<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

    
                                   FORM 10-K/A NO. 1      

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                                     1934

                     For the Year Ended December 31, 1996

                        Commission File Number 1-10367


              ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.

              DELAWARE                                 71-0675758
   (State or other jurisdiction of       (I.R.S. Employer Identification No.)
    incorporation or organization)

       206  1/2 E. EMMA AVENUE
       P.O. BOX 1237                                     72765
       SPRINGDALE, ARKANSAS                            (Zip Code)
(Address of Principal Executive Office)

Registrant's telephone number, including Area Code:  (501)750-1299

Securities Registered Pursuant to Section 12(b) of the Act:


                         Class A Common Stock, $.01 par value

                         Redeemable Class B Warrants


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 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.  YES: [X]  NO: [_]
    
Aggregate market value of voting stock held by non-affiliates of the registrant
at April 15, 1997: $2,328,302      
    
Number of shares of the common stock outstanding at April 15, 1997:
                                              Class A - 19,201,148
                                              Class B -  1,465,530      
<PAGE>
 
                                  SIGNATURES

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of Springdale, State
of Arkansas, on the 15th day of April, 1997.


ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.


BY: /S/ Joe G. Brooks                        /S/ Jake M. Bushey
------------------------------               -------------------------
  JOE G. BROOKS,                             JAKE M. BUSHEY,
  President                                  Corporate Controller

Date: April 15, 1997                         April 15, 1997
      --------------                         --------------

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
Signature                    Title                                    Date          
---------                    -----                                    ----          
<S>                          <C>                                      <C>           
                                                                                    
/S/ Sal Miwa                 Chairman of the Board                    April 15, 1997
----------------------                                                               
SAL MIWA                                                                            
                                                                                    
                                                                                    
/S/ Joe G. Brooks            President and Director                   April 15, 1997
----------------------                                                               
JOE G. BROOKS                                                                       
                                                                                    
                                                                                    
/S/ Jerry B. Burkett         Director                                 April 15, 1997
----------------------                                                               
JERRY B. BURKETT                                                                    
                                                                                    
                                                                                    
/S/ Stephen W. Brooks        Chief Executive Officer and Director     April 15, 1997
----------------------
STEPHEN W. BROOKS                                                                   

                                                                                    
/S/ Marjorie S. Brooks       Director                                 April 15, 1997 
----------------------
MARJORIE S. BROOKS
</TABLE>

                                       28
<PAGE>
 
                                INDEX TO EXHIBITS
                                        
<TABLE>
<CAPTION>
                                                                                      Sequential
Exhibit No.    Description of Exhibit                                                Page Number 
-----------    ----------------------                                                -----------
<S>            <C>                                                                   <C> 
3.1            Certificate of Incorporation, including Certificate of       
               Amendment filed on June 12, 1989(a), and Certificate of      
               Amendment filed on August 22, 1989.(b)                       
3.2            Certificate of Designation of Class B Common Stock.(a)       
3.3            Bylaws of Registrant.(a)                                     
4.1            Form of Class A Common Stock Certificate.(c)                 
4.2            Form of Class B Common Stock Certificate.(a)                 
4.3            Form of Warrant Agreement with American Stock Transfer       
               & Trust Company, including Class A and Class B Common        
               Stock Purchase Warrants.(a)                                  
4.7            Form of Redeemable Class B Warrant Certificate.(c)           
4.8            Form of Class C Warrant Certificate.(h)                      
4.9            Form of Class D Warrant Certificate.(h)                      
4.10           Form of Class E Warrant Certificate.(h)                      
4.11           Form of Class F Warrant Certificate.(i)                      
4.12           Form of Class G Warrant Certificate.(i)                      
4.13           Form of Class H Warrant Certificate.(j)                      
4.14           Form of Class I Warrant Certificate.(k)                      
4.15           Form of Class J Warrant Certificate.(l)                      
4.16           Form of Class K Warrant Certificate.(m)                      
10.9           Form of Right of Refusal Agreement among Class B             
               Common Stockholders.(a)                                      
10.10          1989 Stock Option plan.(a)                                   
10.11          Form of Escrow Agreement with American Stock Transfer &      
               Trust Company.(c)                                            
10.15          Lease Agreement dated June 1, 1990 between the Registrant    
               and J's Feed, Inc. for the Registrant's plastics reclamation 
               facility.(e)                                                 
10.16          Loan Agreement dated June 13, 1991 with Dow Credit           
               Corporation.(f)                                              
10.16          Loan Agreement dated October 22, 1991 with Dow Credit        
               Corporation.(f)                                              
10.16          Loan Agreement with City of Rogers, arranged through         
               Arkansas Industrial Development Commission.(f)               
10.17          Lease Agreement dated June 15, 1992 between the Registrant and
               George's, Inc. for the Registrant's corporate office facility.(g)
10.18          Factoring Agreement dated April 30, 1993 between the Registrant
               and Brooks Investment Company.(h)
10.23          Private Placement Distribution Agreement dated September 23, 1993
               between the Registrant and Berkshire International Finance,
               Inc.(h)
10.26          Lease Agreement dated June 16, 1994 between Registrant and
               Marjorie S. Brooks.(i)
10.27          Line of Credit Promissory Note payable to Jim G. Brooks and
               Marjorie S. Brooks.(i)
10.28          Amended and Restated Stock Option Plan.(i)
</TABLE> 

                                       29
<PAGE>
     
<TABLE> 
<S>            <C> 
10.29          Non-Employee Director Stock Option Plan.(i)
10.30          Chairman Stock Option Plan.(i)
10.31          Factoring Agreement dated April 30, 1994 between the Registrant
               and Brooks Investment Company.(i)
27             Financial Data Schedule.     

</TABLE> 

_____________

*    The Registrant has no exhibits corresponding to Exhibits 1, 2, 5, 6, 7, 8,
     9, 11, through 23, or 26 through 29.
(a)  Contained in Exhibits to Registration Statement on Form S-1, No. 33-29595,
     filed June 28, 1989.
(b)  Contained in Exhibits to Amendment No. 1 to Registration Statement on Form
     S-1, No. 33-29595, filed August 24,1989.
(c)  Contained in Exhibits to Amendment No. 2 to Registration Statement on Form
     S-1, No. 33-29595, filed November 8, 1989.
(d)  Filed with Form 10-K for December 31, 1989.
(e)  Filed with Form 10-K for December 31, 1990.
(f)  Contained in Exhibits to Post Effective Amendment No. 1 to Registration
     Statement on Form S-1, No. 33-29593, filed December 24, 1991.
(g)  Filed with Form 10-K for December 31, 1992.
(h)  Filed with Form 10-K for December 31, 1992.
(i)  Filed herewith with Form 10-K for December 31, 1994.
(j)  Filed herewith with Form 10-K for December 31, 1996.
(k)  Filed herewith with Form 10-K for December 31, 1996.
(l)  Filed herewith with Form 10-K for December 31, 1996.
(m)  Filed herewith with Form 10-K for December 31, 1996.

                                       30