend on the number of
recycling centers operated and the number and size of retail stores operating
during the fiscal year, as well as certain items discussed above under "Risk
Factors." Currently, the Company has 7 centers and 26 stores in operation and
expects to close 3 centers and 12 stores by year end. If revenues are lower than
anticipated, or expenses (including expenses associated with store closings) are
higher than anticipated, the Company may require additional capital to finance
operations and expansion. Sources of additional financing, if needed in the
future, may include further debt financing or the sale of equity 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.
ACQUISITIONS. On March 26, 1996, the Company announced it signed a
letter of intent to acquire the assets of Appliance Distributors of Texas, Inc.,
a reconditioned appliance retailer and recycler based in Austin, Texas, subject
to the Company's due diligence and negotiation of definitive agreements. The
Company has decided not to go forward with this acquisition.
SALE OF EQUITY. In May 1996, the Company raised $700,000 from the
private sale of 200,000 shares of Common Stock at $3.50 per share. The proceeds
of such sale were used by the Company primarily to repay an outstanding bank
loan secured by certain capital equipment of the Company, and also for working
capital. Pursuant to the terms of the purchase agreement with respect to these
shares of Common Stock, the Company agreed to register such shares for re-sale
by the purchaser. These shares are among those being offered for sale pursuant
to this Prospectus.
THIRD QUARTER RESULTS OF OPERATIONS
For the quarter ended September 28, 1996, the Company reported a net
loss of $745,000 or $.16 per share, compared to net income of $81,000 or $.02
per share for the third quarter of 1995. Net revenues for the current quarter
were $4,201,000, a decline of 7% from the year-earlier period, primarily as a
result of further declines in the Company's traditional utility-related business
in comparison to the year-earlier period.
For the first nine months of 1996, the Company's net loss totaled
$4,243,000 or $.96 per share, compared to earnings of $104,000 or $.02 per share
for the same period last year. Net revenues were $10,533,000, down from
$12,221,000 in the first nine months of 1995.
Sales of reconditioned appliances rose 23% from second quarter 1996 to
$1,666,000 and accounted for 40% of third quarter revenues. Appliance recycling
fees rose 31% from second quarter 1996 to $1,834,000 and accounted for 44% of
third quarter revenues, reflecting fees from California Edison's demand-side
energy conservation program. Sales of scrap metal byproducts from recycling
operations accounted for 16% of the third quarter revenues, virtually unchanged
from the second quarter of 1996.
On October 16, 1996, the Company announced its results for the third
quarter ended September 28, 1996, as set forth on the following page.
Appliance Recycling Centers of America, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended Nine months ended
--------------------------- ----------------------------
(In thousands, unaudited)
September 28 September 30 September 28 September 30
1996 1995 1996 1995
------------ ------------ ------------ -------------
Revenues
Recycling revenues $ 1,834 $ 3,497 $ 5,000 $ 9,294
Appliance sales 1,666 510 3,851 1,288
Byproduct revenues 701 534 1,682 1,639
-------- -------- -------- --------
Net revenues $ 4,201 $ 4,541 $ 10,533 $ 12,221
Cost of revenues 2,772 2,873 8,314 7,757
Gross profit $ 1,429 $ 1,668 $ 2,219 $ 4,464
Selling, General & Administrative 2,130 1,537 6,385 4,291
Expenses
Operating income (loss) ($ 701) $ 131 ($ 4,166) $ 173
Other Income (Expense)
Other income 23 6 94 43
Interest income 2 53 34 160
Interest expense (69) (60) (205) (198)
Income (loss) before
provision for income $ (745) $ 130 ($ 4,243) $ 178
taxes
Provision for (benefit of) income -- 49 -- 74
taxes
Net income (loss) ($ 745) $ 81 ($ 4,243) $ 104
======== ======== ======== ========
Earnings (loss) per share ($ 0.16) $ 0.02 ($ 0.96) $ 0.02
======== ======== ======== ========
Weighted average number 4,547 4,282 4,425 4,257
======== ======== ======== ========
of shares
SELLING SHAREHOLDERS
This Prospectus relates to the offering of 319,355 shares of Common
Stock of the Company by the persons named in the following table (the "Selling
Shareholders"). The following table sets forth certain information, as of
September 28, 1996, with respect to the beneficial ownership of the Company's
Common Stock by the Selling Shareholders and any relationships they may have
with the Company. Unless otherwise indicated, the Selling Shareholders possess
sole voting and investment power with respect to the shares shown.
Prior to Offering(1) After Offering(1)
-------------------------- -----------------------------
Current Number
Number Percent of Shares Number of Percent of
Name of Shares Outstanding(2) to be Sold Shares Outstanding(2)
- ---- --------- -------------- ---------- --------- --------------
Earl M. Fritz and Sharon E. Fritz(3) 28,571 * 28,571 0 N/A
Evan Malnik and Rena Silbert 42,000 * 42,000 0 N/A
Malnik(4)
Jay Malnik and Marci Malnik(4) 42,000 * 42,000 0 N/A
Perkins Capital Management Inc.(5) 708,800 15.6% 200,000 508,800 11.2%
Tom Harris & Associates, Inc.(6) 6,784 * 6,784 0 N/A
-------- ----- ------- ------- ------
TOTAL 828,155 18.2% 319,355 508,800 11.2%
======= ===== ======= ======= ======
- ----------------------------------
* less than one percent
(1) This table assumes that all of the shares offered hereby by each
Selling Shareholder are sold pursuant to this Prospectus and that no
additional shares are purchased.
(2) Based on 4,546,917 shares outstanding as of September 28, 1996.
(3) In August 1995, the Company acquired Major Appliance Pickup Service of
St. Louis, Inc. DBA Gateway Appliance Center, Inc. ("Gateway"), a St.
Louis, Missouri-based used appliance retailer and recycler, by
exchanging 28,571 shares of its Common Stock for 100% ownership of
Gateway. Pursuant to this transaction, Mr. Fritz became the General
Manager of ARCA of St. Louis, a subsidiary of the Company.
(4) In January 1996, the Company acquired Universal Appliance Company, Inc.
and Universal Appliance Recycling, Inc., Washington, D.C.-based
companies, by exchanging a total of 84,000 shares of its Common Stock
for 100% ownership of the respective companies, which merged into a
subsidiary of the Company, ARCA - Maryland, Inc. In addition, these
Selling Shareholders received $110,000 under non-compete agreements,
Evan Malnik became District Manager of the Company's MidAtlantic
Region, and Jay Malnik became General Manager of this region. The
acquisitions agreement provided that these Selling Shareholders had the
right to earn, based upon operating profits of ARCA - Maryland, up to a
total of 100,000 shares of Company stock in contingent consideration
over the next four years. This is one of the centers scheduled to be
closed during the fourth quarter of 1996.
(5) In May 1996, the Company sold, in a privately negotiated transaction,
200,000 shares of its Common Stock at a purchase price of $3.50 per
share to a fund owned by Perkins Capital Management Inc. ("Perkins").
Based on a Schedule 13G filed by Perkins, Perkins beneficially owns
708,800 shares (or approximately 15.6%) and has the sole voting power
over 417,700 (or approximately 9.2%) of the Company's outstanding
shares.
(6) In May 1996, the Company agreed to issue 6,784 shares of Common Stock
to Tom Harris & Associates, Inc. pursuant to a contract for service
with 7o 30 Creative Corporation.
USE OF PROCEEDS
The 319,355 shares of Common Stock being offered hereby are being sold
by the Selling Shareholders. The Company will not receive any of the proceeds
from the sale of the Common Stock offered hereby.
PLAN OF DISTRIBUTION
Any or all of the shares of Common Stock offered hereby may be sold
from time to time to purchasers directly by the Selling Shareholders.
Alternatively, the Selling Shareholders may from time to time offer the 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 Common Stock for whom they may act or to whom they may
sell as principal, or both (which compensation as to particular underwriter,
broker or agent may be in excess of customary commissions). If applicable, one
or more supplemental prospectuses will be filed pursuant to Rule 424 under the
Securities Act to describe any material arrangements for the sales of shares
offered hereunder when such arrangements are entered into by any of the Selling
Shareholders and any of the underwriters, brokers or agents that participate in
the sale of shares. The Selling Shareholders and any such underwriters, dealers
or agents that participate in the distribution of Common Stock may be deemed to
be underwriters under the Securities Act, and any profit on the sale of the
Common Stock by them and any discounts, commissions or concessions received by
them may be deemed to be underwriting discounts and commissions under the
Securities Act. As of the date hereof, there are no special selling arrangements
between any underwriters, brokers, agents or other person and any Selling
Shareholder.
At the time a particular offer of Common Stock is made, to the extent
required, a supplement to this prospectus will be distributed which will set
forth the aggregate principal amount of Common Stock being offered and the terms
of the offering, including the name or names of the particular Selling
Shareholders, any underwriters, dealers or agents, any discounts, commissions
and other items constituting compensation from the Selling Shareholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
including the proposed selling price to the public.
The Common Stock may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. The Company will
not receive any of the proceeds from the sale by the Selling Shareholders of the
Common Stock offered hereby.
The Common Stock was originally issued in private transactions, was
outstanding prior to the effective date of this offering, and has been
registered hereby for resale by the Selling Shareholders pursuant to separate
registration rights agreements with the Selling Shareholders. See "Selling
Shareholders."
The Company has agreed, under certain circumstances, to use its best
efforts to keep the registration statement of which the Prospectus forms a part,
effective until the earlier of two years from the effective date or the time at
which all shares offered hereby have been sold by the Selling Shareholders.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance and sale
of the shares offered hereby will be passed upon for the Company 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 2,000 shares of the Company's Common Stock.
EXPERTS
The financial statements of Appliance Recycling Centers of America,
Inc. incorporated by reference in the Company's Annual Report on Form 10-K for
the year ended December 30, 1995, have been audited by McGladrey & Pullen, LLP,
independent auditors, as set forth in their report included therein and
incorporated herein by reference. Such financial statements are, and audited
financial statements to be included in subsequently filed documents will be,
incorporated herein in reliance upon the reports of McGladrey & Pullen, LLP,
pertaining to such financial statements (to the extent covered by consents filed
with the Securities and Exchange Commission) given upon the authority of such
firm as experts in accounting and auditing.