<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                     FORM 10-QSB


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934
                 For the Quarterly Period Ended September 30, 1998


[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934
               For the Transition Period from _________ to __________


                            Commission File No. 1-12559


                              CRAGAR INDUSTRIES, INC.
                   (Name of small business issuer in its charter)

                 DELAWARE                           86-0721001
(State or other jurisdiction            (I.R.S. Employer Identification No.)
of incorporation or organization)


                    4636 NORTH 43RD AVENUE, PHOENIX, ARIZONA 85031
                       (Address of principal executive offices)

                                    (602) 247-1300
                             (Issuer's telephone number)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 []

     Number of shares of common stock, $.01 par value, outstanding as of
September 30, 1998:  2,453,990.

     Transitional small business disclosure format. Yes [ ] No [X]

                                       1

<PAGE>

                               CRAGAR INDUSTRIES, INC.
                               CONDENSED BALANCE SHEETS
                       SEPTEMBER 30, 1998 AND DECEMBER 31, 1997

<TABLE>
<CAPTION>

                                                                    September 30,  
                                                                        1998       December 31,
                                                                     (Unaudited)      1997
                                                                    -------------  ------------
<S>                                                                 <C>            <C>
ASSETS

Current Assets:
   Cash and cash equivalents                                        $    264,953   $     16,322
   Accounts receivable, less allowance for doubtful accounts of
      $3,858,113 as of 9/30/98 and $3,616,336 as of 12/31/97           3,170,485      2,997,880
   Inventories, net                                                    4,773,130      4,653,480
   Prepaid expenses                                                      143,399         11,153
                                                                    -------------  ------------
      Total current assets                                             8,351,967      7,678,835

Property and equipment, net                                              796,350        972,753
Other assets, net                                                        329,653        404,260
                                                                    -------------  ------------
Total Assets                                                        $  9,477,970   $  9,055,848
                                                                    -------------  ------------
                                                                    -------------  ------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                 $  2,461,552   $  2,147,243
   Accrued expenses                                                    1,013,612      1,003,295
   Accrued interest                                                       69,704        135,495
   Line of credit                                                      2,141,497      1,518,544
   Current installments of capital lease obligations                       2,497        108,123
   Current installments of long-term debt                                250,400            -
                                                                    -------------  ------------
      Total current liabilities                                        5,939,262      4,912,700

Line of credit                                                         3,227,733      4,000,000
Investor notes payable                                                         -        600,000
Long tern debt. less current installments                                772,267            -
                                                                    -------------  ------------
      Total liabilities                                                9,939,262      9,512,700
                                                                    -------------  ------------
                                                                    -------------  ------------

Stockholders' Deficit
   Preferred stock, par value $.01; authorized 200,000 shares,
      22,500 shares issued and outstanding                                   225            -
   Additional paid-in capital - preferred                              2,071,399            -
   Common stock, par value $.01; authorized 5,000,000 shares
      2,453,990 shares issued and outstanding                             24,540         24,540
   Additional paid-in capital - common                                12,097,115     11,845,882
   Accumulated deficit                                               (14,654,571)   (12,327,274)
                                                                    -------------  ------------
      Total stockholders' deficit                                       (461,292)      (456,852)
                                                                    -------------  ------------
Total Liabilities and Stockholders' Deficit                         $  9,477,970   $  9,055,848
                                                                    -------------  ------------
                                                                    -------------  ------------
</TABLE>

                                       
               See accompanying notes to condensed financial statements

                                       2

<PAGE>

                               CRAGAR INDUSTRIES, INC.
                          CONDENSED STATEMENTS OF OPERATIONS
            THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Three Months Ended September 30,  Nine Months Ended September 30,
                                                               -------------------------------   -----------------------------
                                                                   1998              1997            1998             1997
                                                               ------------      ------------    ------------     ------------
<S>                                                            <C>               <C>             <C>
Net sales                                                      $  2,981,267      $  2,850,898    $  9,709,999     $ 13,770,728
Cost of goods sold                                                2,740,636         2,716,798       8,174,862       11,616,449
                                                               ------------      ------------    ------------     ------------
      Gross profit                                                  240,631           134,100       1,535,137        2,154,279
Selling, general & administrative expenses                        1,381,903         4,359,261       3,240,599        6,170,964
Amortization of excess of fair value of assets acquired
   over cost                                                           -             (184,367)           -            (553,101)
                                                               ------------      ------------    ------------     ------------
      Loss from operations                                       (1,141,272)       (4,040,794)     (1,705,462)      (3,463,584)
                                                               ------------      ------------    ------------     ------------
Non-operating expenses, net
   Interest expense                                                 163,826           174,516         495,303          406,681
   Other, net                                                        44,717            29,255          75,572           91,978
                                                               ------------      ------------    ------------     ------------
      Total non-operating expenses                                  208,543           203,771         570,875          498,659
                                                               ------------      ------------    ------------     ------------
      Loss before income taxes                                   (1,349,815)       (4,244,565)     (2,276,337)      (3,962,243)

Income taxes                                                           -                 -               -                -
                                                               ------------      ------------    ------------     ------------
      Net loss                                                 $ (1,349,815)     $ (4,244,565)   $ (2,276,337)    $ (3,962,243)
                                                               ------------      ------------    ------------     ------------
                                                               ------------      ------------    ------------     ------------
Basic loss per share                                           $      (0.57)     $      (1.82)   $      (0.97)    $      (1.73)
                                                               ------------      ------------    ------------     ------------
                                                               ------------      ------------    ------------     ------------
Weighted average shares outstanding - basic                       2,453,990         2,327,001       2,453,990        2,296,707
                                                               ------------      ------------    ------------     ------------
                                                               ------------      ------------    ------------     ------------
Diluted loss per share                                         $      (0.57)     $      (1.82)   $      (0.97)    $      (1.73)
                                                               ------------      ------------    ------------     ------------
                                                               ------------      ------------    ------------     ------------
Weighted average shares outstanding - diluted                     2,453,990         2,327,001       2,453,990        2,296,707
                                                               ------------      ------------    ------------     ------------
                                                               ------------      ------------    ------------     ------------
</TABLE>

               See accompanying notes to condensed financial statements

                                          3
<PAGE>

                               CRAGAR INDUSTRIES, INC.
                          CONDENSED STATEMENTS OF CASH FLOWS
                    NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                     (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                 Nine Months Ended September 30,
                                                                                                 -------------------------------
                                                                                                      1998              1997
                                                                                                 ------------      ------------
<S>                                                                                              <C>               <C>
Cash flows from operating activities:
   Net loss                                                                                      $ (2,276,337)     $ (3,962,243)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Provision for doubtful accounts                                                                 241,777         3,548,410
      Provision for obsolete and slow-moving inventory                                                 24,799          (294,214)
      Depreciation and amortization of property and equipment                                         219,871           218,036
      Amortization of other assets                                                                     61,667           104,041
      Amortization of excess fair value of assets acquired over cost                                     -             (553,101)
      Amortization of warrants issued with line of credit                                              21,900
      Increase (decrease) in cash resulting from changes in:
         Accounts receivable                                                                         (414,382)       (2,595,765)
         Inventories                                                                                 (144,449)          761,998
         Prepaid expenses                                                                            (132,245)         (260,593)
         Other assets                                                                                  12,940           (15,000)
         Accounts payable and accrued expenses                                                        324,626          (264,417)
         Accrued interest                                                                             (65,791)          (45,995)
                                                                                                 ------------      ------------
            Net cash used in operating activities                                                  (2,125,624)       (3,358,843)
                                                                                                 ------------      ------------
Cash flows from investing activities:
   Purchases of property and equipment                                                                (43,468)         (577,644)
                                                                                                 ------------      ------------
Cash flows from financing activities:
   Proceeds from sale of preferred stock                                                            1,650,000              -
   Proceeds from Norwest line of credit                                                             4,576,073         2,794,778
   Repayment of Norwest line of credit                                                            (10,094,617)             -
   Proceeds from NCFC line of credit                                                               10,817,063              -
   Repayments of NCFC line of credit                                                               (5,447,837)             -
   Proceeds from issuance of long-term debt                                                         1,127,000              -
   Repayments of long-term debt                                                                      (104,333)           (5,875)
   Repayments of capital lease obligations                                                           (105,626)          (50,781)
   Issuance of warrants                                                                                     -           417,706
                                                                                                 ------------      ------------
            Net cash provided from financing activities                                             2,417,723         3,155,828
                                                                                                 ------------      ------------
            Net increase (decrease) in cash and cash equivalents                                      248,631          (780,659)

Cash and cash equivalents at beginning of period                                                       16,322           863,049
                                                                                                 ------------      ------------
Cash and cash equivalents at end of period                                                       $    264,953      $     82,390
                                                                                                 ------------      ------------
                                                                                                 ------------      ------------
                                                                                                 $       -
Supplemental disclosure of cash flow information:
   Cash paid for interest                                                                        $    561,094      $    392,676
                                                                                                 ------------      ------------
                                                                                                 ------------      ------------
Non-cash financing activity:
   Conversion of investor notes payable to preferred stock                                       $    600,000      $       -
                                                                                                 ------------      ------------
                                                                                                 ------------      ------------
</TABLE>

               See accompanying notes to condensed financial statements

                                          4

<PAGE>

                              CRAGAR INDUSTRIES, INC.
                      NOTES TO CONDENSED FINANCIAL STATEMENTS
                        NINE MONTHS ENDED SEPTEMBER 30, 1998
                                    (Unaudited)

1.   Summary of Significant Accounting Policies and Practices
     Basis of Presentation:

     The interim financial data of Cragar Industries, Inc. (the Company) as of
and for the three months and nine months ended September 30, 1998 and 1997 is
unaudited; however, in the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods.

     The year-end balance sheet information was derived from audited 
financial statements.  These interim financial statements should be read in 
conjunction with the Company's audited financial statements appearing 
in the Company's Form 10-KSB/A.

2.   Inventories
     Inventories consist of the following:

<TABLE>
<CAPTION>

                                                                   September 30, 1998  December 31, 1997
                                                                   ------------------  -----------------
                                                                       (Unaudited)
          <S>                                                      <C>                 <C>
          Raw materials                                               $  2,609,380        $  3,041,710
          Work in process                                                  361,630             197,074
          Finished Goods                                                 2,535,917           2,123,694
                                                                   ------------------  -----------------
                                                                         5,506,927           5,362,478
          Less allowance for obsolete and slow-moving inventory            733,797             708,998
                                                                   ------------------  -----------------
          Inventories, net                                            $  4,773,130        $  4,653,480
                                                                   ------------------  -----------------
                                                                   ------------------  -----------------
</TABLE>

3.   Basic and Diluted Loss per Share

          Basic and diluted loss per share amounts are based on the weighted 
     average number of common shares outstanding as reflected on Exhibit 11 
     to this Quarterly Report on Form 10-QSB.

4.   Other Related Reserves and Allowances

<TABLE>
<CAPTION>

                                                                   September 30, 1998  December 31, 1997
                                                                   ------------------  -----------------
                                                                      (Unaudited)
          <S>                                                      <C>                 <C>
          Stock adjustments and returns                               $     38,292        $    109,179
          Rebates reserve                                                    3,062              39,646
          Warranty reserve                                                 456,717             348,613
          Other reserves                                                    27,150              35,500

</TABLE>

5.   Preferred Stock and Warrants

     During the first quarter ended March 31, 1998, the Company issued 22,500
     shares of Series A Preferred Stock for $1,650,000 cash and the conversion
     of $600,000 in principal amount of investor notes payable.  The Company
     also granted warrants valued at $229,333 to purchase 333,333 shares of
     Common Stock at a price of $8.75 per share in connection with the preferred
     stock issuance. On April 20, 1998, the Company issued warrants to
     NationsCredit Commercial Funding valued at $21,960 to purchase 50,000
     shares of Common Stock at a price of $5.25 per share.  On August 8, 1998,
     the Company agreed to grant warrants to certain individuals who provided
     bridge loans to the Company in the aggregate principal amount of $600,000
     during December 1997 and January 1998.  For each $100,000 made available to
     the Company, the Company granted warrants to purchase 1,500 shares of
     Common Stock at an exercise price of $3.00 per share.  The principal
     amounts of the loans 

                                       5

<PAGE>

     were subsequently converted into 60,000 shares of Series A 
     Preferred Stock.  In addition, the Company agreed to grant warrants 
     to certain individuals who pledged assets to secure the Company's 
     obligations under the Loan and Credit Agreement with NationsCredit 
     Commercial Funding.  The Company agreed to grant warrants to 
     purchase 7,000 shares for each $100,000 in value of the assets 
     pledged on an annual basis, which warrants will be exercisable at 
     an exercise price equal to the price of the Company's Common Stock 
     on the date of grant. On May 15, 1998, the Company granted options 
     to each of Sidney Dworkin, Donald McIntrye and Mark Schwartz, 
     Directors of the Company, to purchase 2,000 shares of Common Stock 
     at $5.25 per share.  During the third quarter ended September 30, 
     1998, no warrants to purchase shares of Common Stock were 
     exercised. Dividends in arrears for outstanding Preferred Stock at 
     September 30, 1998 totaled $96,250, which are payable, at the 
     discretion of the Company, in cash or additional shares of the 
     Company's Series A Preferred Stock. See "Factors That May Affect 
     Future Results and Financial Condition -Dependence on External 
     Financing."

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements.  Additional written or
oral forward-looking statements may be made by the Company from time to time in
filings with the Securities Exchange Commission or otherwise.  Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.  Such statements may include, but not be
limited to, projections of revenues, income or loss, estimates of capital
expenditures, plans for future operations, products or services, and financing
needs or plans, as well as assumptions relating to the foregoing.  The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made.  Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified.
Future events and actual results could differ materially from those set forth
in, contemplated by, or underlying the forward-looking statements.  The
following disclosures, as well as other statements in the Company's report,
including those contained below in this Item 2, "Management's Discussion and
Analysis of Financial Condition or Plan of Operation," and in the Notes to the
Company's Financial Statements, describe factors, among others, that could
contribute to or cause such differences.

INTRODUCTION

     Cragar Industries, Inc. (the "Company") designs, produces, and sells
high-quality custom vehicle wheels and wheel accessories.  The Company possesses
one of the most widely recognized brand names in the automotive aftermarket
industry.  The Company markets a wide selection of custom wheels and components
that are designed to appeal to automotive enthusiasts who desire to modify the
styling, design, or performance of their cars, trucks, or vans.  The Company
sells its wheel products in the automotive aftermarket through a national
distribution network of value-added resellers, including tire and automotive
performance warehouse distributors and retailers and mail order houses.

     The Company was formed in 1992 to acquire certain assets, including the
accounts receivable, inventory, property, equipment, patents, trademarks, and
copyrights in a leveraged buyout from the Wheel and Tire Division of Mr. Gasket
Company, Inc., which had filed for reorganization.  The fair value of the net
assets acquired exceeded the final purchase price, and, accordingly, the fair
value of the property and equipment, patents, trademarks, and copyrights
acquired was reduced to zero.  The remaining balance of $3,687,341 was
classified as excess of fair value of assets acquired over cost (commonly
referred to as negative goodwill) and was amortized to income over five years
using the straight-line method ($737,468 per annum through December 31, 1997).
As of December 31, 1997, the balance of the excess of fair value of assets
acquired over cost was zero.

                                       6

<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth various items as a percentage of net sales
revenue for the three month and nine month periods ended September 30, 1998 and
September 30, 1997:

<TABLE>
<CAPTION>

                                                 THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                          1998         1997          1998          1997
                                                         -----        -----          -----        -----
     <S>                                                 <C>          <C>            <C>          <C>
     Net sales                                           100.0 %      100.0 %        100.0 %      100.0 %
     Cost of goods sold                                   91.9         95.3           84.2         84.4
                                                         -----        -----          -----        -----
     Gross profit                                          8.1          4.7           15.8         15.6
     SG&A                                                 46.4        152.9           33.4         44.8
     Amortization of negative goodwill                     -           (6.5)           -           (4.0)
                                                         -----        -----          -----        -----
     Loss from operations                                (38.3)      (141.7)         (17.6)       (25.2)
     Non-operating expense, net                            7.0          7.1            5.8          3.6
     Income taxes                                          -            -              -            -
                                                         -----        -----          -----        -----
     Net loss                                            (45.3)%     (148.8)%        (23.4)%      (28.8)%
                                                         -----        -----          -----        -----
                                                         -----        -----          -----        -----
</TABLE>

COMPARISON OF QUARTER ENDED SEPTEMBER 30, 1998 AND QUARTER ENDED SEPTEMBER 30,
1997

     Net sales consist of gross sales less discounts, returns and allowances.
Net sales for the quarter ended September 30, 1998 were $2,981,267 compared to
$2,850,898 during the quarter ended September 30, 1997, representing a 4.6%
increase in sales. The increase was primarily attributable to developing new
customers and strengthening existing customer relations.  Discounts, returns and
allowances decreased by 53.6% from the comparable quarter ended September 30,
1997.  The decrease in discounts, returns and allowances was attributable to
seasonal trends, modifications in customer agreements and better quality control
for the quarter ended September 30, 1998.

     Gross profit is determined by subtracting cost of goods sold from net
sales.  Cost of goods sold consists primarily of the costs of labor, aluminum,
steel, raw materials, overhead, and material processing used in the production
of the Company's products, as well as the freight costs of shipping product to
the Company's customers.  Gross profit for the quarter ended September 30, 1998
was $240,631 compared to $134,100 for the quarter ended September 30, 1997.  As
a percentage of net sales, gross profit increased in the third quarter of 1998
compared to the third quarter of 1997, from 4.7% to 8.1%.  The increase in gross
profit from the third quarter of 1997 to the third quarter of 1998 was
attributable to continued focus on decreasing manufacturing costs, a change in
the established product mix, higher average prices on certain products and
higher margins realized on an increased percentage of sales to retail customers.
The Company expects its gross profits and overall results of operations to vary
from period to period based upon a variety of factors, including changes in
order levels from customers, the timing of orders, changes in product mix, the
level of net sales and other factors.

     Selling, general, and administrative ("SG&A") expenses consist primarily of
commissions, marketing expenses, promotional programs, salaries and wages,
product development expenses, office expenses, accounting and legal expenses,
bad debt reserves, and general overhead.  SG&A expenses for the third quarter
ended September 30, 1998 were $1,381,903 compared to $4,359,261 for the quarter
ended September 30, 1997.  This decrease of 68.3% was primarily due to the
Company taking an allowance, in the quarter ended September 30, 1997, of
$3,258,115 established for bad debt related to the account receivable from the
Company's former primary customer, Super Shops, Inc., which filed for Chapter 11
bankruptcy protection on September 19, 1997. Excluding the allowance for bad
debt, SG&A was $1,101,146 for the third quarter ended September 30, 1997.
Excluding the allowance for bad debt, the Company's SG&A expenses increased
25.5% for the third quarter ended September 30 1998, as compared to the third
quarter in 1997. This increase was primarily attributable to the Company
launching an aggressive marketing campaign aimed at strengthening the Company's
brand name and introducing new products.  During the third quarter ended
September 30, 1998, the Company incurred expenses of $301,417 related to the
marketing campaign. The increases in marketing 

                                       7

<PAGE>

expenses were partially offset by the Company's focus on reducing other 
expenses, primarily associated with labor.

     Non-operating expenses, net, for the third quarter of 1998 were $208,543
compared to $203,771 for the third quarter of 1997.  The increase of $4,772 is
primarily attributable to origination and closing fees associated with the NCFC
Credit Facility (as defined herein). This increase was partially offset by lower
interest expense due to a lower interest rate charged on the Company's NCFC
Credit Facility. See "Management's Discussion and Analysis or Plan of Operation
-- Liquidity and Capital Resources."

     Because of its current period net losses and carry-forward losses from 
previous years, the Company had no income tax provision in the third quarter 
of 1998 or 1997.

     Net loss for the third quarter ended September 30, 1998 was $1,349,815
compared to a net loss of $4,244,565 for the third quarter ended September 30,
1997. Excluding the loss attributable to the bad debt allowance and negative
goodwill amortization, the loss for the quarter ended September 30, 1997 was
$1,170,817.  Basic loss per share for the third quarter ended September 30, 1998
was $.57 compared to basic loss per share of $1.82 for the third quarter ended
September 30, 1997. Excluding the allowance for bad debt and negative goodwill
amortization, the basic net loss per share was $.50 for the third quarter ended
September 30, 1997.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997

     Net sales decreased 29.5% from $13,770,728 in the nine month period ended
September 30, 1997 to $9,709,999 for the nine month period ended September 30,
1998.  The decrease was primarily attributable to the lack of shipments to the
Company's former primary customer, Super Shops, which filed for bankruptcy on
September 19, 1997 and is currently being liquidated. The Company has been able
to partially offset the loss of shipments to Super Shops by attracting new
customers and increasing sales to existing customers.

     Gross profit improved slightly from 15.6% for the nine month period ended
September 30, 1997 to 15.8% for the nine month period ended September 30, 1998.
Continued cost reduction efforts positively affected gross profit in the first
nine months of 1998 as programs started to be fully implemented.

     SG&A expenses for the nine months ended September 30, 1998 decreased 47.5%
to $3,240,599 from $6,170,964 over the nine months ended September 30, 1997.
This decrease was primarily due to the Company not having to take an allowance
established for bad debt of the account receivable of Super Shops, Inc., the
Company's former primary customer as it did in the third quarter ended September
30 1997, as described above. Excluding the allowance, SG&A expenses were
$2,912,849 for the nine months ended September 30, 1997. Excluding the
allowance, SG&A expenses increased 11.3% during the nine months ended September
30, 1998 as compared to the same period in 1997. This increase was due in part
to the concentrated marketing efforts by the Company to strengthen its brand
name and introduce new products into the marketplace.

     Interest expense increased by $88,622 or 21.8% to $495,303, as outstanding
loan amounts increased by $325,438 for the nine months ended September 30, 1998
as compared to the same period for 1997. The increase in interest expense
associated with the additional outstanding loan amounts was minimized by a lower
interest rate charged on the Company's NCFC Credit Facility compared to the
prior credit facility.

     Net loss for the nine months ended September 30, 1998 was $2,276,337
compared to a net loss of $3,962,243 for the nine months ended September 30,
1997.  Basic loss per share for the nine months ended September 30, 1998 was
$.97 compared to a basic loss per share of $1.73 for the nine months ended
September 30, 1997.  Diluted loss per share was $.97 for the nine months ended
September 30, 1998 as compared to a diluted loss per share of $1.73 for the nine
months ended September 30, 1997. Excluding the 

                                       8

<PAGE>

allowance for bad debt, as described above, the basic net earnings per share 
was $.31 for the nine months ended September 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

     During the quarter ended March 31, 1998, the Company raised $2,250,000
($1,650,000 in cash and $600,000 from the conversion of investor notes payable)
through a private placement of 22,500 shares of the Company's Series A
Convertible Preferred Stock ("Series A Preferred Stock"), which included the
issuance of warrants to purchase 333,333 shares of the Company's Common Stock at
$8.75 per share.  Dividends in arrears for shares of outstanding Series A
Preferred Stock at September 30, 1998 totaled $96,250, which is payable, at the
Company's discretion, in cash or additional Series A Preferred Stock.

     On April 20, 1998, the Company secured a credit facility (the "NCFC Credit
Facility") with NationsCredit Commercial Funding Corporation ("NCFC").  The
terms of the NCFC Credit Facility specify a maximum combined term loan and
revolving loan totaling $8.5 million at an interest rate of 1.25% above the
prime rate.  The NCFC Credit Facility is secured by substantially all of the
Company's assets and has a term of four years. The Company was able to fully
repay its prior credit facility from the proceeds of the NCFC Credit Facility.
As of September 30, 1998, the outstanding balance under the NCFC Credit Facility
was $6,391,897, (including the line of credit and long-term debt) and the
Company had excess availability of approximately $103,000.  The NCFC Credit
Facility contains no financial performance covenants but requires prior approval
of any declarations of dividend payments.

     At September 30, 1998, the Company had an accumulated deficit of 
$14,654,571.  For the quarter ended September 30, 1998, the Company's 
operating activities used $1,950,027 of cash, which was primarily 
attributable to the net loss and increases in accounts receivable and 
inventories and a decrease in accounts payable and accrued expenses. The 
Company's increase in inventory at September 30, 1998 from December 31, 1997 
used approximately $53,000 in cash. The Company's financing activities 
included the sale of Series A Preferred Stock and conversion of outstanding 
debt to Series A Preferred Stock for a total of $2,250,000, of which 
$1,480,000 was used to reduce the amount owed under the prior credit facility 
and to pay down long-term debt, resulting in net cash provided from financing 
activities of approximately $2,240,000.

     As an ongoing consequence of the bankruptcy of Super Shops, formerly the
Company's principal customer, management is uncertain whether the anticipated
cash flow from operations will be sufficient to meet the Company's anticipated
growth plans and capital needs. There can be no assurance that the Company's
cash flow will be sufficient to finance its growth plans and capital needs as
currently planned or that it will be able to supplement its cash flow with
additional equity or financing.  No assurance can be given of the Company's
ability to obtain such equity or financing on favorable terms, if at all.  If
the Company is unable to obtain additional equity or financing, its ability to
meet its current and future revenue growth plans could be materially and
adversely affected.

ACCOUNTING MATTERS

     In September 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130), which became effective for the Company on January 1,
1998.  SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements.  The adoption of SFAS No. 130 had no material impact on
the Company.

     In September 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS No. 131), which became effective
for the Company on January 1, 1998.  SFAS No. 131 establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires 

                                       9

<PAGE>

that those enterprises report selected information about operating segments 
in interim reports issued to stockholders. The adoption of SFAS No. 131 had 
no material impact on the Company.

     In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS No. 132) which became
effective for the Company January 1, 1998.  SFAS No. 132 revises and
standardizes, to the extent practicable, employers' disclosures about pension
and other postretirement benefits, requiring additional information on changes
in benefit obligations and changes in fair value of investments to facilitate in
financial analysis.  The adoption of SFAS No. 132 had no material impact on the
Company.

SEASONALITY

     Historically, the Company has experienced higher revenue in the first two
quarters of the year than in the latter half of the year.  The Company believes
that this results from seasonal buying patterns resulting, in part, from an
increased demand for certain automotive parts and accessories and its ultimate
customers having added liquidity from income tax refunds during the first half
of the year.

INFLATION

     Increases in inflation generally result in higher interest rates.  Higher
interest rates on the Company's borrowings would decrease the profitability of
the Company.  To date, general price inflation has not had a significant impact
on the Company's operations; however, increases in metal prices have from time
to time, and could in the future, adversely affect the Company's gross profit.

TECHNOLOGY AND YEAR 2000

     The Company recognizes the potential business impacts related to the Year
2000 computer system issue and is implementing a plan to assess and improve the
Company's state of readiness with respect to such issues.  The Year 2000 issue
is one where computer systems may recognize the designation "00" as 1900 when it
means 2000, resulting in system failure or miscalculations.

     The Company has initiated a comprehensive review of its core information
technology systems, which the Company is dependent upon for the conduct of day
to day business operations, in order to determine the adequacy of those systems
in light of future business requirements.  Year 2000 readiness was one of a
variety of factors to be considered in the review of core systems.

     In recognition of the Year 2000 issue, the Company has started a
comprehensive review of all information technology and non-information
technology systems used by the Company .  Such review includes testing and
analysis of Company products and inquiries of third parties supplying
information technology and non-information technology systems, computer hardware
and software products and components, and other equipment to the Company.

     As a result of its review to date, the Company has determined that certain
of its internal software systems are inadequate for the Company's future
business needs, and need to be replaced, because of various considerations,
including Year 2000 non-compliance.  In certain cases the timing of replacement
systems or system modifications is being accelerated because of the Year 2000
issue, although the Company believes replacement would have been necessary in
the near future regardless of such issues.  The Company expects to make
necessary modifications or changes to its computer information systems, related
to Year 2000 non-compliance,  prior to the Year 2000. Other modifications or
changes identified through this review process that are not critical to the Year
2000 issue will be undertaken in an orderly manner so as to not disrupt the
Company's on-going operations. These changes or modifications may not be started
or completed by the Year 2000. The costs for replacement of systems will be
capitalized as assets and subsequently amortized over the estimated life of the
assets. Modifications of the current systems will be expensed as incurred.  The
Company believes the costs of replacement or modification to the current
information technology systems will not have a material affect on its financial
position or results of operations.

     At this time, the Company has not developed Year 2000 contingency plans,
other than the review and remedial actions described above, and does not intend
to do so unless the Company believes such plans are merited by the results of
its continuing Year 2000 review.

     If the Company or the third parties with which it has relationships were to
cease or not successfully complete its or their Year 2000 remediation efforts,
the Company could encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations.  The Company could be materially and adversely impacted by
widespread economic or financial market disruption or by Year 2000 computer
system failures at third parties with which it has relationships.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

     The Company's future operating results and financial condition are
dependent upon, among other things, the Company's ability to implement its
business strategy.  Potential risks and uncertainties that could affect the
Company's profitability are set forth below.

RISK ASSOCIATED WITH BANKRUPTCY OF PRINCIPAL CUSTOMER

     On September 19, 1997, Super Shops, Inc., formerly the Company's principal
customer, filed for reorganization under Chapter 11 of the Federal Bankruptcy
Code in the United States Bankruptcy Court, Central District of California.  On
September 30, 1998, the account receivable owed to the Company by Super Shops
totaled $3,523,028, all of which has been reserved.  The Company will continue
to review various alternatives with respect to this matter.  Since the date of
filing for reorganization, Super Shops has ceased operations and has begun a
liquidation plan.  As an unsecured creditor, there is no assurance that the
Company will recover any of the account receivable from Super Shops.
Furthermore, if the Company should be able to recover a portion of the account
receivable, the timing and amount of such recovery is uncertain.  Accordingly,
the Company has established an allowance for bad debt that includes the entire
$3,523,028 account receivable from Super Shops.  As a result of Super Shops
ceasing operations, the Company also has lost its largest customer, which
resulted in decreased revenues during the first nine months of 1998.  It is
uncertain whether other current or new customers can make up for the lost
revenues generated by Super Shops.  Failure to resolve this matter
satisfactorily could have a material adverse effect on the Company's results of
operations and financial conditions.

HISTORY OF PREVIOUS LOSSES

     The Company was incorporated in December 1992 and has incurred significant
losses in each of its completed fiscal years.  For the nine months ended
September 30, 1998, the Company incurred a net loss of 

                                       10

<PAGE>

$2,276,337. There can be no assurance that the Company will be profitable in 
the future. Net sales for the nine months ended September 30, 1998 declined 
to $9,709,999 from $13,770,728 for the same period in 1997.  As of September 
30, 1998, the Company had an accumulated deficit of $14,654,571 and  a total 
stockholders' deficit of $461,292.

LISTING AND MAINTENANCE CRITERIA FOR SECURITIES; PENNY STOCK RULES

     The Common Stock and Warrants are listed on Boston Stock Exchange, but 
were delisted from the Nasdaq SmallCap Market on October 14, 1998, for 
failing to maintain minimum listing requirements. Specifically, the Company 
was unable to maintain minimum net tangible assets of at least $2,000,000. As 
of September 30, 1998, the Company's net tangible deficit was $461,292. To 
maintain listing on the Boston Stock Exchange, the Company must maintain net 
tangible assets of at least $500,000. Because the Company does not anticipate 
that it will be able to maintain net tangible assets of at least $500,000 in 
the future, it is likely that the Boston Stock Exchange will take steps to 
delist the Common Stock and Warrants from that exchange.  If the Common Stock 
or the Warrants fail to maintain from such listings, the market value of the 
Common Stock and Warrants likely would decline and holders likely would 
continue to find it more difficult to dispose of, or to obtain accurate 
quotations as to the market value of the Common Stock and Warrants.  In 
addition, if the Company fails to achieve and maintain a Nasdaq SmallCap 
Market listing or Boston Stock Exchange listing for its securities, and no 
other exclusion from the definition of a  "penny stock" under the Securities 
Exchange Act of 1934, as amended (the  "Exchange Act") is available, then any 
broker engaging in a transaction in the Company's securities would be 
required to provide any customer with a risk disclosure document, disclosure 
of market quotations, if any, disclosure of the compensation of the 
broker-dealer and its salesperson in the transaction, and  monthly account 
statements showing the market values of the Company's securities  held in the 
customer's accounts.  The bid and offer quotation and compensation 
information must be provided prior to effecting the transaction and must be 
contained on the customer's confirmation.  If brokers become subject to the  
"penny stock" rules when engaging in transactions in the Company's 
securities, they would become less willing to engage in such transactions, 
thereby making it more difficult for the Company's security holders to 
dispose of Common Stock and Warrants.

DEPENDENCE ON EXTERNAL FINANCING

     On April 20, 1998, the Company executed the NCFC Credit Facility, a 
portion of the proceeds of which were used to pay off the Company's previous 
credit facility with Norwest Business Credit, Inc., which expired on April 
15, 1998. The terms of this new credit facility provide for a maximum 
combined term loan and revolving loan totaling $8.5 million at an interest 
rate of 1.25% above the prime rate.  As of September 30, 1998, the 
outstanding amount owed by the Company under the NCFC Credit Facility was 
$6,391,897. The NCFC Credit Facility is secured by substantially all of the 
Company's assets and has a term of four years.  The NCFC Credit Facility also 
is secured by certain investment property with a value of approximately 
$800,000 that was pledged to NCFC by three private investors.  In exchange 
for that pledge, the Company agreed to grant warrants to purchase 7,000 
shares of Common Stock on an annual basis as long as the pledge remains 
outstanding, which warrants are exercisable at a price equal to the price of 
the Company's Common Stock on the date of grant.  Although the Company 
believes that the amount available under the NCFC Credit Facility together 
with cash from operations will be sufficient to fund the Company's working 
capital requirements into 1999, there can be no assurance that the Company's 
cash flow from operations, together with amounts currently available under 
the NCFC Credit Facility, will be sufficient to implement fully its business 
strategies especially in the event that the Company is required to refinance 
or replace the NCFC Credit Facility.  As of September 30, 1998, the Company 
had $103,000 of excess availability under the NCFC Credit Facility. As a 
result, the Company may be required to raise additional funds through equity 
or debt financings.  No assurance can be given that such additional financing 
will be available on terms acceptable to the Company, if at all.

                                       11

<PAGE>

DEPENDENCE ON KEY DISTRIBUTORS; IMPLEMENTATION OF NEW DISTRIBUTION CHANNELS

     A limited number of customers have accounted for a substantial portion of
the Company's revenue in each year.  The financial condition and success of its
current customers and the Company's ability to obtain orders from new customers
are critical to the Company's success.  The Company's top ten customers
accounted for approximately 53.4% of the Company's gross sales for the first
nine months of 1998.  The top three customers accounted for 20.7% of gross
sales.  For the nine months ended September 30, 1998, J. H. Heafner Company,
Inc. accounted for 9.7% of gross sales, Keystone Automotive accounted for 5.5%
of gross sales and PDK, Inc. also accounted for 5.5% of gross sales.  For the
year ended December 31, 1997, the Company's ten largest customers accounted for
a total of approximately 66.3% of gross sales, with Super Shops, Inc. accounting
for 27.5%, J. H. Heafner Company, Inc. 9.6%, and Keystone Automotive 6.2%.

     The Company's former primary customer, Super Shops, Inc., filed for Chapter
11 bankruptcy protection on September 19, 1997 in the United States Bankruptcy
Court, Central District of California.  Super Shops subsequently ceased
operations and has commenced a liquidation plan.  The Company does not have any
long-term contractual relationships with any of its major customers.  While the
Company's business strategy calls for it to expand its product distribution
capabilities to additional markets and to broaden its customer base so that it
can become less dependent on significant customers, any loss, material
reduction, or delay of orders by any of the Company's major customers, including
reductions as a result of market, economic, or competitive pressures in the
automotive aftermarket industry, could adversely affect the Company.

HIGHLY COMPETITIVE INDUSTRY

     The market for the Company's products is highly competitive.  The Company
competes primarily on the basis of product selection (which includes style and
vehicle fit), timely availability of product for delivery, quality, design
innovation, price, payment terms, and service.  Many of the Company's
competitors have substantially greater financial, personnel, marketing, and
other resources than the Company.  Increased competition could result in price
reductions (which may be in the form of rebates or allowances), reduced margins,
and loss of market share, all of which could have a material adverse effect on
the Company.

GENERAL ECONOMIC FACTORS

     The Company's business is directly impacted by certain external factors,
such as the general demand for aftermarket automotive parts, prices for raw
materials used in producing the Company's products, fluctuations in
discretionary consumer spending, and general economic conditions, including
employment levels, business conditions, interest rates, and tax rates.  While
the Company believes that current economic conditions favor stability in the
markets it serves, various factors, including those listed above, could lead to
decreased sales and increased operating expenses. There can be no assurance that
various factors will not adversely affect the Company's business in the future
or prevent the Company from successfully implementing its business strategies.


                                       12

<PAGE>


DEPENDENCE ON THIRD PARTY SUPPLIERS

     The Company's business depends upon the assembly of component parts and the
shipment of finished wheels and wheel accessories from third-party suppliers.
From time to time, the Company has experienced delays in the delivery of
component parts and finished products from vendors.  During the third quarter
ended September 30, 1998, the Company experienced difficulty in receiving
acceptable chrome plating of centers for its S/S style wheels. The Company now
believes it has solved THIS problem. In addition, one of the Company's
significant suppliers is located in China, which from time to time has been
subject to numerous trading restrictions by the United States.  The Company also
has suppliers in Brazil and Taiwan.  The purchase of materials from foreign
suppliers may be adversely affected by political and economic conditions abroad
over which the Company has no control.  Although to date the Company has
generally been able to acquire adequate supplies of such components and finished
product in a timely manner, any extended interruption in supply, significant
increase in price, or reduction in quality of such components could have a
material adverse effect on the Company's business, financial condition, and
results of operations.  The Company has begun to selectively outsource the
production of some of its products and may increase such outsourcing in the
future.  While the Company anticipates that such outsourcing programs will
stabilize costs and shift certain inventory, warranty, and other risks to its
suppliers, there can be no assurance that the continued or increased outsourcing
of its products will have these desired effects.

                                       13

<PAGE>

NO ASSURANCE OF SUCCESSFUL ACQUISITIONS

     On June 30, 1998, the Company engaged Trenwith Securities Inc. to assist
the Company in identifying, negotiating, closing and funding possible
acquisitions. On September 1, 1998, both parties mutually agreed to terminate
the engagement. The Company is considering acquisitions of and alliances with
other companies that could complement the Company's existing business, including
acquisitions of complementary product lines.  There can be no assurance that
suitable acquisition or joint venture candidates can be identified, or that, if
identified, adequate and acceptable financing sources will be available to the
Company that would enable it to consummate such transactions.  Furthermore, even
if the Company completes one or more acquisitions, there can be no assurance
that the Company will be able to integrate successfully the acquired companies
or product lines into its existing operations, which could increase the
Company's operating expenses in the short-term and materially and adversely
affect the Company's results of operations.  Moreover, any acquisition by the
Company may result in a potentially dilutive issuance of equity securities, the
incurrence of additional debt, and amortization of expenses related to goodwill
and intangible assets, all of which could adversely affect the Company's
profitability.  Acquisitions involve numerous risks, such as the diversion of
the attention of the Company's management from other business concerns, the
entrance of the Company into markets in which it has had no or only limited
experience, and the potential loss of key employees of the acquired company, all
of which could have a material adverse effect on the Company.

VARIABILITY IN OPERATING RESULTS; SEASONALITY

     The Company's results of operations have been and will continue to be
subject to substantial variations as a result of a number of factors, any of
which could have a material adverse effect on the Company.  In particular, the
Company's operating results can vary because of the size and timing of customer
orders, delays in new product enhancements and new product introductions, vendor
quality control and delivery difficulties, market acceptance of new products,
product returns, product rebates and allowances, seasonality in product
purchases by distributors and end users, and pricing trends in the automotive
aftermarket industry in general and in the specific markets in which the Company
participates.  Historically, the Company's net sales have been highest in the
first and second quarters of each year.  Significant variability in orders
during any period may have an adverse impact on the Company's cash flow or work
flow, and any significant decrease in orders could have a material adverse
effect on the Company's results of operations.  The Company believes that any
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.

CHANGING CUSTOMER TRENDS; NEED FOR PRODUCT DEVELOPMENT

     The Company's success depends, in part, on its ability to correctly and
consistently anticipate, gauge, and respond in a timely manner to changing
consumer preferences.  There can be no assurance that the Company's core
products will continue to enjoy acceptance among consumers or that any of the
Company's future product offerings will achieve or maintain market acceptance.
The Company attempts to minimize the risks relating to changing consumer trends
by offering a wide variety of product styles, analyzing consumer purchases,
maintaining active product development efforts, and monitoring the sales
performance of its various product lines.  However, any misjudgment by the
Company of the market for a particular product, or its failure to correctly
anticipate changing consumer preferences, could have a material adverse effect
on its business, financial condition, and results of operations.  In order to
enhance its product development efforts, the Company may supplement its existing
product development staff by hiring one or more new employees with product
development experience and by engaging an outside consultant to assist the
Company's product development staff.  There can be no assurance that the Company
will be able to attract and retain such additional personnel or that the costs
associated with additional product development efforts will not have an adverse
effect on the Company.

                                       14

<PAGE>

REGULATORY COMPLIANCE

     The Company is subject to various federal and state governmental
regulations related to occupational safety and health, labor, and wage practices
as well as federal, state, and local governmental regulations relating to the
storage, discharge, handling, emission, generation, manufacture, and disposal of
toxic or other hazardous substances used to produce the Company's products.  The
Company believes that it is currently in material compliance with such
regulations.  Failure to comply with current or future environmental regulations
could result in the imposition of substantial fines on the Company, suspension
of production, alteration of its production processes, cessation of operations,
or other actions which could have a material adverse effect on the Company.  In
the ordinary course of its business, the Company uses metals, oils, and similar
materials, which are stored on site.  The waste created by use of these
materials is transported off-site on a regular basis by a state-registered waste
hauler.  Although the Company is not aware of any material claim or
investigation with respect to these activities, there can be no assurance that
such a claim may not arise in the future or that the cost of complying with
governmental regulations in the future will not have a material adverse effect
on the Company.

RELIANCE ON INTELLECTUAL PROPERTY

     The Company owns the rights to certain trademarks and patents, relies on
trade secrets and proprietary information, technology, and know-how, and seeks
to protect this information through agreements with employees and vendors.
There can be no assurance that the Company's patents will preclude the Company's
competitors from designing competitive products, that proprietary information or
confidentiality agreements with employees and others will not be breached, that
the Company's patents will not be infringed, that the Company would have
adequate remedies for any breach or infringement, or that the Company's trade
secrets will not otherwise become known to or independently developed by
competitors.

RISKS ASSOCIATED WITH INTERNATIONAL SALES; CURRENCY FLUCTUATIONS

     In 1997 and 1996, the Company derived approximately 4.8% and 4.0%,
respectively, of total gross sales from international markets.  For the nine
months ended September 30, 1998, the Company derived approximately 4.0% of total
gross sales from international markets. The Company does not anticipate the
sales from international markets to increase significantly. The Company's
international sales efforts are subject to the customary risks of doing business
abroad, including exposure to regulatory requirements, political and economic
instability, barriers to trade, trade restrictions (including import quotas),
tariff regulations, foreign taxes, restrictions on transfer of funds, difficulty
in obtaining distribution and support, and export licensing requirements, any of
which could have a material adverse effect on the Company.  In addition, a
weakening in the value of foreign currencies relative to the U.S. dollar and
fluctuations in foreign currency exchange rates could have an adverse impact on
the price of the Company's products in its international markets.

CONTROL BY EXISTING STOCKHOLDERS

     The directors, officers, and principal stockholders of the Company
beneficially own approximately 23.3% (assuming conversion of all preferred
stock, and exercise of all warrants and options) of the Company's outstanding
Common Stock.  As a result, these persons have a significant influence on the
affairs and management of the Company, as well as on all matters requiring
stockholder approval, including electing and removing members of the Company's
Board of Directors, causing the Company to engage in transactions with
affiliated entities, causing or restricting the sale or merger of the Company,
and changing the Company's dividend policy.  Such concentration of ownership and
control could have the effect of delaying, deferring, or preventing a change in
control of the Company even when such a change of control would be in the best
interest of the Company's other stockholders.

                                       15

<PAGE>

EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK

     The Company's Amended and Restated Certificate of Incorporation authorizes
the Board of Directors of the Company to issue "blank check" preferred stock,
the relative rights, powers, preferences, limitations, and restrictions of which
may be fixed or altered from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting, or
other rights that could adversely affect the voting power and other rights of
the holders of Common Stock.  In the first quarter of 1998, for example, the
Company issued 22,500 shares of its Series A Preferred Stock for $2,250,000 in
additional capital, which, as the date of this report, could be converted into
approximately 701,800 shares of Common Stock at the option of the holders of the
Series A Preferred Stock.  Additional series of preferred stock could be issued,
under certain circumstances, as a method of discouraging, delaying, or
preventing a change in control of the Company that stockholders might consider
to be in the Company's best interests. There can be no assurance that the
Company will not issue additional shares of preferred stock in the future.

DEPENDENCE ON KEY PERSONNEL

   The Company's future success depends, in large part, on the efforts and
abilities of its management team, including Michael L.  Hartzmark, Ph.D., its
President and Chief Executive Officer.  The loss of the services of Dr.
Hartzmark could have a material adverse effect on the business of the Company.
While Dr. Hartzmark does not have an employment agreement with the Company, Dr.
Hartzmark and his family currently hold over 14% of the Company's Common Stock
(assuming exercise of all warrants and options).  The successful implementation
of the Company's business strategies depends on the hiring and retention of
additional management, engineering, marketing, product development, and other
personnel.  There can be no assurance that the Company will be able to identify
and attract additional qualified management and other personnel when needed or
that the Company will be successful in retaining such additional management and
personnel if added.  Moreover, there can be no assurance that the additional
costs associated with the hiring of additional personnel will not adversely
affect the Company's results of operations.  The Company does not maintain key
man life insurance on any of its personnel.

LIMITED LIABILITY OF DIRECTORS

     The Company's Certificate of Incorporation provides, with certain
exceptions, that the Company's directors will not be personally liable for
monetary damages for breach of the directors' fiduciary duty of care to the
Company or its stockholders.  This provision does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Delaware law.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.

NO CASH DIVIDENDS

     The Company has never paid cash or stock dividends on its Common Stock and
does not anticipate that it will pay cash dividends in the foreseeable future.
It is contemplated that any earnings will be used to finance the growth of the
Company's business.  The Company is required to pay dividends on its Series A
Preferred Stock; however, it anticipates those dividends will be paid in kind,
rather than in cash, with additional shares of Series A Preferred Stock.  In
addition, the Company's NCFC Credit Facility prohibits the payments of cash
dividends without the lender's consent.

                                       16

<PAGE>

                            PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

     The Company from time to time is involved in routine litigation incidental
to the conduct of its business.   In addition, the Company is involved with the
legal proceedings associated with the filing of Chapter 11 bankruptcy protection
of Super Shops, formerly the Company's primary customer. On September 19, 1997,
Super Shops filed for reorganization under Chapter 11 of the Federal Bankruptcy
Code in the United States Bankruptcy Court, Central District of California.  As
an unsecured creditor, there is no assurance that the Company will recover any
of the account receivable from Super Shops, which totals $3,523,028. Otherwise,
there are currently no material pending proceedings to which the Company is a
party or to which any of its property is subject.

      The Company currently maintains product liability insurance, with limits
of $1.0 million per occurrence and $2.0 million in the aggregate per annum.
However, such coverage is becoming increasingly expensive and difficult to
obtain.  There can be no assurance that the Company will be able to maintain
adequate product liability insurance at commercially reasonable rates or that
the Company's insurance will be adequate to cover future product liability
claims.  Any losses that the Company may suffer as a result of claims in excess
of the Company's coverage could have a material adverse effect on the Company.


ITEM 2.   DEFAULTS UPON SENIOR SECURITIES

     None. See ITEM 2. "Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources."


ITEM 3.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

<TABLE>
<CAPTION>

          Exhibit No.    Description
          -----------    ------------
          <S>            <C>
          11             SCHEDULE OF COMPUTATION OF LOSS PER SHARE
          27.1           1998 FINANCIAL DATA SCHEDULE
          27.2           1997 RESTATED FINANCIAL DATA SCHEDULE

          (b)            Reports on Form 8-K
                         Report on Form 8-K filed on October 19, 1998
</TABLE>

                                       17

<PAGE>

                                     SIGNATURES

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


                                   CRAGAR INDUSTRIES, INC.


Dated:  November 13, 1998     By: /s/ Michael L. Hartzmark
        -----------------         ------------------------
                                   Michael L. Hartzmark
                                   President and CEO

Dated:  November 13, 1998     By: /s/ Anthony Barrett
        -----------------         ------------------------
                                   Anthony Barrett
                                   Vice President of Sales Operations
                                   (Principal Financial and Accounting Officer)

                                       18