Ladies and gentlemen, thank you for standing-by and welcome to the Appliance Recycling Centers of America Inc.’s Second Quarter Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, August, 6, 2013. I would now like to turn the conference over to Jack Cameron, President and CEO. Please go ahead.

Thank you, Elaine. Good morning everybody and welcome to Appliance Recycling Centers of America second quarter 2013 conference call. My name is Jack Cameron and I am President and CEO. Also on the call today will be Jeff Cammerrer, our Chief Financial Officer and Brad Bremer, President of ApplianceSmart. Also with us today is Mark Eisenschenk who is our new Chief Operating Officer and President of ARCA Recycling. Mark is not on the agenda today but we will be hearing from him in the future. A real quick note to clear out some things and the confusion on ARCA Recycling, as you know we have some different subsidiaries of ARCA we have ApplianceSmart which Brad Bremer is the President of ApplianceSmart. We also have ARCA Recycling which is our utility programs and other recycling programs in I have been the President of that as always. Mark will be taking that responsibility over so technically that is his new position you can consider that and also then Mark will be also Chief Operating Officer. And then we have ARCA Canada which is a wholly-owned subsidiary in Canada and then also we have ARCA Advanced Processing which is in Philadelphia and Brian Conners is the President and Chief Operating Officer of that operation and that is a joint-venture. So I know there was some confusion in the press release as to the ARCA Recycling and that is a wholly-owned subsidiary of ARCA and we will talk about that a little bit more. Anyway thank you very much for joining us today and taking the time out of your schedule we didn’t have the opportunity to present our financials for the quarter the press release went out yesterday and it also can be found on our website www.arcainc.com, under the Investor Relations section.…

Thank you, Jack. Our comments may contain certain forward-looking statements regarding possible events including expectations and are not considered guarantees of future performance. Future results may differ materially and you should not attribute undue certainty to our forward-looking statements, please refer to the cautionary statements in our SEC filings to better understand the risk that may impact our business. We are pleased to report that the company generated a consolidated net income of 768,000 or $0.13 per diluted share for the quarter and through the second quarter we are in compliance with all of our bank covenants. Just like the first quarter, the second quarter profit was spurred by appliance replacement programs and improved profit margins at ApplianceSmart. The improvement in profit margins at ApplianceSmart was due primarily to selling through our aged inventory and resulted in recording of $400,000 favorable adjustment to the inventory reserve. We do not expect this to occur again in 2013. ApplianceSmart revenues of 18.1 million which includes 300,000 of byproduct revenues declined 6% compared to the second quarter of 2012. The decline in revenues was caused by a combination of lower same-store sales and the closure of three stores that we're operating in the second quarter of 2012. Faded by the favorable inventory adjustment ApplianceSmart generated an operating profit of $600,000 before corporate overhead and an overall operating profit of $100,000 during the second quarter. In our Recycling business revenues of 14.2 million were up 4 million compared to the second quarter of 2012. the revenue growth was primarily the result of 134% increase in appliance replacement volumes which drove increase of 4.4 million in revenues. The growth in appliance replacement revenues was partially offset by a $200,000 decline in our recycling only programs and a $200,000 decline in our AAP revenues the joint venture in Philadelphia. AAP revenues which are recorded on the income statement as byproduct revenues were 2.7 million a 9% decline compared to the second quarter of 2012. The decline result is from 11% reduction in average steel and nonferrous scrap prices and was partially offset by 5% increase in volumes. Our recycling business including AAP generated an operating profit of 1.1 million, up 800,000 from the second quarter of last year. Regarding corporate expenses, corporate expenses declined $200,000 are 13% compared to the second quarter of 2012. As we discussed last quarter, these savings were expected and the results of several cost reduction strategies we implemented earlier this year. In my concluding comments from a liquidity perspective, we ended the second quarter with a cash balance of 2.7 million and 4.3 million and borrowings available under our line of credits. I will now turn the call over to Brad.

Thanks Jeff. In the second quarter of 2013 our same store sales were down 3.9% compared to the prior period. Our total revenues were up by about 6% due to lower same store sale and closure of two stores late last year. During the period we also closed our store Rogers, Minnesota because the building was sold and our lease was not renewed. There are no plans to open another Roger’s location at this time. We expected this closing to provide some incremental business to our stores in nearby Champlain just 10 miles away. Retail competition remains tough as evidenced by the extended Memorial Day and 4th of July sales promotions offered by many national retail chains some lasting three or four weeks or more. The run up to the 4th of July sales period start almost in mid-June. Everyone's fighting for each customer to position itself to catch the wave of renewed consumer spending when the economy finally re-bounced. Along with the extended promotional periods we’re seeing big box stores like the Home Depot also expanding their inventories by adding more appliance brands. Today consumers spend more buying options than ever before which raises the challenge of differentiating the plans in our marketplace. That’s where our expensive, out-of-cart and product offering along with end of the year new products helps us set us apart. We also carry most major brands; some are the top 10 rated manufactures for factors like reputation, quality and warranty. We’re also able to set a variety of price points that appeal to a broader scope of consumers. Our year-over-year sale declined almost mirrors data from the national retail federation as outlined in yesterday’s press release. The nation's economy continues to creep along not inspiring tremendous consumer confidence; however (inaudible) optimism including encouraging signs in the housing industry fueled by lower prices, equipment inventory and continuing unemployment gains. While multifamily housing data is more volatile and recently more negative, most economist consider single family home data as a better indicator of the market’s future health. The national retail association of home builders Wells Fargo Housing Index which tracks current and future single family housing starts is at its highest level in almost eight years. In percentage terms the index more than doubled between April 2012 and June 2013. Increased housing activity trickles down to our stores both with greater traffic and also more out-of-cart inventory for us to sell. We’re seeing better availability to appliances and we’ve taken advantage to some good opportunity buys both of which provide higher margins during the second quarter. All these factors enabled us to increase our gross margin by 220 basis points. Our contracted business was up significantly over the prior year, we have an active sales force targeting the contracted marketed and we're aggressively bidding on jobs across the country. We look forward to keeping you updated on our progress during second half of this year. And I’ll now turn the call over to Jack.

Thanks Brad and Jeff, thank you very much. I’d like to discuss some of the highlights and I’m not necessarily going to repeat everything that Brad or Jeff had said that I would like to cover some of the highlights but also I’d like add little more color and insight in to some of the things that are going on as I mentioned earlier about the carbon offset and (inaudible) in California which I’ll still talk about. But one of first things I’d like to mention is to mention that our relationship with P&C bank is very strong, we appreciate their support. As Jeff mentioned we’re maintaining our covenants and our loan payments et cetera, as a matter of fact we ended up the quarter with $2.7 million in cash and as Jeff mentioned with $4.3 million availability and since the beginning of the year, we’ve reduced our loan at P&C by $2.5 million to some inventory conversion banks to the efforts of additive sales force. So, we feel really very good hearing about that. And speaking about the retail, it seems like business out-of-cart merchandise is our focus which was one reason we have such larger stores but also it’s a dynamic and challenging business and we’re facing some headwinds with the economy, however I think that given everything, we’re pretty happy about the results of the quarter in the retail and we’re continuing to see improvements. The pre-corporate profit for the quarter $600,000 as Jeff mentioned and after-corporate it was 100,000 so the contribution to the corporation was very good and we’re pleased with that. And we hope to see continued improvement in the economy, of course that will help everybody. On the utility programs, during the second quarter we maintained a profitable growth momentum, it’s started in…

(Operator Instructions) And now our first question comes from the line of Roger Weissenberg with Rothschild Investment Corporation; please go ahead your line is open.

Originally I invested in the company because I liked the business model and as we’ve discussed, it now increasingly appears that the company qualifies the green investment. I am still very hazy in these carbon credits; could you shed some sort of light on how we get these? How many we get each quarter? Or how many we accrue each quarter on a continuing basis, and what these things are worth per credit. It's not with some historical context that we can follow from quarter to quarter since they are becoming increasingly more valuable.

Well, it’s a really good question. And it does seem complicated, but let me see if I can without using too many acronyms, get down to basics. Basically at our centers we capture the CFC’s out of refrigerators, the refrigerants; and we capture that. Then the next step is that we have to then consolidate a big enough load to send to -- (inaudible) destroyed, then we will use clean harbors. When they’re burned at clean harbors, we get issued a certificate of destruction, and that has to be issued by somebody that is properly permitted and can stand an order and that type of stuff. And then we submit that certificate of destruction to a company that is authorized by California, and they authorize two people to manage these programs. One is the Climate Action Reserve, and the other one is the American Carbon Register, that I mentioned earlier. And with these last ones, we register with the American Carbon Register. And then what they do is they take the destruction certificate and the quantity and the validity of that and they convert that to what is going to be asked for in the area of our carbon credits. Just to give you an idea, one time of R12 is worth 10,900 credits, CO2 credits. One ton of CO2 is equal to a credit. And the R11, one ton of that equates to 10,900. So if we burn 2000 pounds, they use metric tons, so let’s say 2000 pounds, we would get basically 10,900 credits. Then once we have those credits, and they get approved and certified at the State of California, then California issues what they call a California Carbon Offset Credit certificate. It goes into an account. And that’s one time. So if we had 10,000 credits…

Once we get those credits in our account, I mean how many of those credits do we have in the account and how many I think we have at 331, how many did we have a year ago. I am trying to get some sort of fix on how many of these credits we earn or get and what the increasing value of these are say quarter by quarter?

Well, it depends on how many refrigerators we destroyed, so the more refrigerators we recycle, the more CFCs we get and as of right now, I don’t have the total numbers from past days that we have, in 2011 we collected a combination of ARCI, advanced processing in Philadelphia in 2011 we booked $1.3 million in revenue. last year we booked $0 because of the delays in California, this year we are hoping to book all of the credits that we have out there which could range well over a $1 million for the year, I don’t want to give the exact number because it’s still things are up in the air and we have no control over when they will finally get approved. our best estimate based on this press release that I just mentioned to you, it's encouraging that I feel more confident today that it’s going to be this year than I did probably a couple of weeks ago because I saw the dates starting to slip in, but I do think that we are going to see this revenue this year.

Thank you. And our next question comes from the line of James Larson, who is a present investor. Please go ahead your line is open.

Jack, what is the cost of the store closings and the restructuring of your call center.

I am sorry Jim I missed the first part of your question.

My question relates to the expenses of store closures and the relocation of your call center, what would be the dollar amount for those expenses be?

We closed three stores; the last store we closed in Rogers had no profit associated when the lease ran out so there were no costs associated with terminating that lease. The stores we closed in Georgia, we closed one in Norcross and the cost associated with that was $90,000 termination fee and we're still in the middle of negotiating a settlement for the lease termination in (inaudible) Georgia, we don’t have a final number on that yet.

And my other question would be relative to say (inaudible) corporation, these and other peak manufacturers have agreed to pay a fee for the disposal of paint, how far is General Electric or other suppliers of yours reaching some type of agreement to pay someone such as appliance recycling to take care of refrigeration, stoves, air conditioners et cetera, in the United States?

That’s a good question and one of the basic things one needs to understand is that the used appliance industry in United States, subsidizes the disposable whole appliances. Most retailers sell their returns to the used appliance industry, a lot of those used appliances get resold back into the marketplace and the ones that don’t usually end up going to some scrap yard and probably not being processed properly and that’s the way the market works today. The efforts that we have with GE and Home Depot is that they are taking a position of a no-resale model and so all of the returns that they sell and deliver all those returns must be recycled properly which is the program that we have in Philadelphia, is that we provide complete proper recycling to those appliances. They are the only retailer and manufacturer that has a no resale policy. The rest of the manufacturers and retailers continue to sell used appliances into the used appliance industry and as a result of that the used appliance industry is in a position to pay more for the product than the scrap value of the appliances. Therefore, the supply is difficult and that’s what it makes the relationship with GE and Home Depot more important and so valuable to ARCI in our future to move forward and so we have done everything we can to have the proper recycling, transportation and making sure that we do everything according to all the laws and so forth and for the environment and so I really had a lot of respect for GE and Home Depot for taking a stance, it’s very, very courageous because it’s a diversion of what the industry is, but what we’re seeing though is we’re seeing people being concerned about green, more people being concerned about liability and more people concerned about trying to improve the new market with more energy efficient appliances instead of putting old appliances back in the market that are inefficient and tend to breakdown more and cost people more money than if they had bought a new one, so I think we’re starting to see that change, I think GE and Home Depot are leading the way on that, so we’re very proud and happy to be associated with them. Hope that answers your questions enough.

It’s a long answer into a big problem and the secondary market for used refrigerators I would think could you do legislative attention.

Jim, there is a lot of consideration in Europe and now in Asia about producer responsibility but it’s never going to be place in the United States and I’m not sure that it ever will but I think that people stepping up and taking responsibility is going to be probably way it’s going to go. I think it's going to be a voluntary market and also think we bring so much to the market and based on the development of the systems that we have, we’re starting to develop more value to the product coming out of the shedders, the steel, the copper, the aluminum and we’re really working very hard and have some new progress going on recycling the plastics out of appliances and we think we can generate another revenue stream in the future by separating out the ABS and HIPS and the different plastics and that could put us in a more competitive position to compete with the used appliance industry. And I think when we combine what we can’t pay, what they were getting the difference would be how much are you willing to pay for being green as opposed to putting the stock back in the market and that’s starting to come to light. But the issue really is that nobody's really had any choice up until what we’ve done in Philadelphia, everybody has not had a choice of doing what we’re doing until now, so it’ll be interesting to see how this changes the marketplace over the next five to 10 years.

Jack you haven’t been joined in the municipal government on pick up of refrigerators, stoves, air conditioners from garages and basements?

We've had in the past curbside programs with different municipals but again a lot of those end up going to being picked up separately on a certain day and they again gone to the yard and then usually a recycler picks them up and most cases a used appliance dealer and they take and they end up back in the system or they end up going to local scrap dealer without being processed properly, so there is a lot of attention that’s not being paid to the stoves and most major household appliances and that’s something that needs to change too. And the City of New York is running into that. they’re requiring people to put their unit out on the street and then they’re hiring somebody to go by and evacuate to see before they throw them in the packer trucks, it goes to the landfill. Also we have one city that we just got a bid from that if you can believe this, they’re requiring before the city will pick up the refrigerator they must cut the compressor out of the refrigerator and that’s so the city has no liability but meanwhile when you cut the compressor out you’re releasing all those CFCs in the atmosphere, and so it’s really kind of a stupid deal but that we’re seeing those kinds of thing but I think the public is getting educated and I think we’re going to see an improvement in their disposal over the years and I think that we’re leading way and that we always have and we’ll continue to do that.

Thank you. (Operator Instructions). And now our next question comes from the line of John (inaudible) Investor. Please go ahead. Your line is open.

Hi, Jack, nice to see the progress you’ve made this year, I would like go back to the first caller who's concerned about the carbon credits, two part question, one, the American Carbon Registry mentioned 300,000 registry offset credits as being in the mix for certification I guess you would call it, I wondered how of much of that is ours of those 300,000, and secondly, do these credits generated come only California are the Philadelphia credits also qualified?

Yes, California, once you develop the credits in the California system, it doesn’t make any difference where the material came from as long as it came from the United States. You cannot bring refrigerators from other countries. So the refrigerants have to be generated in the United States and then they qualify and they qualify for the California program. and then that has to be that way because if you just want to net back, there were some thought early on to say that they had it regenerate in California but that was limit the number of credits that could be generated and that would not fit into their cap and trade system because there wouldn’t be enough credits to go around and that would raise their cost of electricity et cetera. So you can’t generate carbon offset credits from materials outside of California. And that as far as this last program is concerned let me give you to an approximate dollars of that 300,000 credits that will generate dollars that probably will fall the bottom-line for ARCA and AAP, mostly AAP in this go around were close to $0.5 million, so that's about what we expect out there some time in hopefully in the third quarter, but I can't guarantee that either.

But you have another much larger 40,000 pounds of CFCs destroyed that have not been quantified, is that right?

Yes we have specifically, ARCA has about 24,000 pounds that are waiting approval, and AAP has about 9,000 pounds waiting for approval, in addition to what this release talks about the 300,000. So we have another 300,000 credits to come down the line yet. The ultimate prices are going to go up on carbon offset credits, be nice of the price increase. Right now we're expecting to be in that $9 to $11 range.

Would you feed that inventory as credits in over a period of time or would you drop it all at once?

The way it works is when we get the cheque it will be booked. So if we get a cheque for $0.5 million it will go in for income right then, it goes right to the bottom line.

Well I was thinking more of the big improvement.

Excuse me John I didn't hear you.

I was speaking more in terms of the much larger groups in inventory that are not in the 300,000 group.

Whenever the cash comes in is when we book it.

So when they process your inventory, then all at once do you think, would you try to string that over a period of quarters?

The way it works is that we work with ACRA and AAP and another partner that we work with the Derek Six from ECC who is a project operator. By the way he is one of the best in the country. He will consolidate. We may have 10,000 pounds, Phil may have 10,000 pounds and our other partner USA Refrigerant might have 10,000 pounds. And we'll ship that, we only ship if we can ship 30,000 pounds at a time, because of the transportation cost, and the verifying and the testing that has to be done. So we'll book that up and ship that in. So we'll wait till we have 30,000 pounds as a group and then we ship and we get a burn date and then the process starts, we registered the project and then we start. So as soon as we get enough to ship we do.

And our next question comes from the line of Clarence Collins, private investor. Please go ahead your line is open.

I have got a few questions around the real-estate portfolio. Do you see opening or closing anymore of the ApplianceSmart stores in the rest of the year? And with that it seems like the Rogers, Minnesota one closed because the lease expired. What's the sort of landscape for your remaining leases? Are there any others that could expire and it wouldn't be renewing, that you would be closing? And the next question on real-estate has to with the actual recycling centers. I think at last count that I checked you had 10 of those throughout the country including the AAP one. Do you lease all those or do you own those? Could you shed a little light on that?

All of the recycling centers are leased properties except for the one in Compton, California and we own 43,000 square foot facility there that we bought back in 1993. And so that houses are up basically California, we do own that building. And the rest of the lease as far as the other stores are concerned, the Roger store we weren't going to renew the lease anyway and it worked out fine. The fact is that they knew that and they put the building up for sale, because we weren't going to lease the building. That store was underperforming. The other two stores that we closed were underperforming. We are constantly looking at sizing the stores appropriate for the market, that stays and what's going on and we will address each store and when it’s a proper thing, if it's not contributing to the corporation to the whole thing we will consider closing it, however we don't typically lock the door and leave. We negotiate our way out and we'll continue to do that. Right now it's better to run the stores that we have than to walk away from them, and so we're negotiating with several landlords for rent adjustment, space adjustment and as time goes on, the economy in the stores, we'll evaluate each store one at a time. And we're constantly doing that and I think that in the retail business you got to constantly be looking at which stores are working and which stores are not? And we continue to do that.

Do you think you are done closing stores and on the reverse side opening stores this year?

If we open anymore stores which we’re not planning on right now, it would be in existing markets. Right now if we're looking at closing stores we will take them one at a time but right now I don't see us closing a store in the next 90 days or so unless we sub-lease the location which I am not aware of any sub-leases at this point in time. So I expect to probably to end the year with probably the same number of store we have now. It doesn’t mean that in the next year we might move a couple of stores around a little bit but we’ll just have to be intelligent about what we’re doing…

And do you disclose your lease maturities anywhere near 10-K or 10-Qs?

It’s a good question. I don’t think we do, not the maturities now. And speaking now that we do have some leases coming up I think we have one store that leases up in like two years, another one is 18 months. And we’ll evaluate whether we’re going to renew those or not…

Okay, but the majority are longer dated leases…

Yes.

And our next question comes from the line is Jerry Falkner with RJ Falkner & Company. Please go ahead. Your line is open. Jerry Falkner – RJ Falkner & Company: I presume that transportation cost limit the geographic area that the AAP facility and Philadelphia can service. And so I’m kind of wondering, are you at or approaching the point where you and your partners would consider building similar facilities in other parts of the country?

You’re exactly right. There is a limit to the distance that you can hold appliances based on our financial model. Basically if you do a circle about 250 miles in the center that’s about as far as you can go but that’s assuming that there is a lot of material within a 50 mile radius. So it depends on the market, and density is important which is one reason why we are located in Philadelphia is because there is a high population. And so if you go 50-100 miles in Philadelphia you take in quite a few people which means there is lot of appliances. As you move to more rural areas, it’s gets more difficult. So transportation is a big factor. And so in reality there is enough volume in almost every major market to support a system like we have in Philadelphia if you could get the supply. And so as GE grows their home delivery service and their market and number of returns that they have goes up would put us in a position to offer a recycling capability in that region. And we fully expect that over the period of time that we will be expanding our recycling centers. Right now we’ve been gone through the proof of concept and stabilizing the operation that we’re having. And I think that we’re now in our third or fourth year and things are progressing very nicely and we look forward to expanding into more recycling centers, working with some of our current customers. So to answer your question, transportation is a big factor and yes we do plan on opening more centers. Now, will those centers have all the equipment that we have in Philadelphia? Maybe not, depending on the volume we think that the centers like Philadelphia needs at least 400,000 units a year to justify the capital investment. So if a center was only going to 150,000 units it will be scaled down to lesser equipment but still doing the proper recycling. And we can handle that which is exactly what we’ll do for the utilities and on ourselves as well. So we’re very compliant.

And Mr. Cameron, there are currently no further questions over the phone line.

Elaine, thank you very much. And like to close out the session with, we feel pretty positive about the year. We’re pretty excited about the recent developments, especially yesterday. And also we see some growth in utility business. It’s encouraging to see that everybody is concerned about energy. We’re seeing improvements in retail operations, restructuring that we’ve done at corporate. We’ve made a lot of adjustments in the last year too, adjusting some market conditions. And we’re seeing a big improvement at AAP and labor cost, transportation cost, and also the throughput of the facility and the volume continues to be high. And so everything that we’re doing right now is working. And we plan on to continue to work, and we really appreciate all the support from our vendors and our customers and our employees and our shareholders. And I can tell you that we probably have as good management team as we’ve ever had, and the dedication and the commitment to what we do couldn’t be any stronger. And we look forward to the rest of the year and the continued success at ARCA. And we really appreciate you taking time to listen, and if there is anything more that I could answer later at any time, we’re always available to answer questions, and I’ll be happy to do that. So thank you very much for listening and (hope) you at the end of the conference call. Thank you very much.