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 December 29, 2001
                                       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: 952-930-9000

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. [ ]

As of March 8, 2002, 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 OTC Bulletin Board, was
$5,096,812.

As of March 8, 2002, there were outstanding 2,316,971 shares of the registrant's
Common Stock, without par value.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement dated March 22, 2002,
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........................        6
                Company Operations....................................        7
                Principal Product and Services........................        7
                Sales and Marketing...................................        8
                Seasonality...........................................        8
                Competition...........................................        8
                Government Regulation.................................        9
                Employees.............................................        9
Item 2.  Properties...................................................       10
Item 3.  Legal Proceedings............................................       10
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........................................       11
Item 6.  Selected Financial Data......................................       12
Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations........................       13
Item 7A. Quantitative and Qualitative Disclosure About Market Risk....       20
Item 8.  Financial Statements and Supplementary Data..................       21
Item 9.  Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure...................................       33

                                    PART III

Item 10. Directors and Executive Officers of the Company..............       33
Item 11. Executive Compensation.......................................       33
Item 12. Security Ownership of Certain Beneficial Owners and
           Management.................................................       33
Item 13. Certain Relationships and Related Transactions...............       33

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
           Form 8-K...................................................       34

SIGNATURES............................................................       36
INDEX TO EXHIBITS.....................................................       37


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<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Appliance Recycling Centers of America, Inc., together with its
operating subsidiaries ("ARCA" or the "Company"), is a leading provider of
reverse logistics, energy efficiency and appliance recycling services for
appliance manufacturers and retailers, utility companies, waste management
businesses, vending machine companies, property managers, local governments and
the general public. The Company generates revenues from the sale of appliances
through a chain of Company-owned retail stores under the name ApplianceSmart(R),
fees charged for the collection and environmentally sound recycling of unwanted
appliances, and sales of materials generated from processed appliances.

         The Company was incorporated in Minnesota in 1983, although through its
predecessors it commenced the appliance retail and 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 1997, 46
million major household appliances were taken out of use in the United States.
The disposal of these appliances is 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 regulations. As a result, appliances
must be dealt with outside the ordinary municipal solid waste system.

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

         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 1987 National Appliance
Energy Conservation Act requires that new refrigerators use less than half of
the energy as refrigerators built as recently as ten years ago. As more


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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. The Company believes,
however, that energy conservation and efficiency programs will remain a
long-term component of the nation's electric utility industry. See "Government
Regulation" below.

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 retailers arranged for the removal of old
appliances from consumers' residences. The Company collected old appliances on
behalf of its customers, reconditioned and sold suitable used appliances through
its own retail stores and sold 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 were offered to
new appliance manufacturers and retailers, waste management companies, property
management companies and the general public. See "Customers and Source of
Supply" below.

         In 1989, the Company expanded its appliance recycling concept to the
electric 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 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 such as the one the Company offers.

         During fiscal year 2001, a major electric utility customer, Southern
California Edison Company ("Edison"), accounted for approximately 29% or $12.7
million of the Company's total revenues. Plans for a 2002 statewide recycling
program that will be administered by Edison are currently being reviewed by
California regulatory authorities.

         In October 2000, the Company signed a contract with Edison to implement
a recycling program ("Summer Initiative") in the service areas of Pacific Gas &
Electric (the San Francisco Bay area) and San Diego Gas & Electric. This
contract was in accordance with a ruling issued by the California Public
Utilities Commission ("CPUC"). Under this contract, the Company recycled
approximately 36,000 units. The Company began the Summer Initiative in September
of 2000 and it was completed in the third quarter of 2001. The Company was
responsible for advertising the Summer Initiative.

         The Company also is aggressively pursuing new and potentially
significant appliance recycling programs in other states, reflecting growing
national interest in residential energy conservation programs. Nevertheless, the
Company's ability to project recycling revenue for 2002 continues to be limited.

         The recent energy crisis in California has not had a material adverse
effect on the Company's operations. However, there can be no guarantee that it
will not have an adverse effect in the future if Edison is unable to perform
under the terms of its expected contract with the Company.


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<PAGE>


         In response to the decrease in demand for services from electric
utilities, the Company 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 appliances.
In 1995, under the name Encore(R) Recycled Appliances, the Company began
operating a chain of Company-owned retail stores. In 1998, the Company began
using the name ApplianceSmart(R) for its retail stores. The retail stores offer
manufacturers' distressed appliances and reconditioned appliances to
value-conscious individuals and property managers.

         A developing market for the Company is in providing fully integrated
reverse logistics services--the handling of product that does not fit into a
company's normal distribution channels--for appliance manufacturers and
retailers. Manufacturers traditionally disposed of these "special buy"
appliances, including manufacturer closeouts, factory over-runs, floor samples,
returned or exchanged items, and scratch and dent appliances, through their
small dealer network. Large retailers have not wanted to handle these types of
appliances because the merchandise is often out of carton, requiring special
handling and pricing. In addition, this product often requires some repair or
recycling; a function major retailers are unwilling or unable to perform. As
small dealers are struggling to compete with large appliance chains (the top 10
retailers control 80 percent of the appliance sales market), manufacturers are
seeing their traditional channel for these distressed appliances shrink. It is
anticipated that small appliance retailers will also be negatively affected by
manufacturers' direct sale of appliances to consumers via the Internet.

         In 1997, the Company entered into pilot program agreements with
Whirlpool Corporation, the nation's largest manufacturer of major household
appliances, to develop a program for handling Whirlpool's returned appliances
and new appliances that cannot be handled through the manufacturer's normal
distribution channels. Through a subsequent 1998 contract with Whirlpool, the
Company purchases these appliances from Whirlpool's distribution centers serving
the Midwest and certain western states. This merchandise, which includes
manufacturer closeouts, factory over-runs, floor samples, returned or exchanged
items, and scratch and dent appliances, is sold through the Company's network of
ApplianceSmart retail stores. ApplianceSmart is an authorized factory outlet for
Whirlpool, and specializes in the Whirlpool, KitchenAid and Roper brands. With
an increased supply of product, the Company began to focus on opening larger
factory outlet facilities to offer consumers a wider selection of appliances and
began to close its smaller stores. The Company has also decided not to expand
its used appliance business.

         In the latter part of 1998, the Company scaled back its agreement with
Whirlpool to a level consistent with its financial resources and now buys
inventory mainly from Whirlpool's Ohio distribution center. The Whirlpool
agreement does not provide for any required or minimum number of units to be
offered for sale to the Company. However, subject to certain exceptions, the
Company has the ability but is not required to purchase from Whirlpool up to
$3,000,000 of appliances in any three-month period. The Whirlpool agreement may
be terminated by either party upon six-month's notice, or earlier for certain
items. In addition, the Company has agreed to indemnify Whirlpool for certain
claims, allegations or losses with respect to Whirlpool appliances sold by the
Company.

         In October 2001, the Company entered into an agreement with Maytag
Corporation for the acquisition of distressed appliances ("Maytag Agreement").
Under the Maytag Agreement, there are no minimum purchase requirements. The
Maytag Agreement may be terminated by either party upon 60 days' written notice
or may be terminated immediately if a default is not cured within ten (10) days
after notice of default. In addition, the Company has agreed to indemnify Maytag
for all claims, losses, liability and expenses with respect to Maytag appliances
sold by the Company. The Agreement is expected to supply the Company's retail
stores with a significant supply of Maytag appliances.

         In December 2001, the Company announced that all retail stores would be
carrying a full line of Frigidaire special-buy household appliances.


                                       5
<PAGE>


         The Company believes purchases from these three manufacturers will
provide an adequate supply of high-quality appliances for its retail outlets.
There are no set number of units to be sold to the Company from any of the three
manufacturers.

         In 1999, the Company closed one store in the Minneapolis/Saint Paul
market and one store in the California market. In 2000, the Company closed a
smaller store in the Minneapolis/Saint Paul market and opened a 30,000 square
foot store in the Dayton, Ohio market. In January 2001, the Company opened a
24,000 square foot store in the Minneapolis/Saint Paul market. The Company
opened another 42,000 square foot store in the Dayton, Ohio market in March
2001. In addition, the Company closed a smaller store and opened a 32,000 square
foot store in the Columbus, Ohio market in May 2001. The Company opened a 49,000
square foot store in the Minneapolis/Saint Paul market in October 2001. In March
2002, the Company opened another 30,000 square foot store in Columbus, Ohio. The
Company currently has three recycling centers, located in Columbus, Ohio;
Minneapolis, Minnesota; and Los Angeles, California. Also, the Company currently
has ten retail stores: four in Minneapolis/Saint Paul, one in Los Angeles, three
in Columbus and two in Dayton.

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 new,
distressed and unwanted appliances. These entities include new appliance
manufacturers and retailers, waste management businesses, vending machine
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 customers. Recently the Company has focused its
marketing efforts on new appliance manufacturers, including Whirlpool
Corporation, Maytag Corporation and Frigidaire, the primary sources of products
sold in the Company's stores.

         The Company believes its current sources for appliances are adequate to
supply its retail stores and allow the Company to grow its retail sales; however
there is a risk that one or more of these sources could be lost.

         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.

         VENDING MACHINE COMPANIES. The Company provides services to vending
machine companies for the recycling of vending machines for specified fees.

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

         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. Currently, the Company has
one contract with a major electric utility customer for 2002. Plans for a 2002
statewide recycling program that will be administered by another major electric
utility customer are currently being reviewed by California regulatory
authorities.


                                       6
<PAGE>


COMPANY OPERATIONS

         The Company provides an integrated range of reverse logistics, energy
efficiency and appliance recycling services. Appliances are acquired from a wide
range of sources, including appliance manufacturers and retailers, utility
companies, waste management businesses, vending machine companies, property
managers, local governments and the general public.

         Appliances deemed suitable for sale are repaired or reconditioned, if
necessary, before being tested and distributed to the Company's ApplianceSmart
retail outlets. Every appliance is under warranty and carries a 100 percent
money-back guarantee. The Company also offers consumers extended warranties,
delivery, factory-trained technician service and recycling of old appliances.

         Appliances that do not meet quality standards for the Company's retail
operations and appliances collected through utility customers' energy
conservation programs are processed and recycled in an environmentally sound
manner. Appliances are inspected and categorized according to the types of
hazardous materials they may contain, and processed according to all applicable
federal, state and local regulations by company-trained technicians. When
processing at the Company's recycling center is complete and the appliances are
free of all environmentally hazardous substances, the appliances are delivered
to a local metal processing facility for shredding. The shredded materials are
then sold to steel mini-mills or other metal recovery facilities for reuse.

         Management believes that the uncertainties in the electric utility
industry regarding deregulation will persist at least through 2002. 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 recent energy crisis in California has not had a material adverse
effect on the Company's operations. However, there can be no guarantee that it
will not have an adverse effect in the future if Edison is unable to perform
under the terms of its expected contract with the Company.

         In 2001, the Company focused on a carefully managed growth plan of
opening showroom outlet stores, located in heavily trafficked, conveniently
located retail malls. The Company believes that the growth of its retail
business in the near future will likely occur primarily through the expansion of
revenues from the Company's current and proposed retail stores.

PRINCIPAL PRODUCTS AND SERVICES

         The Company generates revenues from three sources: retailing, recycling
and byproduct. The table below reflects the percentage of total revenues from
each source. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Revenues:                                   2001      2000      1999
---------                                  ------    ------    ------
         Retail                             50.3%     57.6%     51.1%
         Recycling                          46.8%     37.9%     44.6%
         Byproduct                           2.9%      4.5%      4.3%
                                           ------    ------    ------
                                           100.0%    100.0%    100.0%
                                           =====     =====     =====

         Although the Company has two main sources of revenues, management
believes that the Company has only one operating segment. That is, even though
certain separate financial information by retail store or retail store and
recycling center is available to management, the Company is managed as a single
unit. Specifically, the Company does not measure profit or loss or maintain
asset information separately for its revenue sources. Recycling and byproduct
revenues are the result of both retail revenues and recycling contracts. Retail
includes the free removal and recycling of the customer's existing appliance.
Recycling includes the recycling of appliances per a contract or agreement.


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<PAGE>


SALES AND MARKETING

         The Company uses various means to promote awareness of its products and
services and believes it is recognized as a leader in the retailing of
appliances on a reverse logistics basis and in the recycling industry.

         ApplianceSmart's outlet store concept includes establishing large
factory showrooms in convenient metropolitan locations to offer consumers a
selection of hundreds of appliances. In keeping with ApplianceSmart's branding,
both the exterior and interior of ApplianceSmart's stores display Whirlpool and
Maytag signage along with custom-designed ApplianceSmart materials. In every
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, along with other types of promotions.
Through the Company's website at www.ApplianceSmart.com, consumers can also
access appliance-specific and general Company information.

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.

COMPETITION

         Competition for the Company's retail stores comes from new appliance
manufacturers and retailers and other reconditioned and used appliance
retailers. Each retail 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 may have significantly greater assets than the Company, but
will also compete with numerous independently owned retailers of new and
reconditioned appliances.

         Many factors, including existing and proposed governmental regulation,
may affect competition in the waste management and environmental services
industry. The Company generally competes with two or three other companies which
are based in the geographic area to be served under appliance recycling
contracts and which generally offer only some of the services provided by the
Company.

         The Company expects its primary competition for appliance recycling
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 and scrap metal processors. 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.



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GOVERNMENT REGULATION

         The business of recycling major appliances is subject to certain
governmental laws and regulations. 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 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 may
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
liabilities.

EMPLOYEES

         At March 1, 2002, the Company had 242 full-time employees,
approximately 48% of who were involved in the collection, transportation and
processing of appliances at the Company's centers and approximately 52% of whom
were in sales, administration and management. The Company has not experienced
any work stoppages and believes its employee relations are good.



                                       9
<PAGE>


ITEM 2.  PROPERTIES

         The Company's executive offices are located in Minneapolis, Minnesota,
in a Company-owned facility that includes approximately 11 acres of land. The
building contains approximately 122,000 square feet, including 27,000 square
feet of office space, 24,000 square feet of retail space and 71,000 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 46,000 square feet: 6,000 square feet of office space and 40,000
square feet of warehouse space. All properties and equipment 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 for a recycling center that
correspond to the term of the principal contract or contracts in connection with
which the center is to be operated. The Company's recycling centers typically
range in size from 25,000 to 40,000 square feet. The Company usually attempts to
negotiate lease terms of two to five years for its retail stores 25,000 to
35,000 square feet. However, the retail stores may be larger depending on
favorable demographics, availability and other business factors.

         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 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.

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.



                                       10
<PAGE>


                                     PART II

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

MARKET FOR COMMON STOCK

         The Common Stock trades under the symbol "ARCI." The Company's Common
Stock began trading on the OTC Bulletin Board on September 8, 1998. Prior to
that time, the Common Stock traded as follows: on the Nasdaq SmallCap Market
from February 26, 1997 to September 7, 1998; on the Nasdaq National Market from
January 8, 1993 to February 25, 1997; on the Nasdaq SmallCap Market from January
7, 1991 to January 7, 1993; and on the local over-the-counter market prior
thereto. The following table sets forth, for the periods indicated, the high and
low closing bid quotations for the Common Stock, as reported by the OTC Bulletin
Board.

                                                        High             Low
                                                     ----------       ---------
         2000

                 First Quarter...................    $  2 1/2         $ 19/25
                 Second Quarter..................       3 1/8           1 9/16
                 Third Quarter...................       3               1 5/8
                 Fourth Quarter..................       2 1/2           1 3/16

         2001

                 First Quarter...................    $  2 3/8         $ 1
                 Second Quarter..................       2 20/25         1 1/8
                 Third Quarter...................       3 35/64         2 10/25
                 Fourth Quarter..................       5 45/64         2 3/4

         On March 8, 2002, the last reported sale price of the Common Stock on
the OTC Bulletin Board was $4.00 per share. As of March 8, 2002, there were
approximately 1,022 beneficial holders of the Company's Common Stock.

         The Company's line of credit limits the Company's ability to pay
dividends.

         During 1999, the Company privately placed 1,050,000 unregistered shares
and 138,000 warrants to purchase shares. In 2000, the Company registered
1,030,000 shares of such shares for resale by the holders.

         In February 1999, the Company sold in a private placement 1,030,000
shares of Common Stock at a price of $0.50 per share. The sale represented
approximately 45% of the Common Stock outstanding after such sale. The Company
paid $31,500 of the proceeds and issued warrants to purchase 83,000 shares of
Common Stock at $0.50 per share, subject to adjustment, to an investment banker
as a placement fee. The remaining proceeds were used to repay certain
indebtedness, to purchase inventory and for other general corporate purposes.


                                       11
<PAGE>


         In March 1999, the Company issued to a board member as payment for
certain consulting services, 5,000 warrants to purchase the Company's Common
Stock at $0.625 per share, the market value of the Company's stock at the date
of grant. The warrants are currently exercisable and expire March 1, 2009.

         In April 1999, the Company issued to a vendor 50,000 warrants to
purchase the Company's Common Stock at $0.625 per share. The warrants expire
March 31, 2004.

         In August 1999, the Company settled a lawsuit with a former employee.
The settlement included a cash payment of $105,000 and the issuance of 20,000
shares of the Company's common stock valued at $12,500.


ITEM 6.  SELECTED FINANCIAL DATA

         The selected financial information set forth below should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Financial Statements and
Supplementary Data."

<TABLE>
<CAPTION>
Fiscal Years Ended                    2001             2000             1999              1998            1997
-----------------------------------------------------------------------------------------------------------------
   (In thousands, except
   per share data)

STATEMENTS OF OPERATIONS
<S>                              <C>              <C>              <C>              <C>               <C>
Total revenues                   $   43,810       $   21,479       $   15,582       $    13,612       $   11,979
-----------------------------------------------------------------------------------------------------------------
Gross profit                     $   17,329       $    8,921       $    6,666       $     3,981       $    4,990
-----------------------------------------------------------------------------------------------------------------
Operating income (loss)          $    4,749       $    1,963       $    1,139       $    (2,744)      $     (489)
-----------------------------------------------------------------------------------------------------------------
Net income (loss)                $    2,646       $      927       $      505       $    (3,056)      $     (748)
-----------------------------------------------------------------------------------------------------------------
Basic earnings (loss)
per common share                 $     1.15       $     0.41       $     0.24       $     (2.55)      $    (0.66)
-----------------------------------------------------------------------------------------------------------------
Diluted earnings (loss)
per common share                 $     0.86       $     0.32       $     0.22       $     (2.55)      $    (0.66)
-----------------------------------------------------------------------------------------------------------------
Basic weighted average
number of common
shares outstanding                    2,291            2,287            2,142             1,200            1,137
-----------------------------------------------------------------------------------------------------------------
Diluted weighted average
number of common
shares outstanding                    3,068            2,889            2,274             1,200            1,137
-----------------------------------------------------------------------------------------------------------------

BALANCE SHEETS
Working capital (deficit)        $    3,188       $    1,183       $      545       $      (471)      $   (1,959)
-----------------------------------------------------------------------------------------------------------------
Total assets                     $   18,936       $   12,651       $    9,517       $     8,843       $    8,569
-----------------------------------------------------------------------------------------------------------------
Long-term liabilities            $    4,348       $    4,431       $    4,831       $     4,965       $    1,633
-----------------------------------------------------------------------------------------------------------------
Shareholders' equity             $    5,397       $    2,751       $    1,809       $       816       $    3,365
-----------------------------------------------------------------------------------------------------------------
</TABLE>



                                       12
<PAGE>


QUARTERLY FINANCIAL DATA

        The following table sets forth certain unaudited quarterly financial
data for the eight quarters ended December 29, 2001. In our opinion, the
unaudited information set forth below has been prepared on the same basis as the
audited information and includes all adjustments necessary to present fairly the
information set forth herein. The operating results for any quarter are not
indicative of results for any future period. All data is in thousands except per
common share data.

<TABLE>
<CAPTION>
                                                                               Fiscal 2001
-------------------------------------------------- ----------------- --------------- --------------- ---------------
                                                     1st Quarter       2nd Quarter     3rd Quarter     4th Quarter
-------------------------------------------------- ----------------- --------------- --------------- ---------------
<S>                                                <C>               <C>             <C>             <C>
Total revenues                                     $     7,764       $     10,095    $     13,645    $     12,306
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Net income                                         $       316       $        393    $      1,577    $        360
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Basic income per common share                      $      0.14       $       0.17    $       0.69    $       0.16
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Diluted income per common share                    $      0.11       $       0.13    $       0.50    $       0.11
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Basic weighted average number of
common shares outstanding                                2,287              2,287           2,292           2,297
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Diluted weighted average number of
common shares outstanding                                2,863              2,957           3,147           3,307
-------------------------------------------------- ----------------- --------------- --------------- ---------------

                                                                               Fiscal 2000
-------------------------------------------------- ----------------- --------------- --------------- ---------------
                                                     1st Quarter       2nd Quarter     3rd Quarter     4th Quarter
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Total revenues                                     $     4,174       $      5,819    $      6,188    $      5,298
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Net income                                         $       290       $        341    $        257    $         39
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Basic income per common share                      $      0.13       $       0.15    $       0.11    $       0.02
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Diluted income per common share                    $      0.10       $       0.12    $       0.09    $       0.01
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Basic weighted average number of
common shares outstanding                                2,287              2,287           2,287           2,287
-------------------------------------------------- ----------------- --------------- --------------- ---------------
Diluted weighted average number of
common shares outstanding                                2,812              2,920           2,948           2,889
-------------------------------------------------- ----------------- --------------- --------------- ---------------
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS FOR THE FISCAL YEARS 2001, 2000 AND 1999

OVERVIEW

         The Company's 2001 fiscal year (2001) ended December 29, 2001, its 2000
fiscal year (2000) ended December 30, 2000 and its 1999 fiscal year (1999) ended
January 1, 2000.

         The Company generates revenues from three sources: retail, recycling
and byproduct. Retail revenues are sales of appliances, warranty and service
revenue and delivery fees. Recycling revenues are fees charged for the disposal
of appliances. Byproduct revenues are sales of scrap metal and reclaimed
chlorofluorocarbons ("CFCs") generated from processed appliances. 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 quarters. The lower levels in the first and fourth quarters reflect
consumer purchasing cycles, which result in lower demand for appliances and
recycling services.

         In 2001, the Company focused on a carefully managed growth plan of
opening large showroom outlet stores, located in heavily trafficked,
conveniently located retail malls. During 2001, the Company opened three retail
stores, two in the Minneapolis/Saint Paul market and one in the Dayton, Ohio
market. The Company also closed a smaller retail store in Columbus and opened
another outlet in this market in 2001. Retail revenues accounted for 50.3% of
total revenues in 2001.


                                       13
<PAGE>


CRITICAL ACCOUNTING POLICIES

         Our significant accounting policies are summarized in the footnotes to
our financial statements. Some of the most critical policies are also discussed
below.

         As a matter of policy, we review our major assets for impairment. Our
major operating assets are accounts receivable, inventories, and property and
equipment. Our reserve for doubtful accounts of $100,000 should be adequate for
any exposure to loss in our December 29, 2001 accounts receivable. We have also
established reserves for slow moving and obsolete inventories and believe the
reserve of $464,000 is adequate. We depreciate our property and equipment over
their estimated useful lives and we have not identified any items that are
impaired as of December 29, 2001. We evaluated the realizability of our deferred
tax assets and tax attributes and have provided a valuation allowance primarily
for net operating loss and tax credit carryovers for which the use is subject to
limitation. We have significant options and warrants outstanding and utilize
relevant market and other valuation information relative to accounting for and
reporting equity transactions.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In July 2001, FAS No. 141, BUSINESS COMBINATIONS, and FAS No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, were issued. These pronouncements provide
that all business combinations initiated after June 30, 2001, be accounted for
using the purchase method and that goodwill be reviewed for impairment rather
than amortized, beginning in January 2002. Any business combination transactions
and acquisitions of intangibles in the future would be accounted for under this
new guidance. The Company will cease amortization of its goodwill beginning in
January 2002. The Company does not believe that the adoption of these
pronouncements will have a material effect on its consolidated financial
statements. Any business combination transactions in the future would be
accounted for under this new guidance.

         In September 2001, the FASB issued Statement No. 143, ASSET RETIREMENT
OBLIGATIONS. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The statement will be effective for the
Company's fiscal year ending December 2003. The Company does not believe that
the adoption of this pronouncement will have a material effect on its
consolidated financial statements.

         In August 2001, the FASB issued Statement No. 144, ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement will be effective for the Company's fiscal year ending December
2003. The Company does not believe that the adoption of this pronouncement will
have a material effect on its consolidated financial statements.

REVENUES

         The Company's total revenues for 2001 were $43,810,000 compared to
$21,479,000 in 2000.

         Retail revenues increased to $22,037,000 in 2001 from $12,379,000 in
2000, an increase of 78.0%. Same-store sales for 2001 (a sales comparison of
four stores open the full year in both 2001 and 2000) increased 25%. The
increase in retail revenues was primarily due to an increase in special buy
appliance sales offset by a slight decrease in reconditioned appliance sales.
Special buy appliances include manufacturer closeouts, factory over-runs, floor
samples, returned or exchanged items and scratch and dent appliances. The
increase in special buy appliance sales was primarily due to three additional
stores operating during 2001. The Company continues to purchase appliances from
Whirlpool Corporation. The Whirlpool agreement does not provide for any required
or minimum number of units to be sold to the Company.


                                       14
<PAGE>


        In October 2001, the Company entered into an agreement with Maytag
Corporation for the acquisition of distressed appliances ("Maytag Agreement").
Under the Maytag Agreement, there are no minimum purchase requirements. The
Maytag Agreement may be terminated by either party upon 60 days' written notice
or may be terminated immediately if a default is not cured within ten (10) days
after notice of default. In addition, the Company has agreed to indemnify Maytag
for all claims, losses, product liability and expenses with respect to Maytag
appliances sold by the Company.

         In December 2001, the Company announced that it will be purchasing
appliances from Frigidaire. There are no minimum purchase requirements.

         The Company believes purchases from these three manufacturers will
provide an adequate supply of high-quality appliances for its retail outlets;
however there is a risk that one or more of these sources could be lost.

         The Company operated nine retail stores at the end of the current
fiscal year compared to six retail stores at the end of the previous fiscal
year. During the first quarter of 2001, the Company opened a 24,000 square foot
store in the Minneapolis/Saint Paul market and a 36,000 square foot store in the
Dayton, Ohio market. In the second quarter of 2001, the Company closed a smaller
store and opened a 31,000 square foot store in the Columbus, Ohio market. In the
fourth quarter of 2001, the Company opened a 49,000 square foot store in the
Minneapolis/Saint Paul market. In March 2002, the Company opened a 30,000 square
foot store in the Columbus, Ohio market.

         Recycling revenues increased to $20,506,000 in 2001 from $8,140,000 in
2000. The increase was primarily due to increases in refrigerator recycling
volumes principally related to both of the contracts with Southern California
Edison Company ("Edison"). Edison accounted for approximately 29% of the
Company's total revenues for 2001 and 30% for 2000. In June 2000, the Company
signed a two-year contract with Edison to continue its refrigerator recycling
program through December 30, 2001. The two-year contract did not provide for a
minimum number of refrigerators to be recycled in either 2000 or 2001. The
Company recycled approximately 36,000 units in 2000 and approximately 50,000
units in 2001. The timing and amount of revenues was dependent on advertising by
Edison. Plans for a 2002 statewide recycling program that will be administered
by Edison are currently being reviewed by California regulatory authorities. The
Company is also aggressively pursuing new and potentially significant appliance
recycling programs in other states. Nevertheless, the Company's ability to
project recycling revenue for 2002 continues to be limited.

         The Company had another contract with Edison, ("Summer Initiative"), a
recycling program in the service areas of Pacific Gas & Electric (the San
Francisco Bay area) and San Diego Gas & Electric. Under this contract, the
Company recycled approximately 36,000 units. The Company began the Summer
Initiative in September of 2000 and it was completed in the third quarter of
2001. The Company was responsible for advertising the Summer Initiative.

         In June 2001, the Company signed a contract ("the Appliance Early
Retirement and Recycling Program") with the California Public Utilities
Commission ("CPUC") to operate a refrigerator/freezer/room air conditioner
recycling program in San Diego and surrounding areas; a six-county region in
California's Central Valley, including the cities of Fresno and Stockton; and
the seven-county Bay Area, including the city of San Francisco. The Company
started taking customer orders for the Appliance Early Retirement and Recycling
Program in San Diego in June 2001. The program was launched in the Central
Valley and Bay Area in September. The CPUC has budgeted $14 million to fund the
recycling program. The budget allocation includes $50 incentive payments to
participants for refrigerators and freezers and $25 incentive payments for room
air conditioners. The program runs through August 31, 2002.


                                       15
<PAGE>


         The recent energy crisis in California has not had a material adverse
effect on the Company's operations. However, there can be no guarantee that it
will not have an adverse effect in the future if Edison is unable to perform
under the terms of its expected contract with the Company.

         Byproduct revenues increased to $1,267,000 in 2001 from $960,000 in
2000. The increase was primarily due to an increase in the volume of CFCs and
scrap metal resulting from the increased volume of the Edison contracts.

         The Company's total revenues for 2000 were $21,479,000 compared to
$15,582,000 in 1999.

         Retail revenues increased to $12,379,000 in 2000 from $7,956,000 in
1999, an increase of 55.6%. The increase in retail revenues was primarily due to
an increase in special buy appliance sales offset by a decrease in reconditioned
appliance sales. Same-store retail sales for 2000 increased 53% (a sales
comparison of five stores open for full years in both 2000 and 1999). The
increase in special buy 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 the second quarter of 2000. The Company purchased a
majority of the special buy appliances sold from Whirlpool Corporation. The
Company operated six retail stores at both the end of 2000 and 1999. However,
during the second quarter of 2000, the Company closed a smaller store in the
Minneapolis/Saint Paul market and opened a 30,000 square foot store in the
Dayton, Ohio market.

         Recycling revenues increased to $8,140,000 in 2000 from $6,956,000 in
1999. The increase was primarily due to an increase in refrigerator recycling
volumes related to the contract with Edison. Edison accounted for approximately
30% of the Company's total revenues for 2000 and 33% for 1999. In June 2000, the
Company signed a two-year contract with Edison to continue its refrigerator
recycling program through December 30, 2001. The two-year contract did not
provide for a minimum number of refrigerators to be recycled in either 2000 or
2001. The Company recycled approximately 36,000 units in 2000. The timing and
amount of revenues was dependent on advertising by Edison.

         In October 2000, the Company signed a contract with Edison to implement
a recycling program ("Summer Initiative") in the service areas of Pacific Gas &
Electric (the San Francisco Bay area) and San Diego Gas & Electric. This
contract was in accordance with a ruling issued by the California Public
Utilities Commission ("CPUC"). Under the Summer Initiative, the Company expected
to recycle approximately 30,000 to 40,000 units through the end of 2001 in
addition to the approximately 36,000 units from the original Edison contract. As
with its initial Edison program, there were 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 was fully operational in the first
quarter of 2001. The Company was responsible for advertising the Summer
Initiative.

         Byproduct revenues increased to $960,000 in 2000 from $670,000 in 1999.
The increase was primarily due to higher sales of CFCs offset slightly by lower
scrap revenue due to a decrease in scrap prices.

GROSS PROFIT

         The Company's overall gross profit decreased slightly to 39.6% in 2001
from 41.5% in 2000. The decrease was primarily due to higher sales of special
buy appliances that have a lower margin than reconditioned appliances, offset by
higher recycling revenues from the initial Edison contract and the Summer
Initiative contract without a corresponding increase in expenses. Gross profit
as a percentage of total revenues for future periods can be affected favorably
or unfavorably by numerous factors included the mix of retail products sold, the
volume of appliances recycled from the expected Edison contract and the current
CPUC contract and the price and volume of byproduct revenues. The Company
expects gross profit percentages to decrease slightly as retail revenues
continue to become a higher percentage of total revenues.


                                       16
<PAGE>


         The Company's overall gross profit decreased slightly to 41.5% in 2000
from 42.8% in 1999. The decrease was primarily due to higher sales of special
buy appliances that have a lower margin than reconditioned appliances, offset by
higher recycling revenues from the initial Edison contract without a
corresponding increase in expenses, improved purchase price and mix of inventory
for retail sales and discontinuing unprofitable programs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses were 28.7% of total
revenues in 2001 compared to 32.4% in 2000. Selling, general and administrative
expenses increased to $12,580,000 in 2001 from $6,958,000 in 2000, an 80.8%
increase. Selling expenses increased to $5,959,000 in 2001 from $2,858,000 in
2000. The increase was primarily due to opening three additional retail stores
during 2001 which increased advertising by $598,000 and commissions by $271,000.
General and administrative expenses increased to $6,621,000 in 2001 from
$4,100,000 in 2000. The increase was primarily due to an increase in personnel
costs as a result of Company growth and an increase in bad debt expense.

         Selling, general and administrative expenses were 32.4% of total
revenues in 2000 compared to 35.5% in 1999. Selling, general and administrative
expenses increased to $6,958,000 in 2000 from $5,527,000 in 1999, a 25.9%
increase. Selling expenses increased to $2,858,000 in 2000 from $1,900,000 in
1999. The increase was primarily due to opening a new retail store in 2000 and a
corresponding increase in advertising and commissions. General and
administrative expenses increased to $4,100,000 in 2000 from $3,627,000 in 1999.
The increase was primarily due to an increase in personnel costs and
non-capitalized consultant fees for the Company's computer systems.

INTEREST EXPENSE

         Interest expense increased to $1,074,000 in 2001 from $841,000 in 2000.
The increase was primarily due to a higher average borrowed amount in 2001
compared to 2000 offset by a decrease in the effective interest rate on the line
of credit.

         Interest expense increased to $841,000 in 2000 from $780,000 in 1999.
The increase was primarily due to a higher average borrowed amount in 2000
compared to 1999 offset by a decrease in the effective interest rate on the line
of credit.

INCOME TAXES AND NET OPERATING LOSSES

         The Company recorded a provision for income taxes of $1,117,000 for
2001 compared to $580,000 in 2000. The increase was due to greater pre-tax
income offset by a lower effective tax rate for 2001 compared to 2000. The lower
effective tax rate in 2001 resulted from a reduction of $370,000 in the deferred
tax valuation allowance, net of effect of a net operating loss (NOL) attribute
reduction during 2001 resulting from the determination that certain deferred tax
assets were more likely than not to be realized.

         The Company has NOL carryovers of approximately $7 million at December
29, 2001, 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 significant 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 "ownership change" under Section 382. Accordingly, the Company's ability to
use net operating loss carryforwards generated prior to February 1999 may be
limited to approximately $56,000 per year, or less than $1 million through 2018.

         As of its 2001 and 2000 year-ends, the Company had recorded cumulative
valuation allowances of $2,998,000 and $4,022,000, respectively, against its net
deferred tax assets due to the uncertainty of their


                                       17
<PAGE>


realization. The reduction in the valuation allowance during 2001 was due to the
aforementioned determination that certain deferred tax assets are more likely
than not to be realized and to the effect of an NOL attribute reduction. 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 be available to reduce taxable income. At December
29, 2001, the remaining valuation allowance is principally due to the Section
382 limitation of its NOL's and tax credits.

LIQUIDITY AND CAPITAL RESOURCES

         At December 29, 2001, the Company had working capital of $3,188,000
compared to $1,183,000 at December 30, 2000. Cash and cash equivalents increased
to $506,000 at December 29, 2001 from $302,000 at January 30, 2000. Net cash
used in operating activities was $1,124,000 in 2001 compared to $1,190,000 in
2000. The cash used in operating activities was primarily due to increases in
inventories and receivables offset by net income and an increase in payables and
accrued expenses. During 2001, inventories increased by $2,515,000 principally
due to more and larger stores and receivables increased $2,644,000 principally
due to the California recycling contracts.

         Net cash used in investing activities was $910,000 in 2001 compared to
net cash provided by investing activities of $58,000 in 2000. The cash used in
investing activities in 2001 was primarily due to the continued upgrade of
computer systems and the purchase of equipment related to the refrigerator
recycling program. The 2000 capital expenditures of $609,000 were primarily
related to the purchase of computer equipment and such purchases were offset by
the proceeds from disposal of certain property and equipment. The Company did
not have any material purchase commitments for assets as of December 29, 2001.

         Net cash provided by financing activities was $2,238,000 in 2001
compared to $1,214,000 in 2000. The increase in cash provided by financing
activities was primarily due to increased borrowings from the line of credit in
2001 net of payments on long-term liabilities.

         As of December 29, 2001, the Company had a $10,000,000 line of credit
with a lender. The interest rate as of December 29, 2001 was 5.75%. The amount
of borrowings available under the line of credit is based on a formula using
receivables and inventories. The line of credit has a stated maturity date of
August 30, 2004 and 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's assets and requires minimum monthly
interest payments of $37,500 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 requires that the Company meet certain
financial covenants, provides payment penalties for noncompliance and prepayment
limits the amount of other debt the Company can incur, limits the amount of
spending on fixed assets and limits payments of dividends. The Company's unused
borrowing capacity was $1,079,000 at December 29, 2001 and $802,000 at March 1,
2002.

         A summary of our contractual cash obligations at December 29, 2001 is
as follows:

<TABLE>
<CAPTION>
                                   ------------------------------------------------------------------------------------------
                                                                  PAYMENTS DUE BY PERIOD
---------------------------------- ------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS                   TOTAL          2002            2003          2004           2005          2006
---------------------------------- --------------- -------------- -------------- -------------- -------------- --------------
<S>                                   <C>            <C>            <C>            <C>            <C>            <C>
Long-term debt, including interest    $ 6,568,000    $ 1,071,000    $ 1,460,000    $ 1,250,000    $ 2,784,000    $     3,000
---------------------------------- --------------- -------------- -------------- -------------- -------------- --------------
Operating leases                      $ 5,873,000    $ 1,865,000    $ 1,331,000    $ 1,131,000    $ 1,139,000    $   407,000
---------------------------------- --------------- -------------- -------------- -------------- -------------- --------------
Total contractual cash obligations    $12,441,000    $ 2,936,000    $ 2,791,000    $ 2,381,000    $ 3,923,000    $   410,000
---------------------------------- --------------- -------------- -------------- -------------- -------------- --------------
</TABLE>


                                       18
<PAGE>


         We also have a commercial commitment as described below:
<TABLE>
<CAPTION>
-------------------- ---------------- --------------------------- ----------------------
  OTHER COMMERCIAL     TOTAL AMOUNT
     COMMITMENT         COMMITTED       OUTSTANDING AT 12/29/01     DATE OF EXPIRATION
-------------------- ---------------- --------------------------- ----------------------
<S>                    <C>                    <C>                    <C>
   Line of credit      $ 10,000,000          $  4,708,000            August 30, 2004
-------------------- ---------------- --------------------------- ----------------------
</TABLE>

         We believe that our cash balance, availability under our line of
credit, if needed, and anticipated cash flows from operations will be adequate
to fund our cash requirements for fiscal 2002.

         During 2000, the Company recognized a gain of $275,000 from the sale of
the ApplianceSmart outlet property in Saint Paul, Minnesota and recognized the
remaining deferred gain of $60,000 in 2001. The Company is still operating this
outlet under an operating lease until September 30, 2002.

         The recent energy crisis in California has not had a material adverse
effect on the Company's operations. However, there can be no guarantee that it
will not have an adverse effect in the future if Edison is unable to perform
under the terms of its expected contract with the Company.

        In June 2001, the Company signed a contract ("the Appliance Early
Retirement and Recycling Program") with the California Public Utilities
Commission ("CPUC") to operate a refrigerator/freezer/room air conditioner
recycling program in San Diego and surrounding areas; a six-county region in
California's Central Valley, including the cities of Fresno and Stockton; and
the seven-county Bay Area, including the city of San Francisco. The Company
started taking customer orders for the Appliance Early Retirement and Recycling
Program in San Diego in June. The program was launched in the Central Valley and
Bay Area in September. The CPUC has budgeted $14 million to fund the recycling
program. The budget allocation includes $50 incentive payments to participants
for refrigerators and freezers and $25 incentive payments for room air
conditioners. The program runs through August 31, 2002.

         The Company believes, based on the anticipated revenues from the
expected Edison contract and the current CPUC contract, the anticipated sales
per retail store and 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 2002. The Company's total capital requirements for 2002 will depend
upon, among other things as discussed below, the recycling volumes generated
from the expected Edison program and CPUC program in 2002 and the number and
size of retail stores operating during the fiscal year. Currently, the Company
has three centers and ten stores in operation. If revenues are lower than
anticipated or expenses are higher than anticipated, 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 on terms satisfactory to
the Company or permitted by the Company's current lender.

FORWARD-LOOKING STATEMENTS

         Statements contained in this annual report regarding the Company's
future operations, performance and results, and anticipated liquidity discussed
herein are forward-looking and therefore are subject to certain risks and
uncertainties, including, but not limited to, those discussed herein. Any
forward-looking information regarding the operations of the Company will be
affected primarily by the Company's continued ability to purchase product from
Whirlpool, Maytag and Frigidaire at acceptable prices and the ability and timing
of Edison to deliver units under its expected contract, currently being reviewed
by California regulatory authorities, with the Company and the ability and
timing of the CPUC to deliver units under its contract with the Company. In
addition, any forward-looking information will also be affected by the ability
of individual retail stores to meet planned revenue levels, the rate of
sustainable growth in the number of retail stores, the speed at which individual
retail stores reach profitability, costs and expenses


                                       19
<PAGE>


being realized at higher than expected levels, the Company's ability to secure
an adequate supply of used appliances for resale and the continued availability
of the Company's current line of credit.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MARKET RISK AND IMPACT OF INFLATION

         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
rate is based on the prime rate. Also, the Company believes that inflation has
not had a material impact on the results of operations for each of the fiscal
years in the three-year period ended December 29, 2001. However, there can be no
assurances that future inflation will not have an adverse impact on the
Company's operating results and financial conditions.



                                       20
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Description                                                        Page
         -----------                                                        ----

         Independent Auditor's Report........................................22
         Consolidated Balance Sheets as of December 29, 2001
              and December 30, 2000..........................................23
         Consolidated Statements of Operations for the three years
              ended December 29, 2001........................................24
         Consolidated Statements of Shareholders' Equity for the
              three years ended December 29, 2001............................25
         Consolidated Statements of Cash Flows for the three years
              ended December 29, 2001........................................26
         Notes to Consolidated Financial Statements..........................27



                                       21
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders
Appliance Recycling Centers of America, Inc.
Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheets of Appliance
Recycling Centers of America, Inc. and Subsidiaries as of December 29, 2001 and
December 30, 2000, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three year
period ended December 29, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Appliance Recycling
Centers of America, Inc. and Subsidiaries as of December 29, 2001 and December
30, 2000, and the results of their operations and their cash flows for each of
the years in the three year period ended December 29, 2001, in conformity with
accounting principles generally accepted in the United States of America.


McGLADREY & PULLEN, LLP


Minneapolis, Minnesota
February 15, 2002



                                       22
<PAGE>


APPLIANCE RECYCLING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             DECEMBER 29,       December 30,
                                                                2001               2000
--------------------------------------------------------------------------------------------

ASSETS (NOTE 3)
<S>                                                          <C>                <C>
CURRENT ASSETS
Cash and cash equivalents                                    $    506,000       $    302,000
Accounts receivable, net of allowance of
  $100,000 and $20,000, respectively (Note 9)                   4,375,000          1,731,000
Inventories, net of reserves of $464,000
  and $375,000, respectively                                    6,748,000          4,233,000
Deferred tax assets (Note 7)                                      576,000            108,000
Other current assets                                              174,000            278,000
                                                             ------------       ------------
  Total current assets                                         12,379,000          6,652,000
                                                             ------------       ------------
PROPERTY AND EQUIPMENT, at cost (Notes 2 and 4)
Land                                                            2,050,000          2,050,000
Buildings and improvements                                      3,779,000          3,550,000
Equipment                                                       4,689,000          4,046,000
                                                             ------------       ------------
                                                               10,518,000          9,646,000
Less accumulated depreciation                                   4,291,000          3,930,000
                                                             ------------       ------------
  Net property and equipment                                    6,227,000          5,716,000
                                                             ------------       ------------
OTHER ASSETS                                                      292,000            207,000
                                                             ------------       ------------
GOODWILL, net of amortization of $152,000 and
  $114,000, respectively                                           38,000             76,000
                                                             ------------       ------------
  Total assets                                               $ 18,936,000       $ 12,651,000
                                                             ============       ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Line of credit (Note 3)                                      $  4,708,000       $  2,402,000
Current maturities of long-term obligations                       401,000            275,000
Accounts payable                                                1,960,000          1,279,000
Accrued expenses (Note 5)                                       1,365,000            936,000
Deferred gain on building sale                                         --             60,000
Income taxes payable                                              757,000            517,000
                                                             ------------       ------------
  Total current liabilities                                     9,191,000          5,469,000
LONG-TERM OBLIGATIONS, less current maturities (Note 4)         4,280,000          4,431,000
DEFERRED INCOME TAX LIABILITIES (Note 7)                           68,000                 --
                                                             ------------       ------------
  Total liabilities                                            13,539,000          9,900,000
                                                             ------------       ------------
COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY (Notes 3 and 8)
Common Stock, no par value; authorized 10,000,000
  shares; issued and outstanding 2,297,000 and
  2,287,000 shares in 2001 and 2000, respectively              11,360,000         11,360,000
Accumulated deficit                                            (5,963,000)        (8,609,000)
                                                             ------------       ------------
  Total shareholders' equity                                    5,397,000          2,751,000
                                                             ------------       ------------
  Total liabilities and shareholders' equity                 $ 18,936,000       $ 12,651,000
                                                             ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       23
<PAGE>


APPLIANCE RECYCLING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        For the fiscal year ended
-------------------------------------------------------------------------------------------------------------
                                                            DECEMBER 29,       December 30,       January 1,
                                                               2001               2000               2000
                                                           --------------------------------------------------
<S>                                                        <C>                <C>                <C>
 REVENUES (Note 9)
  Retail                                                   $ 22,037,000       $ 12,379,000       $  7,956,000
  Recycling                                                  20,506,000          8,140,000          6,956,000
  Byproduct                                                   1,267,000            960,000            670,000
                                                           ------------       ------------       ------------

  Total revenues                                             43,810,000         21,479,000         15,582,000

COST OF REVENUES (Note 9)                                    26,481,000         12,558,000          8,916,000
                                                           ------------       ------------       ------------

  Gross profit                                               17,329,000          8,921,000          6,666,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 2)        12,580,000          6,958,000          5,527,000
                                                           ------------       ------------       ------------

  Operating income                                            4,749,000          1,963,000          1,139,000

OTHER INCOME (EXPENSE)
  Other income                                                   88,000            385,000            146,000
  Interest expense                                           (1,074,000)          (841,000)          (780,000)
                                                           ------------       ------------       ------------

  Income before provision for
     income taxes                                             3,763,000          1,507,000            505,000

PROVISION FOR INCOME TAXES (Note 7)                           1,117,000            580,000                 --
                                                           ------------       ------------       ------------

  Net income                                               $  2,646,000       $    927,000       $    505,000
                                                           ============       ============       ============

BASIC EARNINGS PER COMMON SHARE                            $       1.15       $       0.41       $       0.24
                                                           ============       ============       ============

DILUTED EARNINGS PER COMMON SHARE                          $       0.86       $       0.32       $       0.22
                                                           ============       ============       ============

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
  Basic                                                       2,291,000          2,287,000          2,142,000
                                                           ============       ============       ============
  Diluted                                                     3,068,000          2,889,000          2,274,000
                                                           ============       ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       24
<PAGE>


APPLIANCE RECYCLING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                           Accumulated
                                                        Common Stock         Deficit           Total
                                                        ------------      ------------     ------------
<S>                                                     <C>             <C>                <C>
BALANCE, JANUARY 2, 1999                                $ 10,857,000    $(10,041,000)      $    816,000
  Sales of Common Stock, net
     of fees and expenses of $40,000 (Note 8)                475,000              --            475,000
  Issuance of Common Stock in settlement (Note 8)             13,000              --             13,000
  Net income                                                      --         505,000            505,000
----------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 1, 2000                                  11,345,000      (9,536,000)         1,809,000
  Warrants issued to vendor (Note 8)                          15,000              --             15,000
  Net income                                                      --         927,000            927,000
----------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 30, 2000                                11,360,000      (8,609,000)         2,751,000
  Net income                                                      --       2,646,000          2,646,000
----------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 29, 2001                              $ 11,360,000    $ (5,963,000)      $  5,397,000
==========================================================================================================
</TABLE>


See Notes to Consolidated Financial Statements.


                                       25
<PAGE>


APPLIANCE RECYCLING CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               For the fiscal year ended
----------------------------------------------------------------------------------------------------------------------
                                                                   DECEMBER 29,        December 30,         January 1,
                                                                       2001                2000                2000
                                                                   ---------------------------------------------------
<S>                                                                <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                      $ 2,646,000         $   927,000         $   505,000
   Adjustments to reconcile net income to net
      cash provided by (used in) operating activities:
   Depreciation and amortization                                       483,000             385,000             395,000
   Gain on sale of property and equipment                              (60,000)           (271,000)            (74,000)
   Accretion of long-term debt discount                                 43,000              39,000              35,000
   Common stock issued for settlement                                       --                  --              13,000
   Deferred income taxes                                              (400,000)            (33,000)            (75,000)
   Change in current assets and liabilities:
      Receivables                                                   (2,644,000)           (279,000)           (954,000)
      Inventories                                                   (2,515,000)         (2,647,000)            393,000
      Other assets                                                     (27,000)           (189,000)             11,000
      Accounts payable and accrued expenses                          1,110,000             436,000            (123,000)
      Income taxes payable                                             240,000             442,000              75,000
                                                                   -----------         -----------         -----------
        Net cash provided by (used in) operating activities         (1,124,000)         (1,190,000)            201,000
                                                                   -----------         -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of property and equipment                                (910,000)           (609,000)           (252,000)
   Proceeds from disposals of property and equipment                        --             667,000              88,000
                                                                   -----------         -----------         -----------
        Net cash provided by (used in) investing activities           (910,000)             58,000            (164,000)
                                                                   -----------         -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net borrowings (payments) under line of credit                    2,306,000           1,514,000            (193,000)
   Payments on long-term obligations                                  (350,000)           (377,000)           (113,000)
   Proceeds from long-term obligations                                 282,000              77,000                  --
   Proceeds from issuance of common stock                                   --                  --             475,000
                                                                   -----------         -----------         -----------
        Net cash provided by financing activities                    2,238,000           1,214,000             169,000
                                                                   -----------         -----------         -----------

   Increase in cash and cash equivalents                               204,000              82,000             206,000

CASH AND CASH EQUIVALENTS
   Beginning                                                           302,000             220,000              14,000
                                                                   -----------         -----------         -----------
   Ending                                                          $   506,000         $   302,000         $   220,000
                                                                   ===========         ===========         ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
   Interest                                                        $ 1,031,000         $   802,000         $   668,000
   Income taxes, net                                                 1,279,000             177,000                  --
                                                                   ===========         ===========         ===========
</TABLE>


See Notes to Consolidated Financial Statements.



                                       26
<PAGE>


APPLIANCE RECYCLING CENTERS OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS: Appliance Recycling Centers of America, Inc. and
subsidiaries (the "Company") are in the business of providing reverse logistics,
energy conservation and recycling services for major household appliances. The
Company sells appliances through a chain of Company-owned factory outlet stores
under the name ApplianceSmart(R). The Company provides recycling services on a
credit basis to appliance retailers, electric utilities, waste management
companies and local governments.

A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Appliance Recycling Centers of America, Inc. and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions are
used to estimate the fair value of each class of financial instrument:

       CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE: Due to their
       nature and short-term maturities, the carrying amounts approximate fair
       value.

       SHORT- AND LONG-TERM DEBT: The fair value of short- and long-term debt
       has been estimated based on discounted cash flows using interest rates
       being offered for similar debt having the same or similar remaining
       maturities and collateral requirements.

No separate comparison of fair values versus carrying values is presented for
the aforementioned financial instruments since their fair values are not
significantly different than their balance sheet carrying amounts. In addition,
the aggregate fair values of the financial instruments would not represent the
underlying value of the Company.

FISCAL YEAR: The Company uses a 52-53 week fiscal year. The Company's 2001
fiscal year (2001) ended December 29, 2001, its 2000 fiscal year (2000) ended
December 30, 2000 and its 1999 fiscal year (1999) ended January 1, 2000. All
such fiscal years include 52 weeks.

REVENUE RECOGNITION: The Company recognizes revenue from appliance sales in the
period the appliances are sold. Revenue from appliance recycling is recognized
when a unit is collected and processed. Byproduct revenue is recognized upon
shipment.

The Company provides allowances for uncollectable receivables based on
management's assessment of the need for such allowances.

The Company defers revenue under appliance extended warranty arrangements and
recognizes it over the related terms of the warranty contracts. The Company
accrues the estimated cost of initial warranty arrangements at the time of the
appliance sale.

Shipping and handling charges to customers are included in the revenues.
Shipping and handling costs incurred by the Company are included in cost of
revenues.

CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all cash and any treasury bills, commercial paper and money-market
funds with an initial maturity of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit and money-market accounts which,
at times, exceed federally insured limits. The Company has not experienced any
losses in such accounts.

INVENTORIES: Inventories, consisting principally of appliances, are stated at
the lower of cost, first-in, first-out (FIFO), or market and consisted of:

                                                   2001             2000
--------------------------------------------------------------------------------
Finished goods                                 $ 6,957,000     $ 4,472,000
Work-in-process-
    unrefurbished units                            255,000         136,000
Less reserves                                     (464,000)       (375,000)
                                               -----------     -----------
                                               $ 6,748,000     $ 4,233,000
                                               ===========     ===========

The Company provides estimated reserves for the realizability of its appliance
inventories, including adjustments to market, based on various factors including
management's assessment of the need for such allowances.

DEFERRED GAIN: In the third quarter of 2000, the Company sold its
ApplianceSmart(R) outlet property in Saint Paul, Minnesota. The Company is still
operating this outlet and has an operating lease on this outlet until September
30, 2002. The Company recognized $275,000 of the gain on this transaction in
2000 and the remaining $60,000 gain in 2001.


                                       27
<PAGE>


PROPERTY AND EQUIPMENT: Depreciation is computed using straight-line and
accelerated methods over the following estimated useful lives:

                                      Years
                                      -----
    Buildings and improvements       18 - 30
    Equipment                          3 - 8

SOFTWARE DEVELOPMENT COSTS: The Company capitalizes software developed for
internal use in accordance with Statement of Position 98-1 and is amortizing
such costs over their estimated useful life of five years. Costs capitalized
were $225,000, $215,000, and $40,000 for the fiscal years ended December 29,
2001, December 30, 2000 and January 1, 2000, respectively.

ACCOUNTING FOR LONG-LIVED ASSETS: The Company reviews its property, equipment
and goodwill periodically to determine potential impairment by comparing the
carrying value of the long-lived assets with the estimated future net
undiscounted cash flows expected to result from the use of the assets, including
cash flows from disposition. Should the sum of the expected future net cash
flows be less than the carrying value, the Company recognizes an impairment loss
at that date. An impairment loss is measured by comparing the amount by which
the carrying value exceeds the fair value (estimated discounted future cash
flows or appraisal of assets) of the long-lived assets.

ADVERTISING EXPENSE: Advertising is expensed as incurred, and was $1,487,000,
$884,000 and $532,000 for the fiscal years ended December 29, 2001, December 30,
2000 and January 1, 2000, respectively.

INCOME TAXES: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

BASIC AND DILUTED NET EARNINGS PER SHARE: Basic per-share amounts are computed,
generally, by dividing net income or loss by the weighted-average number of
common shares outstanding. Diluted per-share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless their
effect is antidilutive, thereby reducing the loss or increasing the income per
common share.

In arriving at diluted weighted-average shares and per share amounts, options
and warrants (see Note 8) with exercise prices below average market prices for
the respective fiscal quarters in which they were dilutive were included using
the treasury stock method. The number of additional shares is calculated by
assuming the outstanding stock options and warrants were exercised and that the
proceeds from such exercises were used to acquire common stock at the average
market price during the year. The dilutive effect of these additional shares for
the years ended December 29, 2001 and December 30, 2000 was to increase the
weighted average shares outstanding by 777,000 and 602,000, respectively.

COMPREHENSIVE INCOME: Comprehensive income is equivalent to net income in the
statements of operations.

SEGMENT INFORMATION: The Company has one operating segment. Although certain
separate financial information by retail store, or retail store and recycling
center, is available to management, the Company is managed as a unit.
Specifically, it does not measure profit or loss or maintain assets separately
for its products or revenue sources (retail appliance sales, appliance recycling
including recycling services for utilities, and byproduct sales).

ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

ACCOUNTING PRONOUNCEMENTS ISSUED NOT YET ADOPTED: The following items represent
accounting standards that have been recently issued but not yet adopted by the
Company.

In July 2001, FAS No. 141, BUSINESS COMBINATIONS, and FAS No. 142, GOODWILL AND
OTHER INTANGIBLE ASSETS, were issued. These pronouncements provide that all
business combinations initiated after June 30, 2001, be accounted for using the
purchase method and that goodwill be reviewed for impairment rather than
amortized, beginning in January 2002. Any business combination transactions and
acquisitions of intangibles in the future would be accounted for under this new
guidance. The Company will cease amortization of its goodwill beginning in
January 2002.

In September 2001, the FASB issued Statement No. 143, ASSET RETIREMENT
OBLIGATIONS. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The statement will be


                                       28
<PAGE>


effective for the Company's fiscal year ending December 2003.

In August 2001, the FASB issued Statement No. 144, ACCOUNTING FOR IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The statement
will be effective for the Company's fiscal year ending December 2003.

Management does not believe that the adoption of these pronouncements will have
a material effect on its consolidated financial statements.


NOTE 2.  MARKET CLOSINGS AND LOSS ON IMPAIRED ASSETS

During the year ended January 1, 2000, the Company closed a retail store in the
Minneapolis market and incurred expenses of $22,000 for the remaining lease
payments and write off of leasehold improvements. The Company also closed a
retail store in the California market in June 1999, which resulted in no closing
costs.

In April 2000, the Company closed a retail store in the Minneapolis market. In
connection therewith, the Company wrote off leasehold improvements of
approximately $71,000.


NOTE 3.  LINE OF CREDIT

At December 29, 2001, the Company had a $10 million line of credit with a
lender. The interest rate as of December 29, 2001 was 5.75%. The amount of
borrowings available under the line of credit is based on a formula using
receivables and inventories. The line of credit has a stated maturity date of
August 30, 2004, if not renewed, and 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's assets, and requires
minimum monthly interest payments of $37,500 regardless of the outstanding
principal balance. The lender is also secured by an inventory repurchase
agreement with Whirlpool Corporation. The loan requires that the Company meet
certain 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. At December 29, 2001 the
Company's unused borrowing capacity under this line was $1,079,000.


NOTE 4.  LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following:

                                                        2001             2000
-------------------------------------------------------------------------------
9.00% mortgage, due in
  monthly installments of
  $14,211, including interest,
  balance due February 2004,
  secured by land
  and building                                      $  723,000       $  791,000
8.72% mortgage, due in
  monthly installments of
  $7,027, including interest,
  balance due January 2003,
  secured by land
  and building                                         596,000          625,000
13.00% note payable,
  due in monthly
  principal and interest
  payments of $52,259
  with balance due
  September 2005,
  secured by equipment,
  land and building                                  3,072,000        3,219,000
Other                                                  290,000           71,000
                                                   -----------      -----------
                                                     4,681,000        4,706,000
Less current maturities                                401,000          275,000
                                                   -----------      -----------
                                                   $ 4,280,000      $ 4,431,000
                                                   ===========      ===========

The future annual maturities of long-term obligations are as follows:

Fiscal year
-----------
2002                                                                $   401,000
2003                                                                    935,000
2004                                                                    845,000
2005                                                                  2,498,000
2006                                                                      2,000
                                                                    -----------
                                                                    $ 4,681,000
                                                                    ===========


NOTE 5.  ACCRUED EXPENSES

Accrued expenses were as follows:
                                                       2001             2000
-------------------------------------------------------------------------------
Compensation                                       $   493,000      $   330,000
Warranty                                               225,000          188,000
Other                                                  647,000          418,000
                                                   -----------      -----------
                                                   $ 1,365,000      $   936,000
                                                   ===========      ===========


NOTE 6.  COMMITMENTS

OPERATING LEASES: The Company leases certain of its retail stores and recycling
center facilities and equipment under noncancelable operating leases. The leases
require the payment of taxes, maintenance, utilities and insurance.


                                       29
<PAGE>


Minimum future rental commitments under noncancelable operating leases as of
December 29, 2001 were as follows:

Fiscal Year
-----------
2002                                                                $  1,865,000
2003                                                                   1,331,000
2004                                                                   1,131,000
2005                                                                   1,139,000
2006                                                                     407,000
                                                                    ------------
                                                                    $  5,873,000
                                                                    ============

Rent expense for the fiscal years ended December 29, 2001, December 30, 2000 and
January 1, 2000 was $1,519,000, $420,000 and $370,000, respectively.

CONTRACTS: The Company has entered into contracts with two of its appliance
vendors. Under the agreements there are no minimum purchase commitments,
however, the Company has agreed to indemnify the vendors for certain claims,
allegations or losses with respect to appliances sold by the Company.


NOTE 7.  INCOME TAXES

The provision for income taxes consisted of the following:

                                            2001          2000          1999
-------------------------------------------------------------------------------
Current:
  Federal                               $ 1,289,000   $   496,000   $    75,000
  State                                     228,000       117,000            --
Deferred                                   (400,000)      (33,000)      (75,000)
                                        -----------   -----------   -----------
                                        $ 1,117,000   $   580,000   $        --
                                        ===========   ===========   ===========

A reconciliation of the Company's income tax expense with the federal statutory
tax rate is shown below:

                                            2001          2000          1999
-------------------------------------------------------------------------------
Income tax
  expense at
  statutory rate                        $ 1,278,000   $   511,000   $   172,000
State taxes net
  of federal
  tax effect                                189,000        99,000        18,000
Permanent
  differences
  and other                                  20,000        33,000       (85,000)
Change in
  valuation
  allowance, net
  of effect of
  NOL attribute
  reduction                                (370,000)      (63,000)     (105,000)
                                        -----------   -----------   -----------
                                        $ 1,117,000   $   580,000   $        --
                                        ===========   ===========   ===========

The components of net deferred tax assets are as follows:

                                                         2001          2000
-------------------------------------------------------------------------------
Deferred tax assets:
  Net operating loss
    carryforwards                                     $ 2,834,000   $ 3,405,000
  Federal and state tax credits                           199,000       199,000
  Inventory                                               409,000       150,000
  Property and equipment                                       --       130,000
  Accrued expenses                                        132,000       246,000
                                                      -----------   -----------
    Gross deferred tax assets                         $ 3,574,000   $ 4,130,000
Valuation allowance                                    (2,998,000)   (4,022,000)
                                                      -----------   -----------
                                                      $   576,000   $   108,000
                                                      ===========   ===========

Deferred tax liabilities:
  Property and equipment                              $    68,000   $        --
                                                      ===========   ===========

At December 29, 2001, the Company had a valuation allowance against deferred tax
assets to reduce the total to an amount management believes is appropriate.
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the periods when deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. The
reduction in the valuation allowance during 2001 was due to the determination
that certain deferred tax assets are more likely than not to be realized and to
the effect of an NOL attribute reduction.

At December 29, 2001, the Company had net operating loss ("NOL") carryforwards
expiring as follows:

Expiration                                                             Amount
----------                                                          -----------
2011                                                                $ 3,296,000
2012                                                                $ 1,144,000
2018                                                                $ 2,645,000

Future utilization of NOL and tax credit carryforwards is subject to certain
limitations under provisions of Section 382 of the Internal Revenue Code. This
Section relates to a 50 percent change in control over a three-year period. The
Company believes that the issuance of common stock during 1999 resulted in an
"ownership change" under Section 382. Accordingly, the Company's ability to use
NOL and tax credit carryforwards generated prior to February 1999 may be
significantly limited to approximately $56,000 per year.


NOTE 8.  SHAREHOLDERS' EQUITY

STOCK OPTIONS: The Company has two Stock Option Plans (the "Plans") that permit
the granting of "incentive stock options" meeting the requirements of Section
422 of the Internal Revenue Code of 1986, as amended, and nonqualified options
that do not meet the requirements of Section 422. The Plans have 150,000 and
400,000 shares, respectively, available for grant. The options that have been
granted under the Plans are exercisable for a period of five


                                       30
<PAGE>


to ten years from the date of grant and vest over a period of six months to five
years from the date of grant.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation for Stock
Options." Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plans been determined based on the fair value at
the grant date consistent with the provisions of SFAS No. 123, the Company's net
earnings and basic and diluted earnings per share amounts would have been
changed to the pro forma amounts indicated below:

                                            2001          2000          1999
-------------------------------------------------------------------------------
Net income:
   As reported                          $ 2,646,000    $  927,000    $  505,000
   Pro forma                            $ 2,588,000    $  859,000    $  460,000
Basic earnings
  per share:
   As reported                          $      1.15     $    0.41    $     0.24
   Pro forma                            $      1.13     $    0.38    $     0.21
Diluted earnings
  per share:
   As reported                          $      0.86     $    0.32    $     0.22
   Pro forma                            $      0.84     $    0.30    $     0.20

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

                                               2001          2000          1999
-------------------------------------------------------------------------------
Expected dividend yield                          --            --            --
Expected stock price volatility                82.3%         79.7%         81.3%
Risk-free interest rate                         6.2%          6.0%          5.5%
Expected life of options (years)                  3             3             3
-------------------------------------------------------------------------------

Additional information relating to all outstanding options is as follows:

                                                               Weighted Average
                                                      Shares     Exercise Price
--------------------------------------------------------------------------------
Outstanding at
  January 2, 1999                                     144,000           $  5.37
  Granted                                              97,000           $  0.61
  Cancelled                                            (4,000)          $  8.95
--------------------------------------------------------------------------------
Outstanding at
  January 1, 2000                                     237,000           $  3.36
  Granted                                             180,000           $  2.22
  Cancelled                                           (44,000)          $  5.20
--------------------------------------------------------------------------------
Outstanding at
  December 30, 2000                                   373,000           $  2.59
  Granted                                              56,000           $  1.82
  Cancelled                                           (21,000)          $ 17.52
--------------------------------------------------------------------------------
Outstanding at
  December 29, 2001                                   408,000           $  1.98
--------------------------------------------------------------------------------

The weighted average fair value per option of options granted during fiscal
2001, 2000 and 1999 was $0.86, $0.90 and $0.28, respectively.

The following tables summarize information about stock options outstanding as of
December 29, 2001:

                               OPTIONS OUTSTANDING

                                                         Weighted
                                                          Average
                                                        Remaining      Weighted
Range of                                     Number   Contractual       Average
Exercise                                    Options       Life in      Exercise
Prices                                  Outstanding         Years         Price
--------------------------------------------------------------------------------
$10.52                                        8,000           1.5       $ 10.52
$2.38 to $3.50                               58,000           5.4       $  2.71
$0.75 to $2.20                              253,000           4.5       $  1.93
$0.59 to $0.65                               89,000           4.4       $  0.62
                                            -------
                                            408,000                     $  1.98
                                            =======

                               OPTIONS EXERCISABLE

Range of                                               Number          Weighted
Exercise                                              Options           Average
Prices                                            Exercisable    Exercise Price
--------------------------------------------------------------------------------
$10.52                                                  8,000           $ 10.52
$2.38 to $3.50                                         53,000           $  2.64
$0.75 to $2.20                                        125,000           $  1.70
$0.59 to $0.65                                         89,000           $  0.62
                                                      -------
                                                      275,000           $  1.77
                                                      =======


                                       31
<PAGE>


The following table summarizes options exercisable for stock options outstanding
as of December 30, 2000 and January 1, 2000:

                                                       December 30,   January 1,
                                                          2000           2000
--------------------------------------------------------------------------------
Number of options
  exercisable                                             188,000       141,000
Weighted average
  exercise price                                        $    3.34     $    5.11

WARRANTS: The Company has adopted the provisions of SFAS No. 123 in accounting
for its warrants issued for financing or services. Accordingly, the expense, if
any, applicable to the value of such warrants is recognized as of the date of
grant. Such warrants are generally issued to non-employees.

In September 1998, the Company entered into a loan agreement with a lender
resulting in gross proceeds to the Company of $3.5 million. In connection with
this loan, the Company issued the lender a warrant to purchase 700,000 shares of
Common Stock at an adjustable exercise price, which is currently $0.60 per
share. The Company also issued to an investment banker associated with this
transaction a warrant to purchase 125,000 shares of Common Stock at $2.50 per
share. The portion of the gross loan proceeds ascribed to the aforementioned
warrants issued in conjunction with this debt financing was $307,000 as
determined using the Black-Scholes method.

In February 1999, in connection with a private placement, the Company issued
warrants to purchase 83,000 shares of Common stock at $0.50 per share, subject
to adjustment.

In March 1999, the Company issued to a board member 5,000 warrants to purchase
the Company's Common Stock at $0.625 per share, the market value of the
Company's stock at the date of grant.

In April 1999, the Company issued to a vendor 50,000 warrants to purchase common
stock at $0.625 per share.

During 2001, 53,750 warrants related to a 1998 financing transaction were
exercised resulting in the issuance of 9,768 shares of common stock and 15,000
of warrants from the same financing transaction expired.

All issued warrants are exercisable and expire as follows: 125,000 in 2003;
133,000 in 2004; 700,000 in 2007 and 5,000 in 2009.

COMMON STOCK ISSUED IN SETTLEMENT: In August 1999, the Company settled a lawsuit
with a former employee. The settlement included a cash payment of $105,000 and
the issuance of 20,000 shares of the Company's Common Stock valued at $12,500.
The previously unaccrued portion of this settlement, $74,000, is included in
selling, general and administrative expenses for the year ended January 1, 2000.

PREFERRED STOCK: The Company's amended Articles of Incorporation authorize two
million shares of Preferred Stock of the Company ("Preferred Stock") which may
be issued from time to time in one or more series having such rights, powers,
preferences and designations as the Board of Directors may determine. To date no
such preferred shares have been issued.

PRIVATE PLACEMENT: In February 1999, the Company sold, in a private placement,
1,030,000 shares of Common Stock at a price of $0.50 per share. The Company paid
$31,500 of the proceeds and issued warrants to an investment banker as a
placement fee.


NOTE 9.  MAJOR CUSTOMER AND SUPPLIER

MAJOR CUSTOMER: Revenues from one major recycling customer as a percentage of
total revenues are as follows:

                                               2001          2000          1999
-------------------------------------------------------------------------------
Revenue percentage:                            29.0%         29.9%         33.1%

As of December 29, 2001, the Company had a receivable from this customer of
$1,185,000.

During the three year period ended December 29, 2001, the Company purchased a
significant amount of appliances for resale from one supplier. The Company has
and is continuing to secure other vendors from which to purchase appliances.
However, the loss of this supplier or any appliance supplier could adversely
affect Company's operations.


                                       32
<PAGE>


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 December 29, 2001 that 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 the headings "Nominees and Information Concerning Officers
and Key Employees who are not Directors" and "Section 16 (a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy Statement for
its 2002 Annual Meeting of Shareholders to be held April 25, 2002, and is
incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

         Information regarding Executive Compensation is set forth under the
heading "Executive Compensation and Stock Options Granted and Exercised in Last
Fiscal Year" in the Company's definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders to be held April 25, 2002, and is incorporated herein by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding security ownership of certain beneficial owners
and management is set forth under the heading "Common Stock Ownership" in the
Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders
to be held April 25, 2002, and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions is
set forth under the heading "Nominees and Information Concerning Officers and
Key Employees who are not Directors" in the Company's definitive Proxy Statement
for its 2001 Annual Meeting of Shareholders to be held April 25, 2002, and is
incorporated herein by reference.



                                       33
<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

                  See Index to Financial Statements under Item 8 of this report.

         2.       FINANCIAL STATEMENT SCHEDULE

                  To the Board of Directors
                  Appliance Recycling Centers of America, Inc.
                  Minneapolis, Minnesota

                           Our audits were made for the purpose of forming an
                  opinion on the basic consolidated financial statements of
                  Appliance Recycling Centers of America, Inc. and Subsidiaries
                  taken as a whole. The supplemental Schedule II is presented
                  for purposes of complying with the Securities and Exchange
                  Commission's rules and is not a part of the basic consolidated
                  financial statements. This schedule has been subjected to the
                  auditing procedures applied in our audits of the basic
                  consolidated financial statements and in our opinion, is
                  fairly stated in all material respects in relation to the
                  basic consolidated financial statements taken as a whole.

                  McGLADREY & PULLEN, LLP


                  Minneapolis, Minnesota
                  February 15, 2002

                  Schedule II - Valuation and Qualifying Accounts

                                                        Accounts
                                                       Receivable     Inventory
                                                        Allowance     Allowance
                  -------------------------------------------------------------
                  Balance, January 2, 1999              $  18,000     $  40,000
                     Additional allowance                  23,000       235,000
                     Write-offs                           (16,000)           --
                  -------------------------------------------------------------
                  Balance, January 1, 2000              $  25,000     $ 275,000
                     Additional allowance/adjustments      (5,000)      205,000
                     Write-offs                                --      (105,000)
                  -------------------------------------------------------------
                  Balance, December 30, 2000            $  20,000     $ 375,000
                     Additional allowance/adjustments     578,000       359,000
                     Write-offs                          (498,000)     (270,000)
                  -------------------------------------------------------------
                  BALANCE, DECEMBER 29, 2001            $ 100,000     $ 464,000
                  =============================================================

         3.       EXHIBITS

                  See Index to Exhibits on page 37 of this report.


                                       34
<PAGE>


(b)      REPORTS ON FORM 8-K

         The Company filed Form 8-K on October 30, 2001 announcing the contract
         to become a provider of reverse logistics services for Maytag
         Corporation.

         The Company filed Form 8-K on October 30, 2001 announcing its third
         quarter 2001 results.

         The Company filed Form 8-K on November 13, 2001 announcing that it had
         incorrectly calculated the same-store sales increase percent of its
         ApplianceSmart outlets in the Company's third quarter earnings release
         dated October 29, 2001.



                                       35
<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 19, 2002                  APPLIANCE RECYCLING CENTERS OF
                                         AMERICA, INC.
                                         (Registrant)



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


                                        By /s/ Linda A. Koenig
                                           -------------------------------------
                                           Linda A. Koenig
                                           Controller

         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      March 19, 2002
-----------------------     and Chief Executive Officer
Edward R. Cameron


/s/ Linda A. Koenig         Controller                            March 19, 2002
-----------------------
Linda A. Koenig


/s/ George B. Bonniwell     Director                              March 19, 2002
-----------------------
George B. Bonniwell


/s/ Duane S. Carlson        Director                              March 19, 2002
-----------------------
Duane S. Carlson


/s/ Marvin Goldstein        Director                              March 19, 2002
-----------------------
Marvin Goldstein


/s/ Harry W. Spell          Director                              March 19, 2002
-----------------------
Harry W. Spell



                                       36
<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 Form 10-K for the year ended January 2, 1999 (File
                  No. 0-19621) and incorporated herein by reference].

          3.2     Amended and Restated Bylaws of Appliance Recycling Centers of
                  America, Inc. [filed as Exhibit 3.2 to the Company's Form 10-K
                  for the year ended January 2, 1999 (File No. 0-19621) and
                  incorporated herein by reference].

        *10.1     Amended Appliance Recycling Centers of America, Inc. Restated
                  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].

         10.2     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].

         10.3     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].

         10.4     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
                  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].

         10.5     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].

        *10.6     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].

         10.7     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 [filed as Exhibit 10.10 to the Company's Form
                  10-K for year ended January 3, 1998 (File No. 0-19621) and
                  incorporated herein by reference].

         10.8     Agreement dated February 13, 1998 between Western Bank and
                  Appliance Recycling Centers of America, Inc. [filed as Exhibit
                  10.11 to the Company's Form 10-K for the year ended January 3,
                  1998 (File No 0-19621) and incorporated herein by reference].


                                       37
<PAGE>


         *10.9    Amendment, effective April 24, 1997, to 1989 Stock Option Plan
                  [filed as Exhibit 28.2 to the Company's Post-Effective
                  Amendment No. 1 (June 5, 1997) to Registration Statement on
                  Form S-8 (Registration No. 33-68890) and incorporated herein
                  by reference].

         10.10    Reverse Logistics Master Service Agreement between Whirlpool
                  Corporation and Appliance Recycling Centers of America, Inc.
                  [filed as Exhibit 10 to the Company's Form 10-Q for the
                  quarter ended July 4, 1998 (File No. 0-19621) and incorporated
                  herein by reference].

         10.11    Loan Agreement between Medallion Capital, Inc. and Appliance
                  Recycling Centers of America, Inc. dated September 10, 1998
                  [filed as Exhibit 10.1 to the Company's Form 10-Q for the
                  quarter ended October 3, 1998 (File No. 0-19621) and
                  incorporated herein by reference].

         10.12    Promissory note of the Company to Medallion Capital, Inc. in
                  the principal amount of $3,500,000 due September 30, 2005
                  [filed as Exhibit 10.2 to the Company's Form 10-Q for the
                  quarter ended October 3, 1998 (File No. 0-19621) and
                  incorporated herein by reference].

         10.13    Security Agreement of the Company [filed as Exhibit 10.3 to
                  the Company's Form 10-Q for the quarter ended October 3, 1998
                  (File No. 0-19621) and incorporated herein by reference].

         10.14    Warrant of the Company in favor of Medallion Capital, Inc. for
                  700,000 shares of the Company's Stock [corrected copy]. [filed
                  as Exhibit 10.14 to the Company's Form 10-K for the year ended
                  January 2, 1999 (File No. 0-19621) and incorporated herein by
                  reference].

         10.15    Amendment to the line of credit dated September 10, 1998
                  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 Guarantor Acknowledgement. [filed as
                  Exhibit 10.15 to the Company's Form 10-K for the year ended
                  January 2, 1999 (File No. 0-19621) and incorporated herein by
                  reference].

         10.16    Amendment to the line of credit dated September 17, 1998
                  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, Amended Guarantor Acknowledgement and Amended and
                  Restated Revolving Note. [filed as Exhibit 10.16 to the
                  Company's Form 10-K for the year ended January 2, 1999 (File
                  No. 0-19621) and incorporated herein by reference].

         10.17    Agreement dated March 19, 1999 between Southern California
                  Edison Company and Appliance Recycling Centers of America,
                  Inc. [filed as Exhibit 10.17 to the Company's Form 10-Q for
                  the quarter ended April 3, 1999 (File No. 0-19621) and
                  incorporated herein by reference].

        *10.18    Amendment effective April 29, 1999 to 1997 Stock Option Plan
                  [filed as Exhibit 10 to the Company's Form 10-Q for the
                  quarter ended July 3, 1999 (File No. 0-19621) and incorporated
                  herein by reference].

         10.19    Agreement dated June 12, 2000 between Southern California
                  Edison Company and Appliance Recycling Centers of America,
                  Inc. [filed as Exhibit 10 to the Company's Form 10-Q for the
                  quarter ended July 1, 2000 (File No. 0-19621) and incorporated
                  herein by reference].

         10.20    Agreement dated August 21, 2000 between Southern California
                  Edison Company and Appliance Recycling Centers of America,
                  Inc. [filed as Exhibit 10.2 to the Company's Form 10-Q for the
                  quarter ended September 30, 2000 (File No. 0-19621) and
                  incorporated herein by reference].


                                       38
<PAGE>


         10.21    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. [filed as Exhibit 10.1 to
                  the Company's Form 10-Q for the quarter ended September 30,
                  2000 (File No. 0-19621) and incorporated herein by reference].

         10.22    Updated contract dated January 1, 2001 between Southern
                  California Edison Company and Appliance Recycling Centers of
                  America, Inc. [filed as Exhibit 10.1 to the Company's Form
                  10-Q for the quarter ended March 31, 2001 (File No. 0-19621)
                  and incorporated herein by reference].

        *10.23    Amendment effective April 26, 2001 to 1997 Stock Option Plan
                  [filed as Exhibit 10.2 to the Company's Form 10-Q for the
                  quarter ended March 31, 2001 (File No. 0-19621) and
                  incorporated herein by reference].

         10.24    Agreement dated June 12, 2001 between the California Public
                  Utilities Commission and Appliance Recycling Centers of
                  America, Inc. [filed as Exhibit 10.1 to the Company Form 10-Q
                  for the quarter ended June 30, 2001 (File No. 0-19621) and
                  incorporated herein by reference].

         10.25    Agreement dated June 18, 2001 between Spectrum Commercial
                  Services Company and Appliance Recycling Centers of America,
                  Inc. [filed as Exhibit 10.2 to the Company's Form 10-Q for the
                  quarter ended June 30, 2001 (File No. 0-19621) and
                  incorporated herein by reference].

         10.26    Agreement dated July 26, 2001 between Spectrum Commercial
                  Services Company and Appliance Recycling Centers of America,
                  Inc. [filed as Exhibit 10.3 to the Company's Form 10-Q for the
                  quarter ended June 30, 2001 (File No. 0-19621) and
                  incorporated herein by reference].

         10.27    Amendment to the line of credit dated August 24, 2001 between
                  Appliance Recycling Centers of America, Inc. and Spectrum
                  Commercial Services, Amendment to General Credit and Security
                  Agreement and Amended and Restated Revolving Note [files as
                  Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
                  September 29, 2001 (File No. 0-19621) and incorporated herein
                  by reference].

         10.28    Retail Dealer Sales Agreement dated October 12, 2001 between
                  Appliance Recycling Centers of America, Inc. and Maytag
                  Corporation [filed as Exhibit 10.2 to the Company's Form 10-Q
                  for the quarter ended September 29, 2001 (File No. 0-19621)
                  and incorporated herein by reference].

        +10.29    Amendment dated March 7, 2002 to the Agreement between the
                  California Public Utilities Commission and Appliance Recycling
                  Centers of America, Inc.

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

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


         *    Items that are management contracts or compensatory plans or
              arrangements required to be filed as an exhibit pursuant to Item
              14(a)3 of this Form 10-K.

         +    Filed herewith.


                                       39