FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                               ------------------

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001

                                       OR

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

                         Commission file number 0-19621

                  APPLIANCE RECYCLING CENTERS OF AMERICA, INC.



                MINNESOTA                                  41-1454591
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)
          7400 Excelsior Blvd.
    Minneapolis, Minnesota 55426-4517
     (Address of principal executive
                offices)

                                 (952) 930-9000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.

                    YES __X__                         NO

As of August 10, 2001, the number of shares outstanding of the registrant's no
par value common stock was 2,287,369 shares.




                  APPLIANCE RECYCLING CENTERS OF AMERICA, INC.



                                      INDEX




PART I.      FINANCIAL INFORMATION                                     Page No.
                                                                       --------

    Item 1:  Financial Statements:

             Consolidated Balance Sheets as of
             June 30, 2001 and December 30, 2000............................3

             Consolidated Statements of Operations for the
             Three and Six Months Ended June 30, 2001 and July 1, 2000......4

             Consolidated Statements of Cash Flows for the
             Six Months Ended June 30, 2001 and July 1, 2000................5

             Notes to Consolidated Financial Statements.....................6

    Item 2:  Management's Discussion and Analysis
             of Financial Condition and Results of Operations...............7

    Item 3:  Quantitative and Qualitative Disclosure about Market Risk.....13

PART II.     OTHER INFORMATION.............................................13


                                       2



Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS



                                                                                 June 30,       December 30,
                                                                                     2001               2000
                                                                              (Unaudited)
- -------------------------------------------------------------------------------------------------------------
                                                                                          
ASSETS
Current Assets
    Cash and cash equivalents                                                $    546,000       $    302,000
    Accounts receivable, net of allowance of $20,000                            4,612,000          1,731,000
    Inventories, net of reserves of $486,000 and $375,000, respectively         5,027,000          4,233,000
    Deferred income taxes and other current assets                                475,000            386,000
- -------------------------------------------------------------------------------------------------------------
        Total current assets                                                   10,660,000          6,652,000
- -------------------------------------------------------------------------------------------------------------
Property and Equipment, at cost
    Land                                                                        2,050,000          2,050,000
    Buildings and improvements                                                  3,687,000          3,550,000
    Equipment                                                                   4,424,000          4,046,000
- -------------------------------------------------------------------------------------------------------------
                                                                               10,161,000          9,646,000
    Less accumulated depreciation                                               4,104,000          3,930,000
- -------------------------------------------------------------------------------------------------------------
        Net property and equipment                                              6,057,000          5,716,000
- -------------------------------------------------------------------------------------------------------------
Other Assets                                                                      297,000            207,000
Goodwill, net of amortization of $133,000 and $114,000, respectively               57,000             76,000
- -------------------------------------------------------------------------------------------------------------
        Total assets                                                         $ 17,071,000       $ 12,651,000
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
    Line of credit                                                           $  4,999,000       $  2,402,000
    Current maturities of long-term obligations                                   315,000            275,000
    Accounts payable                                                            2,790,000          1,279,000
    Accrued expenses (Note 2)                                                     871,000            936,000
    Deferred gain on building sale                                                 24,000             60,000
    Income taxes payable                                                          222,000            517,000
- -------------------------------------------------------------------------------------------------------------
        Total current liabilities                                               9,221,000          5,469,000
Long-Term Obligations, less current maturities                                  4,390,000          4,431,000
- -------------------------------------------------------------------------------------------------------------
        Total liabilities                                                      13,611,000          9,900,000
- -------------------------------------------------------------------------------------------------------------
Shareholders' Equity
    Common stock, no par value; authorized 10,000,000
        shares; issued and outstanding 2,287,000 shares                        11,360,000         11,360,000
    Accumulated deficit                                                        (7,900,000)        (8,609,000)
- -------------------------------------------------------------------------------------------------------------
        Total shareholders' equity                                              3,460,000          2,751,000
- -------------------------------------------------------------------------------------------------------------
        Total liabilities and shareholders' equity                           $ 17,071,000       $ 12,651,000
=============================================================================================================


                 See Notes to Consolidated Financial Statements.


                                       3



Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)



                                                                  Three Months Ended                   Six Months Ended
                                                               June 30,           July 1,          June 30,           July 1,
                                                                   2001              2000              2001              2000
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
Revenues
     Retail                                                $  4,940,000      $  3,020,000      $  9,668,000      $  5,227,000
     Recycling                                                4,885,000         2,553,000         7,751,000         4,229,000
     Byproduct                                                  270,000           246,000           440,000           537,000
- ------------------------------------------------------------------------------------------------------------------------------
     Total revenues                                          10,095,000         5,819,000        17,859,000         9,993,000
Cost of Revenues                                              6,164,000         3,280,000        10,774,000         5,450,000
- ------------------------------------------------------------------------------------------------------------------------------
     Gross profit                                             3,931,000         2,539,000         7,085,000         4,543,000
Selling, General and Administrative Expenses                  3,009,000         1,734,000         5,399,000         3,165,000
- ------------------------------------------------------------------------------------------------------------------------------
     Operating income                                           922,000           805,000         1,686,000         1,378,000
Other Income (Expense)
     Other income                                                26,000             7,000            47,000             8,000
     Interest expense                                          (270,000)         (225,000)         (510,000)         (412,000)
- ------------------------------------------------------------------------------------------------------------------------------
     Income before provision for income taxes                   678,000           587,000         1,223,000           974,000
Provision for Income Taxes                                      285,000           246,000           514,000           342,000
- ------------------------------------------------------------------------------------------------------------------------------
     Net income                                            $    393,000      $    341,000      $    709,000      $    632,000
==============================================================================================================================
     Basic Earnings per Common Share                       $       0.17      $       0.15      $       0.31      $       0.28
     Diluted Earnings per Common Share                     $       0.13      $       0.12      $       0.24      $       0.22
==============================================================================================================================
Weighted Average Number of
     Common Shares Outstanding:
     Basic                                                    2,287,000         2,287,000         2,287,000         2,287,000
     Diluted                                                  2,957,000         2,920,000         2,910,000         2,866,000

==============================================================================================================================


                See Notes to Consolidated Financial Statements.


                                        4



Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)



                                                                                      Six Months Ended
                                                                                 June 30,            July 1,
                                                                                     2001               2000
- -------------------------------------------------------------------------------------------------------------
                                                                                          
Cash Flows from Operating Activities
     Net income                                                              $    709,000       $    632,000
     Adjustments to reconcile net income to net
         cash used in operating activities:
     Depreciation and amortization                                                215,000            189,000
     Accretion of long-term debt discount                                          22,000             19,000
     Loss on disposal of equipment                                                     --              6,000
     Changes in assets and liabilities:
         Receivables                                                           (2,881,000)          (488,000)
         Inventories                                                             (794,000)        (1,692,000)
         Other assets                                                            (201,000)           (48,000)
         Accounts payable                                                       1,511,000            504,000
         Income taxes payable                                                    (295,000)           240,000
         Deferred gain on building sale recognized                                (36,000)                 0
         Accrued expenses                                                         (65,000)           176,000
- -------------------------------------------------------------------------------------------------------------
              Net cash used in operating activities                            (1,815,000)          (462,000)
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
     Purchase of property and equipment                                          (515,000)          (160,000)
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
     Net borrowings under line of credit                                        2,597,000            854,000
     Payments on long-term obligations                                           (165,000)           (58,000)
     Proceeds from long-term obligations                                          142,000                 --
- -------------------------------------------------------------------------------------------------------------
              Net cash provided by financing activities                         2,574,000            796,000
- -------------------------------------------------------------------------------------------------------------
              Increase in cash and cash equivalents                               244,000            174,000
Cash and Cash Equivalents
     Beginning                                                                    302,000            220,000
=============================================================================================================
     Ending                                                                  $    546,000       $    394,000
=============================================================================================================
Supplemental Disclosures of Cash Flow Information
         Cash payments for interest                                          $    489,000       $    305,000
         Cash payments for income taxes                                      $    808,000       $    103,800

=============================================================================================================


See Notes to Consolidated Financial Statements.


                                       5



Appliance Recycling Centers of America, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------

1.      Financial Statements

        In the opinion of management of the Company, the accompanying unaudited
        consolidated financial statements contain all adjustments (consisting of
        only normal, recurring accruals) necessary to present fairly the
        financial position of the Company and its subsidiaries as of June 30,
        2001, and the results of operations for the three-month and six-month
        periods ended June 30, 2001 and July 1, 2000 and its cash flows for the
        six-month periods ended June 30, 2001 and July 1, 2000. The results of
        operations for any interim period are not necessarily indicative of the
        results for the year. These interim consolidated financial statements
        should be read in conjunction with the Company's annual consolidated
        financial statements and related notes in the Company's Annual Report on
        Form 10-K for the year ended December 30, 2000.

        Certain information and footnote disclosures included in the annual
        consolidated financial statements prepared in accordance with generally
        accepted accounting principles have been condensed or omitted.

2.      Accrued Expenses

        Accrued expenses were as follows:

                                        June 30,       December 30,
                                            2001               2000
                                     -----------        -----------
               Compensation          $   221,000        $   330,000
               Warranty                  202,000            188,000
               Other                     448,000            418,000
                                     -----------        -----------
                                     $   871,000        $   936,000
                                     ===========        ===========

3.      Revenue Recognition

        In the prior year, the Company reported consolidated recycling revenues
        and byproduct revenues together as recycling revenues. In the current
        year, the Company determined that byproduct revenues should be
        separately reported because of their significant dollar amount and since
        this revenue is a result of both retail and recycling activities. Prior
        periods have been reclassified to be consistent with this presentation.


                                       6



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

4.      Accounting Standards Issued Net Yet Adopted

        In July 2001, the Financial Accounting Standards Board issued two new
        statements. Statement No. 141, Business Combinations, eliminates the
        pooling method of accounting for business combinations. Statement No.
        142, Goodwill and Other Intangible Assets, eliminates the amortization
        of goodwill and other intangibles that are determined to have an
        indefinite life and requires, at a minimum, annual impairment tests of
        goodwill and other intangible assets that are determined to have an
        indefinite life. The Company has not yet completed its full assessment
        of the effect of these new standards on its consolidated financial
        statements, but believes their impact will not be significant. The
        standards generally are required to be implemented by the Company in its
        2002 financial statements.


PART I: ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------

        The following discussion and analysis provides information that
        management believes is relevant to an assessment and understanding of
        the Company's level of operations and financial condition. This
        discussion should be read with the consolidated financial statements
        appearing in Item 1.

        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 is managed as a unit and does not measure profit
        or loss separately for its three primary revenue sources. Therefore, the
        Company believes that it has one operating segment.

        Total revenues for the three and six months ended June 30, 2001 were
        $10,095,000 and $17,859,000, respectively, compared to $5,819,000 and
        $9,993,000 for the same periods in the prior year, increases of 73% and
        79%, respectively.

        Retail sales accounted for approximately 49% of revenues in the second
        quarter of 2001. Retail revenues for the three and six months ended June
        30, 2001 increased by $1,920,000 or 64% and $4,441,000 or 85%,
        respectively, from the same periods in the prior year. Second quarter
        same-store retail sales increased 22% (a sales comparison of four stores
        that were open the entire second quarters of both 2001 and 2000.) The
        increase in retail sales was primarily due to an increase in scratch and
        dent sales as a result of operating four additional stores during the
        three and six months ended June 30, 2001 compared to the same periods in
        the previous year.


                                       7



RESULTS OF OPERATIONS - continued

        Currently, the Company has eight retail locations. In May 2001, the
        Company opened a store in the Columbus, Ohio market which replaced a
        significantly smaller store in this market. Any additional stores opened
        later this year would be located in an existing market. The Company
        experiences seasonal fluctuations and expects retail sales to be higher
        in the second and third calendar quarters than in the first and fourth
        calendar quarters, reflecting consumer purchasing cycles.

        Recycling revenues for the three and six months ended June 30, 2001
        increased by $2,332,000 or 91% and $3,522,000 or 83%, respectively, from
        the same periods in the prior year. The increases in recycling revenues
        were primarily due to an increase in refrigerator recycling volumes
        principally related to the Summer Initiative contract with Southern
        California Edison Company ("Edison"). The Company is in the second year
        of a two-year contract with Edison for its refrigerator recycling
        program which runs through December 30, 2001. The Company expects the
        2001 volume for this contract to be at approximately the same level as
        2000. This two-year contract does not provide for a minimum number of
        refrigerators to be recycled in either 2000 or 2001. The timing and
        amount of revenues will be dependent on advertising by Edison.

        The Company has another contract with Edison ("Summer Initiative") for 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 expects to recycle approximately 30,000 to 40,000
        additional units through the end of 2001. However, during the second
        quarter the program goal for orders was reached. During the third
        quarter, the recycling will be completed for these orders. The Company
        began the Summer Initiative in September 2000 and was fully operational
        in the first quarter of 2001. The Company is responsible for advertising
        for 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. The program will be 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. Initial significant revenues from the new
        program are anticipated in the second half of this year. The program is
        a one-year contract through May 31, 2002.

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


                                       8



RESULTS OF OPERATIONS - continued

        Byproduct revenues for the three months ended June 30, 2001 increased to
        $270,000 from $246,000 in the same period of 2000. The increase was
        primarily due to an increase in the volume of CFCs offset by a decrease
        in scrap metal prices. Byproduct revenues for the six months ended June
        30, 2001 decreased to $440,000 from $537,000 in the same period of 2000.
        The decrease was primarily due to a decrease in scrap metal prices.

        Gross profit as a percentage of total revenues for the three and six
        months ended June 30, 2001 decreased to 39% and 40%, respectively, from
        44% and 45%, respectively, for the three and six months ended July 1,
        2000. The decreases were primarily due to higher retail sales of scratch
        and dent appliances which have a lower gross margin than sales of
        reconditioned appliances and additional non-recurring expenses related
        to the Summer Initiative contract. Gross profit as a percentage of total
        revenues for future periods can be affected favorably or unfavorably by
        numerous factors, including the volume of appliances recycled from the
        Edison contracts and the CPUC contract, the mix of retail product sold
        during the period and the price and volume of byproduct revenues. The
        Company believes that gross profit as a percentage of total revenues for
        the year 2001 will approximate the gross profit as a percentage of total
        revenues for the first six months of this year.

        Selling, general and administrative expenses for the three and six
        months ended June 30, 2001 increased by $1,275,000 or 74% and $2,234,000
        or 71%, respectively, from the same periods in 2000. Selling expenses
        for the three and six months ended June 30, 2001 increased by $721,000
        or 103% and $1,515,000 or 129%, respectively, from the same periods in
        2000. The increases in selling expenses were primarily due to opening
        three additional retail stores during the first six months of 2001 and
        increases in advertising and sales commissions and the expense of
        operating four additional stores in 2001 as compared to the same period
        in the previous year. General and administrative expenses for the three
        and six months ended June 30, 2001 increased by $554,000 or 54% and
        $719,000 or 36%, respectively, from the same periods in 2000. The
        increase in general and administrative expenses was primarily due to an
        increase in personnel costs.

        Interest expense was $270,000 for the three months and $510,000 for the
        six months ended June 30, 2001 compared to $225,000 and $412,000 for the
        same periods in 2000. The increase in interest expense was due to a
        higher average borrowed amount for the three and six months ended June
        30, 2001 than in the same periods in 2000 offset by a decrease in the
        effective interest rate on the line of credit.

        The Company recorded a provision for income taxes for the three and six
        months ended June 30, 2001 of $285,000 and $514,000, respectively,
        compared to $246,000 and $342,000 in same periods in 2000. The increase
        was due to both greater pre-tax income and a higher effective tax rate
        for the three and six months ended June 30, 2001 compared to the same
        periods in the prior year.


                                       9



RESULTS OF OPERATIONS - continued

        The Company has net operating loss carryovers of approximately
        $8,514,000 at June 30, 2001, which are available to reduce taxable
        income and in turn income taxes payable in future years. However, future
        utilization of these loss carryforwards is subject to certain
        limitations under provisions of the Internal Revenue Code including
        limitations subject to Section 382, which relate to a 50 percent change
        in control over a three-year period, and are further dependent upon the
        Company maintaining profitable operations. The Company believes that the
        issuance of Common Stock during 1999 resulted in an "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 $46,000 per year. At June 30, 2001, the Company
        had recorded cumulative valuation allowances of approximately $4,022,000
        against its net deferred tax assets due to the undercertainty of their
        realization. The realization of deferred tax assets is dependent upon
        sufficient future taxable income during the periods when deductible
        temporary differences and carryforwards are expected to become available
        to reduce taxable income.

        The Company recorded net income of $393,000 or $.13 per diluted share
        and $708,000 or $.24 per diluted share for the three months and six
        months ended June 30, 2001, respectively, compared to net income of
        $341,000 or $.12 per diluted share and $632,000 or $.22 per diluted
        share in the same periods of 2000. The increases in net income for the
        three and six months ended June 30, 2001 compared to the same periods in
        the previous year were primarily due to higher revenues together with
        selling, general and administrative expenses as a percentage of revenues
        remaining the same for the three and six months ended June 30, 2001
        compared to the same periods in the previous year offset by a decrease
        in the gross profit as a percentage of total revenues.


LIQUIDITY AND CAPITAL RESOURCES

        At June 30, 2001, the Company had working capital of $1,439,000 compared
        to $1,183,000 at December 30, 2000. Cash and cash equivalents increased
        to $546,000 at June 30, 2001 from $302,000 at December 30, 2000. Net
        cash used in operating activities was $1,815,000 for the six months
        ended June 30, 2001 compared to $462,000 in the same period of 2000. The
        cash used in operating activities was primarily due to an increase in
        receivables and inventories offset by an increase in accounts payable
        and net income for the period.

        The Company's capital expenditures for the six months ended June 30,
        2001 and July 1, 2000 were approximately $515,000 and $160,000,
        respectively. The 2001 capital expenditures were related to the
        continued upgrade of computer systems and the purchase of equipment
        related to the refrigerator recycling operation. The 2000 capital
        expenditures were primarily related to the purchase of computer
        equipment.


                                       10



LIQUIDITY AND CAPITAL RESOURCES - continued

        As of June 30, 2001, the Company has a $6.0 million line of credit with
        a lender. The interest rate as of June 30, 2001 was 10%. 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, 2001, 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
        of the Company's assets and requires minimum monthly interest payments
        of $16,800 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, limits the amount of other debt the Company can incur,
        limits the amount of spending on fixed assets and limits payments of
        dividends. At June 30, 2001, the Company had unused borrowing capacity
        of $434,000. Currently, the Company is investigating options to replace
        or renew its line of credit.

        In June 2001, the Company amended its current line of credit to
        $6,000,000 with its current lender. The terms under the amendment remain
        the same. In July 2001, the Company amended its current line of credit
        to $6,300,000 with its current lender. The terms under the amendment
        remain the same.

        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 will be 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. Initial significant revenues from the new
        program are anticipated in this year's second half. The program is a
        one-year contract through May 31, 2002.

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


                                       11



LIQUIDITY AND CAPITAL RESOURCES - continued

        The Company believes, based on the anticipated revenues from the Edison
        contract, the Summer Initiative contract, the 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, if renewed in August 2001, will be sufficient to
        finance its operations and capital expenditures through December 2001.
        The Company's total capital requirements will depend on, among other
        things as discussed below, the recycling volumes generated from the
        Edison program, the Summer Initiative program and the CPUC program in
        2001 and the number and size of retail stores operating during the
        fiscal year. Currently, the Company has three recycling centers and
        eight retail stores in operation. If revenues are lower than anticipated
        or expenses are higher than anticipated or the line of credit cannot be
        maintained after August 2001, the Company may require additional capital
        to finance operations. Sources of additional financing, if needed in the
        future, may include further debt financing or the sale of equity (common
        or preferred stock) or other securities. There can be no assurance that
        the line of credit will be renewed or replaced or such additional
        sources of financing will be available or available on terms
        satisfactory to the Company or permitted by the Company's current
        lender.


FORWARD-LOOKING STATEMENTS

        Statements contained in this quarterly 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 at acceptable
        prices, the ability and timing of Edison to deliver units under both its
        contracts 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 being
        realized at higher than expected levels, the Company's ability to secure
        an adequate supply of special buy and used appliances for resale and the
        continued availability of the Company's current line of credit or the
        ability to replace the current line of credit.


                                       12



PART I: ITEM 3    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 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 the three and six-month periods ended June 30, 2001.
        However, there can be no assurance that future inflation will not have
        an adverse impact on the Company's operating results and financial
        condition.


PART II.          OTHER INFORMATION
- --------------------------------------------------------------------------------

ITEM 1 -   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 2 -   CHANGES IN SECURITIES AND USE OF PROCEEDS - None

ITEM 3 -   DEFAULTS UPON SENIOR SECURITIES - None

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

           On April 26, 2001 the Annual Meeting of Shareholders of Appliance
           Recycling Centers of America, Inc. was held to obtain the approval of
           shareholders of record as of March 16, 2001 in connection with the
           three matters indicated below. Proxies were mailed to the holders of
           2,287,369 shares. Following is a brief description of each matter
           voted on at the meeting and the number of votes cast for, against or
           withheld, as well as the number of abstentions and broker nonvotes,
           as to each matter:

                                                      Vote
                                         ---------------------------------
              Matter                        For         Withhold Authority
              ------                        ---         ------------------
           1. Election of Directors:
              Edward R. Cameron          2,032,165            6,808
              George B. Bonniwell        2,032,165            6,808
              Duane S. Carlson           2,032,090            6,883
              Harry W. Spell             2,032,040            6,933
              Marvin Goldstein           2,032,190            6,783


                                       13



SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - continued

           2. Approval and adoption of Amendments to the 1997 Stock Option Plan.

                                                  Vote
                            ----------------------------------------------
                                For       Against    Abstain     Not Voted
                                ---       -------    -------     ---------
                            1,473,339     85,383      1,707       478,544

           3. Ratification of McGladrey & Pullen, LLP as independent public
              accountants for fiscal year 2001.

                                                  Vote
                            ----------------------------------------------
                                For       Against    Abstain     Not Voted
                                ---       -------    -------     ---------
                            2,031,433      6,301      1,239          0

ITEM 5 -   EXHIBITS AND REPORTS ON FORM 8-K

           (a)(i)     Exhibit 10.1 - Agreement dated June 12, 2001 between the
                      California Public Utilities Commission and Appliance
                      Recycling Centers of America, Inc.

              (ii)    Exhibit 10.2 - Agreement dated June 18, 2001 between
                      Spectrum Commercial Services Company and Appliance
                      Recycling Centers of America, Inc.

              (iii)   Exhibit 10.3 - Agreement dated July 26, 2001 between
                      Spectrum Commercial Services Company and Appliance
                      Recycling Centers of America, Inc.

           (b)        The Company filed a Form 8-K on June 25, 2001 announcing
                      the agreement with the California Public Utilities
                      Commission.

ITEM 6 -   OTHER INFORMATION - None


                                       14



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                    Appliance Recycling Centers of America, Inc.
                                    --------------------------------------------
                                    Registrant





Date: August 10, 2001               /s/ Edward R. Cameron
                                    ---------------------------------------
                                    Edward R. Cameron
                                    President





Date: August 10, 2001               /s/ Linda Koenig
                                    ---------------------------------------
                                    Linda Koenig
                                    Controller


                                       15