<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 March 31, 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) 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 May
12, 1997:  2,210,290.

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


                                       1
<PAGE>   2
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                             CRAGAR INDUSTRIES, INC.
                                 BALANCE SHEETS
                      MARCH 31, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                 ASSETS                                                        March 31,          December 31,
                                                                                                 1997                 1996
                                                                                             ------------         -----------
<S>                                                                                          <C>                  <C>    
Current Assets:                                                                               (Unaudited)

     Cash and cash equivalents                                                               $    198,578             863,049
     Accounts receivable, less allowance for doubtful accounts of
     $23,192 as of 3/31/97 and $28,475 as of 12/31/96                                           5,332,109           3,562,358
     Inventories, net                                                                           5,814,714           6,302,612
     Prepaid expenses                                                                              80,480              38,498
                                                                                             ------------         -----------
             Total current assets                                                              11,425,881          10,766,517
                                                                                             ------------         -----------

Property and equipment, net                                                                       866,657             825,505
Other assets, net                                                                                 136,774             163,122
                                                                                             ------------         -----------

                                                                                             $ 12,429,312          11,755,144
                                                                                             ============         ===========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                               March 31,          December 31,
                                                                                                 1997                1996
                                                                                             ------------         -----------
Current liabilities:                                                                          (Unaudited)

     Accounts payable                                                                        $  2,372,686           2,509,473
     Accrued expenses                                                                           1,517,797           1,439,627
     Accrued interest                                                                              62,888             123,352
     Current installments of capital lease obligations                                             72,331              69,219
     Current installments of long-term debt                                                         8,329               7,999
                                                                                             ------------         -----------
             Total current liabilities                                                          4,034,033           4,149,670

Notes payable                                                                                   3,944,504           2,957,392
Capital lease obligations, less current installments                                               88,805             108,123
Long-term debt, less current installments                                                           1,526               3,736
Excess of fair value of assets acquired over cost                                                 553,101             737,468
                                                                                             ------------         -----------
             Total liabilities                                                                  8,621,969           7,956,389
                                                                                             ------------         -----------

Stockholders' equity:
     Preferred stock, par value $.01; authorized 200,000 shares,
     no shares issued and outstanding                                                                  --                  --
     Common stock, par value $.01; authorized 5,000,000 shares,
     2,210,305 shares issued and outstanding at 3/31/97                                            22,103              22,103
     Additional paid-in capital                                                                11,335,141          11,335,141
     Accumulated deficit                                                                       (7,549,901)         (7,558,489)
                                                                                             ------------         -----------
             Total stockholders' equity                                                         3,807,343           3,798,755
                                                                                             ------------         -----------
                                                                                             $ 12,429,312          11,755,144
                                                                                             ============         ===========
</TABLE>


See Condensed Notes to Financial Statements


                                       2
<PAGE>   3
                             CRAGAR INDUSTRIES, INC.
                            STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          Three Months Ended March 31,
                                                                         ------------------------------
                                                                            1997                1996
                                                                         -----------         ----------
<S>                                                                      <C>                  <C>      
Net sales                                                                $ 4,644,521          6,653,845
Cost of goods sold                                                         3,863,096          5,616,958
                                                                         -----------         ----------
             Gross profit                                                    781,425          1,036,887
                                                                         -----------         ----------

Selling, general and administrative expenses                                 830,079            653,098
Amortization of excess of fair value of assets acquired over cost           (184,367)          (184,367)
                                                                         -----------         ----------
             Income from operations                                          135,713            568,156
                                                                         -----------         ----------

Non-operating expenses, net
     Interest expense, net                                                   110,721            237,651
     Other, net                                                               16,404             11,765
                                                                         -----------         ----------
             Total non-operating expenses                                    127,125            249,416
                                                                         -----------         ----------

             Income before income taxes                                        8,588            318,740

Income taxes                                                                       0                  0
                                                                         -----------         ----------

             Net earnings                                                $     8,588            318,740
                                                                         ===========         ==========

Earnings per common equivalent share                                     $      0.00               0.29
                                                                         ===========         ==========

Shares used in computation                                                 2,386,324          1,114,059
                                                                         ===========         ==========
</TABLE>


See Condensed Notes to Financial Statements


                                       3
<PAGE>   4
                             CRAGAR INDUSTRIES, INC.
                            STATEMENTS OF CASH FLOWS
                   THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31,
                                                                               -------------------------------
                                                                                   1997                1996
                                                                               -----------          ----------
<S>                                                                            <C>                 <C>    
Cash flows from operating activities
     Net earnings                                                              $     8,588            318,740
     Adjustments to reconcile net earnings to net cash used in
         operating activities:
         Write off on accounts receivable                                           (5,283)           (97,823)
         Provision for obsolete and slow-moving inventory                          (93,643)          (205,686)
         Depreciation and amortization of property and equipment                    76,013             73,405
         Amortization of other assets                                               33,847             31,324
         Amortization of excess fair value of assets acquired over cost           (184,367)          (184,367)
         Increase (decrease) in cash resulting from changes in:
             Accounts receivable                                                (1,764,469)        (1,652,470)
             Inventories                                                           581,542            997,153
             Prepaid Expenses                                                      (41,983)           (84,062)
             Other assets                                                           (7,500)                 0
             Accounts payable and accrued expenses                                 (58,614)           606,810
             Accrued interest                                                      (60,464)            23,245
                                                                               -----------         ----------
                 Net cash used in operating activities                          (1,516,333)          (173,731)
                                                                               -----------         ----------

Cash flows from investing activities
     Purchases of property and equipment                                          (117,164)           (12,930)
                                                                               -----------         ----------
                 Net cash used in investing activities                            (117,164)           (12,930)
                                                                               -----------         ----------

Cash flows from financing activities
     Net borrowings on note payable, net                                           987,112            209,275
     Repayments of long-term debt                                                   (1,880)            (7,869)
     Repayments of capital lease obligations                                       (16,206)           (14,745)
                                                                               -----------         ----------
                 Net cash provided by financing activities                         969,026            186,661
                                                                               -----------         ----------

                 Net decrease in cash and cash equivalents                        (664,471)                 0

Cash and cash equivalents at beginning of period                                   863,049                  0
                                                                               -----------         ----------

Cash and cash equivalents at end of period                                     $   198,578                  0
                                                                               ===========         ==========
</TABLE>


See Condensed Notes to Financial Statements


                                       4
<PAGE>   5
                             CRAGAR INDUSTRIES, INC.
                     CONDENSED NOTES TO FINANCIAL STATEMENTS
                        THREE MONTHS ENDED MARCH 31, 1997
                                   (Unaudited)

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

         The interim financial data as of and for the three months ended March
         31, 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>
                                    March 31, 1997
                                    --------------
                                     (Unaudited)
                                    --------------

<S>                                 <C>       
              Raw Materials          $3,623,427
              Work in Process           844,614
              Finished Goods          1,346,673
                                     ----------
                                     $5,814,714
                                     ==========
</TABLE>

3.       Net Earnings per Common Share:

         Net earnings per share is based on the reported net earnings. The
         resulting amount is presented as earnings applicable to common
         shareholders.

         Such income applicable to common shareholders in each period is divided
         by the weighted average number of outstanding common shares and common
         equivalent shares.


                                       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 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 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).

COMPARISON OF QUARTER ENDED MARCH 31, 1997 AND QUARTER ENDED MARCH 31, 1996

         Net sales consist of gross sales less discounts, returns, and
allowances. Net sales for the first quarter ended March 31, 1997 were $4,644,521
compared to $6,653,845 in 1996, representing a 30.2% decline in sales. The
decrease in net sales was attributable, in part, to the fact that the Company
accrued a larger amount of cash rebates, discounts, and returns during the first
quarter of 1997 as compared to the first quarter of 1996. Other factors
contributing to the decrease in net sales included the loss of a significant
customer as a result of its ceasing operations, a reduction in purchases from
two other significant customers, and an overall reduction in sales in the wire
wheel segment of the automotive aftermarket.

         Gross profit is determined by subtracting cost of goods sold from net
sales. Costs 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. Gross profit for the first quarter ended March 31,
1997 was $781,425 versus $1,036,887 for 1996. As a percentage of net sales,
gross profit increased in 1997 compared to 1996, from 15.6% to 16.8%. The
increases in gross profit as a percentage of sales reflected the overall
decrease in manufacturing costs. 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 and other factors.


                                       6

<PAGE>   7
         Selling, general, and administrative expenses consist primarily of
commissions, marketing expenses, promotional programs, salaries and wages,
product development expenses, office expenses, accounting and legal expenses,
and general overhead. These expenses for the first quarter ended March 31, 1997
were $830,079 compared to $653,098 for the first quarter ended March 31, 1996.
This 27% increase was primarily due to promotional marketing activities.

         Interest, net, for the first quarter of 1997 was $110,721 compared to
$237,651 for the first quarter of 1996. The 53.4% decrease in interest expense
is primarily attributable to the reduction in the amount outstanding
under the Company's credit facility with Norwest Business Credit, Inc.
("Norwest"). 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 first quarter of 1997 and 1996.

         Net earnings for the first quarter ended March 31, 1997 were $8,588
compared to $318,740 for the first quarter of 1996, a decrease of $310,152. This
decrease was primarily due to lower net sales and increased selling, general and
administrative expenses. These amounts were offset by $184,367 of negative
goodwill amortization.

LIQUIDITY AND CAPITAL RESOURCES

         In April 1995, the Company entered into a revolving credit facility
("Credit Facility") with Norwest. The Credit Facility currently has a maximum
commitment of $9.5 million, 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 of March 31, 1997, the outstanding balance under the Credit Facility
was approximately $3.95 million, and the remaining amount available to be
borrowed thereunder was approximately $2.712 million. 

         The Credit Facility requires the maintenance of certain specified
financial ratios and satisfaction of other financial tests. As of March 31,
1997, the Company was in default of the net income covenant of the Credit
Facility. The Company is currently negotiating with Norwest to obtain a waiver
with respect to this default. However, there is no assurance the Company will
receive the waiver. As a result of this default, Norwest may, among other
remedies, declare all of the outstanding borrowings under the Credit Facility to
be immediately due and payable and may exercise its rights as a secured creditor
under the Credit Agreement, including, without limitation, the right to take
possession of the property of the Company that secures the Credit Facility.
Norwest may also require the Company to pay an amount, for deposit in a special
account, equal to the maximum aggregate amount available to be drawn under all
letters of credit outstanding under the Credit Facility (currently $69,009). Any
such exercise of remedies by Norwest would have a material adverse effect upon
the Company. In addition, the Company may be restricted in its ability to make
further borrowings under the Credit Facility while the default remains
outstanding. Any such restriction could also have a material adverse effect on
the Company's business. Even if such a waiver is obtained from Norwest as to the
existing 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's business, financial condition, results of
operations and liquidity. See "Management's Discussion and Analysis or Plan of
Operation -- Factors that May Affect Future Results and Financial Condition --
Current Defaults; Dependence on External Financing" below.   


                                       7

<PAGE>   8
         At March 31, 1997, the Company had an accumulated deficit of
$7,549,901. For the first quarter ended March 31, 1997, the Company's operating
activities used $1,516,333 of cash.

         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. Based on the Company's operating plan, and
subject to resolution of outstanding issues under the Credit Facility as
described above, management believes that anticipated cash flow from operations
will be sufficient to meet the Company's anticipated operating and capital needs
for at least the next 12 months. 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 if
required. 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, when necessary, its ability to meet its current and future
revenue growth plans could be materially and adversely affected.

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
associated with more favorable weather conditions, and the fact that many of
its ultimate customers have 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.


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
included $737,469 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 $18.6 million from $22.9 million for
1995. Net sales for the first quarter ended March 31, 1997 declined to $4.6
million from $6.7 million for the same period in 1996. Net Income for the first
quarter ended March 31, 1997 declined to $8,588 from $318,740 for the same


                                       8

<PAGE>   9
period in 1996. As of March 31, 1997, the Company had cumulative losses of $7.6
million and total stockholders' equity of approximately $3.8 million.


Covenant Defaults; Dependence on External Financing

The Norwest Credit Facility, which extends through April 15, 1998, has a maximum
commitment of $9.5 million, 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 income, net worth,
and debt service covenants. As of March 31, 1997, the Company was in default
under the net income covenant of the Credit Facility. See "Management's
Discussion and Analysis or Plan of Operation -- Liquidity and Capital
Resources" above. 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 financings. No
assurance can be given that such additional financing will be available on terms
acceptable to the Company, if at all. Further, any such financings 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.


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
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

                                       9

<PAGE>   10
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 potentially dilutive issuances 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's
business, financial condition, and results of operations.

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's business, financial condition,
and results of operations. 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 

                                       10

<PAGE>   11
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 additional personnel or that the
costs associated with additional product development efforts will not have an
adverse effect on the Company's business, financial condition, and results of
operations.

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. 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 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 expects sales of steel wheels to J. H. Heafner Company, Inc.
to decrease in the future. 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's business, financial condition, and results of operations.

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,

                                       11

<PAGE>   12
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.

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's
business, financial condition, and results of operations.

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 materially and adversely affect the Company's business,
financial condition, and results of operations. 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

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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's
operations. 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 24.7% 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 

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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 11.77% 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 effect 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

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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.

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. On November 27, 1996, the Company was
dismissed as a defendant in an action in the United States District Court for
the Eastern District of Michigan, entitled Patricia Ellerholz v. Goodyear Tire &
Rubber Co. 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's business, financial
condition, results of operations and liquidity.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

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


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

         During the Company's fiscal quarter ended March 31, 1997, there were no
         matters submitted to a vote of security holders.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

         Exhibit No.            Description
         -----------            ------------
            11                  Schedule of Computation of Earnings Per Share
            27.1                Financial Data Schedule

         (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:  May 15, 1997                     By: /s/
      ------------------                 ---------------------------------------
                                         Michael L. Hartzmark
                                         President and CEO

                                         By: /s/
                                         ---------------------------------------
                                         Anthony W. Barrett   
                                         Vice President of Sales Operations
                                         (Principal Financial Officer)


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