-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 EfsNF0yt/URw0B8DlASvK+d0RaOXN138ETEtv/enPGop6nmsxe8fnzqQrgSdNxHn
 UfrX1wC8LOYdc9myBsapmg==

<SEC-DOCUMENT>/in/edgar/work/0000897101-00-001089/0000897101-00-001089.txt : 20001115
<SEC-HEADER>0000897101-00-001089.hdr.sgml : 20001115
ACCESSION NUMBER:		0000897101-00-001089
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20000930
FILED AS OF DATE:		20001114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			APPLIANCE RECYCLING CENTERS OF AMERICA INC /MN
		CENTRAL INDEX KEY:			0000862861
		STANDARD INDUSTRIAL CLASSIFICATION:	 [5090
]		IRS NUMBER:				411454591
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			0103
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-Q
			SEC ACT:		
			SEC FILE NUMBER:	000-19621
			FILM NUMBER:		762874
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		7400 EXCELSIOR BLVD
				CITY:			MINNEAPOLIS
				STATE:			MN
				ZIP:			55426-4502
				BUSINESS PHONE:		6129309000
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		7400 EXCELSIOR BLVD
					CITY:			NINNEAPOLIS
					STATE:			MN
					ZIP:			554264517
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>0001.htm
<TEXT>

<HTML>
<HEAD>
     <!-- Control Number: 205589                                                           -->
     <!-- Rev Number:     1.0                                                              -->
     <!-- Client Name:    Appliance Recycling Centers of America                           -->
     <!-- Project Name:   Form 10-Q                                                        -->
     <!-- Firm Name:      Prepared by AFPI EDGAR Plus                                      -->
     <TITLE>APPLIANCE RECYCLING CENTERS OF AMERICA FORM 10-Q</TITLE>
</HEAD>
<BODY>


<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5 COLOR=GRAY NOSHADE>

<!-- MARKER FORMAT-SHEET="SEC TITLE" -->
<H1 ALIGN=CENTER><FONT SIZE="2"><B>Form 10-Q</B></FONT><BR><FONT SIZE="3">SECURITIES AND EXCHANGE COMMISSION<BR>
<B>WASHINGTON, D.C. 20549</B><BR><BR></FONT></H1>

<BR>
<!-- MARKER FORMAT-SHEET="Para Cutoff Rule" -->
<HR SIZE=1 WIDTH=15% ALIGN=CENTER>
<!-- MARKER FORMAT-SHEET="Quarterly Report" -->
<BR><BR>

<TABLE ALIGN="CENTER" CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TD WIDTH="15%" ALIGN="LEFT"><B>[X]</B></TD>
     <TD WIDTH="85%" ALIGN="LEFT"><FONT SIZE=2><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE</B></FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT"><B><FONT SIZE=2>SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD></TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE="2">For the quarterly period ended September 30, 2000</FONT></P>

<P ALIGN="CENTER">OR</P>

<!-- MARKER FORMAT-SHEET="Transition Report" -->
<TABLE ALIGN="CENTER" CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TD WIDTH="15%" ALIGN="LEFT">[&nbsp;&nbsp;&nbsp;]</TD>
<TD WIDTH="85%" ALIGN="LEFT"><B><FONT SIZE=2>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE</FONT></B></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT"><B><FONT SIZE=2>SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD></TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE="2">Commission file number 0-19621</FONT></P>

<P ALIGN="CENTER"><B>APPLIANCE RECYCLING CENTERS of AMERICA, INC.</B></P>

<DIV ALIGN=CENTER>
<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="TOP">
      <TD WIDTH="50%" ALIGN="CENTER"><FONT SIZE="2">Minnesota<BR>(State or other jurisdiction of<BR>incorporation or organization)<BR><BR>
7400 Excelsior Blvd.<BR>Minneapolis, Minnesota 55426-4517<BR>
(Address of principal executive offices)</FONT></TD>
      <TD WIDTH="50%" ALIGN="CENTER"><FONT SIZE="2">41-1454591<BR>(I.R.S. Employer<BR>Identification No.)<BR></FONT></TD></TR>
</TABLE><BR>
</DIV>

<P ALIGN="CENTER"><FONT SIZE="2">(612) 930-9000<BR>
(Registrant&#146;s telephone number, including area code)</FONT></P>

<P>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.</P>

<!-- MARKER FORMAT-SHEET="YES NO" -->
<P ALIGN="CENTER"><B>YES<U>&nbsp;&nbsp;&nbsp;&nbsp;X&nbsp;&nbsp;&nbsp;&nbsp;</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NO<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></B></P>

<P>As of November 10, 2000, the number of shares outstanding of the registrant&#146;s no par value common stock was 2,286,744
shares.</P>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5 COLOR=GRAY NOSHADE>

<P ALIGN="CENTER">APPLIANCE RECYCLING CENTERS of AMERICA, INC.</P><BR><BR>

<P ALIGN=CENTER><FONT SIZE="3"><I>Index</I></FONT></P><BR><BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="TOP">
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="22%" ALIGN="LEFT">PART I.<BR>&nbsp;</TD>
     <TD WIDTH="78%" ALIGN="LEFT">FINANCIAL INFORMATION</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR>
     <TD></TD>
     <TD ALIGN="RIGHT"><U></U></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 1:<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">Financial Statements:</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Consolidated Balance Sheets as of</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">September 30, 2000 and January 1, 2000<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Consolidated Statements of Operations for the</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Three and Nine Months Ended September 30, 2000</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">and October 2, 1999<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Consolidated Statements of Cash Flows for the</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Nine Months Ended September 30, 2000</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">and October 2, 1999<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Notes to Consolidated Financial Statements<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 2:</TD>
     <TD ALIGN="LEFT">Management&#146;s Discussion and Analysis</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">of Financial Condition and Results of Operations<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item 3:</TD>
     <TD ALIGN="LEFT">Quantitative and Qualitative Disclosure about</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">&nbsp;</TD>
     <TD ALIGN="LEFT">Market Risk<BR>&nbsp;</TD>
     <TD ALIGN="LEFT">&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">PART II.</TD>
     <TD ALIGN="LEFT">OTHER INFORMATION</TD></TR>
</TABLE>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN=LEFT><FONT SIZE=2>Appliance Recycling Centers of America, Inc. and Subsidiaries<BR>
CONSOLIDATED BALANCE SHEETS<BR>
(Unaudited)</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"></TH>
     <TH COLSPAN="2"><FONT SIZE=1>September 30,<BR>2000</FONT></TH>
     <TH COLSPAN="2"><FONT SIZE=1>January 1,<BR>2000</FONT></TH></TR>
<TR>
     <TD COLSPAN="6"><HR NOSHADE SIZE=1 COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="69%" ALIGN="LEFT"><FONT SIZE="2"><B>ASSETS</B></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE="2"></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE="2"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Current Assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;664,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;220,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net of allowance of $16,000</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and $25,000, respectively</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">2,206,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">1,452,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Inventories , net of reserves of $465,000 and $275,000, respectively</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">3,155,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">1,586,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">75,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">75,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Other current assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">416,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">89,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;6,516,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;3,422,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Property and Equipment, at cost</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Land (Note 4)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;2,050,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;2,103,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Buildings and improvements (Note 4)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">3,535,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">4,028,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Equipment</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">3,828,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">3,542,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;9,413,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;9,673,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Less accumulated depreciation</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">3,851,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">3,950,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;5,562,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;5,723,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Other Assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;224,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;258,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Goodwill, net of amortization of $105,000 and $76,000, respectively</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">86,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">114,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;12,388,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;9,517,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR NOSHADE COLOR="BLACK" SIZE="3">
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Current Liabilities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Line of credit (Note 3)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;1,904,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;888,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Current maturities of long-term obligations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">284,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">135,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">1,343,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">1,037,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses (Note 2)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">1,124,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">742,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gain (Note 4)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">78,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">&#151;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Income taxes payable</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">456,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">75,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;5,189,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;2,877,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Long-Term Obligations, less current maturities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">4,502,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">4,831,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;9,691,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;7,708,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">Shareholders&#146; Equity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Common stock, no par value; authorized 10,000,000 shares;</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;issued and outstanding 2,287,000 shares</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;11,345,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;11,345,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">(8,648,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">(9,536,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">)</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total shareholders&#146; equity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;2,697,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;1,809,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and shareholders&#146; equity</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;12,388,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="2">$&nbsp;&nbsp;&nbsp;9,517,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE="2">See Notes to Consolidated Financial Statements.</FONT></P>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN=LEFT><FONT SIZE=2>Appliance Recycling Centers of America, Inc. and Subsidiaries<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(Unaudited)</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT SIZE="-2"></FONT></TH>
     <TH COLSPAN="4"><FONT SIZE="-2"><U>Three Months Ended<BR></U></FONT></TH>
     <TH COLSPAN="6"><FONT SIZE="-2"><U>Nine Months Ended<BR></U></FONT></TH></TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT SIZE="-2"></FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">September 30,<BR>2000</FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">October 2,<BR>1999</FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">September 30,<BR>2000</FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">October 2,<BR>1999</FONT></TH></TR>
<TR>
     <TD COLSPAN="10"><HR SIZE="1"  NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="51%" ALIGN="LEFT"><FONT SIZE="-1">Revenues</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE="-1"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE="-1"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE="-1"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE="-1"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Retail</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;3,681,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;2,100,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;8,908,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;6,104,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recycling</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,507,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,589,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">7,273,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">5,456,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR  SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenues</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;6,188,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;4,689,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;16,181,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;11,560,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Cost of revenues</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">3,782,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,429,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">9,232,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">6,632,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;2,406,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;2,260,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;6,949,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;4,928,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Selling, general and administrative expenses</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">1,997,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">1,536,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">5,162,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">4,067,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating income</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;409,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;724,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;1,787,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;861,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Other income (expense)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income (Note 4)</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">281,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">8,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">289,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">117,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(222,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(200,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(634,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(594,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income before provision for income taxes</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;468,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;532,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;1,442,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;384,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Provision for income taxes</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">211,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">554,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;257,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;532,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;888,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;384,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Basic Earnings per Common Share</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.11</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.23</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.39</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.18</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Diluted Earnings per Common Share</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.09</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.22</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.31</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.18</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Weighted Average Number of Common Shares Outstanding</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,287,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,271,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,287,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,102,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,948,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,371,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,893,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">2,146,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="10"><HR NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE=2>See Notes to Consolidated Financial Statements.</FONT></P>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN=LEFT><FONT SIZE=2>Appliance Recycling Centers of America, Inc. and Subsidiaries<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(Unaudited)</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT SIZE="-2"></FONT></TH>
     <TH COLSPAN="4"><FONT SIZE="-2"><U>Nine Months Ended</U></FONT><BR></TH>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT SIZE="-2"></FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">September 30,<BR>2000</FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">October 2,<BR>1999</FONT></TH></TR>
<TR>     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="73%" ALIGN="LEFT"><FONT SIZE="-1">Cash Flows from Operating Activities</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE="-1"></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE="-1"></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;888,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;384,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;cash used in operating activities:</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">278,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">301,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(253,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(54,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accretion of long-term debt discount</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">29,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">25,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities:</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Increase) decrease in:</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Receivables</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(754,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(1,080,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(1,569,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">365,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current assets</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(327,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(54,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in:</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">306,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(138,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">382,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">39,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes Payable</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">381,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;(639,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;(212,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Cash Flows from Investing Activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;(391,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;(161,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from disposal of property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">667,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">68,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) investing activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;276,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;(93,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Cash Flows from Financing Activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in line of credit</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">1,016,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;52,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments on long-term obligations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(286,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">(81,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">)</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sale of common stock</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">475,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from long-term debt obligations</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">77,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;807,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;446,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;444,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;141,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Cash and Cash Equivalents</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">220,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">14,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ending</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;664,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;155,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Supplemental Disclosures of Cash Flow Information</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash payments for interest</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;605,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;508,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash payments for income taxes</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;177,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#150;</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
</TABLE>

<P ALIGN="CENTER">See Notes to Consolidated Financial Statements.</P>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">


<P ALIGN="LEFT">Appliance Recycling Centers of America, Inc. and Subsidiaries</P>

<P ALIGN="LEFT">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)<BR>
<HR SIZE=1 WIDTH=100% ALIGN=CENTER>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>1. </FONT></TD>
<TD WIDTH=95%><FONT SIZE="3"><U>Financial Statements</U></FONT></TD>
</TR>
</TABLE>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
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 September 30, 2000, and the results of their operations for the
three-month and nine-month periods ended September 30, 2000 and October 2, 1999 and their
cash flows for the nine-month periods ended September 30, 2000 and October 2, 1999. 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&#146;s annual financial statements and related notes in the
Company&#146;s Annual Report on Form 10-K for the year ended January 1, 2000.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>2. </FONT></TD>
<TD WIDTH=95%><FONT SIZE="3"><U>Accrued Expenses</U></FONT></TD>
</TR>
</TABLE>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Accrued expenses were as follows:</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="400">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="2"><FONT SIZE="-2"></FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">September 30,<BR>2000</FONT></TH>
     <TH COLSPAN="2"><FONT SIZE="-2">January 1,<BR>2000</FONT></TH></TR>
<TR><TD COLSPAN="6"><HR SIZE="1"  NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="28%" ALIGN="LEFT"><FONT SIZE="-1">Compensation</FONT></TD>
     <TD WIDTH="13%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="22%" ALIGN="RIGHT"><FONT SIZE="-1">$&nbsp;&nbsp;&nbsp;418,000</FONT></TD>
        <TD WIDTH="13%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD WIDTH="22%" ALIGN="RIGHT"><FONT SIZE="-1">$178,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Warranty</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">199,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">182,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">Other</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">507,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">382,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR  SIZE="1" NOSHADE COLOR="BLACK"></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$1,124,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT SIZE="-1">$742,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT SIZE="-1">&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="6"><HR  NOSHADE COLOR="BLACK" SIZE="3"></TD></TR>
</TABLE><BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>3. </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>In
September 2000, the Company secured an expanded $5,000,000 line of credit with its
current lender that replaces the previous $2,000,000 line of credit. The expanded line of
credit has a lower interest rate and is no longer guaranteed by the President of the
Company. The new line of credit will be used primarily to finance inventories of the
Company&#146;s ApplianceSmart retail operation.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>4. </FONT></TD>
<TD WIDTH=95%><FONT SIZE=3>In
September 2000, the Company recognized a gain of $257,000 from the sale of the
ApplianceSmart outlet property in Saint Paul, Minnesota. The Company is still operating
this outlet and has an operating lease on this outlet until September 30, 2001.
Therefore, the Company has an unrecognized gain of $78,000 that will be recognized as
income on a straight-line basis over the remaining 12-month lease term.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD NOWRAP WIDTH=15%>PART I:&nbsp;&nbsp;&nbsp;&nbsp;ITEM 2&nbsp;&nbsp;&nbsp;&nbsp;</TD>
<TD WIDTH=85%>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL<BR>
CONDITION AND RESULTS OF OPERATIONS</TD>
</TR>
<TR>
<TD COLSPAN=2><HR SIZE=1 WIDTH=100% ALIGN=CENTER><BR></TD>
</TR>
</TABLE>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
following discussion and analysis provides information that management believes is
relevant to an assessment and understanding of the Company&#146;s level of operations and
financial condition. This discussion should be read with the consolidated financial
statements appearing in Item 1.</FONT></TD>
</TR>
</TABLE>
<BR>

<P ALIGN="LEFT"><U>RESULTS OF OPERATIONS</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company generates revenues from two 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 (&#147;CFCs&#148;) generated from processed appliances.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Total
revenues for the three and nine months ended September 30, 2000 were $6,188,000 and
$16,181,000, respectively, compared to $4,689,000 and $11,560,000 for the same periods in
the prior year.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Retail
sales accounted for approximately 59% of revenues in the third quarter of 2000. Retail
revenues for the three and nine months ended September 30, 2000 increased by $1,581,000
or 75% and by $2,804,000 or 46%, respectively, from the same periods in the prior year.
Third quarter same-store retail sales increased 53% (a sales comparison of 5 stores that
were open the entire third quarters of 2000 and 1999). The increase in retail sales was
primarily due to an increase in scratch and dent appliance sales offset by a decrease in
reconditioned appliance sales. The increase in scratch and dent appliance sales was
primarily due to increased advertising and a 30,000 square foot store being opened offset
by a smaller store being closed in 2000.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company had six retail locations at the end of both the current and last year&#146;s third
quarter; however, during the second quarter of this year, the Company closed a smaller
store in the Minneapolis/Saint Paul market and opened a 30,000 square foot store in the
Ohio market. The Company is currently investigating sites for a new retail location. 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.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN="LEFT"><U>RESULTS OF OPERATIONS &#151; CONTINUED</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Recycling
revenues for the three and nine months ended September 30, 2000 decreased slightly by
$82,000 or 3% and increased by $1,817,000 or 33%, respectively, from the same periods in
the prior year. The slight decrease in recycling revenue in the third quarter of 2000 was
primarily due to recycling volumes nearing the upper limits of the number of units to be
recycled under the contract with Southern California Edison Company (&#147;Edison&#148;) and a
decrease in scrap metal revenue. The decrease in scrap metal revenue was due to a
combination of lower scrap metal prices and increased cost of transporting the scrap to
the scrap yard offset by an increase in CFC prices. The increase in recycling revenue for
the nine months ended September 30, 2000 was primarily due to more recycling volume from
the Edison contract occurring in the first nine months of 2000 compared to the same
period in 1999. Total recycling volume under this Edison contract for the year 2000 is
expected to be approximately the same as 1999. Therefore, recycling revenue from this
Edison contract was higher in the first quarter of 2000 and is expected to be lower in
the fourth quarter of 2000 compared to comparable periods in 1999. Also, the increase was
due to an increase in CFC prices during the first nine months of 2000 compared to the
same period in 1999.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
In
October 2000, the Company signed a contract with Edison to implement a recycling program
in the service areas of Pacific Gas &amp; Electric (the San Francisco Bay area) and San Diego
Gas &amp; Electric (&#147;Summer Initiative&#148;). This contract is in accordance with a ruling issued
by the California Public Utilities Commission (&#147;CPUC&#148;). Under the Summer Initiative, the
Company expects to recycle approximately 30,000 to 40,000 units through the end of 2001.
This recycling is in addition to the existing program with Edison which is expected to
recycle approximately 36,000 units in 2001. As with its existing Edison program, there
are no guaranteed minimum number of units that must be recycled under the Summer
Initiative. The Company began the Summer Initiative in September of 2000 and expects to
be fully operational in the first quarter of 2001. For the contract period, the CPUC has
budgeted $8,500,000, which includes a $75 per unit incentive payment to residential
participants. The Company is responsible for advertising for the Summer Initiative.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Gross
profit as a percentage of total revenues for the three months ended September 30, 2000
decreased to 39% from 48% for the same period in 1999. Gross profit as a percentage of
total revenues was 43% for both of the nine-month periods ended September 30, 2000 and
October 2, 1999. The decrease for the three months ended September 30, 2000 was primarily
due to higher sales of scratch and dent appliances that have a lower margin than
reconditioned appliances. 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 and the Summer Initiative
contract, the mix of retail products sold during the periods 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.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">


<P ALIGN="LEFT"><U>RESULTS OF OPERATIONS &#151; CONTINUED</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Selling,
general and administrative expenses for the three and nine months ended September 30,
2000 increased by $461,000 or 30% and $1,095,000 or 27%, respectively, from the same
periods in 1999. Selling expenses for the three and nine months ended September 30, 2000
increased by $396,000 or 81% and $680,000 or 49%, respectively, from the same periods in
1999. The increase in selling expenses was primarily due to opening a new 30,000 square
foot retail store during the first nine months of 2000 compared to 1999 and an increase
in advertising and commissions. General and administrative expenses for the three and
nine months ended September 30, 2000 increased by $67,000 or 6% and $425,000 or 16%,
respectively, from the same periods in 1999. The increase in general and administrative
expenses was primarily due to an increase in personnel costs and consultant fees for the
Company&#146;s computer systems.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Interest
expense was $222,000 for the three months and $634,000 for the nine months ended
September 30, 2000 compared to $200,000 and $594,000 for the same periods in 1999. The
increase in interest expense was due to a higher average borrowed amount for the three
and nine months ended September 30, 2000 than in the same periods in 1999 and an increase
in the interest rate on the line of credit.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company recorded a provision for income taxes for the three and nine months ended
September 30, 2000 of $211,000 and $554,000, respectively. The Company has net operating
loss carryovers of approximately $8,425,000 at September 30, 2000, which may be available
to reduce taxable income and in turn income taxes payable in future years. However,
future utilization of these loss and credit carryforwards is subject to certain
limitations under provisions of the Internal Revenue Code including limitations subject
to Section 382, which relate to a 50 percent change in control over a three-year period,
and are further dependent upon the Company maintaining profitable operations. The Company
believes that the issuance of Common Stock during 1999 resulted in an &#147;ownership change&#148;
under Section 382. Accordingly, the Company&#146;s ability to use net operating loss
carryforwards generated prior to February 1999 may be limited to approximately $56,000
per year. At September 30, 2000, the Company had a valuation allowance recorded against
its net deferred tax assets of approximately $4,085,000, 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.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN="LEFT"><U>RESULTS OF OPERATIONS &#151; CONTINUED</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company recorded net income of $257,000 or $.09 per diluted share for the three months
and $888,000 or $.31 per diluted share for the nine months ended September 30, 2000
compared to net income of $532,000 or $.22 per diluted share and $384,000 or $.18 per
diluted share in the same periods of 1999. The decrease in income for the three months
ended September 30, 2000 compared to the same period in 1999 was due to lower gross
profit as a percentage of revenues and an increase in selling, general and administrative
expenses offset by the recognized gain of the sale of the ApplianceSmart retail outlet
property in St. Paul. The increase in income for the nine months ended September 30, 2000
compared to the same period in 1999 was due to gross profit as a percentage of total
revenues remaining the same as the previous year period offset by an increase in selling,
general and administrative expenses, plus the aforementioned recognized gain on the sale
of the retail outlet property.</FONT></TD>
</TR>
</TABLE>
<BR>

<P ALIGN="LEFT"><U>LIQUIDITY AND CAPITAL RESOURCES</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
At
September 30, 2000, the Company had working capital of $1,327,000 compared to working
capital of $545,000 at January 1, 2000. Cash and cash equivalents increased to $664,000
at September 30, 2000 from $220,000 at January 1, 2000. Net cash used in operating
activities was $639,000 for the nine months ended September 30, 2000 compared to $212,000
in the same period of 1999. The increase in cash used in operating activities was
primarily due to an increase in inventories offset by an increase in the net income for
the period.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company&#146;s capital expenditures for the nine months ended September 30, 2000 and October
2, 1999 were approximately $391,000 and $161,000, respectively. The 1999 capital
expenditures were related to building improvements and the purchase of computer
equipment. The 2000 capital expenditures were related to the continued upgrade of
computer systems and communications equipment.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
In
September 2000, the Company secured an expanded $5,000,000 line of credit with its
current lender that replaces the previous $2,000,000 line of credit. The expanded line of
credit has a lower interest rate and is no longer guaranteed by the President of the
Company. The line of credit was renewed through August 30, 2001. The interest rate as of
September 30, 2000 was 11.25%. The amount of borrowings available under the line of
credit is based on a formula using receivables and inventories. 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&#146;s
assets and requires minimum monthly interest payments of $14,000 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.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN="LEFT"><U>LIQUIDITY AND CAPITAL RESOURCES &#151; CONTINUED</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
At
September 30, 2000, the Company was in compliance with such covenants and had unused
borrowing capacity of $924,000.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
In
September 2000, the Company recognized a gain of $257,000 from the sale of the
ApplianceSmart outlet property in Saint Paul, Minnesota. The Company is still operating
this outlet and has an operating lease on this outlet until September 30, 2001. Therefore
the Company has an unrecognized gain of $78,000 which will be recognized as income on a
straight-line basis over the remaining 12-month lease term.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company believes, based on the anticipated revenues from the Edison contract and the
Summer Initiative contract, the anticipated sales per retail store and its anticipated
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 2000. The Company&#146;s total capital requirements for the
remainder of 2000 and for 2001 will depend upon, among other things as discussed below,
the recycling volumes generated from the Edison program and Summer Initiative program in
2000 and 2001 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 after August 2001, 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&#146;s
current lender.</FONT></TD>
</TR>
</TABLE>
<BR>

<P ALIGN="LEFT"><U>FORWARD-LOOKING STATEMENTS</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
Statements
regarding the Company&#146;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 primarily by the
Company&#146;s continued ability to purchase product from Whirlpool at acceptable prices and
the ability of Edison to deliver units under both its contracts with the Company. In
addition, any 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, costs and expenses being realized at higher than expected
levels, the Company&#146;s ability to secure an adequate supply of used appliances for resale
and the continued availability of the Company&#146;s current line of credit.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD NOWRAP WIDTH=15%>PART I:&nbsp;&nbsp;&nbsp;&nbsp;ITEM 3&nbsp;&nbsp;&nbsp;&nbsp;</TD>
<TD WIDTH=85%>QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT<BR>
MARKET RISK</TD>
</TR>
<TR>
<TD COLSPAN=2><HR SIZE=1 WIDTH=100% ALIGN=CENTER><BR></TD>
</TR>
</TABLE>


<P ALIGN="LEFT"><U>MARKET RISK AND IMPACT OF INFLATION</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company does not believe there is any significant risk related to interest rate
fluctuations on its long-term debt since it all has fixed rates. However, there is
interest rate risk on the line of credit since its interest is based on the prime rate.
Also, the Company believes that inflation has not had a material impact on the results of
operations for the nine-month period ended September 30, 2000. However, there can be no
assurance that future inflation will not have an adverse impact on the Company&#146;s
operating results and financial condition.</FONT></TD>
</TR>
</TABLE>
<BR>

<P ALIGN="LEFT">PART II.&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION</P><BR>
<HR SIZE=1 WIDTH=100% ALIGN=CENTER>

<P ALIGN="LEFT">ITEM 1&nbsp;&#150;&nbsp;<U>LEGAL PROCEEDINGS</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT SIZE=3>
The
Company and its subsidiaries are involved in various legal proceedings arising in the
normal course of business, none of which is expected to result in any material loss to
the Company or any of its subsidiaries.</FONT></TD>
</TR>
</TABLE>
<BR>

<P ALIGN="LEFT">ITEM 2&nbsp;&#150;&nbsp;<U>CHANGES IN SECURITIES AND USE OF PROCEEDS</U>&nbsp;&#150;&nbsp;None</P>

<P ALIGN="LEFT">ITEM 3&nbsp;&#150;&nbsp;<U>DEFAULTS UPON SENIOR SECURITIES</U>&nbsp;&#150;&nbsp;None</P>

<P ALIGN="LEFT">ITEM 4&nbsp;&#150;&nbsp;<U>SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</U>&nbsp;&#150;&nbsp;None</P>

<P ALIGN="LEFT">ITEM 5&nbsp;&#150;&nbsp;<U>OTHER INFORMATION</U>&nbsp;&#150;&nbsp;None</P>

<P ALIGN="LEFT">ITEM 6&nbsp;&#150;&nbsp;<U>EXHIBITS AND REPORTS ON FORM 8-K</U></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>(a) </FONT></TD>
<TD WIDTH=85%><FONT SIZE=3>Exhibit
10.1 &#150; Amendment to the line of credit dated August 30, 2000 between Appliance Recycling
Centers of America, Inc. and Spectrum Commercial Services, a division of Lyons Financial
Services, Inc., Amendment to General Credit and Security Agreement and Amended and
Restated Revolving Note.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>(b) </FONT></TD>
<TD WIDTH=85%><FONT SIZE=3>Exhibit
10.2 &#150; Agreement dated August 21, 2000 between Appliance Recycling Centers of America,
Inc. and Southern California Edison Company.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>(c) </FONT></TD>
<TD WIDTH=85%><FONT SIZE=3>Exhibit
No. 27 &#150; Financial Data Schedule.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT SIZE=3>(d) </FONT></TD>
<TD WIDTH=85%><FONT SIZE=3>The
Company did not file any reports on Form 8-K during the three months ended September 30,
2000.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Page Breaks" -->
<BR><BR><BR>
<P ALIGN="CENTER">&nbsp;</P>
<P STYLE="PAGE-BREAK-BEFORE:ALWAYS">&nbsp;</P><HR SIZE=5  NOSHADE COLOR="GRAY">

<P ALIGN="CENTER"><FONT SIZE=3>SIGNATURES</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=3>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.</FONT></P><BR><BR><BR>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" WIDTH="600">
<TR VALIGN="TOP">
     <TD WIDTH="40%" ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
     <TD WIDTH="60%" ALIGN="CENTER"><U>Appliance Recycling Centers of America, Inc.</U><BR>Registrant<BR><BR>&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">Date: November 10, 2000</TD>
     <TD ALIGN="CENTER">By <U>/s/ Edward R. Cameron&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
Edward R. Cameron<BR>President<BR><BR>&nbsp;</TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT">Date: November 10, 2000</TD>
     <TD ALIGN="CENTER">By <U>/s/ Linda Koenig&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
Linda Koenig<BR>Controller</TD></TR>
</TABLE>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>0002.htm
<DESCRIPTION>AMENDED GENERAL CREDIT AND SECURITY AGREEMENT
<TEXT>

<HTML>
<HEAD>
     <!-- Control Number: 205589                                                           -->
     <!-- Rev Number:     1.0                                                              -->
     <!-- Client Name:    Appliance Recycling Centers of America                           -->
     <!-- Project Name:   Form 10-Q                                                        -->
     <!-- Firm Name:      Prepared by AFPI EDGAR Plus                                      -->
     <TITLE>APPLIANCE RECYCLING CENTERS OF AMERICA FORM 10-Q</TITLE>
</HEAD>
<BODY>


<PRE>

                                                                    EXHIBIT 10.1


                               EIGHTH AMENDMENT TO
                      GENERAL CREDIT AND SECURITY AGREEMENT

         THIS AGREEMENT, dated and effective as of August 30, 2000 between
SPECTRUM Commercial Services, a division of Lyon Financial Services, Inc., a
Minnesota Corporation, having its mailing address and principal place of
business at Two Appletree Square, Suite 415, Bloomington, Minnesota 55425
(herein called Lender" or "SCS"), and Appliance Recycling Centers of America,
Inc., a Minnesota corporation, having the mailing address and principal place of
business at 7400 Excelsior Boulevard, Minneapolis, MN 55426,(herein called
"Borrower"), amends that certain General Credit and Security Agreement dated
August 30, 1996, ("Credit Agreement") as amended. Where the provisions of this
Agreement conflict with the Credit Agreement, the intent of this Agreement shall
control.

         1. The definition of "Maturity Date" appearing in Paragraph 2 is
amended in its entirety to read as follows:

                  "Maturity Date" shall mean AUGUST 30, 2001, provided, however,
                  that the then current Maturity Date shall be extended by
                  succeeding periods of 12 calendar months without notice to or
                  action by either Borrower or Lender, provided further however,
                  that such extension shall not occur if: (i) Lender has
                  notified Borrower of an Event of Default that has occurred and
                  is continuing, or (ii) this Agreement has previously
                  terminated as provided in the paragraph entitled
                  "Termination", or (iii) Lender has, in its sole and absolute
                  discretion, demanded payment of amounts owed hereunder, or
                  (iv) Borrower or Lender have notified the other of the
                  intention not to renew at least sixty days prior to the then
                  current Maturity Date and thereafter no extension shall occur.

         2. Paragraph 23 is amended in its entirety to read as follows:

                  TERMINATION. Subject to automatic termination of Borrower's
                  ability to obtain additional Advances under this Agreement
                  upon the occurrence of any Event of Default specified in
                  Paragraphs 20(d), (e), (f) or (g) and to Lender's right to
                  terminate Borrower's ability to obtain additional Advances
                  under this Agreement upon the occurrence of any other Event of
                  Default or upon demand, this Agreement shall have a term
                  ending on the Termination Date provided, however, that
                  Borrower may terminate this Agreement at any earlier time upon
                  sixty days prior written notice and will incur no prepayment
                  fee or charge thereafter. On the Termination Date, all
                  obligations arising under this Agreement shall become
                  immediately due and payable without further notice or demand.
                  Lender's rights with respect to outstanding Obligations owing
                  on or prior to the Termination Date will not be affected by
                  termination and all of said rights including (without
                  limitation) Lender's Security Interest in the Collateral
                  existing on such Termination Date or acquired by Borrower
                  thereafter, and the requirements of this Agreement that
                  Borrower furnish schedules and confirmatory assignments of
                  Receivables and Inventory and turn over to Lender all full and
                  partial payments thereof shall continue to be operative until
                  all such Obligations have been duly satisfied.

<PAGE>


         3. Paragraph 23 is amended in its entirety to read as follows

                  INTEREST. Borrower agrees to pay interest on the outstanding
                  principal amount of the Note, at the close of each day at a
                  fluctuating rate per annum (computed on the basis of actual
                  number of days elapsed and a year of 360 days) which is at all
                  times equal to One and three-quarters percent (1.75%) in
                  excess of the Prime Rate; each change in such fluctuating rate
                  caused by a change in the Prime Rate to occur simultaneously
                  with the change in the Prime Rate; provided, however, that (i)
                  in no event shall the interest rate in effect hereunder at any
                  time be less than 10% per annum; and (ii) interest payable
                  hereunder with respect to each calendar month shall not be
                  less than $14,000.00 regardless of the amount of loans,
                  Advances or other credit extensions that actually may have
                  been outstanding during the month. Interest accrued through
                  the last day of each month will be due and payable to Lender
                  on the next Monthly Payment Date. Interest shall also be
                  payable on the Maturity Date or on any earlier Termination
                  Date. Interest accrued after the Maturity Date or earlier
                  Termination Date shall be payable on Demand. Interest may be
                  charged to Borrower's loan account as an Advance at Lender's
                  option, whether or not Borrower then has the right to obtain
                  an Advance pursuant to the terms of this Agreement.
                  Notwithstanding the foregoing, after an Event of Default, this
                  Note shall bear interest until paid at 5% per annum in excess
                  of the rate otherwise then in effect, which rate shall
                  continue to vary based on further changes in the Prime Rate;
                  provided, however, that after an Event of Default, (i) in no
                  event shall the interest rate in effect hereunder at any time
                  be less than 15% per annum; and (ii) interest payable
                  hereunder with respect to each calendar month shall not be
                  less than $20,300.00 regardless of the amount of loans,
                  Advances or other credit extensions that actually may have
                  been outstanding during the month. The undersigned also shall
                  pay the holder of this Note a late fee equal to 10% of any
                  payment under this Note that is more than 10 days past due.

         4. The definition of "Borrowing Base" appearing in Paragraph 2 is
respectively amended in their entirety to read as follows:

                  "Borrowing Base" shall mean the sum of (i) Eighty percent
                  (80%) of the net amount of Eligible Receivables or such
                  greater or lesser percentage as Lender, in its sole
                  discretion, shall deem appropriate, plus (ii) the lesser of
                  (x) Two Hundred Fifty Thousand and No/100ths Dollars
                  ($250,000) or (y) Twenty Five percent (25%) of the net amount
                  of Eligible Inventory (excluding Eligible Whirlpool Inventory
                  and Eligible Scratch and Dent Inventory), or such greater or
                  lesser dollars and/or percentage as Lender, in its sole
                  discretion, shall deem appropriate, plus (iii) the lesser of
                  (x) Five Hundred Thousand and No/100ths Dollars ($500,000) or
                  (y) Fifty percent (50%) of the net amount of Eligible Scratch
                  and Dent Inventory, or such greater or lesser dollars and/or
                  percentage as Lender, in its sole discretion, shall deem
                  appropriate, plus (iv) the lesser of (x) Four Million and
                  No/100ths Dollars ($4,000,000) or (y) Eighty percent (80%) of
                  the net amount of Eligible Whirlpool Inventory, or such
                  greater or lesser dollars and/or percentage as Lender, in its
                  sole discretion, shall deem appropriate, provided however,
                  that notwithstanding the dollar limits contained in
                  subsections (ii) - (iv) above, that the total aggregate amount
                  available under subsections (ii) - (iv) shall in no event
                  exceed Four Million and No/100ths Dollars ($4,000,000), or
                  such greater or lesser dollars as Lender, in its sole
                  discretion, shall deem appropriate.

<PAGE>


         5. The fixed component of the Loan Administration Fee referred to in
paragraph 17(g) which was originally specified at $1,000 per quarter is amended
to be $3,000 per quarter hereafter.

         6. The final sentence of paragraph 7c shall be deleted and replaced
with the following:
                  The net amount received by Lender as proceeds arising from the
                  sale or other disposition of Collateral and/or the receipt of
                  all other funds will be credited by Lender to Borrower's loan
                  account (subject to final collection thereof) after allowing
                  three Business Days for the collection of checks and other
                  instruments.

         7. The Guaranty hereof provided by Edward R. Cameron is hereby released
completely and his name will be deleted from the definition of Guarantor
contained in Paragraph 2.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

SPECTRUM COMMERCIAL SERVICES                 APPLIANCE RECYCLING CENTERS
                                              OF AMERICA, INC.

By /s/ Steven I. Lowenthal                 By /s/ Edward R. Cameron
Steven I. Lowenthal, Senior Vice President     Its President

<PAGE>


                    FIFTH AMENDED AND RESTATED REVOLVING NOTE


$5,000,000.00                                                    August 30, 2000
                                                          Bloomington, Minnesota

FOR VALUE RECEIVED, the undersigned, APPLIANCE RECYCLING CENTERS OF AMERICA,
INC. promises to pay to the order of SPECTRUM COMMERCIAL SERVICES, a division of
Lyon Financial Services, Inc., a Minnesota corporation, (the "Lender") at its
office in Bloomington, Minnesota, or at such other place as any present or
future holder of this Note may designate from time to time, the principal sum of
(i) Five Million and 00/100 Dollars ($5,000,000.00), or (ii) the aggregate
unpaid principal amount of all advances and/or extensions of credit made by the
Lender to the undersigned pursuant to this Note as shown in the records of any
present or future holder of this Note, whichever is less, plus interest thereon
from the date of each advance in whole or in part included in such amount until
this Note is fully paid. Interest shall be computed on the basis of the actual
number of days elapsed and a 360-day year, at an annual rate equal to One and
three-quarters percent (1.75%) per annum in excess of the Prime Rate of Norwest
Bank Minnesota, NA, and that shall change when and as said Prime Rate shall
change; provided, however, that (i) in no event shall the interest rate in
effect hereunder at any time be less than 10% per annum; and (ii) interest
payable hereunder with respect to each calendar month shall not be less than
$14,000 regardless of the amount of loans, advances or other credit extensions
that actually may have been outstanding during the month.. Interest is due and
payable on the first day of each month and at maturity. The term "Prime Rate"
means the rate established by Norwest Bank in its sole discretion from time to
time as its Prime or Base Rate, and the undersigned acknowledges that Norwest
Bank and/or Lender may lend to its customers at rates that are at, above or
below the Prime Rate. Notwithstanding the foregoing, after an Event of Default,
this Note shall bear interest until fully paid at 5% per annum in excess of the
rate otherwise then in effect, which rate shall continue to vary based on
further changes in the Prime Rate; provided, however, that after an Event of
Default, (i) in no event shall the interest rate in effect hereunder at any time
be less than 15% per annum; and (ii) interest payable hereunder with respect to
each calendar month shall not be less than $20,300 regardless of the amount of
loans, advances or other credit extensions that actually may have been
outstanding during the month. The undersigned also shall pay the holder of this
Note a late fee equal to 10% of any payment under this Note that is more than 10
days past due.

All interest, principal, and any other amounts owing hereunder are due on August
30, 2001 or earlier UPON DEMAND by Lender or any holder hereof, and Lender
specifically reserves the absolute right to demand payment of all such amounts
at any time, with or without advance notice, for any reason or no reason
whatsoever. Lender's right to make such demand is not exclusive and Lender may
coincidentally or separately from such demand make further demand for payment
pursuant to the terms hereof (including but not limited to upon the occurrence
of an Event of Default), and further, amounts may become due hereunder without a
demand by Lender.

All or any part of the unpaid balance of this Note may be prepaid at any time,
provided however, that if Borrower provide Lender with 60 days advance notice
thereof. At the option of the then holder of this Note, any payment under this
Note may be applied first to the payment of other charges, fees and expenses
under this Note and any other agreement or writing in connection with this Note,
second to the payment of interest accrued through the date of payment, and third
to the payment of principal. Amounts may be advanced and readvanced under this
Note at the Lender's sole and absolute discretion, provided the principal
balance outstanding shall not exceed the amount first above written. Neither the
Lender nor any other person has any obligation to make any advance or readvance
under this Note.

<PAGE>


The occurrence of any of the following events shall constitute an Event of
Default under this Note: (i) any default in the payment of this Note; or (ii)
any other default under the terms of any now existing or hereafter arising debt,
obligation or liability of any maker, endorser, guarantor or surety of this Note
or any other person providing security for this Note or for any guaranty of this
Note, including, but not limited to, that certain General Credit and Security
Agreement dated August 30, 1996 as it may have been subsequently amended and/or
restated; or (iii) the insolvency (other than the insolvency of the
undersigned), death dissolution, liquidation, merger or consolidation of any
such maker, endorser, guarantor, surety or other person; or (iv) any appointment
of a receiver, trustee or similar officer of any property of any such maker,
endorser, guarantor, surety or other person; or (v) any assignment for the
benefit of creditors of any such maker, endorser, guarantor, surety or other
person; or (vi) any commencement of any proceeding under any bankruptcy,
insolvency, dissolution, liquidation or similar law by or against any such
maker, endorser, guarantor, surety or other person, provided however, that if
such a proceeding is commenced against the maker hereof or any Guarantor on an
involuntary basis, then only if such action is not dismissed within 60 days of
first being filed; or (vii) the sale, lease or other disposition (whether in one
transaction or in a series of transactions) to one or more persons of all or a
substantial part of the assets of any such maker, endorser, guarantor, surety or
other person; or (viii) any such maker, endorser, guarantor, surety or other
person takes any action to revoke or terminate any agreement, liability or
security in favor of the Lender; or (ix) the entry of any judgment or other
order for the payment of money in the amount of $10,000.00 or more against any
such maker, endorser, guarantor, surety or other person which judgment or order
is not discharged or stayed in a manner acceptable to the then holder of this
Note within 10 days after such entry; or (x) the issuance or levy of any writ,
warrant, attachment, garnishment, execution or other process against any
property of any such maker, endorser, guarantor, surety or other person; or (xi)
the attachment of any tax lien to any property of any such maker, endorser,
guarantor, surety or other person which is other than for taxes or assessments
not yet due and payable; or (xii) any statement, representation or warranty made
by any such maker, endorser, guarantor, surety or other person (or any
representative of any such maker, endorser, guarantor, surety or other person)
to any present or future holder of this Note at any time shall be false,
incorrect or misleading in any material respect when made; or (xiii) there is a
material adverse change in the condition (financial or otherwise), business or
property of any such maker, endorser, guarantor, surety or other person. Upon
the occurrence of an Event of Default and at any time thereafter while an Event
of Default is continuing, the then holder of this Note may, at its option,
declare this Note to be immediately due and payable and thereupon this Note
shall become due and payable for the entire unpaid principal balance of this
Note plus accrued interest and other charges on this Note without any
presentment, demand, protest or other notice of any kind.

         The undersigned: (i) waives demand, presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment of this Note; (ii) agrees
to promptly provide all present and future holders of this Note from time to
time with financial statements of the undersigned and such other information
respecting the financial condition, business and property of the undersigned as
any such holder of this Note may reasonably request, in form and substance
acceptable to such holder of this Note; (iii) agrees that when or at any time
after this Note becomes due the then holder of this note may offset or charge
the full amount owing on this note against any account then maintained by the
undersigned with such holder of this Note without notice; (iv) agrees to pay on
demand all fees, costs and expenses of all present and future holders of this
Note in connection with this Note and any security and guaranties for this Note,
including but not limited to audit fees and expenses and reasonable attorneys'
fees and legal expenses, plus interest on such amounts at the rate set forth in
this Note; and (v) consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related in any way to this Note or any security of guaranty for this
Note, waives any argument that venue in such forums is not convenient, and
agrees that any litigation initiated by the undersigned against the Lender or
any other present or future holder of this Note relating in any way to this Note
or any security or guaranty for this Note shall be venued (at the sole option of
Lender or the

<PAGE>


holder hereof) in either the District Court of Dakota or Hennepin County,
Minnesota, or the United States District Court, District of Minnesota. Interest
on any amount under this Note shall continue to accrue, at the option of any
present or future holder of this Note, until such holder receives final payment
of such amount in collected funds in form and substance acceptable to such
holder. The maker agrees that, if it brings any action or proceeding arising out
of or relating to this Agreement, it shall bring such action or proceeding in
the District Court of Hennepin County, Minnesota.

No waiver of any right or remedy under this Note shall be valid unless in
writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of all present and future holders of this Note shall be
cumulative and may be exercised singly, concurrently or successively. The
undersigned, if more than one, shall be jointly and severally liable under this
Note, and the term "undersigned," wherever used in this Note, shall mean the
undersigned or any one or more of them. This Note shall bind the undersigned and
the successors and assigns of the undersigned. This Note shall be governed by
and construed in accordance with the laws of the State of Minnesota.

This Note amends and restates, but does not repay, that certain Third Amended
and Restated Revolving Note dated as of July 12, 1999 made by the undersigned
payable to the order of Lender in the original principal amount of
$2,000,000.00.

THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE UNDERSIGNED
HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS NOTE.
THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR FUTURE HOLDER OF
THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL CONSTITUTE GOOD FAITH
AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.

                                    APPLIANCE RECYCLING CENTERS
                                      OF AMERICA, INC.


                                    By /s/ Edward R. Cameron
                                       -----------------------------------------
                                          Edward R. Cameron
                                          President
</PRE>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>0003.htm
<DESCRIPTION>AGREEMENT
<TEXT>


<HTML>
<HEAD>
     <!-- Control Number: 205589                                                           -->
     <!-- Rev Number:     1.0                                                              -->
     <!-- Client Name:    Appliance Recycling Centers of America                           -->
     <!-- Project Name:   Form 10-Q                                                        -->
     <!-- Firm Name:      Prepared by AFPI EDGAR Plus                                      -->
     <TITLE>APPLIANCE RECYCLING CENTERS OF AMERICA FORM 10-Q</TITLE>
</HEAD>
<BODY>

<PRE>
                                                                    EXHIBIT 10.2


                   SUMMER 2000-01 ENERGY EFFICIENCY INITIATIVE
                     REFRIGERATOR/FREEZER RECYCLING PROGRAM
                                    AGREEMENT

                                     Between

                  APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

                                       And

                       SOUTHERN CALIFORNIA EDISON COMPANY

<PAGE>


                                TABLE OF CONTENTS

         1        DEFINITIONS                                                1
         2        GENERAL TERMS                                              3
         3        CONTRACT DOCUMENTS                                         3
         4        SCOPE OF WORK                                              4
         5        CUSTOMER AND APPLIANCE ELGIBILITY                          9
         6        OWNERSHIP AND CONFIDENTIALITY                              10
         7        COMMERCIAL TERMS                                           12
         8        BILLING                                                    13
         9        RESPONSIBILITIES OF ADMINISTRATOR AND ARCA                 14
         10       RIGHT TO AUDIT                                             14
         11       CHANGES                                                    14
         12       PERMITS, CODES AND STATUTES                                15
         13       WARRANTY                                                   15
         14       TITLE                                                      17
         15       INSURANCE                                                  17
         16       INDEMNITY                                                  19
         17       TERM AND TERMINATION                                       20
         18       WRITTEN NOTICES                                            21
         19       SUBCONTRACTS                                               21
         20       CALIFORNIA PUBLIC UTILITIES COMMISSION                     22
         21       NON-WAIVER                                                 22
         22       ASSIGNMENT                                                 22

<PAGE>


                                TABLE OF CONTENTS

         23       FORCE MAJEURE                                              22
         24       GOVERNING LAW                                              23
         25       SECTION HEADINGS                                           23
         26       SURVIVAL                                                   23
         27       NONRELIANCE                                                23
         28       ATTORNEYS' FEES                                            23
         29       COOPERATION                                                23
         30       ENTIRE AGREEMENT                                           23

<PAGE>


THIS AGREEMENT ("Agreement") is made and entered into as of the 11th day of
September, 2000, by and between, APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a
Minnesota corporation ("ARCA"), and SOUTHERN CALIFORNIA EDISON COMPANY, a
California corporation ("Administrator"). Administrator and ARCA are also each
individually referred to herein as "Party" and collectively as "Parties."


                                    RECITALS

         WHEREAS, the California Public Utilities Commission ("CPUC"), by ruling
of the Assigned Commissioners and Administrative Law Judge on the Summer 2000
Energy Efficiency Initiative, D. 00-07-017, dated August 21, 2000, and in
subsequent rulings (collectively referred to as the "Ruling"), approved with
modifications ARCA's proposal, dated July 21, 2000 ("Proposal"), and directed
that Administrator enter into a contract with ARCA for Refrigerator/Freezer
Early Retirement and Recycling Program services ("Program") to Jurisdictional
electric service customers in the specified counties in the service territories
of Pacific Gas & Electric ("PG&E") and San Diego Gas & Electric ("SDG&E").

                                    AGREEMENT

         NOW THEREFORE, in consideration of the foregoing Recital, the mutual
covenants contained herein, the payments and agreement to be made and performed
by Administrator as set forth herein, the Parties agree as follows:


1.       DEFINITIONS

         1.1      Basic Recycling Charge: Per-unit charge described in Section
                  7.2.l.

         1.2      Refrigerants: Chlorofluorocarbon and hydrochlorofluorocarbon
                  and hydrofluorocarbon refrigerants contained in the cooling
                  systems of refrigerators and freezers.

                  1.2.1    CFCs: Chlorofluorocarbons.
                  1.2.2    CFC-11: Chlorofluorocarbons contained in refrigerator
                           and freezer insulting foam.

         1.3      Change Order: Document issued by Administrator to Contractor,
                  executed by ARCA and Administrator, to change a Purchase
                  Order.

<PAGE>


         1.4      Contact Period: September 11, 2000 to December 31, 2001, or as
                  extended by mutual agreement of the Parties.

         1.5      CPUC: the California Public Utilities Commission.

         1.6      Documentation: Specifications, procedures, instructions,
                  reports, test results, analyses, calculations, manuals, and
                  other data specified in the Purchase Order, Change Order, this
                  Agreement, and any amendment to this Agreement, as required by
                  any legal entity having jurisdiction over the Work.

         1.7      Eligible Appliances: Freezers or Refrigerators (as such terms
                  are defined below) that meet the Program appliance eligibility
                  criteria set forth in Section 5.3.

                  1.7.1    Refrigerator: A Primary or a Secondary Refrigerator.
                  1.7.2    Primary Refrigerator: Refrigerator currently in use
                           by Customer as the main refrigeration appliance.
                  1.7.3    Secondary Refrigerator: Surplus or spare refrigerator
                           utilized by Customer concurrently with Primary
                           Refrigerator.
                  1.7.4    Freezer: A free-standing freezer utilized by a
                           Customer concurrently with a Primary Refrigerator.

         1.8      Eligible Customers: Customers who take distribution service
                  from PG&E or SDG&E in accordance with the respective utility's
                  applicable CPUC-approved rules of service, and who reside
                  within the Territories.

         1.9      Hazardous Materials: Any substance or material which has been
                  designated as hazardous or toxic by the U.S. Environmental
                  Protection Agency, the California Department of Toxic
                  Substances Control and/or any other governmental agency now or
                  hereinafter authorized to regulate materials in the
                  environment, including, but not limited to "Materials which
                  require special handling" as defined in California Public
                  Resources Code Section 42167, which is contained in or is
                  derived from the Eligible Appliance.

         1.10     Mercury: Mercury found in switches and temperature control
                  devices in refrigerators and freezers.

         1.11     PCBS: Polychlorinated Biphenyls.

         1.12     Pilot Program: A sub-program within the overall Program
                  designed to demonstrate the feasibility of certain program
                  elements prior to full implementation of a program including
                  such program elements.

<PAGE>


         1.13     Program Participants: Eligible Customers who turn in Eligible
                  Appliances.

         1.14     Purchase Order: Document issued by the Administrator to ARCA
                  and executed by the Parties, which contains the terms and
                  conditions for the Work described herein.

         1.15     Recycling Center: The site at which ARCA will process
                  refrigerators and freezers, remove CFCs, Refrigerants, PCBS,
                  Mercury and Used Oils, and recycle or legally dispose of
                  Hazardous Materials.

         1.16     Refrigerator/Freezer Early Retirement and Recycling Program:
                  That program ordered by the CPUC in its Ruling which requires
                  Administrator to contract with ARCA for implementation of a
                  refrigerator/freezer early retirement and recycling program in
                  the Territories of PG&E and SDG&E (also referred to herein as
                  the "Program").

         1.17     Ruling: as defined in the Recital to this Agreement and any
                  subsequent rulings.

         1.18     Subcontractor: Either an entity contracting directly with ARCA
                  to furnish services or materials as part of or directly
                  related to, the Work; or an entity contracting with
                  Subcontractor of any tier to furnish services or materials as
                  a part of, or directly related to, the Work.

         1.19     Territories: The regions defined by the zip codes set forth in
                  Attachment C located in the following counties in the service
                  territories of SDG&E and PG&E: San Diego and portions of
                  Orange County, San Francisco, San Mateo, and Santa Clara.
                  Beginning January 1, 2001, the regions defined by the zip
                  codes set forth in Attachment C located in the following
                  counties will be added: Alameda, Contra Costa, Santa Cruz and
                  Marin, and any additional regions as directed by the CPUC.

         1.20     Used Oils: Used refrigeration compressor oil.

         1.21     Work: Any and all obligations of ARCA to be performed pursuant
                  to this Agreement.

2.       GENERAL TERMS

         2.1      ARCA shall perform the work and its associated obligations
                  described below as an independent contractor.

<PAGE>


         2.2      This Agreement is appended to, and part of a Purchase Order
                  executed by the Parties.

         2.3      The Program is subject to spending limits, and ARCA shall not
                  invoice SCE for an aggregate amount in excess of $5.5 million
                  to be spent in only PG&E's Territory, or an aggregate amount
                  in excess of $3.0 million to be spent in only SDG&E's
                  Territory.

3.       CONTRACT DOCUMENTS

         3.1      This Agreement shall consist of the following documents: this
                  Agreement, any amendments to this Agreement, the Purchase
                  Order, and Change Orders. Except as provided below in Section
                  13 (Year 2000 warranty provision), in the event of any
                  conflict or apparent conflict between any of the provisions of
                  the documents comprising this Agreement, the following order
                  of construction of the documents shall apply:

                  3.1.1    Amendments to the Agreement in chronological order
                           from the most recent to the earliest;

                  3.1.2    Change Orders incorporating and reflecting any
                           Amendments to the Agreement in chronological order
                           from the most recent to the earliest.

                  3.1.3    This Agreement.

                  3.1.4    Purchase Order incorporating this Agreement.

         3.2      Each Party shall notify the other immediately upon the
                  identification of any such conflict or inconsistency.

4.       SCOPE OF WORK

         4.l.     Advertising and Marketing. ARCA shall:

                  o        Submit to the Administrator all advertising and other
                           marketing materials for approval prior to publishing
                           or distributing.
                  o        Implement a multi-media advertising/marketing
                           campaign (i.e., brochures, print, cable television
                           advertisements, truck signs, 800 number, web site
                           address) for each Target Area which focuses on system
                           load impacts of operating inefficient refrigerators
                           and freezers, operating costs and potential private
                           energy savings, and environmental benefits.

<PAGE>


                  o        Provide local print and television media with program
                           information, press kits, facility tours, collection
                           ride-along events, press releases, and other
                           opportunities to feature the Program.
                  o        As appropriate, solicit marketing affiliate
                           participation from major retailers (i.e., Sears,
                           Circuit City, Home Depot) including point-of-sale
                           displays, and provide program information to consumer
                           groups (particularly those assisting under-served
                           segments of the residential electric customer base),
                           community-based organizations, local governments,
                           property owner/manager's associations, homeowner and
                           tenant organizations, environmental organizations,
                           and civic groups.
                  o        Provide a per-unit "bounty" to the authorized
                           marketing affiliate for each participant referred to
                           the program who turns in an Eligible Appliance for
                           recycling.
                  o        Ensure that all advertising and promotional materials
                           include program guidelines and restrictions, duration
                           of the program, incentive amount, public and private
                           program benefits, the 800 number and web site
                           address; and will clearly state that the program is
                           funded by California electric utility customers under
                           the auspices of the Commission.
                  o        Explore adding program information to the
                           Commission's web site and creating links from other
                           sites to direct potentially Eligible Customers to the
                           Program web site.

         4.2      Customer Services.  ARCA shall:

                  o        Establish an 800 telephone number and provide trained
                           customer service staff to assist residential
                           consumers Monday through Friday from 6:00 a.m. to
                           6:00 p.m. Pacific time with questions about the
                           program and to schedule their participation.
                  o        Verify customer eligibility (i.e., live in the
                           Territory, own a working refrigerator/freezer).&#146;
                  o        Schedule in-home appliance removal appointments
                           (choices of service dates and morning/afternoon
                           collection, handle reschedule and cancellation
                           requests).
                  o        Provide customers with information about preparing
                           their refrigerator for removal (appliance must be
                           plugged in and working at the time of pickup, empty
                           and defrosted).
                  o        Conduct a brief customer survey, using questions
                           provided by Administrator, with a randomly selected
                           20% of customers who schedule a collection
                           appointment.
                  o        Produce written confirmation of appliance collection.
                  o        Provide customers with a day-ahead confirmation call.
                  o        Fulfill incentive payments (checks are sent
                           approximately 3 weeks after collection of the
                           refrigerator/freezer).

<PAGE>


         4.3      Collection.  ARCA shall:

                  o        Hire and train drivers in the program service
                           territory, provide collection vehicles and trailers,
                           and establish a local transfer site.
                  o        Collect all Eligible Appliances from customers'
                           residences or facilities within 20 days from the date
                           of initial customer contact unless otherwise
                           requested by the customer, and secure customer
                           signature.
                  o        Contact customers a day ahead of their collection
                           appointment as a reminder and assist customers
                           needing to reschedule appointments.
                  o        Ask program participants to have their old
                           refrigerator/freezer plugged in at the time of
                           collection, or located within 50 feet of an outlet,
                           so that the operational condition of the appliance
                           can be confirmed.
                  o        Remove refrigerators and freezers and transfer to
                           trailers to be shipped to ARCA's center in Compton,
                           CA for processing and recycling.

         4.4      Refrigerator Processing.  ARCA shall:

                  o        Operate a center in compliance with all federal,
                           state and local hazardous waste management and
                           recycling regulations.
                  o        Ensure that all Refrigerants are recovered and
                           recycled.
                  o        Recover and recycle CFC-11 blowing agents in the
                           polyurethane foam insulation of refrigerators and
                           freezers.
                  o        Ensure that all hazardous components, such as
                           capacitors containing polychlorinated biphenyls
                           (PCBS) or mercury-containing switches, are removed
                           and properly stored prior to shipment for disposal or
                           recycling.
                  o        Ensure that used compressor oil is recovered and
                           processed to reduce the level of hazardous halogens
                           before the oil is collected by a licensed oil
                           recycler.
                  o        Ensure that PCB components are incinerated at a
                           federally licensed hazardous waste incineration
                           facility.
                  o        Ensure that mercury is recovered by a licensed
                           mercury reclamation facility for recycling.
                  o        Ensure that Refrigerants and non-CFC refrigerants are
                           sold to a certified refrigerant reclamation facility
                           for recycling.
                  o        Ensure that processed refrigerators and freezers are
                           sold to a metals recovery facility for recycling.

         4.5      Records. ARCA shall document and maintain records for services
                  under this Agreement as follows:

<PAGE>


                  4.5.1    A Customer Comment Tracking System for recording
                           customer inquiries, complaints, and positive
                           feedback.

                  4.5.2    Appliance Turn-in Order Form ("ATO") to collect data
                           such as customer name, address, home and work phone
                           numbers; Appliance manufacturer's name; Appliance
                           model and style; defrost type; color, size, and
                           estimated age of unit; location of Appliance within
                           the residence; final disposition code (which
                           indicates operating condition of Appliance and/or
                           Incentive received); special pick-up instructions (if
                           applicable); and other information as needed to
                           provide required reports under this Agreement.

                  4.5.3    Compilation of data in subsection 4.5.2 in electronic
                           mode, employing a software program suitable for
                           exchange of information with Administrator, subject
                           to the approval of Administrator's Program Manager.

         4.6      Customer Survey. ARCA shall conduct a customer survey, shown
                  in Exhibit A, which is attached and incorporated by reference
                  herein, using a stratified purposeful sample of 5% to 20% of
                  the Program Participants. The purpose of the survey shall be
                  to elicit information such as appliance use, customer
                  demographics and customer satisfaction. Administrator may
                  modify the information collected or reported in the survey, or
                  the stratification and frequency of the survey, provided the
                  modified survey is comparable to Exhibit A.

         4.7      Incentives. ARCA shall establish and implement a financial
                  incentive service as follows:

                  4.7.1    Each Program Participant will be entitled to receive
                           a check in an amount to be determined by ARCA, not to
                           exceed seventy-five Dollars ($75.00). The check is
                           referred to as the "Incentive".

                           4.7.1.1      In the event ARCA determines the
                                        incentive amount will be less than
                                        $75.00, ARCA will notify SCE at least 30
                                        days prior to implementing the lower
                                        incentive amount.

                  4.7.2    ARCA shall provide Administrator with a weekly
                           listing of Customers who receive an Incentive.

<PAGE>


                  4.7.3    Upon Administrator's payment to ARCA as described in
                           Section 7 of this Agreement, Administrator shall be
                           under no further obligation with respect to
                           reimbursement of such amounts and such reimbursement
                           shall constitute full payment to ARCA on behalf of
                           the Program Participants entitled to Incentives. Upon
                           Administrator's payment to ARCA of such
                           reimbursement, ARCA shall be deemed the holder of
                           such property as far as the interests of the Program
                           Participants entitled thereto are concerned for any
                           and all purposes, including, but not limited to,
                           complying with the unclaimed property laws of
                           California and any and all other applicable states.
                           Administrator shall not assume any responsibility for
                           other disposition of the Incentive after such payment
                           is paid to ARCA and shall not be entitled to the
                           reversion of any amounts so paid.

         4.8      Reporting. ARCA shall provide Administrator with reports for
                  the services performed under this Agreement as follows:

                  4.8.1    A monthly report, provided no later than the 15th day
                           of the month, and a quarterly report, each which
                           shall contain the following:

                           (a)      the number of Eligible Appliances processed
                                    under this Agreement during the previous
                                    month and the size in cubic feet, year of
                                    manufacture, style, and defrost type.

                           (b)      environmental data such as an estimated
                                    breakdown of amount of refrigerants
                                    recovered; number of pounds of Refrigerants,
                                    PCBs and Mercury removed; amount of Used
                                    Oils recycled; number of units containing
                                    CFC-11 foam; and weight of metals and
                                    non-recyclable materials sold for recycling.

                           (c)      monthly Customer Comment Tracking System
                                    information required pursuant to Section
                                    4.5.1.

                           (d)      aging reports indicating the number of
                                    Eligible Appliances that were collected
                                    during the preceding month and that were
                                    scheduled for collection from Customers
                                    during that month, the date of the initial
                                    contact with the Customer, the date or dates
                                    the appliance was scheduled for collection,
                                    and the actual collection date.

<PAGE>


                  4.8.2    A final report no later than thirty (30) days after
                           the termination of this Agreement of all amounts paid
                           by ARCA in compliance with any unclaimed property
                           laws pursuant to Section 4.7.3 hereof.

                  4.8.3    Weekly invoices as provided in Section 8.

                  4.8.4    Upon reasonable written request from an authorized
                           representative of Administrator, special and
                           nonrecurring reports during the course of the
                           Program. Such report content will be developed by the
                           Parties and shall not necessitate unreasonable labor
                           which would otherwise require the negotiation of a
                           charge separate from the Basic Recycling Charge.

                  4.8.5    ARCA shall maintain records of its Program
                           Participants. In all cases, when ARCA picks up an
                           Eligible Appliance from a Program Participant, ARCA
                           shall obtain the Program Participant's signature on
                           the ATO.

                  4.8.6    ARCA shall submit to Administrator estimates of
                           Program impact in the form of a final report at the
                           end of the Contract Period. Such report shall include
                           (but need not be limited to) the following:

                           o        a description of all activities undertaken
                                    as part of the Program
                           o        the number of units retired and recycled
                           o        a demonstration of the energy and demand
                                    savings achieved.

                  4.8.7    ARCA shall make all data used in the preparation of
                           the final report of Program impact estimates,
                           referred to in Section 4.8.6 above, available to
                           Administrator for auditing or other verification
                           purposes.

         4.9      Website. ARCA shall design and, subject to the prior approval
                  of Administrator, implement a website which enables Eligible
                  Customers in the Territories to electronically submit
                  information for prequalification and schedule appointments on
                  a 24 hour, seven day a week basis.

<PAGE>


         4.10     Cooperation, ARCA will work cooperatively with the
                  Administrator, the CPUC and other interested parties to
                  provide feed-back, determine Program effectiveness and
                  recommend modifications to the Program's design or procedures.

5.       CUSTOMER AND APPLIANCE ELIGIBILITY

         5.1      Customer eligibility for the Program shall depend on the
                  following:

                5.1.1      Customer is an Eligible Customer in the Territories
                           listed in Section 1.9 and occupies a single-family
                           residential (Domestic Rate) or multi-unit dwelling or
                           mobile home, or other customers as determined
                           eligible under the Pilot Programs described in
                           Section 5.1.4.

                5.1.2      Customer is the owner of the Eligible Appliance or
                           possesses written consent from the actual owner to
                           turn in the Eligible Appliance.

                5.1.3      Customer turns in no more than two Eligible
                           Appliances per year unless otherwise allowed pursuant
                           to Pilot Programs described in Section 5.1.4.

                5.1.4      The Pilot Programs to be implemented during the
                           Contract Period of this Program shall include: i)
                           acceptance of Eligible Appliances from
                           landlords/multi-family unit owners; (ii) acceptance
                           of Eligible Appliances from non-profit organizations
                           located within the Territories; and (iii) acceptance
                           and prequalifications of PG&E and SDG&E's customers
                           who participate in Refrigerator Rebate Programs if
                           linkages to the utility programs can be created.

         5.2      Commercial customers do not qualify for the Program. Landlords
                  are considered commercial customers unless otherwise
                  determined eligible under the Pilot Programs described in
                  Section 5.1.4.

         5.3      An Eligible Appliance must be capable of cooling and/or
                  freezing, as applicable, at time of collection and its size
                  must be 10 cubic feet or more unless it is otherwise
                  determined eligible under the Pilot Programs described in
                  Section 5.1.4.

         5.4      Commercial refrigerators, ammonia-containing gas
                  refrigerators, commercial freezers, and room air conditioners
                  do not qualify as Eligible Appliances.

<PAGE>


6.       OWNERSHIP AND CONFIDENTIALITY

         6.1      All information disclosed by Administrator during meetings or
                  negotiations with regard to the Program, and any information
                  contained in drawings, specifications, technical reports, and
                  data, provided by Administrator to ARCA during performance of
                  this Agreement shall be held in confidence by ARCA and used
                  only for the performance of the Work pursuant to this
                  Agreement.

         6.2      ARCA, its employees, and any subcontractors shall not disclose
                  any information concerning SDG&E's or PG&E's customers to any
                  person other than Administrator's personnel either during the
                  term of this Agreement or after its completion, without ARCA
                  having obtained the prior written consent of Administrator,
                  except as provided by lawful court order or subpoena and
                  provided ARCA gives Administrator advance written notice of
                  such order or subpoena. Prior to any approved disclosure,
                  persons receiving said information, including ARCA, its
                  employees, or third parties, must enter into a nondisclosure
                  agreement with Administrator. ARCA agrees to require its
                  employees and subcontractors to execute a nondisclosure
                  agreement prior to performing any services under this
                  Agreement. This provision, however, does not prohibit ARCA
                  from disclosing non-confidential information concerning this
                  Agreement to the CPUC in any CPUC proceeding, or any
                  CPUC-sanctioned meeting or proceeding or other public forum.

         6.3      All materials provided by Administrator to ARCA during the
                  performance of this Agreement shall be returned to
                  Administrator after this Agreement is terminated or at the
                  request of Administrator. ARCA shall not duplicate any
                  material furnished by Administrator without prior written
                  approval from Administrator.

         6.4      Except as required by the CPUC, Administrator, its employees
                  and any subcontractors of Administrator shall not disclose any
                  confidential or proprietary information provided by ARCA
                  ("ARCA's Confidential Information") to any person other than
                  ARCA's personnel, either during the term of the Agreement, or
                  after its completion, without having obtained the prior
                  written consent of ARCA. By way of example, ARCA's
                  Confidential Information shall include, without limitation,
                  ARCA's systems for oil degassing, Refrigerant recovery and
                  ARCA's computer software. Administrator agrees to require its
                  employees to comply with the non-disclosure requirements of
                  this Section prior to any contact with, or evaluation of
                  ARCA's Confidential Information.

<PAGE>


         6.5      Administrator agrees that, without the prior written consent
                  of ARCA, it will not, during the term or after termination of
                  this Agreement, directly or indirectly, disclose to any
                  individual, corporation, or other entity, or use for its own
                  or such other's benefit, any of ARCA's Confidential
                  Information, whether reduced to written or other tangible
                  form, which:

                  6.5.1    Is not generally known to the public or in the
                           industry;

                  6.5.2    Has been treated by ARCA or any of its subsidiaries
                           as confidential or proprietary; and

                  6.5.3    Is of a competitive advantage to ARCA or any of its
                           subsidiaries and in the confidentiality of which ARCA
                           or any of its subsidiaries has a legally protectable
                           interest.

         6.6      ARCA's Confidential Information which becomes generally known
                  to the public or in the industry, or, in the confidentiality
                  of which, ARCA and its subsidiaries cease to have a legally
                  protectable interest, shall cease to be subject to the
                  restrictions of this Section 6.

7.       COMMERCIAL TERMS

         7.1      Payment

                  Administrator shall pay to ARCA, as full compensation for
                  completing the Work, the prices set forth in Exhibit B as
                  described in this Section 7.

         7.2      Summary of Charges

                  7.2.1    Basic Recycling Charge. Administrator shall pay to
                           ARCA a per-unit Basic Recycling Charge for the number
                           of units collected and recycled pursuant to this
                           Agreement at the price or prices set forth on Line C
                           of Exhibit B. The Basic Recycling Charge covers the
                           scope of work described in Section 4, excluding: the
                           Incentive charge, CFC-11 Charge, Advertising Charge,
                           and any Financing Charge.

                           7.2.1.1  True-Up. The pricing in line C of Exhibit B
                                    assumes a total volume for the Project of
                                    20,001 to 40,000 units. In the event the
                                    total number of units collected and recycled
                                    under the Program at any time exceeds
                                    40,000, then the pricing under Exhibit B
                                    shall be based on line D for the 40,000
                                    units previously processed, and for all
                                    subsequent

<PAGE>


                                    units processed (up to 60,000 units). In
                                    addition, ARCA shall provide Administrator
                                    with a credit, allocated based on the number
                                    of such 40,000 units attributable to PG&E's
                                    and SDG&E's Territory, in the total amount
                                    of $228,000. ARCA shall apply such credited
                                    amounts against future invoices for each of
                                    PG&E's and SDG&E's Territory, respectively,
                                    subject to the spending limitations in
                                    Section 2.3. ARCA shall refund to
                                    Administrator any unused credit within 30
                                    days after termination of this Agreement.

                  7.2.2    Incentive Charge. Administrator shall pay to ARCA the
                           per-unit Incentive charge in the amount set forth in
                           line C of Exhibit B.

                  7.2.3    CFC-11 Charge. Administrator shall pay to ARCA the
                           per-unit CFC-11 charge in the amount set forth in
                           Line C of Exhibit B for all units collected.

                  7.2.4    Advertising Charge. Administrator shall pay to ARCA
                           the perunit advertising charge in the amount set
                           forth in line C of Exhibit B.

                  7.2.5    Financing Charges. Administrator shall pay to ARCA
                           monthly interest at the rate of three-quarter of one
                           percent (0. 75%) on the average monthly balance of
                           any unpaid and overdue invoice over and above the
                           charges set forth on Exhibit B.

         7.3      ARCA agrees that any agreement it has, or in which it may
                  enter with other utilities or agencies for a recycling
                  program, shall not detrimentally affect ARCA's services under
                  this Agreement.

8.       BILLING

         8.1      ARCA shall submit separate weekly invoices respectively
                  relating to the Territories of SDG&E and PG&E, respectively,
                  indicating the per-unit charges for the refrigerators and
                  freezers collected, processed, and recycled. ARCA shall
                  include with each invoice copies of all ATOs relating to
                  invoiced amounts, and a summary, setting forth for each ATO
                  included with the invoice, the ATO number, zip code, first
                  unit price, additional units, and total price. Administrator
                  shall have no obligation to pay any invoice unless all of the
                  data and documents listed above have been received. ARCA shall
                  apply a per-unit charge on units that have been disabled and
                  only for the following transactions:

<PAGE>


                  8.1.1    Collection of an Eligible Appliance.

                  8.1.2    Collection contact made for Eligible Appliance that
                           cannot be removed due to obstruction because of size
                           of structural barrier provided that ARCA obtains
                           written permission from Customer to permanently
                           disable said unit, and ARCA then permanently disables
                           the unit.

         8.2      ARCA shall apply a 25% per unit discount to the Basic
                  Recycling Charge to any additional units when two Eligible
                  Appliances are removed during a single collection appointment
                  from a Customer's residence. Said discount shall be clearly
                  documented and identified in ARCA's invoice.

         8.3      Administrator shall make payment (less any unsubstantiated or
                  incorrect charge) within thirty days of receipt of an invoice
                  from ARCA.

         8.4      ARCA acknowledges that Administrator will forward to SDG&E and
                  PG&E, for their review, copies of the supporting documentation
                  and reports ARCA submits to Administrator. In the event SDG&E
                  or PG&E provides Administrator with evidence demonstrating
                  that any invoiced amount paid by Administrator to ARCA was
                  incorrect or improper, Administrator shall have the right to
                  offset from current payments due ARCA the full amount of such
                  incorrect or improper payment, pending resolution of the
                  discrepancy. No Financing Charges shall accrue on any amount
                  offset by Administrator unless the offset was improper or
                  incorrect.

9.       RESPONSIBILITIES OF ADMINISTRATOR AND ARCA

         9.1      Administrator shall be responsible for making contractual
                  arrangements to transfer funding from PG&E and SDG&E to
                  Administrator for payment, for arranging for its cost sharing
                  with PG&E and SDG&E, and shall administer the Program for
                  purposes of streamlining administration and oversight.

         9.2      ARCA shall work with the Administrator to ensure that the
                  Program meets the test for cost-effectiveness, using the 1.0
                  minimum ratio total resource cost test, as set forth in the
                  Rulings. ARCA shall provide Administrator with all
                  documentation necessary to demonstrate such test is met.

         9.3      ARCA shall provide Administrator with estimates of Program
                  impact at the conclusion of this Contract.

<PAGE>


         9.4      Administrator and ARCA shall meet their respective directives
                  pursuant to the Rulings.

10.      RIGHT TO AUDIT

         During the Program and for 3 years after termination of the Agreement,
         Administrator, or its Authorized Representative, shall have the right
         and free access, at any reasonable time during normal business hours,
         to examine, audit, and copy all ARCA's records and books as related to
         ARCA's obligations under this Agreement, including, but not limited to,
         verification of costs to Administrator, as claimed by ARCA.

11.      CHANGES

         Changes to this Agreement shall be made by mutual agreement of the
         Parties through a written amendment to the Agreement. Such written
         amendment may be incorporated into this Agreement through a subsequent
         Purchase Order or Change Order.

12.      PERMITS, CODES, AND STATUTES

         12.1     ARCA shall perform the Work set forth in this Agreement in
                  accordance with all applicable federal, state, and local laws,
                  rules, and/or ordinances. Prior to performance of any
                  services, ARCA shall, at its own cost, have obtained, and
                  shall have required all Subcontractors to obtain, all licenses
                  and permits required by law, rule, regulation, and ordinance,
                  or any of them, to engage in the activities required in
                  connection with this transaction. Said licenses and permits
                  shall be kept current at all times during the term of the
                  Agreement. ARCA also represents and warrants that, to the best
                  of its knowledge, based upon reasonable and prudent inquiry,
                  any storage site and any disposal facility to which the
                  Hazardous Materials may be moved are in compliance with any
                  and all federal, state and local laws and regulations
                  pertaining thereto and that such storage sites and disposal
                  facilities are suitable and may lawfully receive and/or
                  dispose of the Hazardous materials.

         12.2     ARCA shall comply with all applicable local, state, and
                  federal safety and health laws in effect an the date of this
                  Agreement, including, but not limited to, EPA, California EPA,
                  RCRA, the Occupational Safety and Health Act of 1970 (OSHA),
                  and all standards, rules, regulations, and orders issued
                  pursuant to such local, state, and federal safety and health
                  laws. Should any such law, rule, or regulation be enacted or
                  promulgated subsequent to the date of this Agreement, which
                  renders ARCA's performance impractical, ARCA and Administrator
                  shall, in good faith, negotiate an amendment to this Agreement
                  reasonably compensating ARCA for its additional costs.

<PAGE>


13.      WARRANTY

         13.1     ARCA warrants to Administrator that the Work shall be
                  performed in a competent manner, in accordance with this
                  Agreement, and that the acceptance, handling, storage,
                  recycling, and disposal of the refrigerators and freezers and
                  the Hazardous Materials shall be in accordance with (i) the
                  requirements of this Agreement and (ii) the applicable local,
                  state, and federal laws and regulations in effect at the time
                  of the work performed.

         13.2     ARCA represents and warrants (i) that it has knowledge of the
                  California Public Resources Code and the California Health and
                  Safety Code which require that refrigerators and freezers be
                  processed to remove Refrigerants, PCBS, Mercury, and Used Oils
                  prior to crushing for transport or transferring to a baler or
                  shredder for recycling; (ii) that it has knowledge of the
                  hazards associated with the removal, handling, storage,
                  recycling, and legal disposal of Hazardous Materials; (iii)
                  that it has experience and expertise in such removal,
                  handling, storage, recycling, and legal disposal; (iv) that it
                  uses only qualified personnel, (including subcontractor's and
                  agent's personnel) who have been instructed and certified in
                  the proper safety procedures to be used in such removal,
                  handling, storage, recycling, or legal disposal; and (v) that
                  it will continue to operate and maintain its Recycling Center.

         13.3     Year 2000 Warranty. ARCA hereby represents and warrants to
                  Administrator and agrees that its software, hardware and
                  equipment, and any piece, part, component or system thereof,
                  and/or work provided hereunder will (a) at the time of
                  delivery or performance be and will remain Year 2000 Compliant
                  and (b) not fail to meet, or to be delivered in accordance
                  with, all the requirements and specifications of this
                  Agreement, as a result of any failure of ARCA or of its
                  operations, suppliers, software, hardware or equipment to be
                  Year 2000 compliant. In order for the software to be Year 2000
                  Compliant, it must accurately process date/time data
                  (including, but not limited to, calculating, comparing,
                  sorting, sequencing and calendar generation), including single
                  century formulas and multi-century formulas, from, into,
                  within and between the twentieth and twenty-first centuries,
                  including all dates and leap year calculations, and will not
                  malfunction or generate abnormal endings, incorrect values or
                  invalid results involving such date/time data; (ii) accurately
                  interface with other software, hardware or equipment, as
                  necessary and appropriate, in order to supply, receive,
                  process or transmit date/time and other data; (iii) provide
                  that date/time-related functionalities, date/time fields and
                  any user input interfaces include a four digit year format
                  and/or other appropriate indication of century; (iv) not cause
                  any of Administrator's other software, hardware or equipment
                  that Administrator deems to be otherwise Year 2000 compliant
                  to fail to be Year 2000 compliant; and (v) not cause any of
                  Administrator's other software, hardware or equipment that

<PAGE>


                  Administrator deems to be otherwise Year 2000 ready to fail to
                  be Year 2000 ready. For purposes of this Agreement,
                  Administrator shall deem software, hardware or equipment to be
                  "Year 2000 compliant" if it has been or is determined by
                  Administrator to accurately process date/time data from, into,
                  within and between the twentieth and twenty-first centuries
                  including all dates and leap year calculations. For purposes
                  of this Agreement, Administrator shall deem software, hardware
                  or equipment to be "Year 2000 ready" if it has been or is
                  determined by Administrator to be suitable for continued use
                  into the Year 2000 and beyond.

         13.4     Year 2000 Warranty Controlling. In the event of any conflict
                  or apparent conflict between any other provisions of this
                  Agreement the terms and conditions of this Year 2000 Warranty
                  shall control. Nothing in this Year 2000 Warranty shall be
                  construed to limit any rights or remedies Administrator may
                  otherwise have under any other provision of this Agreement, or
                  under any other contract or agreement between the Parties.

14.      TITLE

         14.1     Title to the Hazardous Materials shall pass to ARCA when ARCA
                  collects refrigerators and freezers from Customers.

         14.2     Title of collected refrigerators and freezers shall pass to
                  ARCA.

15.      INSURANCE

         15.1     Without limiting ARCA's liability to Administrator, including
                  the requirements of Section 16 (Indemnity), ARCA shall
                  maintain for the Work, and shall require that each
                  Subcontractor of the first tier maintain, at all times during
                  the Work and at its own expense, valid and collectible
                  insurance as described below. This insurance shall not be
                  terminated, expire, not be materially altered, except on
                  thirty days written notice to Administrator. ARCA shall
                  furnish Administrator with certificates of insurance and forms
                  acceptable to Administrator and shall require each
                  Subcontractor of the first tier to furnish ARCA with
                  certificates of insurance, as evidence that policies do
                  provide the required coverage and limits of insurance listed
                  below. Such certificates shall be furnished to Administrator's
                  Program Manager by ARCA upon receipt of the Purchase Order,
                  and by Subcontractor for the first tier upon receipt of its
                  subcontract, but in any event prior to start of its portion of
                  the Work. Any other insurance carried by Administrator, its
                  officers, agents, and employees, which may be applicable,
                  shall be deemed to be excess insurance, and ARCA's insurance
                  shall be deemed primary for all purposes notwithstanding any
                  conflicting provision in ARCA's policies to the contrary.

<PAGE>


                  (i)      Workers' Compensation Insurance with statutory
                           limits, as required by the state in which the Work is
                           performed, and Employer's Liability Insurance with
                           limits of not less than $5,000,000. Carriers
                           furnishing such insurance shall be required to waive
                           all rights of subrogation against Administrator, its
                           officers, agents, employees, and other contractors
                           and subcontractors.

                  (ii)     Comprehensive Bodily Injury and Property Damage
                           Liability Insurance, including owners, and
                           contractors' protective liability, product/completed
                           operations liability, contractual liability, and
                           coverage for liability incurred as a result of sudden
                           and accidental discharge, dispersal, release or
                           escape of polluting materials, (excluding automobile)
                           with a combined single limit of not less than
                           $3,000,000 for each occurrence. Such insurance shall:
                           (a) acknowledge Administrator and SDG&E or PG&E, as
                           appropriate, their respective officers, agents, and
                           employees, as additional insureds; (b) be primary for
                           all purposes; and (c) contain standard
                           cross-liability provisions.

                  (iii)    Automobile Bodily Injury and Property Damage
                           Liability Insurance with a combined single limit of
                           not less than $3,000,000 for each occurrence. Such
                           insurance shall cover liability arising out of the
                           use by ARCA and Subcontractors of owned, non owned
                           and hired automobiles in the performance of the Work.
                           As used herein, the term "automobile" means vehicles
                           licensed or required to be licensed under the Vehicle
                           Code of the state in which the Work is performed.
                           Such insurance shall acknowledge Administrator and
                           SDG&E or PG&E, as appropriate as additional insureds
                           and be primary for all purposes.

                  (iv)     Environmental Impairment Expense Insurance with a
                           combined single limit of not less than $5,000,000 for
                           each occurrence and overall limits of $10,000,000.
                           Such insurance shall provide coverage for necessary
                           costs or expense of removing, cleaning up,
                           transporting, nullifying, and rendering ineffective,
                           or any of them, any substance which has caused
                           environmental impairment and such insurance shall
                           contain no exclusions for non-sudden and/or
                           non-accidental discharge, release or escape of
                           polluting materials. Such insurance shall acknowledge
                           Administrator and SDG&E or PG&E, as appropriate, as
                           additional insureds and be primary for all purposes.

<PAGE>


                           ARCA shall report immediately to Administrator and
                           confirm in writing any injury, loss, or damage
                           incurred by ARCA or Subcontractors in excess of
                           $500.00, or its receipt of notice of any claim by a
                           third party in excess of $500.00, or any occurrence
                           that might give rise to such claim.

                           If ARCA fails to comply with any of the provisions of
                           this Section 15, ARCA shall, at its own cost, defend,
                           indemnify, and hold harmless Administrator, its
                           officers, agents, employees, assigns, and successors
                           in interest, from and against any and all liability,
                           damages, losses, claims, demands, actions, causes of
                           action, costs, including in-house and outside
                           attorney's fees and expenses, or any of them,
                           resulting from the death or injury to any person or
                           damage to any property to the extent that
                           Administrator would have been protected had ARCA
                           complied with all of the provisions of this Section.

16.      INDEMNITY

         16.1     ARCA shall, at its own cost, indemnify, defend, reimburse, and
                  hold harmless Administrator, its officers, directors,
                  employees, agents, assigns, and successors in interest, from
                  and against any and all liability, damages, losses, claims,
                  suits, demands, actions, causes of action, costs, expenses,
                  including in-house and outside attorney's fees and expenses,
                  or any of them resulting from the death or injury to any
                  person or damage to or destruction of any property caused by
                  ARCA, Subcontractors, and employees, officers and agents of
                  either ARCA or Subcontractors, or any of them, and arising out
                  of or attributable to the performance or nonperformance of
                  ARCA's obligations under this Agreement and including, without
                  limitation, failure to comply fully with any federal, state,
                  or local law, statute, regulation, rule, ordinance, or
                  government directive which directly or indirectly regulates or
                  affects the handling, storage, recycling, or disposal of the
                  Hazardous Materials to be managed by ARCA hereunder. In all
                  cases of death or injury to employees, officers or agents of
                  either ARCA or Subcontractors, whether or not caused by ARCA,
                  Administrator shall be indemnified by ARCA for any and all
                  liability except to the extent such death or injury results
                  from the negligence of Administrator.

<PAGE>


         16.2     ARCA shall, at its own cost, indemnify, defend, reimburse, and
                  hold harmless Administrator, its officers, directors,
                  employees, and agents, assigns, and successors in interest,
                  from and against any and all liability imposed upon, or to he
                  imposed upon Administrator, under any law imposing liability
                  for the environmental clean-up of the Hazardous Materials at
                  any location (other than Administrator's property) where the
                  Hazardous Materials have been placed, stored or disposed of in
                  the performance or nonperformance of ARCA's obligations under
                  this Agreement, or any other site to which the Hazardous
                  Materials have migrated.

         16.3     The indemnities set forth in this Section 16 shall not be
                  limited by the insurance requirements set forth in Section 15.

17.      TERM AND TERMINATION

         17.1     This Agreement shall commence on the date first written above
                  and shall continue in effect until the first to occur of (1)
                  conclusion of the Contract Period, and (ii) ninety (90) days
                  after ARCA has invoiced Administrator for a total aggregate
                  amount of $8.5 million under this Agreement. In either event,
                  ARCA shall complete all work associated with all amounts
                  invoiced under this Agreement. This Agreement may be extended
                  as agreed to in writing by the Parties, subject to approval by
                  the CPUC.

         17.2     Either Party may terminate the Agreement for cause by
                  providing 60 days advance written notice to the other Party.
                  If the default has not been cured within the 60 day notice
                  period, the non-defaulting party may declare this Agreement
                  terminated, effective on the last day of said notice period
                  ("Termination Date"). ARCA shall be paid for all work
                  performed prior to the Termination Date.

         17.3     Administrator shall have the right to terminate this Agreement
                  by providing 30 days advance written notice to ARCA upon CPUC
                  mandate, or upon depletion of the amount of funding authorized
                  by the CPUC for the Contract Period. In the event the
                  Agreement is terminated upon CPUC mandate, Administrator shall
                  pay ARCA all amounts owed under the Agreement as of 30 days
                  after Administrator's written notice to ARCA of the CPUC's
                  mandate (the "Termination Date"). In such event, Administrator
                  shall only be obligated to pay contractor for such
                  refrigerators and freezers actually collected by ARCA for
                  recycling as of the Termination Date.

<PAGE>


         17.4     In the event of termination pursuant to this Section 17, ARCA
                  and Administrator shall work cooperatively to facilitate the
                  termination of the Summer Initiative.

         17.5     Each Party shall immediately provide at no cost to the other,
                  any report, testimony, or any communications with the CPUC, or
                  any board, division, committee or member thereof, which could
                  reasonably be anticipated to effect the Program or which
                  addresses it in any manner.

18.      WRITTEN NOTICES

         18.1     Any written notice, demand or request required or authorized
                  in connection with this Agreement, shall be deemed properly
                  given if delivered in person or sent by facsimile, nationally
                  recognized overnight courier, or first class mail, postage
                  prepaid, to the address specified below, or to another address
                  specified in writing by Administrator as follows:

                  ADMINISTRATOR:  Southern California Edison Company
                                  Attn: Jeannette Duvall-Ward
                                  2244 Walnut Grove Avenue - Quad 2A
                                  Rosemead, CA 91770
                                     (626) 302-8791 telephone
                                     (626) 302-8313 facsimile

                  ARCA:           Appliance Recycling Centers of America, Inc.
                                  Attention: Mr. Jack Cameron President
                                  7400 Excelsior Boulevard Minneapolis, MN 55426
                                     (952) 612-1717 telephone
                                     (952) 612-1801 facsimile

         18.2     Notices shall be deemed received (a) if personally or
                  hand-delivered, upon the date of delivery to the address of
                  the person to receive such notice if delivered before 5:00
                  p.m., or otherwise on the Business Day following personal
                  delivery; (b) if mailed, three Business Days after the date
                  the notice is postmarked; (c) if by facsimile, upon electronic
                  confirmation of transmission, followed by telephone
                  notification of transmission by the noticing Party; or (d) if
                  by overnight courier within the time limits set by that
                  courier for next-day

<PAGE>


19.      SUBCONTRACTS.

         19.1     ARCA shall contractually require each Subcontractor of the
                  first tier providing service in connection with the Work to be
                  bound by general terms and conditions protecting Administrator
                  which are equivalent to the terms and conditions of this
                  Agreement.

         19.2     ARCA shall, at all times, be responsible for the work, and
                  acts and omissions, of Subcontractors and persons directly or
                  indirectly employed by them for services in connection with
                  the Work. The Purchase Order and this Agreement shall not
                  constitute a contractual relationship between any
                  Subcontractor and Administrator nor any obligation for payment
                  to any Subcontractor.

20.      CALIFORNIA PUBLIC UTILITIES COMMISSION

         This Agreement and the Purchase Order incorporating this Agreement are
         entered into in furtherance of the Ruling, and shall at all times be
         subject to such changes or modifications by the CPUC as it may from
         time to time direct in the exercise of its jurisdiction.

21.      NON-WAIVER

         None of the provisions of the Agreement shall be considered waived by
         either Party unless such waiver is specifically stated in writing.

22.      ASSIGNMENT

         Administrator may be required to assign its rights, duties and
         obligations under this Agreement to the CPUC and/or its designee. ARCA
         and Administrator hereby consent to such assignment. Other than an
         assignment to the CPUC or the CPUC's administrator, neither Party shall
         delegate or assign this Agreement or any part or interest thereof,
         without the prior written consent of the other Party, and any
         assignment without such consent shall be void and of no effect.

<PAGE>


23.      FORCE MAJEURE

         Failure of ARCA to perform any of the provisions of this Agreement by
         reason of any of the following shall not constitute an event of default
         or breach of this Agreement: strikes, picket lines, boycott efforts,
         earthquakes, fires, floods, war (whether or not declared), revolution,
         riots, insurrections, acts of God, acts of government (including,
         without limitation, any agency or department of the United States of
         America), acts of the public enemy, scarcity or rationing of gasoline
         or other fuel or vital products, inability to obtain materials or
         labor, or other causes which are reasonable beyond the control of the
         ARCA.

24.      GOVERNING LAW

         The contract shall be interpreted, governed, and construed under the
         laws of the State of California as if executed and to be performed
         wholly within the State of California.

25.      SECTION HEADINGS

         Section headings appearing in this Agreement are for convenience only
         and shall not be construed as interpretations of text.

26.      SURVIVAL

         Notwithstanding completion or termination of the Work, of this
         Agreement, any amendment to the Agreement, or of any Purchase Order or
         Change Order, the Parties shall continue to be bound by the provisions
         of this Agreement and any Purchase order incorporating this Agreement,
         Amendment to this Agreement and Change Orders, which by their nature
         shall survive such completion or termination. Such provisions shall
         include, but not be limited to, ARCA's indemnity protecting
         Administrator from any liability for environmental clean up as provided
         in Section 16 of this Agreement.

27.      NO RELIANCE

         Neither Party has relied upon any representation, warranty, projection,
         estimate or other communication from the other not specifically so
         identified in this Agreement.

28.      ATTORNEYS' FEES

         In the event of any legal action or other proceeding between the
         Parties arising out of this Agreement or the transactions contemplated
         herein, the prevailing Party in such legal action or proceeding shall
         be entitled to have and recover from the other Party all costs and
         expenses incurred therein, including reasonable in-house and outside
         attorneys' fees.

<PAGE>


29.      COOPERATION

         Each Party agrees to cooperate with the other Party in whatever manner
         reasonably required to facilitate the successful completion of the
         Agreement.

30.      ENTIRE AGREEMENT

         This Agreement contains the entire agreement and understanding between
         the Parties and merges and supersedes all prior representations and
         discussions pertaining to the Agreement, including ARCA's proposal. Any
         changes, exceptions, or different terms and conditions proposed by ARCA
         are hereby rejected unless expressly stated in this Agreement.

         SIGNATURES

         Each of the persons signing this Agreement individually represents that
         he or she is duly authorized to execute this Agreement on behalf of the
         Party for whom he or she signs.


         SOUTHERN CALIFORNIA                     APPLIANCE RECYCLING
         EDISON COMPANY                          OF AMERICA, INC.

         By: /s/ Pamela A. Bass                  By: /s/ Edward R. Cameron

         Name:  Pamela A. Bass                   Name:  Edward R. Cameron

         Title:  Sr. Vice President              Title:  President

         Date:      October 5, 2000              Date:      September 26, 2000

</PRE>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>

<TABLE> <S> <C>

<ARTICLE>        5


<S>                                  <C>
<PERIOD-TYPE>                        9-MOS
<FISCAL-YEAR-END>                              DEC-30-2000
<PERIOD-START>                                 JAN-02-2000
<PERIOD-END>                                   SEP-30-2000
<CASH>                                             664,000
<SECURITIES>                                             0
<RECEIVABLES>                                    2,206,000
<ALLOWANCES>                                             0
<INVENTORY>                                      3,155,000
<CURRENT-ASSETS>                                 6,516,000
<PP&E>                                           9,413,000
<DEPRECIATION>                                   3,851,000
<TOTAL-ASSETS>                                  12,388,000
<CURRENT-LIABILITIES>                            5,189,000
<BONDS>                                          4,502,000
<PREFERRED-MANDATORY>                                    0
<PREFERRED>                                              0
<COMMON>                                        11,345,000
<OTHER-SE>                                               0
<TOTAL-LIABILITY-AND-EQUITY>                    12,388,000
<SALES>                                         16,181,000
<TOTAL-REVENUES>                                16,181,000
<CGS>                                            9,232,000
<TOTAL-COSTS>                                    9,232,000
<OTHER-EXPENSES>                                  (289,000)
<LOSS-PROVISION>                                         0
<INTEREST-EXPENSE>                                 634,000
<INCOME-PRETAX>                                  1,442,000
<INCOME-TAX>                                       554,000
<INCOME-CONTINUING>                                      0
<DISCONTINUED>                                           0
<EXTRAORDINARY>                                          0
<CHANGES>                                                0
<NET-INCOME>                                       888,000
<EPS-BASIC>                                           0.39
<EPS-DILUTED>                                         0.31




</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
