<PAGE>   1
                       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, 1997


[ ]      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) has 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
October 31, 1997: 2,482,865.

         Transitional small business disclosure format. Yes [ ] No [X]
<PAGE>   2
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             CRAGAR INDUSTRIES, INC.
                            CONDENSED BALANCE SHEETS
                    SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                 ASSETS                                 September 30,       December 31,
                                                                            1997                1996
                                                                        ------------        ------------
Current Assets:                                                         (Unaudited)
<S>                                                                     <C>                 <C>         
     Cash and cash equivalents                                          $     82,390        $    863,049
     Accounts receivable, less allowance for doubtful accounts of
      $3,300,556 as of 9/30/97 and $28,475 as of 12/31/96                  2,609,712           3,562,358
     Inventories, net                                                      5,834,828           6,302,612
     Prepaid expenses                                                        299,091              38,498
                                                                        ------------        ------------
             Total current assets                                          8,826,022          10,766,517
                                                                        ------------        ------------
Property and equipment, net                                                1,185,114             825,505
Other assets, net                                                             74,080             163,122
                                                                        ------------        ------------
                                                                        $ 10,085,216        $ 11,755,144
                                                                        ============        ============
                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                   $  1,915,920        $  2,509,473
     Accrued expenses                                                      1,768,762           1,439,627
     Accrued interest                                                         77,357             123,352
     Current Note Payable                                                  5,752,171                  --
     Current installments of capital lease obligations                       124,062              69,219
     Current installments of long-term debt                                    5,859               7,999
                                                                        ------------        ------------
             Total current liabilities                                     9,644,132           4,149,670

Note Payable                                                                      --           2,957,392
Capital lease obligations, less current installments                           2,497             108,123
Long-term debt, less current installments                                         --               3,736
Excess of fair value of assets acquired over cost                            184,367             737,468
                                                                        ------------        ------------
             Total liabilities                                             9,830,996           7,956,389
                                                                        ------------        ------------
Stockholders' equity:
     Preferred stock, par value $.01; authorized 200,000 shares,
     no shares issued or outstanding                                              --                  --
     Common stock, par value $.01; authorized 5,000,000 shares,
     2,365,965 shares issued and outstanding                                  23,660              22,103
     Additional paid-in capital                                           11,751,291          11,335,141
     Accumulated deficit                                                 (11,520,731)         (7,558,489)
                                                                        ------------        ------------
             Total stockholders' equity                                      254,220           3,798,755
                                                                        $ 10,085,216        $ 11,755,144
                                                                        ============        ============
</TABLE>

*See accompanying Notes to Condensed Financial Statements.


                                       2
<PAGE>   3
                             CRAGAR INDUSTRIES, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
             THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                      NINE MONTHS ENDED
                                                               SEPTEMBER 30                            SEPTEMBER 30
                                                        1997                 1996                1997                1996
                                                     ------------        ------------        ------------        ------------
<S>                                                  <C>                 <C>                 <C>                 <C>         
Net sales                                            $  2,850,898        $  3,528,391        $ 13,770,728        $ 16,056,074
Cost of goods sold
                                                        2,716,798           3,377,216          11,616,449          13,974,038
                                                     ------------        ------------        ------------        ------------
Gross profit                                              134,100             151,175           2,154,279           2,082,036
Selling, general & administrative                       4,359,261             595,249           6,170,964           1,962,508
Amortization of excess of fair value of assets           (184,367)           (184,367)           (553,101)           (553,101)
                                                     ------------        ------------        ------------        ------------
     Income (Loss) from operations                     (4,040,794)           (259,707)         (3,483,584)            672,629
Non-operating expenses
   Interest expense, net                                  174,516             230,259             406,681             737,085
   Other, net                                              29,255              91,978             (69,656)           (155,026)
                                                     ------------        ------------        ------------        ------------
     Total non-operating expenses                         203,771             160,603             498,659             582,059
     Income (Loss) before income taxes                 (4,244,565)           (420,310)         (3,962,243)             90,570
Income taxes
                                                               --             (27,827)                 --               3,344
                                                     ------------        ------------        ------------        ------------
    Income (Loss) before extraordinary item            (4,244,565)           (392,483)         (3,962,243)             87,226
Extraordinary item:
    Gain on forgiveness of debt                                --             330,489                  --             330,489
                                                     ------------        ------------        ------------        ------------
     Net Income (Loss)                               $ (4,244,565)       $    (61,994)       $ (3,962,243)       $    417,715
                                                     ============        ============        ============        ============
(Loss) per common equivalent share before            $      (1.82)       $      (0.27)       $      (1.73)       $       0.06
extraordinary item
                                                     ============        ============        ============        ============
Earnings (Loss) per common                           $      (1.82)       $      (0.04)       $      (1.73)       $       0.28
equivalent share
                                                     ============        ============        ============        ============
Shares used in computation                              2,327,001           1,469,848           2,296,707           1,469,848
                                                     ============        ============        ============        ============
</TABLE>

*See Accompanying Notes to Condensed Financial Statements


                                       3
<PAGE>   4
                             CRAGAR INDUSTRIES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                  NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                      Nine Months Ended
                                                                                        September 30,
                                                                                ------------------------------
                                                                                   1997               1996
                                                                                -----------        -----------
<S>                                                                             <C>                <C>        
Cash flows from operating activities:
     Net earnings (loss)                                                        $(3,962,243)       $   417,715
     Adjustments to reconcile net earnings (loss) to net cash provided by
     (used in) operating activities:
         Write off of accounts receivable                                            13,966           (104,763)
         Provision for uncollectable accounts receivable                          3,534,444                 --
         Provision for obsolete and slow-moving inventory                          (294,214)          (434,848)
         Depreciation and amortization of property and equipment                    218,036            223,059
         Amortization of other assets                                               104,041             95,337
         Amortization of excess fair value of assets acquired over cost            (553,101)          (553,101)
         Increase (decrease) in cash resulting from changes in:
             Accounts receivable                                                 (2,595,765)           748,468
             Inventories                                                            761,998            920,523
             Prepaid expenses                                                      (260,593)           (79,460)
             Other assets                                                           (15,000)              (500)
             Accounts payable and accrued expenses                                 (264,417)           401,736
             Accrued interest                                                       (45,995)           138,290
                                                                                -----------        -----------
                 Net cash provided by (used in) operating activities             (3,358,843)         1,772,456
                                                                                -----------        -----------
Cash flows from investing activities:
     Purchases of property and equipment                                           (577,644)           (54,125)
                                                                                -----------        -----------
                 Net cash used in investing activities                             (577,644)           (54,125)
                                                                                -----------        -----------
Cash flows from financing activities:
     Net borrowings (repayments) on note payable                                  2,794,778         (2,048,593)
     Proceeds from issuance of long term debt                                            --           (372,103)
     Repayments of long-term debt                                                    (5,877)                --
     Repayments of capital lease obligations                                        (50,781)           (45,779)
     Issuance of Warrants                                                           417,706              3,938
                                                                                -----------        -----------
                 Net cash provided by (used in) financing activities              3,155,826          1,718,331
                                                                                -----------        -----------
                 Net decrease in cash and cash equivalents                         (780,661)                 0
Cash and cash equivalents at beginning of period                                    863,049                  0
                                                                                -----------        -----------
Cash and cash equivalents at end of period                                      $    82,390        $         0
                                                                                ===========        ===========
Supplemental disclosure of cash flow information:
     Cash paid for interest                                                     $   392,676        $   785,548
</TABLE>

* See accompanying Notes to Condensed Financial Statements


                                       4
<PAGE>   5
                             CRAGAR INDUSTRIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                      NINE MONTHS ENDED SEPTEMBER 30, 1997
                                   (Unaudited)

1.       Summary of Significant Accounting Policies
         Basis of Presentation:

         The interim financial data as of and for the nine months ended
         September 30, 1997, and 1996 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.

2.       Inventories
         Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                   September 30, 1997
                                                                      (Unaudited)
                                                                   ------------------
<S>                                                                <C>       
Raw Materials                                                         $3,311,152
Work in Process                                                          303,054
Finished Goods                                                         2,748,662
                                                                      ----------
                                                                       6,362,868
                                                                      ----------
Less allowance for obsolete and slow-moving inventory                    528,040
                                                                      ----------
Inventories, net                                                      $5,834,828
                                                                      ==========
</TABLE>

3.       Earnings (loss) per Common Equivalent Share

         Earnings (loss) per common equivalent share is based on the reported
         net earnings (loss). The resulting amount is presented as earnings
         applicable to common stockholders.

         Such net earnings (loss) applicable to common stockholders in each
         period is divided by the weighted average number of outstanding common
         shares and common equivalent shares.

4.       Stock Adjustments, Rebates, Cash Discounts, Advertising Allowances and
         Warranty Reserves

<TABLE>
<CAPTION>
                                                   Unaudited            Unaudited
                                               September 30, 1997   September 30, 1996
                                               ------------------   ------------------
<S>                                            <C>                  <C>     
Stock Adjustments                                  $200,557             $116,506
Rebates Reserve                                     296,142              320,552
Cash Discounts                                       85,275               35,749
Advertising Allowance                                84,251              109,838
Warranty Reserve                                    625,805              195,000
</TABLE>


                                       5
<PAGE>   6
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 and Exchange Commission or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). 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

         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. CRAGAR 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 is being amortized to income over five years using the
straight-line method ($737,468 per annum through December 31, 1997).


                                       6
<PAGE>   7
RESULTS OF OPERATIONS

         The following table sets forth various items as a percentage of net
sales revenue for the three and nine month periods ended September 30, 1997 and
September 30, 1996.

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED 9/30      NINE MONTHS ENDED 9/30
                                         1997          1996          1997          1996
                                        -----         -----         -----         -----
<S>                                    <C>           <C>           <C>           <C>   
Net sales                               100.0%        100.0%        100.0%        100.0%
Cost of goods sold                       95.3          95.7          84.4          87.0
                                        -----         -----         -----         -----
Gross profit                              4.7           4.3          15.6          13.0
SG&A                                    152.9          16.9          44.8          12.2
Amortization of negative goodwill        (6.5)         (5.2)         (4.0)         (3.4)
                                        -----         -----         -----         -----
Income (Loss) from operations           (141.7)        (7.4)        (25.2)          4.2
Non-operating expense                     7.1           4.6           3.6           3.6
Income tax                                 --          (0.8)           --            --
Extraordinary item                         --          (9.4)           --          (3.8)
                                        -----         -----         -----         -----
Income (Loss) before income taxes       (148.7)       (11.9)        (28.8)          0.6
</TABLE>

COMPARISON OF QUARTER ENDED SEPTEMBER 30, 1997 AND QUARTER ENDED SEPTEMBER 30,
1996

         Net sales consist of gross sales less discounts, returns, and
allowances. Net sales for the quarter ended September 30, 1997 were $2,850,898
compared to $3,528,391 in 1996, representing a 19.2% decrease in sales. The
decrease in net sales was primarily attributable to the lack of shipments to the
Company's primary customer, Super Shops, Inc. ("Super Shops"), which was past
due on its account and subsequently filed for bankruptcy on September 19, 1997.
Discounts, returns and allowances increased by 6.0% between the quarter ended
September 30, 1997 and the quarter ended September 30, 1996. The increase in
discounts, returns and allowances was attributable to higher accruals and lower
sales levels for the period ended September 30, 1997. 

         Gross profit is determined by subtracting cost of goods sold from net
sales. Co st 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, 1997
was $134,100 versus $151,175 for the quarter ended September 30, 1996. As a
percentage of net sales, gross profit increased in the third quarter of 1997
compared to the third quarter of 1996, from 4.3% to 4.7%. The increase in gross
profit as a percentage of sales reflected the continued focus on decreasing
manufacturing costs, a change in the established product mix, and higher margins
on new product introductions. The Company expects its gross profits and overall
results of operations will 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. These expenses for the third
quarter ended September 30, 1997 were $4,359,261 compared to $595,249 for the
quarter ended September 30, 1996. The significant increase was primarily due to
the allowance of $3,258,115 established for bad debt related to the accounts
receivable from the Company's primary customer, Super Shops. This allowance was
taken because Super Shops filed for Chapter 11 bankruptcy protection on
September 19, 1997 in the United States Bankruptcy Court, Central District of
California. The Company's Chief Operating Officer is the Chairman of the
Creditors' Committee and is vigorously attempting to retrieve all funds due the
Company. While the Company anticipates that future shipments of products to
Super Shops will be made only under strict credit terms, the amount and the
timing of the recovery of the outstanding receivable from Super Shops, if any,
is uncertain. The Company also has decided to retain a credit liability
reserve of $266,100 associated with


                                       7
<PAGE>   8
amounts that were due to Super Shops prior to the filing of the Chapter 11
bankruptcy protection. Under the agreements with Super Shops these credits are
no longer due. However, the Company anticipates that it may have a number of
expenses associated with the Chapter 11 filing by Super Shops. The primary
expenses include bank fees associated with the impact of the reduction in the
receivable borrowing base and legal fees. In addition, the Company is allowing
for possible inventory impacts associated with product built for Super Shops,
material in process used for product built for Super Shops, or possible returned
product from Super Shops in lieu of payment of the outstanding receivable.
Excluding the allowance for bad debt, SG&A was $1,101,146 for the third quarter
ended September 30, 1997. This increase of 85% compared to the quarter ended
September 30, 1996 was due in part to the Company's focus on promoting its new
products through increases in marketing expenses and related travel expenses.
Promotional expenses for the Company's racing wheel market segment accounts for
8.6% of the period to period change.

         Interest and other (income) expenses, net, for the third quarter of
1997 were $203,771 compared to $247,385 for the third quarter of 1996. The
decrease of $43,614 is primarily attributable to the Company's reduction in the
amount outstanding under its credit facility with Norwest Business Credit and
the elimination of other long term debt. See "Management's Discussion and
Analysis or Plan of Operation -- Liquidity and Capital Resources."

         Because of its carry-forward losses from previous years, the Company
had no income tax provision in the third quarter of 1997.

         Loss for the third quarter ended September 30, 1997 was $4,244,565
compared to loss of $61,994 for the third quarter ended September 30, 1996, an
increase in losses of $4,182,571. Without the bad debt allowance for the Super
Shops bankruptcy, loss for the third quarter of 1997 was $986,450. Loss per
share for the third quarter ended September 30, 1997 were $1.82 compared to
$0.04 for the third quarter ended September 30, 1996.

EXERCISE OF WARRANTS

         During the third quarter ended September 30, 1997, warrants to purchase
155,660 shares of Common Stock were exercised. As a result of the exercise of
these warrants, the Company added $417,706 of paid in capital.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996

         Net sales decreased 14.2% from $16,056,074 to $13,770,728 for the nine
month periods ended September 30, 1996 and September 30, 1997, respectively. The
decrease was primarily due to the Company's decision to withdraw from a low
margin relationship with a customer, the reduction of sales of wire wheels, and
the lack of shipments to Super Shops, the Company's primary customer, which was
past due on its account.

         Gross profit as a percentage of net sales improved from 13.0% to 15.6%
for the nine month periods ended September 30, 1996 and September 30, 1997,
respectively. Product mix changes and the introduction of several new wheel
styles at higher margins contributed to the gross margin improvement. Cost
reduction efforts positively affected gross profit in the second and third
quarters of 1997 as programs started to be fully implemented.

         SG&A expenses for the nine months ended September 30, 1997 increased
214.4% to $6,170,555 from $1,962,508 over the comparable nine months ended
September 30, 1996. The significant increase was primarily due to the allowance
taken of $3,258,115 for bad debt related to the past due receivable from the
Company's primary customer. This allowance was taken because Super Shops filed
for Chapter 11 bankruptcy


                                       8
<PAGE>   9
protection as described above. Excluding the allowance, SG&A was $2,912,849 for
the nine months ended September 30, 1997 which represents an increase of 48.4%
over the comparable nine month period ended September 30, 1996. This increase
was due in part to the Company's focus on promoting its new products through
increases in marketing expenses and related travel expenses. Promotional
expenses for the Company's racing wheel market segment accounts for 30% of the
period to period change. Costs associated with public company responsibilities
including reporting requirements and investor relations account for another 10%
of the increase in SG&A.

         Interest expense was reduced by $330,404 or by 44.8% as the Company
reduced the outstanding loan amounts by $2.0 million on average for the nine
months ended September 30, 1997 as compared to the same period for 1996.

         Net loss for the nine months ended September 30, 1997 were $3,962,243
compared to net income of $417,715 for the same period of 1996, an increase in
losses of $4,379,958. Losses per share for the nine months ended September 30,
1997 were $1.73 as compared to earnings per share of $0.28 for the period ended
September 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

         In April 1995, the Company entered into a revolving credit facility
("Credit Facility") with Norwest Business Credit, Inc. ("Norwest"). The Credit
Facility currently has a maximum commitment of $9,500,000, subject to certain
restrictions with respect to the collateral borrowing base. The Credit Facility
expires April 15, 1998 and is secured by the Company's accounts receivable,
inventories, intangible assets, and property and equipment. Interest is due
monthly at the prime rate plus 2.25%.

         As a result of Super Shops filing for Chapter 11 bankruptcy protection,
the Company is not permitted use the outstanding account receivable from Super
Shops of approximately $3,527,994 in determining the amount the Company is able
to borrow. As of September 30, 1997, the outstanding balance under the Credit
Facility was approximately $5,752,171, an amount that exceeded the Company's
borrowing base allowed thereunder by $846,524. The Company has entered into an
Amendment to its Security and Credit Agreement with Norwest which allows the
over advance subject to a pay down obligation requiring the Company to reduce
the over advance amount outstanding under the Credit Facility to zero by January
7, 1998. There is no guarantee that the Company will be able to meet this
requirement as of January 7, 1998. Furthermore, the revolving credit facility
requires the maintenance of certain specified financial ratios, as well as other
non-financial requirements. With the filing of reorganization by Super Shops,
the Company is no longer in compliance with these requirements. The Company
intends to seek waivers or amendments to its revolving credit facility to bring
it into compliance. Failure to obtain such waivers or amendments could have a
material adverse effect on the Company.

         The Credit Facility requires the maintenance of certain specified
financial ratios and satisfaction of other financial tests. As of September 30,
1997, the Company was in default of the debt service coverage ratio covenant of
the Credit Facility. The Company expects to receive a waiver with respect to
this default. There can be no assurance that the Company will be able to satisfy
the financial ratios and other tests under the Credit Facility for future
periods. Failure to satisfy such requirements could have a material adverse
effect on the Company.

         Working capital as of September 30, 1997 was $4,934,061 down from
$6,616,847 at December 31, 1996. The Company historically has financed its
activities primarily from cash flows from operations, credit arrangements with
financial institutions, operating leases for equipment, and loans and equity
infusions from its principal stockholders and investors. With the recent
bankruptcy of Super Shops, previously described,


                                       9
<PAGE>   10
management is uncertain whether the anticipated cash flow from operations will
be sufficient to meet the Company's anticipated operating and capital needs.
Therefore, the Company also is negotiating with other lenders and financial
institutions to secure working capital. There can be no assurance that the
Company's cash flow will be sufficient to finance its operations as currently
planned or that it will be able to supplement its cash flow with additional
financing. No assurance can be given of the Company's ability to obtain such
financing on favorable terms, if at all. If the Company is unable to obtain
additional financing, its ability to meet its current and future revenue growth
plans could be materially and adversely affected.

         At September 30, 1997, the Company had an accumulated deficit of
$11,520,731.

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.

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, the Company's principal customer, Super Shops, Inc.,
("Super Shops") filed for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court, Central District of
California. At September 30, 1997, the accounts receivable owed to the Company
by Super Shops totaled $3,527,994. The Company will continue to review various
alternatives with respect to this matter. The Company's Chief Operating Officer
is the Chairman of the Creditors' Committee and is vigorously attempting to
retrieve all funds due the Company. However, the amount and the timing of the
recovery of the outstanding receivable is uncertain. Failure to resolve this
matter satisfactorily could have a material adverse effect on the Company.

While the Company anticipates that future shipments of product to Super Shops
will be made under strict credit terms, it is not clear whether the future
business opportunities will be comparable to the previous level of business with
Super Shops. This reduction in sales opportunities could have a material adverse
effect on the level of future sales of the Company.

The Company also has decided to retain a credit liability reserve of $266,100
associated with amounts that were due to Super Shops prior to the filing of the
Chapter 11 bankruptcy protection. Under the agreements with Super Shops these
credits are no longer due. However, the Company anticipates that it may have a
number of expenses associated with the Chapter 11 filing of Super Shops. The
primary expenses include bank fees associated with the impact of the reduction
in the receivable borrowing base and legal fees. In addition, the Company is
allowing for possible inventory impacts associated with product built for Super
Shops, material in process used for product built for Super Shops, or possible
returned product from Super Shops to the Company in lieu of payment of the
outstanding receivable. Although management believes the amount of this reserve
is sufficient to cover future liabilities, unpredictable expenses could exceed
this amount.



                                       10
<PAGE>   11
Covenant Defaults; Dependence on External Financing

The Norwest Credit Facility, which extends through April 15, 1998, has a maximum
commitment of $9,500,000, and is subject to collateral availability at the time
of borrowing, financial covenants, and other conditions. The Credit Facility
requires the maintenance of specified cumulative net earnings, net worth, and
debt service covenants. As a result of Super Shops filing for Chapter 11
bankruptcy protection, the Company is reviewing its revolving credit facility
with Norwest Business Credit, Inc. ("NBCI") in light of this situation. The
filing of reorganization by Super Shops rendered its accounts receivable
ineligible under the revolving credit facility with NBCI, making the Company
over advanced as of September 30, 1997 under the Credit Facility thereunder by
$846,524. There is no guarantee that the Company will be able to reduce this
over advance. Furthermore, the revolving credit facility requires the
maintenance of certain specified financial ratios, including the debt service
ratio, the net worth requirement, and the net income covenants. With the filing
of reorganization by Super Shops, the Company is no longer in compliance with
these requirements. The Company intends to seek waivers or amendments to its
revolving credit facility to bring it into compliance. Failure to obtain such
waivers or amendments could have a material adverse effect on the Company. The
Company has entered into the Fourth Amendment to the Security and Credit
Agreement, which authorizes the over advance and requires the Company to reduce
the overadvance to be reduced to zero by January 7, 1998. There can be no
assurance that the Company will be able to satisfy the terms and conditions of
the Credit Facility in the future or that the Credit Facility will be extended
beyond its current expiration date.

In addition, there can be no assurance that the cash flow from operations will
be sufficient to fund the Company's existing operations or to enable the Company
to implement fully its business strategies, especially in the event that the
Company is required to refinance or replace the Credit Facility. As a result,
the Company may need to raise additional funds through equity or debt financing.
No assurance can be given that such additional financing will be available on
terms acceptable to the Company, if at all. Further, any such financing may
result in further dilution to the Company's stock and higher interest expense
and may not be on terms that are favorable to the Company.

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 year ended December 31,
1996, the Company incurred a net loss of $1,128,844. Net losses for this period
were reduced by $737,469 in income from the amortization of negative goodwill
related to the Company's initial acquisition of the Cragar assets, a $330,489
extraordinary gain related to the forgiveness of certain of the Company's debt,
and a one-time gain of approximately $287,000 related to the sale of polishing
assets that the Company had operated in Mexico as well as other equipment. There
can be no assurance that the Company will be profitable in the future. Net sales
for the year ended December 31, 1996 declined to $18,625,497 from $22,935,773
for 1995. Net sales for the nine months ended September 30, 1997 declined to
$13,770,728 from $16,056,074 for the same period in 1996. Net losses for the
nine months ended September 30, 1997 amounted to $3,962,243 as compared to net
earnings of $417,715 for the same period in 1996. As of September 30, 1997, the
Company had cumulative losses of $11,520,731 and total stockholders' equity of
$254,220.

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 growth in the markets it serves, various
factors, including those listed above, could lead to decreased sales and


                                       11
<PAGE>   12
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.

No Assurance of Successful Acquisitions

The Company intends to consider 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, there
can be no assurance that the Company will be able to integrate successfully such
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 plans to 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


                                       12
<PAGE>   13
additional personnel or that the costs associated with additional product
development efforts will not have an adverse effect on the Company'.

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 68.3% of the Company's gross sales for the first nine months
of 1997. The top three customers accounted for 46.3% of gross sales. For the
nine months ended September 30, 1997, Super Shops accounted for 31.1% of gross
sales, J. H. Heafner Company, Inc. accounted for 9.5% of gross sales and
Reliable Automotive Company, Inc. accounted for 5.7% of gross sales. For the
year ended December 31, 1996, the Company's ten largest customers accounted for
a total of approximately 75.7% of gross sales, with Super Shops accounting for
24.3%, J. H. Heafner Company, Inc. 12.1%, and B & R Wholesale Tire 8.4%. In
1995, the Company's ten largest customers accounted for a total of approximately
70.4% of its gross sales, with Super Shops, J. H. Heafner Company, Inc., and B &
R Wholesale Tire accounting for 23.6%, 11.8%, and 9.5% of gross sales,
respectively. The Company's 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. Although Super Shops, Inc.
currently remains in operation, it is not clear whether it will continue
operating and, if so, whether it will maintain its past level of purchases. The
Company does not have any long-term contractual relationships with any of its
major customers. As a result of the Company's decision not to meet competitors'
pricing on steel wheels, the Company has experienced a decrease in sales of
steel wheels to J. H. Heafner Company, Inc. 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.

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. 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 Indonesia, the Philippines, 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 the price, or reduction in the 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
outsource selectively 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>   14
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.

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 affect 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

As part of the Company's business strategy, it intends to expand into selected
international markets. In 1996 and 1995, the Company derived approximately 4.0%
and 5.4%, respectively, of total gross sales from international markets. 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.


                                       14
<PAGE>   15
Control by Existing Stockholders

The directors, officers, and principal stockholders of the Company beneficially
own approximately 25% of the Company's outstanding Common Stock. As a result,
these persons will 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.

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. The Preferred Stock could be utilized, 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. Although the Company has no present intention of issuing any
shares of its authorized Preferred Stock, there can be no assurance that the
Company will not do so 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 10% of the Company's Common Stock. 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 nonmonetary 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.


                                       15
<PAGE>   16
No Dividends

The Company has never paid dividends on its Common Stock and does not anticipate
that it will pay dividends in the foreseeable future. It is contemplated that
any earnings will be used to finance the growth of the Company's business. In
addition, the Company's Credit Facility with Norwest prohibits the payments of
cash dividends without Norwest's consent.

Listing and Maintenance Criteria for Securities; Penny Stock Rules

The Common Stock and Warrants are listed on the NASDAQ Small Cap Market and the
Boston Stock Exchange. There can be no assurance that the Company in the future
will meet the requirements for continued listing on the NASDAQ SmallCap Market
or the Boston Stock Exchange with respect to the Common Stock or Warrants. If
the Common Stock or the Warrants fail to maintain such listings, the market
value of the Common Stock and Warrants likely would decline and holders likely
would 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 maintain NASDAQ SmallCap Market 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
securityholders to dispose of Common Stock and Warrants.


                           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. Currently the Company is involved
with the legal proceedings associated with the filing of Chapter 11 bankruptcy
protection of Super Shops, Inc., the Company's primary customer. 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 3. DEFAULTS UPON SENIOR SECURITIES

         See ITEM 2 "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION - Liquidity and Capital Resources" above.


                                       16
<PAGE>   17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  Exhibit No.      Description
                     11            Schedule of Computation of Earnings per Share
                     27            Financial Data Schedule
                     4.4(f)        Fourth Amendment to Security and Credit
                                    Agreement, dated as of November 12, 1997
                                    executed by and between the Company and
                                    Norwest Business Credit, Inc.

         (b)      Reports on Form 8-K
                  None


                                   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 14, 1997           By: /s/Michael L. Hartzmark
        -------------------            -------------------------
                                       Michael L. Hartzmark
                                       President and CEO

Dated: November 14, 1997            By: /s/Anthony Barrett
        -------------------            -------------------------
                                       Anthony Barrett
                                       Interim Chief Financial Officer


                                       17