SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended January 3, 1998
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                           Commission File No. 0-19621

                  APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
             (Exact name of registrant as specified in its charter)

            MINNESOTA                                                 41-1454591
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

7400 EXCELSIOR BOULEVARD, MINNEAPOLIS, MINNESOTA                      55426-4517
  (Address of principal executive offices)                            (Zip Code)

Registrant's telephone number, including area code: 612-930-9000

Securities registered pursuant to Section 12(b) of the Act:  NONE
Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK,
                                                             WITHOUT PAR VALUE
                                                             (Title of class)

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 (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__  No ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 26, 1998, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, computed by reference to the average of the
high and low prices on such date as reported by the Nasdaq SmallCap Market, was
$2,842,000.

As of March 26, 1998, there were outstanding 1,136,744 shares of the
registrant's Common Stock, without par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended January 3, 1998 are incorporated by reference into Part II hereof and
portions of the definitive proxy statement dated March 24, 1998 are incorporated
by reference into Part III hereof.

<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
                                     PART I

Item 1.  Business............................................................  3
              General........................................................  3
              Industry Background............................................  3
              Company Background.............................................  4
              Customers and Source of Supply.................................  5
              Company Operations.............................................  6
              Principal Product and Services.................................  7
              Sales and Marketing............................................  7
              Seasonality....................................................  7
              Competition....................................................  8
              Government Regulation..........................................  8
              Employees......................................................  9
Item 2.  Properties..........................................................  9
Item 3.  Legal Proceedings...................................................  9
Item 4.  Submission of Matters to a Vote of Security Holders................. 10

                                     PART II

Item 5.  Market for the Company's Common Equity and Related Shareholder
         Matters............................................................. 10
Item 6.  Selected Financial Data............................................. 11
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations............................................... 11
Item 7A. Quantitative and Qualitative Disclosure about Market Risk........... 11
Item 8.  Financial Statements and Supplementary Data......................... 11
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure................................................ 11

                                    PART III

Item 10. Directors and Executive Officers of the Company..................... 11
Item 11. Executive Compensation.............................................. 11
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 12
Item 13. Certain Relationships and Related Transactions...................... 12

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 13

SIGNATURES................................................................... 14
INDEX TO EXHIBITS............................................................ 15

<PAGE>


                                     PART I

ITEM 1.     BUSINESS

GENERAL

            Appliance Recycling Centers of America, Inc., together with its
operating subsidiaries ("ARCA" or the "Company"), provides a comprehensive range
of services for large-scale collection, resale and recycling of major household
appliances in an environmentally sound manner. The Company provides its
customers with integrated processes and programs addressing the solid waste
management, environmental and energy conservation issues involved with appliance
disposal and recycling. The Company generates revenues from fees charged for the
disposal of appliances, the sale of materials generated from processed
appliances (byproduct revenues) and the sale of reconditioned and distressed
appliances through a chain of Company-owned retail stores called Encore(R)
Recycled Appliances ("Encore").

            The Company was incorporated in Minnesota in 1983, although through
its predecessors, it commenced the appliance recycling business in 1976. The
Company's principal office is located at 7400 Excelsior Boulevard, Minneapolis,
Minnesota 55426-4517. References herein to the Company include its operating
subsidiaries. (See Exhibit 21.1.)

INDUSTRY BACKGROUND

            There are more than 500 million major household appliances, such as
refrigerators, freezers, ranges, dishwashers, microwaves, washers, dryers, room
air conditioners, water heaters and dehumidifiers, currently in use in the
United States. It is estimated by the Steel Recycling Institute that in 1995, 42
million major household appliances were taken out of use in the United States.
Industry sources estimate that 50 to 55 million major household appliances will
be disposed of each year between the years 1997 and 2000. The disposal of these
appliances has become a serious problem as a result of a number of factors
including: (i) decreasing landfill capacity in many parts of the country; (ii)
the inability of incinerators, composting facilities and other landfill
alternatives to process appliances; and (iii) the presence in appliances of
certain hazardous and other environmentally harmful materials that require
special processing.

            Legislation affecting appliance disposal has been adopted in more
than 30 states. This legislation includes landfill restrictions, disposal bans,
advance disposal fees and other types of restrictions. As a result, appliances
must be dealt with outside the ordinary municipal solid waste stream.

            Landfill restrictions arise in part because some appliance
components contain certain hazardous and other environmentally harmful
materials, including polychlorinated biphenyls (PCBs), mercury, refrigerants
such as chlorofluorocarbons (CFCs) and sulfur dioxide, and oils. PCBs are
suspected as carcinogens, are resistant to degradation when deposited in
landfills and can cause groundwater contamination. The production of PCBs was
banned by the EPA in 1979, although businesses were allowed to continue using
remaining inventories of components that contained PCBs. Mercury is toxic to
humans and can enter the body through inhalation, skin absorption or ingestion,
and it vaporizes at high temperatures forming extremely toxic fumes. CFCs are
believed to cause long-term damage to the earth's stratospheric ozone layer and
may contribute to global warming when released into the atmosphere. The 1990
Amendments to the Clean Air Act prohibit the venting of CFCs and since July 1,

<PAGE>


1992 have required the recovery of CFC refrigerants during the service, repair
and disposal of appliances. See Business - Government Regulation.

            In addition to these solid waste management and environmental
issues, utility companies, motivated by economic and environmental factors to
control energy consumption, sponsor various programs to encourage and assist
residential consumers to conserve energy, including programs for turning in
surplus, energy-inefficient appliances. Many residential consumers own and
operate room air conditioners, freezers or more than one refrigerator,
contributing significantly to residential energy use and peak energy demand. In
addition, many of the refrigerators manufactured in the 1960s and early 1970s
consume up to 1,750 kilowatt-hours of electricity each year. The National
Appliance Energy Conservation Act requires that a typical 18-cubic-foot
refrigerator manufactured after 1992 have an energy consumption rate not
exceeding 700 kilowatt-hours per year. As new, more efficient appliances become
available, utility companies have begun to encourage the use of newer models and
the disposal of older, less efficient models.

            The Federal Energy Policy Act of 1992 gives individual states the
option of deregulating their electric utility industry. The potential of
deregulation has caused uncertainty about the future and form of energy
conservation programs sponsored by electric utilities. Some electric utility
companies are delaying new energy conservation programs, including the Company's
refrigerator recycling program. The Company believes, however, that energy
conservation and efficiency programs will remain a long-term component of the
nation's electric utility industry. See Business - Government Regulation.

            During 1997, the Company entered into agreements with Whirlpool
Corporation, the nation's largest manufacturer of major household appliances, to
develop a program for handling distressed appliances for Whirlpool. Under the
agreements, the Company will purchase distressed appliances from Whirlpool,
recondition suitable units and sell them through ARCA's network of Encore retail
stores. Appliances that cannot be reconditioned are recycled in accordance with
all applicable environmental regulations. The Company believes that these
contracts will provide a large quantity of high quality appliances that can be
sold through its Encore stores.

COMPANY BACKGROUND

            The Company began business in 1976 as a retailer of reconditioned
appliances. Initially, the Company contracted with national and regional
retailers of appliances such as Sears, Roebuck & Company, Inc. ("Sears") and
Montgomery Ward & Co. ("Montgomery Ward") to collect major appliances in
Minneapolis/Saint Paul and two other metropolitan areas. As part of their new
appliance sales efforts, these customers arrange for the removal of old
appliances from consumers' residences. The Company collects old appliances on
behalf of its customers, reconditions and sells suitable used appliances through
its own retail stores and sells the remaining appliances to scrap metal
processors.

            In the late 1980s, in response to stricter environmental protection
laws, the Company developed and marketed programs to process and dispose of
appliances in an environmentally sound manner. These programs are offered to new
appliance manufacturers and retailers, waste management companies and the
general public. See Business - Customers and Source of Supply.

            In 1989, the Company expanded its appliance recycling concept to the
utility industry when it established an appliance processing center in
Milwaukee, Wisconsin, pursuant to a contract with a utility company. From 1989
to 1994 the Company focused its resources on the expansion of its business with
electric utility companies. During this time period the Company opened nine
centers

<PAGE>


throughout the U.S. and Canada, primarily serving seventeen electric utility
customers. The Company's electric utility business has been negatively impacted
by the potential of electric utility industry deregulation. The potential of
deregulation has caused electric utilities to decrease their sponsorship of
energy conservation programs like the one the Company offers. The Company
currently has only one major contract with an electric utility customer.

            During fiscal year 1997, that customer, Southern California Edison
Company ("Edison"), accounted for approximately 38% of the Company's net
revenues. In February 1998, Edison entered into a contract with the Company to
extend the refrigerator recycling program through September 1998. The Company
has participated in that program through its California subsidiary since 1993.
Under the terms of the contract, Edison will provide for a minimum number of
refrigerators to be recycled during the contract period. The contract generated
revenues of $4.3 million in 1997 and will generate at least $3.0 million in
revenues in 1998.

            In response to the decrease in demand for services from electric
utilities, the Company has increased its marketing of services to appliance
manufacturers and retailers, waste management companies and property management
companies. The Company also has increased its focus on the sale of reconditioned
appliances. In 1995, under the name Encore(R) Recycled Appliances, the Company
began operating a chain of Company-owned retail stores. These stores offer
reconditioned and manufacturers' distressed appliances to value-conscious
individuals and property managers.

            During 1996 the Company continued to expand its focus on its Encore
retail stores and had more than 30 retail stores open at one point during the
year. Due to substantial losses in certain markets, the Company closed centers
and stores in three markets in the fourth quarter of 1996. Write-offs and other
significant expenses related to these closings caused the Company to report a
significantly larger than anticipated loss for the year. The Company currently
has four recycling centers, located in Columbus, Ohio; Minneapolis, Minnesota;
St. Louis, Missouri; and Los Angeles, California. The Company currently has 14
retail stores in these markets.

CUSTOMERS AND SOURCE OF SUPPLY

            The Company offers its services to entities that as part of their
operations become responsible for disposing of large quantities of used
appliances. These entities include new appliance manufacturers and retailers,
waste management companies, property management companies and utility companies.

            NEW APPLIANCE MANUFACTURERS AND RETAILERS. The Company began its
business by offering appliance recycling programs to Sears, Montgomery Ward and
other new appliance retailers to collect appliances from either the retailers'
facilities or from their consumers. Recently the Company expanded its existing
marketing efforts to new appliance manufacturers, a primary source of product
that can be reconditioned and sold in the Company's stores.

            WASTE MANAGEMENT COMPANIES. The Company provides services to waste
management companies and the general public for the collection and recycling of
appliances for specified fees.

            PROPERTY MANAGEMENT COMPANIES. The Company provides comprehensive
appliance exchange and recycling services to property managers of apartment
complexes as well as local housing authorities.

<PAGE>


            UTILITY COMPANIES. The Company contracts with utility companies to
provide comprehensive appliance recycling services tailored to the needs of the
particular utility. The contracts historically have had terms of one to four
years, with provisions for renewal at the option of the utility company. Under
some contracts, the utility retains the Company to manage all aspects of its
appliance recycling program, while under other contracts, the Company provides
only specified services. Pricing for the Company's services is on a
per-appliance basis and depends upon several factors, including the total number
of appliances processed, the length of the contract term and the specific
services selected by the utility. Contracts with electric utility customers
require that the Company does not recondition for resale appliances received
from utility company energy conservation programs. The Company currently has
only one major contract with an electric utility customer.

            The Company believes its sources are adequate to supply the current
number of retail stores and allow it to increase the number of retail stores.

COMPANY OPERATIONS

            The Company provides an integrated range of collection, reuse and
recycling services. Appliances are collected from a variety of sources,
including new appliance retailers and manufacturers, solid waste management
companies, property managers, local government and electric utilities. Some
appliances are reconditioned and sold through the Company's retail network of
Encore stores. The remaining appliances are disposed of in an environmentally
responsible manner at a Company recycling center. Environmentally harmful
substances---including CFCs, PCBs and mercury---are removed and properly
managed. After all appliance processing is completed, scrap materials are sold
for recycling.

            The Company believes 10 to 15% of all appliances collected can be
reconditioned. Appliances identified for resale are thoroughly inspected for
wear-and-tear and broken or damaged parts. Worn parts are replaced and
appliances are tested to ensure they are fully operational and function safely
under proper conditions. Appliances are professionally cleaned and touched-up or
repainted. Reconditioned appliances are then sold in the Company's chain of
Encore retail stores. Each appliance has a 90-day warranty, with an additional
extended warranty available for purchase. The Company offers a money-back
guarantee and provides delivery and repair services on products that it sells.

            Appliances that don't meet the Company's standards are processed and
recycled in an environmentally sound manner. Appliances identified to be
recycled are processed per federal, state and local environmental regulations.
They are inspected and categorized according to the types of hazardous materials
they may contain. At the Company's centers, appliances are moved through the
processing area on a conveyor system, which eases the handling of heavy and
bulky items and promotes employee safety. After the appliances are moved to the
processing area, the Company's processing technicians remove electrical
capacitors and fluorescent light ballasts that may contain PCB dielectric fluid,
and components that may contain mercury. This procedure is conducted at a
specially constructed and controlled component removal area. The Company's
processing technicians are trained to locate and remove such components from all
makes and models of appliances. The technicians place the components in
separate, clearly marked containers in the component removal area.

            When processing at the Company's centers has been completed and the
appliances are free of environmentally hazardous components and materials, they
are delivered to qualified metals processing facilities for shredding. Shredded
materials from the processed appliances are sold to steel mini-mills or other
metal recovery facilities for appropriate reuse.

<PAGE>


            PLANNED EXPANSION. The Company plans to open three to five
additional retail stores in 1998 in its existing markets. Management believes
that the uncertainties in the electric utility industry regarding deregulation
will persist at least through 1998. The reaction to deregulation among states
and utilities has been varied. The Company believes, however, that energy
conservation and efficiency programs will remain a long-term component of the
nation's electric utility industry.

            The Company believes that the growth and expansion of the business
in the near future will likely occur primarily through the expansion of revenues
from the Company's current retail stores, the development of contracts with
solid waste management companies and appliance retailers, and the generation of
revenues from the contract with Edison.

PRINCIPAL PRODUCT AND SERVICES

            The Company generates revenues from three sources: recycling fees,
appliance sales and byproduct sales. The following table reflects the percentage
of total revenues from each source.

                                       1997         1996         1995
                                       ----         ----         ----
            Recycling fees             52.4%        48.4%        75.7%
            Appliance sales            34.6%        36.7%        11.0%
            Byproduct sales            13.0%        14.9%        13.3%
                                       -----        -----        -----
                                      100.0%       100.0%       100.0%
                                      ======       ======       ======

SALES AND MARKETING

            The Company uses various means to promote awareness of its services
and the need for environmentally sound recycling of appliances and believes it
is recognized as a leader in the appliance recycling industry.

            The Company's strategy for its retail stores is to present an
upscale image in convenient, high-traffic locations. Store interiors are modern,
bright and clean. In every Encore market, the Company actively promotes its
stores through various forms of print advertising, including daily classified
ads in major newspapers, telephone yellow pages ads and direct mail. In
addition, the Company uses radio and television advertisements in some markets,
in addition to other types of promotions.

SEASONALITY

            The Company experiences seasonal fluctuations in operating results,
with revenues generally higher during the second and third calendar quarters
than in the first and fourth calendar quarters. The lower levels in the first
and fourth quarters reflect consumer purchasing cycles, which result in lower
sales of major household appliances during such quarters and corresponding
reductions in the demand for appliance recycling services. Furthermore, utility
companies that sponsor appliance turn-in programs generally reduce their
promotional efforts for such programs during the first and fourth calendar
quarters. The Company expects that it will continue to experience lower revenues
in the first and fourth quarters of future years as compared to the second and
third quarters of such years.

<PAGE>


COMPETITION

            Many factors, including existing and proposed governmental
regulation, may affect competition in the waste management and environmental
services industry. Recycling of appliances in conformity with recent legislative
and regulatory requirements is a relatively new industry. The Company generally
competes with two or three other companies which are based in the geographic
area to be served under the contract and which generally offer only some of the
services provided by the Company.

            The Company expects its primary competition for contracts with
existing or new customers to come from entrepreneurs entering the appliance
recycling business, energy management consultants, current recycling companies,
major waste hauling companies, scrap metal processors and used appliance
dealers. In addition, customers such as utility companies and local governments
may operate appliance recycling programs internally rather than contracting with
the Company or other third parties. There can be no assurance that the Company
will be able to compete profitably in any of its chosen markets.

            Competition for the Company's retail stores comes from new appliance
retailers and other reconditioned and used appliance retailers. Each Encore
location will compete not only with local and national chains of new appliance
retailers, many of whom have been in business longer than the Company and who
may have significantly greater assets than the Company, but will also be
required to compete with numerous independently owned retailers of used and
reconditioned appliances.

GOVERNMENT REGULATION

            The business of recycling major appliances is subject to certain
governmental laws and regulations and is becoming increasingly regulated. These
laws and regulations include landfill disposal restrictions, hazardous waste
management requirements and air quality standards, as well as special permit and
license conditions for the recycling of appliances. In some instances, there are
bonding, insurance and other conditions for bidding on appliance recycling
contracts.

            The Company's appliance recycling centers are subject to various
federal, state and local laws, regulations and licensing requirements relating
to the collection, processing and recycling of household appliances.
Requirements for registrations, permits and licenses vary among the Company's
market areas. The Company's centers are registered with the EPA as hazardous
waste generators and are licensed, where required, by appropriate state and
local authorities. The Company has agreements with approved and licensed
hazardous waste companies for transportation and disposal of PCBs from its
centers.

            The 1990 Amendments to the Clean Air Act provide for the phaseout of
the production of CFCs over a period of years. Effective July 1, 1992, the Act
prohibited the venting of CFCs in the course of maintaining, servicing,
repairing or disposing of an appliance. The Act also requires the recovery of
CFC refrigerants from appliances prior to their disposal or delivery for
recycling. In 1995, the venting of CFC substitute refrigerants was also
prohibited.

            In 1992, Congress adopted the Energy Policy Act of 1992 to encourage
energy efficiency. Requirements under this act establish, among other things,
mandatory energy performance standards that affect the manufacture and sale of
major household appliances. Another component of this act allows for
deregulation of the nation's energy providers, including the electric utility
industry. The ultimate impact of deregulation on the electric utility industry
is yet unknown; therefore, there can be

<PAGE>


no assurance that the Company will be able to continue certain of its current
operations in a deregulated environment.

            Company management believes that further government regulation of
the appliance recycling industry could have a positive effect on the Company's
business; however, there can be no assurance what course future regulation could
have. Under some circumstances, further regulation could materially increase the
costs of the Company's operations and have an adverse effect on the Company's
business. In addition, as is the case with all companies handling hazardous
materials, under some circumstances, the Company may be subject to contingent
liability.

EMPLOYEES

            At March 1, 1998, the Company had 158 full-time employees, of whom
approximately 55 percent were involved in the collection, transportation and
processing of appliances at the Company's centers and approximately 45 percent
were in sales, administration and management. The Company has not experienced
any work stoppages and believes its employee relations are good.

ITEM 2.     PROPERTIES

            The Company's executive offices are located in Minneapolis,
Minnesota, in a Company owned facility which includes approximately 11 acres of
land. The building contains approximately 122,000 square feet, including 27,000
square feet of office space and 95,000 square feet of operations and processing
space. The Southern California center building, which also is owned by the
Company, is located in Compton, California, and consists of 44,000 square feet:
6,000 square feet of office space and 38,000 square feet of warehouse space. In
addition, the Company owns a 14,000-square-foot facility in Saint Paul,
Minnesota, which contains a retail store at which it sells reconditioned and
distressed appliances. All properties owned by the Company currently secure
outstanding loans of the Company.

            The Company generally leases the other facilities it operates. The
Company usually attempts to negotiate lease terms that correspond to the term of
the principal contract or contracts in connection with which the center is to be
operated. The Company's centers typically range in size from 12,000 to 40,000
square feet. The Company's retail stores are typically 2,500 to 5,000 square
feet. The Company is negotiating the settlement of one remaining lease from the
locations closed in 1996.

            The Company believes that the facilities and equipment at each of
its centers are adequate to meet its anticipated needs for the near term and
believes that alternate facilities will readily be available to the Company to
meet its future needs.

ITEM 3.     LEGAL PROCEEDINGS

            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.

<PAGE>


            Due to legal proceedings brought in August 1997 against the Company,
its directors and its subsidiary, Appliance Recycling Centers of
America-California, Inc. ("ARCA California"), by the minority shareholder of
ARCA California, on October 9, 1997 ARCA California filed a voluntary petition
for relief seeking a reorganization of the subsidiary under Chapter 11 of the
Federal Bankruptcy Act. On November 5, 1997, a cash settlement agreement between
ARCA, Inc., ARCA California, its officers and directors, and the minority
shareholder was reached in which all claims between the parties were settled and
ARCA, Inc. acquired all of the minority shareholder's stock in ARCA California.
The agreement was approved by the United States Bankruptcy Court on November 26,
1997 and the Chapter 11 filing was dismissed. ARCA California accounts for all
of the revenues from the Edison contract.

            In addition, the Company is involved in certain legal proceedings
arising from the cancellation of leases in connection with the closing of
certain facilities. The Company has established a reserve for lease settlements
and closing costs. See Note 7 in the "Notes to Consolidated Financial
Statements" contained in Exhibit 13.0 to this report.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            The Company did not submit any matters to a vote of security holders
during the last quarter of the fiscal year covered by this report.


                                     PART II

ITEM 5.     MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER
            MATTERS

            The Common Stock Data set forth on page 16 of the Company's 1997
Annual Report to Shareholders, presenting certain information regarding the
market for the Company's Common Stock, is incorporated herein by reference.

            Within the last three years the Company has issued 79,839 (adjusted
for 1 for 4 reverse stock split in February 1997) unregistered shares.

            In August 1995, the Company acquired Major Appliance Pickup Service
of St. Louis, Inc. DBA Gateway Appliance Center, Inc. ("Gateway"), a St. Louis,
Missouri-based used appliance retailer and recycler, by exchanging 7,143 shares
of its Common Stock for 100% ownership of Gateway.

            In January 1996, the Company acquired Universal Appliance Company,
Inc. and Universal Appliance Recycling, Inc., Washington, D.C.-based companies,
by exchanging a total of 21,000 shares of its Common Stock for 100% ownership of
the respective companies, which merged into a subsidiary of the Company,
ARCA-Maryland, Inc.

            In May 1996, the Company sold, in a privately negotiated
transaction, 50,000 shares of its Common Stock at a purchase price of $14.00 per
share to a fund owned by Perkins Capital Management Inc. The proceeds of this
sale were used to pay off an equipment loan of $480,000 and for additional
working capital.

            In May 1996, the Company agreed to issue 1,696 shares of Common
Stock to Tom Harris & Associates, Inc. pursuant to a contract for service with
730 Creative Corporation.

<PAGE>


ITEM 6.     SELECTED FINANCIAL DATA

            The Selected Financial Data set forth on page 16 of the Company's
1997 Annual Report to Shareholders is incorporated herein by reference. Such
data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis appearing in the
Company's 1997 Annual Report to Shareholders. See Exhibit 13.0 to this report.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1997, 1996 AND 1995

            Management's Discussion and Analysis set forth on page 4 of the
Company's 1997 Annual Report to Shareholders, representing management's
discussion and analysis of financial condition and results of operations, is
incorporated herein by reference. See Exhibit 13.0 to this report.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

            Not applicable.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            The Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Independent Auditor's Report set forth in the Company's
1997 Annual Report to Shareholders are incorporated herein by reference. See
Index to Financial Statements on page 13 of this report and Exhibit 13.0 to this
report.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
            FINANCIAL DISCLOSURE

            No changes in or disagreements with accountants have occurred within
the two-year period ended January 3, 1998, which required reporting on Form 8-K.


                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

            Information regarding directors and executive officers of the
Company is set forth under "Information Concerning Directors, Nominees and
Executive Officers" and under "Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders
to be held April 30, 1998 and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

            Information regarding Executive Compensation set forth under
"Executive Compensation" in the Company's definitive Proxy Statement for its
1998 Annual Meeting of Shareholders to be held April 30, 1998, other than the
subsections captioned "Report of the Compensation and Benefits Committee" and
"Performance Graph," is incorporated herein by reference.

<PAGE>


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            Information regarding security ownership of certain beneficial
owners and management is set forth under "Beneficial Ownership of Common Stock"
in the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders to be held April 30, 1998, and is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            Information regarding certain relationships and related transactions
is set forth under "Information Concerning Directors, Nominees and Executive
Officers" in the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be held April 30, 1998, and is incorporated herein by
reference.

<PAGE>


                                     PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)         FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS

            1.          FINANCIAL STATEMENTS

                        The following consolidated financial statements of the
                        Company, included in the Company's 1997 Annual Report to
                        Shareholders, are incorporated herein by reference (See
                        Exhibit 13.0 hereto):
<TABLE>
<CAPTION>
                                                                                               PAGE IN 1997
                        DESCRIPTION                                                            ANNUAL REPORT
                        -----------                                                            -------------
<S>                                                                                                 <C>
                        Independent Auditor's Report.................................................15
                        Consolidated Statements of Operations for
                            the three-year period ended January 3, 1998...............................7
                        Consolidated Balance Sheets at January 3, 1998 and December 28, 1996..........8
                        Consolidated Statements of Cash Flows for
                            the three-year period ended January 3, 1998...............................9
                        Consolidated Statements of Shareholders' Equity for
                            the three-year period ended January 3, 1998..............................10
                        Notes to Consolidated Financial Statements...................................11
</TABLE>

            2.          FINANCIAL STATEMENT SCHEDULES

                        The financial statement schedules of the Company are
                        omitted because of the absence of conditions under which
                        they are required, or the information required is
                        available in the financial statements listed above.

            3.          EXHIBITS

                        See Index to Exhibits on page 15 of this report.

(b)         REPORTS ON FORM 8-K

            No reports on Form 8-K were filed during the last quarter of the
            fiscal year covered by this report.

<PAGE>


                                   SIGNATURES

            Pursuant to the requirements of Section 13 or Section 15(d) 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.

Dated:  March 27, 1998                 APPLIANCE RECYCLING CENTERS OF
                                       AMERICA, INC.
                                       (Registrant)



                                       By  /s/ Edward R. Cameron
                                           -------------------------------------
                                           Edward R. Cameron
                                           President and Chief Executive Officer


                                       By  /s/ Kent S. McCoy
                                           -------------------------------------
                                           Kent S. McCoy
                                           Chief Financial Officer

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

SIGNATURE                 TITLE                                   DATE
---------                 -----                                   ----

/s/ Edward R. Cameron     Chairman of the Board, President and    March 27, 1998
-----------------------   Chief Executive Officer
Edward R. Cameron               


/s/ Kent S. McCoy         Chief Financial Officer                 March 27, 1998
-----------------------   (Principal Accounting Officer)
Kent S. McCoy             


/s/ George B. Bonniwell   Director                                March 27, 1998
-----------------------
George B. Bonniwell


/s/ Duane S. Carlson      Director                                March 27, 1998
-----------------------
Duane S. Carlson


/s/ Harry W. Spell        Director                                March 27, 1998
-----------------------
Harry W. Spell

<PAGE>


                                INDEX TO EXHIBITS


Exhibit
  No.       Description
-------     -----------

3.1         Restated Articles of Incorporation of Appliance Recycling Centers of
            America, Inc. [filed as Exhibit 3.1 to the Company's Registration
            Statement on Form S-18 (Registration No. 33-43182C) and incorporated
            herein by reference].

3.2         Restated Articles of Incorporation as amended June 3, 1993 [filed as
            Exhibit 19.2 to the Company's Form 10-Q for the quarter ended June
            30, 1993 (File No. 0-19621) and incorporated herein by reference].

3.3         Articles of Amendment of Articles of Incorporation of Appliance
            Recycling Centers of America, Inc. dated February 7, 1997 [filed as
            Exhibit 3.3 to the Company's Form 10-K for the year ended December
            28, 1996 (File No. 0-19621) and incorporated herein by reference].

+3.4        Articles of Amendment of Articles of Incorporation of Appliance
            Recycling Centers of America, Inc. dated April 24, 1997.

3.5         Bylaws of Appliance Recycling Centers of America, Inc. [filed as
            Exhibit 3.2 to the Company's Registration Statement on Form S-18
            (Registration No. 33-43182C) and incorporated herein by reference].

*10.1       Restated 1989 Stock Option Plan, as amended [filed as Exhibit 10.7
            to the Company's Registration Statement on Form S-1 (Registration
            No. 33-58338) and incorporated herein by reference].

10.2        Amendment dated May 14, 1992, to lease between Six Brainard
            Associates Limited Partnership and ARCA Connecticut, Inc. [filed as
            Exhibit 10.11 to the Company's Registration Statement on Form S-1
            (Registration No. 33-58338) and incorporated herein by reference].

*10.3       Amended Appliance Recycling Centers of America, Inc. 1989 Stock
            Option Plan [filed as Exhibit 19.3 to the Company's Form 10-Q for
            the quarter ended June 30, 1993 (File No. 0-19621) and incorporated
            herein by reference].

10.4        Agreement dated December 17, 1992, between Appliance Recycling
            Centers of America, Inc. and TCF Savings Bank [filed with the
            Company's Form 8-K, dated December 17, 1992 (File No. 0-19621) and
            incorporated herein by reference].

10.5        Agreement dated January 19, 1994, between Appliance Recycling
            Centers of America, Inc. and Standard Insurance Corporation [filed
            as Exhibit 10.29 to the Company's Form 10-K for the year ended
            December 31, 1993 (File No.0-19621) and incorporated herein by
            reference].

10.6        Line of credit dated August 30, 1996, between Appliance Recycling
            Centers of America, Inc. and Spectrum Commercial Services, a
            division of Lyons Financial Services, Inc. [filed

<PAGE>


            as exhibit 10.15 to the Company's Form 10-Q for the quarter ended
            September 28, 1996 (File No. 0-19621) and incorporated herein by
            reference].

10.7        Amended line of credit dated November 8, 1996, between Appliance
            Recycling Centers of America, Inc. and Spectrum Commercial Services,
            a division of Lyons Financial Services, Inc. [filed as exhibit 10.16
            to the Company's Form 10-Q for the quarter ended September 28, 1996
            (File No. 0-19621) and incorporated herein by reference].

+10.8       Agreement dated February 11, 1998, between Appliance Recycling
            Centers of America, Inc. and Southern California Edison Company.

*10.9       1997 Stock Option Plan and Amendment [filed as exhibits 28.1 and
            28.2 to the Company's Registration Statement on Form S-8
            (Registration No. 333-28571) and incorporated herein by reference].

+10.10      Amended line of credit dated February 12, 1998 between Appliance
            Recycling Centers of America, Inc. and Spectrum Commercial Services,
            a division of Lyons Financial Services, Inc., Amended Revolving Note
            and Amended Guarantor Acknowledgments.

+10.11      Agreement dated February 13, 1998 between Western Bank and Appliance
            Recycling Centers of America, Inc.

*10.12      Amendment, effective April 24, 1997, to 1989 Stock Option Plan
            [filed as exhibit 28.2 to the Company's Registration Statement on
            Form S-8 (Registration No. 33-68890) and incorporated herein by
            reference].

+13.0       Portions of the Annual Report to Shareholders for the fiscal year
            ended January 3, 1998: Common Stock Data; Selected Financial Data;
            Management Discussion and Analysis; Financial Statements.

+21.1       Subsidiaries of Appliance Recycling Centers of America, Inc.

+23.1       Consent of McGladrey & Pullen, LLP, Independent Public Accountants.

+27.0       Financial Data Schedule.

-----------------
*     Items that are management contracts or compensatory plans or arrangements
      required to be filed as an exhibit pursuant to Item 14(c) of this Form
      10-K.
+     Filed herewith.